1994 (8) TMI 9 - HC - Income Tax

Court rules dividends held in trust for minor not taxable under Income-tax Act; trust deed provisions crucial.

The High Court of Madras ruled that dividend income from shares transferred to a trust for a minor, with benefits deferred until the minor reached ... Inclusions In Total Income Issues:- Interpretation of section 64(1)(v) of the Income-tax Act, 1961 regarding inclusion of dividend income from shares transferred to a trust for a minor under the assessee's name.- Determining whether the trust deed provisions and the delayed benefit to the minor impact the application of section 64(1)(v).- Analysis of previous judicial decisions on similar matters and their relevance to the current case.Analysis:The High Court of Madras addressed the issue of whether the dividend income from shares transferred to a trust for a minor should be included in the assessee's income under section 64(1)(v) of the Income-tax Act, 1961. The Income-tax Officer initially included the income arising from the shares in the assessee's hands, relying on section 64(1)(v). However, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal both ruled in favor of excluding the dividend income from the shares transferred to the trust for the minor. The Department argued that the income was held for the minor's benefit, even though it would be received after the minor turned 21. The Department contended that the deferred benefit to the minor still triggered the application of section 64(1)(v). On the other hand, the assessee's counsel argued that the trust deed clearly indicated that the benefit was for the major son, not the minor, during the relevant period. The trust stipulated that the minor would only receive the income after attaining majority, thus the provisions of section 64(1)(v) did not apply.The court examined the trust deed provisions which specified that the minor would only receive the trust benefits after turning 21. The court emphasized that the income did not vest in the minor during his minority, and the corpus and accrued interest were not for the minor's immediate benefit. The court interpreted section 64(1)(v) to apply only when the benefit goes to the child during his minority, even if deferred. The court referenced decisions from various High Courts and the Supreme Court to support its interpretation. The court highlighted that the deferred benefit to the child, as long as not beyond minority, does not trigger section 64(1)(v). The court also distinguished a previous Bombay High Court decision related to the same trust, emphasizing that the benefit in the present case was for the major son, not the minor. Therefore, the court upheld the Tribunal's decision to exclude the dividend income from the assessee's hands, ruling in favor of the assessee and against the Department.In conclusion, the High Court of Madras held that the dividend income from shares transferred to a trust for a minor, where the benefit was deferred until the minor reached majority, should not be included in the assessee's income under section 64(1)(v) of the Income-tax Act, 1961. The court emphasized that the trust deed provisions and the delayed benefit to the minor were crucial factors in determining the application of the relevant tax provision. The court's decision aligned with previous judicial interpretations and upheld the Tribunal's ruling in favor of the assessee.