Income from trust property for spouse and children included in total income under Income Tax Act.

The High Court upheld the Tribunal's decision that income from the trust property, settled by the assessee for the benefit of his wife and children, should be included in his total income under Section 64(v) of the Income Tax Act, 1961. The court relied on precedents supporting the inclusion of income from assets transferred to a spouse or minor child without adequate consideration. The decision favored the revenue, with each party bearing its own costs.

---

---

Issues Involved:
1. Whether the income from the trust property is includible in the total income of the assessee.

Issue-wise Detailed Analysis:

1. Inclusion of Trust Property Income in Assessee's Total Income:

The primary issue revolves around whether the income from the trust property, settled by the assessee for the benefit of his wife and children, should be included in his total income. The relevant assessment years are 1970-71 and 1971-72.

The assessee created an irrevocable trust by a deed dated March 5, 1962, transferring his property to trustees for the benefit of his wife and children. The trustees were directed to pay the income of the trust property to the assessee's wife during her lifetime and thereafter to his children. The Income Tax Officer (ITO) included the value of the dwelling house in the total income of the assessee, as the assessee continued to live in the property and had enjoyed the rent from the property up to the assessment year 1966-67.

Upon appeal, the Appellate Assistant Commissioner (AAC) held that the ownership of the house related to the trust, and the income could not be added to the assessee's income without disproving the bogus nature of the trust. The AAC deleted the sums from the total income of the assessee, asserting that the ITO had not established that the trust was revocable or bogus.

The revenue appealed to the Tribunal, arguing that the AAC overlooked the provisions of Section 64(v) of the Income Tax Act, 1961, which applies to both revocable and irrevocable transfers. The Tribunal noted that Section 64(v) deems an individual who transfers house property to his spouse or minor child, otherwise than for adequate consideration, to be the owner of the transferred property. Consequently, the Tribunal set aside the AAC's order and restored the ITO's order.

In the High Court, the assessee contended that since he was not deriving any benefit from the trust, the income should not be included in his total income. The counsel for the assessee cited the Supreme Court decision in CIT v. Manilal Dhanji [1962] 44 ITR 876, arguing that an assessee can only be taxed on the income from a trust fund if the spouse or minor child derives some benefit under the trust deed in the relevant year of account. However, the High Court found this decision inapplicable, as the present case did not concern accumulated income or the accrual of benefit to the wife and children in the year of account.

The High Court upheld the Tribunal's application of Section 64(v), which includes income arising directly or indirectly from assets transferred to the spouse or minor child without adequate consideration. The court referred to the Supreme Court decisions in Tulsidas Kilachand v. CIT [1961] 42 ITR 1 and Col. H. H. Sir Harinder Singh v. CIT [1972] 83 ITR 416, which supported the inclusion of income from assets transferred to the spouse or minor child in the assessee's total income.

The court also addressed the argument regarding notional income, citing the Supreme Court decision in Seth Pushalal Mansinghka (P.) Ltd. v. CIT [1967] 66 ITR 159, which held that income accrues when the right to receive it is acquired, even if it is received later. The Madras High Court decision in R. Ganesan v. CIT [1965] 58 ITR 411 further supported the inclusion of notional income derived from the enjoyment of property.

Ultimately, the High Court affirmed the Tribunal's decision, holding that the income from the trust property should be included in the assessee's total income under Section 64(v) of the Income Tax Act, 1961. The question was answered in the affirmative and in favor of the revenue, with each party bearing its own costs.

---