Clubbing of trust income and residential-house allowance principles clarified under the 1922 Income-tax Act.

Income received by a minor child under a trust created for the child's benefit was includible in the transferor's income under section 16(3)(b), because the provision applies to income received or accruing for the benefit of a wife or minor child and does not require transfer of the corpus. The residential-house allowance under the first proviso to section 9(2) was available for a second house as well, where both houses were found to be used and occupied for the owner's own residence; the benefit was not confined to a single house merely because one allowance had already been granted.

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Issues: (i) Whether the amounts received by the assessee's minor daughter under the trust deed were includible in the assessee's total income under section 16(3)(b) of the Indian Income-tax Act, 1922; (ii) Whether the assessee was entitled to reduction of annual letting value in respect of the second residential house under the first proviso to section 9(2) of the Income-tax Act, 1922.

Issue (i): Whether the amounts received by the assessee's minor daughter under the trust deed were includible in the assessee's total income under section 16(3)(b) of the Indian Income-tax Act, 1922.

Analysis: Section 16(3)(b) applies where assets are transferred to a person or association of persons for the benefit of the wife or minor child, and the provision brings into the assessee's income so much of the income as is received or accrues for that benefit. The transfer need not vest the corpus in the wife or minor child. The clause is to be read with section 16(3) as a whole, and the statutory scheme is aimed at preventing tax avoidance through transfers for family benefit. Where the minor child actually receives the share income under the trust, that income is the relevant amount for inclusion.

Conclusion: The amounts received by the minor daughter were rightly included in the assessee's total income. This issue is decided against the assessee.

Issue (ii): Whether the assessee was entitled to reduction of annual letting value in respect of the second residential house under the first proviso to section 9(2) of the Income-tax Act, 1922.

Analysis: The first proviso, read with the second proviso, does not confine the allowance to a single residential house where more than one house is in fact occupied by the owner for his own residence. The finding that both houses were used and occupied for residential purposes remained undisturbed. On that footing, the statutory benefit could not be denied merely because allowance had already been granted for one house.

Conclusion: The assessee was entitled to the reduction in respect of the house in Diplomatic Enclave as well. This issue is decided in favour of the assessee.

Final Conclusion: The clubbing of the minor daughter's trust income was upheld, but the assessee succeeded on the claim for residential-house allowance in respect of the second house, resulting in a modification of the High Court's answer and partial allowance of the appeals.

Ratio Decidendi: Under section 16(3)(b), income arising to a minor child from assets transferred for the child's benefit through a trust is includible in the transferor's income to the extent actually received or accrued for that benefit, and the residential-house proviso under section 9(2) can apply to more than one house if each is used for the owner's own residence.

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