Minor beneficiaries' present beneficial interest in trust income can trigger inclusion under anti-avoidance tax rules.

A trust deed may create a present beneficial interest for minor beneficiaries even where enjoyment of income is postponed until majority, if the trustees are required to accumulate annual income for their benefit and may also apply it discretionarily for maintenance, education or advancement. In such a case, the minors can claim proper exercise of the trustees' discretion when occasion requires. Section 16(3)(b) of the Indian Income-tax Act, 1922 is an anti-avoidance provision and is to be strictly construed, but it can still apply where the trust arrangement confers beneficial enjoyment in the relevant year through accumulated income or enforceable discretionary benefits.

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Issues: Whether, on a proper construction of the trust deeds, the minor beneficiaries acquired a beneficial interest in the income of the trust property during the relevant years of account so that the trustees' income was correctly included in the assessee's total income under section 16(3)(b) of the Indian Income-tax Act, 1922.

Analysis: The trust deed obliged the trustees to accumulate the annual income and, after meeting the specified outgoings and any discretionary disbursements for maintenance, education, advancement or benefit of the minors, to hand over the accumulated income and trust property to the beneficiary on attaining majority. This created a present right in the minors to the yearly accumulation of income, with enjoyment postponed, and also a beneficial interest arising from the discretionary power under clause (4), since a beneficiary can compel proper exercise of discretion when occasion requires. Section 16(3)(b) is an anti-avoidance provision but must be strictly construed; on these terms, the minors derived benefit in the relevant year and the assessee could not escape inclusion of the trust income.

Conclusion: The minor beneficiaries acquired beneficial interest in the trust income during the relevant years of account, and the income of the trustees was rightly included in the assessee's total income under section 16(3)(b) of the Indian Income-tax Act, 1922.

Ratio Decidendi: For section 16(3)(b), a minor derives income from transferred assets not only when income is actually received or applied in the year, but also when the trust deed gives a present beneficial interest in the annual income or a enforceable right to proper exercise of trustees' discretion for the minor's benefit.

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