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2006 (8) TMI 124

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....income of the minor should be included. The abovereferred to judgment is in relation to an assessee by name K.J. Ramaswamy, who is the assessee in T.C. No. 55 of 1996 and similar are the facts in that case. However, learned counsel for the asses see contended that inasmuch as there is no dispute that under the trust deed the beneficiaries/minors cannot lay their hands on their share of income till they attain majority, it is not possible to include their share of income in computing the total income of the individual/assessee in this case. Learned counsel appears to have contended before the Division Bench that though the Supreme Court judgment reported in CIT v. M.R. Doshi [1995] 211 ITR 1 is in construing section 64(1)(v) of the Income-tax Act, yet, the principle laid down therein would enable this court to exclude the minor's share in the income from being included in computing the total income of the individual. Having regard to the submissions made by learned counsel on either side, the Division Bench reasoned as hereunder, requesting the hon'ble Chief Justice to constitute a larger Bench. The reasons given by the Division Bench in making the reference are extracted as hereund....

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....ion Bench of this court, as already noted, held that the income so derived from the partnership firm by the representative trustee should be clubbed to the income of the individual namely, father of the beneficiary. The same issue cropped up for the subsequent assessment years, namely, 1983-84 in T.C. No. 55 of 1996 and 1985-86 in T.C. No. 107 of 1996. Mrs. Pushya Sitaraman, learned senior standing counsel appearing for the Revenue would contend that the share of income of the beneficiary from the partnership firm at the hands of the representative trustee, who is a partner of the said firm, has to be necessarily included in computing the total income of the individual in this case namely, father of the beneficiary/assessee. Learned counsel heavily relied upon the judgment of this court in the case reported in CIT v. K.J. Ramaswamy [2002] 256 ITR 191 to sustain her argument. She would then contend that the very purpose and object of introducing Explanation 2A to section 64(1) of the Income-tax Act, hereinafter referred to as the Act, is only to see that evasion of payment of tax is avoided. Contending contra, learned counsel appearing for the assessee would contend, by drawing our....

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.... indirectly otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse or minor child (not being a married daughter) or both." In our considered opinion, in understanding clause (iii) of sub section (1) of section 64 of the Act, we have to necessarily look into Explanation 2A to that section. In other words, Explanation 2A would help the court to understand the scope of section 64(1)(iii) of the Act. To find out why Explanation 2A was introduced, we perused the Finance Act, 1979. The reasons for bringing Explanation 2A to section 64(1) of the Act by way of an amendment are given in paragraph 20.2 of the Finance Act, 1979. We extract paragraph 20.2 as hereunder: "20.2. Share of minor from trust, where trustee is in partnership with any person, to be included in income of parent: Under the existing provisions of the Act, the income arising to a minor child from admission to the benefits of partnership is included in the income of that parent who has higher income, although neither of the parents is a partner in the firm to the b....

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....ee equal shares and the respective 1/3rd share of each son was to be paid to him. The question was whether the income from the trusts could be included in the total income of the assessee under the provisions of section 64(1)(v) of the Income-tax Act, as it then stood." The hon'ble Supreme Court then went on to hold as hereunder: "In the judgment in the assessee's own case (Addl. CIT v. M.K. Doshi [1980] 122 ITR 499), the Gujarat High Court held, on a construction of section 64(1)(v), that the income from the transfer of assets can be included in the income of the transferor provided that, under the transfer, the benefit from such assets was immediately available or was deferred for the spouse or minor children of the settlor. In other words, the mischief of tax evasion by assessees by transfer of their assets, such as by settlement or by trust, so as to make the income of such transferred assets available to their spouses or minor children without subjecting the same to tax in the hands of the settlors, was sought to be avoided by providing that such income would be includible in the hands of the settlors provided that the benefit from the income of such assets was either immedi....

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....held that it is not for an immediate use for the minor, which means that the minor do not get any benefit at all for the present. He is not entitled to receive the money till he attains majority. Therefore, in our considered opinion, the expression "for the benefit of the minor" found in Explanation 2A to section 64(1) of the Act would only mean that the minor should be the legal owner of the income mentioned in that Explanation, which alone would enable the Assessing Officer to include it in the income of the individual in computing his total income. The case of the assessee is that, the share of income of the minor from the partnership firm has to be transferred to the trust account and to be accumulated as it is till the beneficiary/minor attains majority. Therefore, we have no difficulty at all in holding that in such an event the income of the beneficiary from the partnership firm shall not be included in the income of the individual in computing his total income. The Supreme Court, in M.R. Doshi's case [1995] 211 ITR 1 referred to supra, after considering the expressions found in section 64(1)(v) of the Income-tax Act namely, immediate or deferred benefit, went on to hold tha....