COMMISSIONER OF INCOME TAX vs SHRI ARVIND H. DALAL

Dr. B. P. Saraf, J

At the instance of the department, the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") has referred the following question of law for opinion of this court in respect of assessment years 1979-80 and 1980-81. This is by way of two separate references referred to herein-above. Since common question of law is involved in both these references, these references are disposed of by this common order. The question of law referred to this court u/s 256(1) of the Income Tax Act, 1961 is as under:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income from shares and cash valued at Rs. 98,000 settled by the assessee on a trust for the benefit of the members of the HUF of the settlor, being the assessee, his wife, son and daughter, was not affected by the provisions of section 64(1)(vii) of the Income Tax Act 196l?"

The assessee is an individual. By a deed of settlement dated 24-3-1978, the assessee settled certain shares and cash totally valued at about Rs 98,000 on a Trust for the benefit of the members of the HUF of the settlor - the members being the assessee, his wife, son and a daughter, all of whom were majors. The trustees were expected to handover the net income of the Trust to the Karta of the HUF for the purpose of maintenance, education and for any other purpose which the trustees deemed fit. After considering the provisions of the trust-deed, the assessing officer held that the aforesaid settlement dated 23-3-1978 of the property on Trust amounted to an indirect transfer of the property by the assessee to his HUF without consideration through the media of a Trust. The assessing officer applied section 64(2) of the Act and clubbed the income arising to the HUF as a result of the property settled on the Trust in the hand of the assessee. On appeal by the assessee, the Appellate Assistant Commissioner, however, took a view that provisions of section 64(2) of the Act were not attracted. He, however, came to the conclusion that section 64(1)(vii) of the Act applied to the facts of the case and, accordingly, he upheld the inclusion of the income of the Trust in the hands of the assessee. On further appeal, the Tribunal accepted the plea of the assessee and came to the conclusion ''.that beneficiaries of the Trust were the members of the HUF of the settler ;that the settlement has specified the names of the members of the family being the assessee himself, his wife two children; that the transfer was for the benefit of the settlor''s family and such transfer is not affected by the provisions of section 64(xvii) of the Act. In the circumstances, on the application of the Commissioner of Income Tax, the Tribunal referred the above question of law u/s 256(1) of the Act to this court. As stated hereinabove, the facts of the above two references are identical. Accordingly, both these references are disposed of by- this common order.

Mr. R.V. Desai, learned counsel appearing on behalf of the department contended that on reading the relevant clauses of deed of settlement dated 23-3-1978, it is clear that the assessee was the recipient of the net income derived from the assets; that the assessee was free to spend the income for himself and/or for any of the members of his family; that this would have been the situation even if the assets concerned would not have been transferred at all; that the assessee had full discretion to spend the money for himself and for his wife and children and that he was not answerable. In the circumstances, the learned counsel contended that the deed does not, in effect, create any change in the ownership or enjoyment of the income arising from the said assets till the vesting date though the income from the assets after the transfer is sought to be received in a different capacity, as a Karta of the HUF and not as the owner of the assets before the transfer. He contended that in the circumstances the said settlement contemplates transfer by way of circuitous route, only on paper, for the income to travel and ultimately to reach the person really owning it, to be used at his absolute freedom as his own income and, therefore, the income became assessable in the hands of the assessee. Mr. Desai, accordingly, urged that the deed of settlement was a device and in the circumstances the provisions of section 61 would also stand attracted Mr. Desai further contended that since the assets covered by the deed of settlement came to be said to be belonging to the assessee since the date of the execution of the trust-deed, it is only the assessee who happened to be the recipient of the net income therefrom, which he was entitled to spend freely for himself and for any of the members of his family. It was further urged that as per the trust-deed though the corpus was to be held by the Trust, the income from the property settled on the Trust is to be applied for the benefit of the members of the HUF which amounted to an indirect transfer of the property by the assessee to his HUF without any consideration as the said transfer was effected through the medium of Trust. Mr. Desai, accordingly, contended that on the facts of the present matter section 64(2) of the Act would apply.

Mr. Desai further contended that on bare perusal of the trust-deed, it is clear that there was transfer of assets under the deed of trust for the benefit of the settlor is spouse (that is the wife of the assessee in the present case). In the circumstances, it was contended that the settlor has rightly been taxed in respect of the income arising under the trust-deed. He, accordingly, submitted that section 64(1)(vii) was applicable to that present case.

In the present matter, the learned counsel appearing on behalf of department relied upon trust-deed and submitted that sections 61, 64(2) as also 64(1)(vii) stood attracted as the above sections form part of Chapter-V of the Act. However, the question referred to this court is only on applicability of section 64(1)(vii) of the Act. In a reference u/s 256(1) of the Act, in view of specific question of law arising on applicability of section 64(1)(vii) of the Act having been referred to this court, we are not inclined to examine the arguments advanced on facts of the present case on applicability of sections 61 and 64(2) of the Act. Moreover, the relevant trust-deed has also not been annexed to the paper book. Hence we do not wish to express any opinion on applicability of sections 61 and 64(2) of the Act. Even with regard to applicability of section 64(1)(vii) of the Act, there is no material placed before the Tribunal by the department as to the extent of income set apart for the benefit of the wife of the assessee. u/s 64(1)(vii) of the Act, the department was required to show the extent of the income set apart for the benefit of the wife. This is because under the said section the portion of the income set apart for the benefit of the wife alone is taxable in the hands of the settlor. In the present case, no material was placed before the Tribunal in that regard by the department. The children of the assessee are not minors. They were major even on the date when the deed of settlement came to be executed. Hence it is not possible to answer the question referred to this court for opinion with regard to applicability of section 64(1)(vii) of the Act. Moreover, the amount involved is small.

On facts and circumstances of the present case, we, accordingly, return both the references unanswered as the question before us cannot be answered for the reasons given hereinabove.

Accordingly, both the references stand disposed of with no order as to costs.

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