Commissioner of Income Tax vs Smt Pushpawati Goel

Kirpal, J.—In this petition u/s 256(2) of the income tax Act, 1961 ('' the Act'') the Commissioner is seeking a direction that the Tribunal should refer the following two questions of law arising from its order:

For the assessment year 1979-80:

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was correct in law in holding that the provisions of section 64(1)(vi) of the income tax Act, 1961 were not applicable to the case of the assessee?

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was correct in law in holding that no part of the income derived by the trust was includible in the hands of the assessee under the provisions of section 64(1)(vi) ?

For the assessment years 1982-83 and 1983-84:

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was correct in law in holding that the provisions of section 64(1)(vi) of the income tax Act, 1961 were not applicable to the case of the assessee?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the orders passed by the Commissioner u/s 263 of the income tax Act, 1961?

Briefly stated, the facts are that the respondent had, along with her husband, created a trust named U.B. Enterprises Trust. The beneficiaries of the trust were her daughter-in-law and her grand-children. Income arose to the said trust and by applying the provisions of section 64(1)(vi) , the said income was clubbed in the hands of the respondent and her husband.

Being aggrieved, the respondent filed an appeal to the AAC who allowed the said appeal and directed the ITO to exclude the income which had been included in the hands of the respondent. The department filed an appeal before the Tribunal in respect of the assessment year 1979-80. It may be stated here that in respect of the assessment years 1982-83 and 1983-84, the assessment was completed on the basis of the return filed by the assessee wherein she had not included any part of the income from the trust. This order of the ITO was received by the Commissioner u/s 263 of the Act. An appeal was filed against this order before the Tribunal.

The Tribunal interpreted section 64(1)(vi) and came to the conclusion that the transfer of property to a trust for the benefit of the daughter-in-law and the grand-children of the assessee did not attract the said provisions. In coming to this conclusion, the Tribunal took note of the fact that with effect from 1-4-1985, clause (viii) was inserted which made it clear that any such* transfer to an AOP or any person for the benefit of daughter-in-law and grand-children would attract the provisions of section 64. The Tribunal came to the conclusion that the insertion of this clause in 1985 showed that such a contingency was not contemplated by section 64(1)(vi) .

The contention of the petitioner before us, as it was contended before the Tribunal also, is that the insertion of clause (viii) was only by way of clarification.

The learned counsel for the respondent states that a question of law does arise. He, however, submits that the answer to the question is self-evident.

In our opinion, it is not possible for us to come to the conclusion that the answer to the question is self-evident. Clause (vi) talks of ''assets transferred directly or indirectly''. What is the meaning and effect to be given to the words ''assets transferred... indirectly'' is important. Would it contemplate the creation of a trust by an assessee for the benefit of grand-children, is to our mind, a question which requires the interpretation of section 64(1)(vi) .

In our opinion, the following questions of law arise and the Tribunal is directed to refer and state the same to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the provisions of section 64(1)(vi) were not applicable to the case of the assessee?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that no part of the income derived by the trust was includible in the hands of the assessee under the provisions of section 64(1)(vi) ?

The petitioner will be entitled to costs.