Civil Appeal No 323 of 196
Appeal from the judgment and order dated September 25 1958 of the Bombay High Court in ITR No 3 of 1958
K N Rajagopal Sastri and D Gupta for the appellant
R J Kolah J B Dadachanji O C Mathur and Ravinder Narain for the respondent
January 31
The Judgment of the Court was delivered by 904 section K DAS J
The Commissioner of Income tax Bombay City I has preferred this appeal to this Court on a certificate of fitness granted by the High Court of Bombay under section 66A 2 of the Indian Income tax Act 1922
The assessee who is the respondent before us was assessed to income tax as an individual in respect of his income for the assessment year 1954 55
The taxing authorities included in the assessee s total income for the year to sums namely a sum of Rs 410 and a sum of Rs 14170 
It was stated that these two sums accrued in the relevant account year in the following circumstances
On January 12 1953 the assessee created a trust in respect of a sum of Rs 25000  the trustees whereof were the Central Bank Executor  Trustee Co the assessee himself his wife and brother
The scheme of the trust deed was that the said sum of Rs 25000 was set apart by the assessee and it was provided that the interest on that amount should be accumulated and added to the corpus and a minor daughter of the assessee named Chandrika was to receive the income from the corpus increased by the addition of interest when she attained the age of 18 on February 1 1959
She was to receive the income during her life time and after her death the corpus was to go to persons with whom we are not concerned
The income derived from the said trust fund amounted to Rs 410 in the relevant account year and the taxing authorities included this amount in the total income of the assessee purporting to act under section 163b andor section 163aiv of the Income tax Act
As regards the second sum of Rs 14170 it appears that on December 1 1941 the assessee s father had created a trust in respect of some shares and a cash sum of Rs 30000 for the benefit of his four sons including the assessee
The trustees were the Central Bank Executor and Trustee Co Ltd the assessee himself and one other person
The said trustees were to hold the trust funds upon trust to 905 pay the net interest and income thereof to the assessee for the maintenance of himself and his wife and for the maintenance education and benefit of all his children till his death
The sum of Rs 14170 
it was stated accrued as income in the hands of the assessee in the relevant account year from the said trust funds
The view of the taxing authorities and the Income tax Appellate Tribunal was that under the aforesaid provision of the trust deed the assessee was the sole beneficiary and that the amount was received by him for his own benefit and he was not accountable to any one in respect of the amount and therefore this amount was liable to be included in his total income
On behalf of the assessee the contention was that the sum of Rs 410 aforesaid was not liable to be included in the total income of the assessee inasmuch as Chandrika the minor daughter of the assessee had no right to the income nor any beneficial interest therein in the relevant year of account under the provisions of the trust deed and therefore neither section 162aiv nor section 163b applied to the case
As to the sum of Rs 14170 the case of the assessee was that it should not be included in his total income as the sole beneficiary because the beneficiaries under the trust settlement were not only the assessee but his wife and children as well
It was contended that the assessee received the amount in trust for himself and his wife and children and it was open to the Department to proceed under the first proviso to section 41 1 of the Income tax Act and recover tax on a separate assessment made on the assessee as a trustee in respect of the said sum at the maximum rate because the individual shares of the beneficiaries on whose behalf the money was receivable were indeterminate and not known
The Income tax Appellate Tribunal on an appeal by the assessee did not accept these contentions
The Tribunal was then moved to state a 906 case to the High Court on two questions of law those questions were 1
Whether the sum of Rs 410 is properly includible in the assessee s total income either in accordance with the provisions of section 163b andor section 163aiv of the Indian Income tax Act 1922 2
Whether the sum of Rs 14170 is properly includible in the total income of the assessee as the sole beneficiary thereof under the trust settlement made on 1 12 1941 by Dhanji Devsi On being satisfied that these questions of law arose out of the order of the Tribunal dated April 24 1957 the Tribunal stated a case under section 661 of the Income tax Act
The High Court answered both the questions in favour of the assessee by its judgment and order dated September 25 1958
There after the High Court granted a certificate of fitness under section 66A2 of the Income tax Act and as we have already stated the present appeal has been brought to this Court on the strength of that certificate
We proceed now to deal with the first question which relates to the sum of Rs 410 
The question is whether this sum was properly includible in the assessee s total income under the provisions of section 163b of the Income tax Act because Mr Rajagopal Sastri appearing for the appellant has not pressed the claim which was made before the Tribunal on behalf of the Department under the provisions of section 163aiv
Before we go to the provisions of section 163b it is advisable to set out the material portions of cls
3 and 4 of the trust deed of January 12 1953
Those clauses were in these terms 3
The Trustees shall hold and stand possessed of the trust fund and the investments for the time being representing the 907 same and receive the income divided interest and rents thereof and invest the same and the resulting income dividend interest and rents thereof so as to accumulate at compound interest to the intent that such accumulations shall be added to the principal trust fund until the settler s daughter Chandrika shall attain the age of eighteen years which age she will attain on the 1st February 1959 and after the expiration of the above named period the Trustees shall deal with and dispose of the trust fund as hereinafter stated
The Trustees shall hold and stand possessed of the trust fund and the accumulations thereof upon trust to pay the net interest and income thereof after deducting all out goings and charges for collection to the said Chandrika for her life for her maintenance  It is clear from these clauses that during the minority of Chandrika the income from the trust funds was to be accumulated and added to the trust funds and after the attained majority on February 1 1959 she was to get only the income from the enlarged trust funds
Now in the relevant year of account Chandrika was still a minor and under the terms of the trust deed she had no right to the trust income nor any beneficial interest therein she could neither receive nor enjoy the income
She did not derive any benefit whatsoever from the trust funds during her minority and even after she attained majority she did not have any right to the trust income which arose during her minority and her only right was to enjoy the income arising from the enlarged trust funds i e the original trust funds and the accumulations of trust income during her minority
Therefore the sum of Rs 410 was not the income of Chandrika but was the income of the trustees and the income was impressed with a trust namely that it should be added to 908 the trust corpus
The question is does section 163b apply to such a case  We shall presently read section 163 but before we do so it is necessary to refer to the scheme of section 16 of the Income tax Act
The section deals with the computation of total income as defined in section 215 of the Act and provides that what sums are to be included or excluded in determining the total income
The definition of total income in section 215 involves two elements a the income must comprise the total amount of income profits and gains referred to in section 41 and b it must be computed in the manner laid down in the Act
The exemption granted under the Act is of two kinds certain classes of income are exempted from tax and also excluded from the computation of total income while certain other classes of income exempted from tax are to be included in the assessee s total income
Now cl
a of sub section
i of section 16 provides the sums exempted from tax under certain provisions of the Act should be included in the assessee s total income
Clause b lays down the mode of computing a partner s share in the profit or loss of the firm
Under cl
c income which arises to any person by virtue of any settlement or disposition from assets remaining the property of the settler or disponer etc
is taxed as his income
The object of the legislation is clearly designed to overtake and circumvent a tendency on the part of the tax payers to endeavour to avoid or reduce tax liability by means of settlements
Sub section 2 deals with grossing up of dividend etc
Then we come to sub section 3
This sub section aims at foiling an individual s attempt to avoid or reduce the incidence of tax by transferring his assets to his wife or minor child or admitting his wife as a partner or admitting his minor child to the benefits of a partnership in a firm in which such individual is a partner
The sub section creates an artificial 909 liability to tax and must be strictly construed
Now let us read the sub section
3 In computing the total income of any individual for the purpose of assessment there shall be included a so much of the income of a wife or minor child of such individual as arises directly or indirectly i from the membership of the wife in a firm of which her husband is a partner ii from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner iiifrom assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart or iv from assets transferred directly or indirectly to the minor child not being a married daughter by such individual otherwise than for adequate consideration and b so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both
 The argument on behalf of the appellant is that the conditions laid down in cl
b of sub section
3 of section 16 are fulfilled in the present case and therefore the Department was intitled to include in the 910 total income of the assessee so much of the income in the hands of the trustees as arose from the assets transferred by the assessee for the benefit of his minor child
It is pointed out that the conditions laid down in clbare 1 that there must be income in the hands of any person or association of persons trustees in the present cases 2 the income must arise from assets transferred otherwise than for adequate consideration to the trustees and 3 the transfer must be for the benefit of the minor child
It is argued that when the conditions are fulfilled and the only exceptional case namely where the transfer is for adequate consideration is out of the way cl
b must apply and the Department is entitled to include the income in the hands of the trustees in computing the total income of the individual assessee who made the transfer
At first sight the argument appears to be attractive and supported by the words used in the clause
On a closer scrutiny however it seems to us that cl
b must be read in the context of the scheme of 16 and the two clauses a and b of sub section
3 thereof must be read together
So read the only reasonable interpretation appears to be the one which the High Court accepted namely that the scheme of the section requires that an assessee can only be taxed on the income from a trust fund for the benefit of his minor child provided that in the year of account the minor child derives some benefit under the trust deed either he receives the income or the income accrues to him or he has a beneficial interest in the income in the relevant year of account
But if no income accrues or no benefit derived and there is no income at all so far as the minor child is concerned then it is not consistent with the scheme of section 16 that the income or benefit which is non existent so far as the minor child is concerned will be included in the income of his father
Take for example a case where the assets 911 were transferred otherwise than for adequate consideration for the benefit of a minor child but the child has attained majority before the relevant year of account
After the child attains majority the sub section would cease to apply and the income from assets transferred for the benefit of the child would no longer be taxable in the parent s hands
The reason must be that in the relevant year of account there is no benefit to the minor child by the transfer even though the transfer was originally made for the benefit of the child
The same principle may be illustrated by another example which has been dealt with by the High Court
Take a case where there are intermediate beneficiaries before the minor gets the benefit under the trust deed
In such a case the learned Advocate for the Department conceded in the High Court that cl
b of sub section
3 of section 16 would not be attracted till the minor derived benefit under the trust deed
Mr Rajagopal Sastri did not make any such concession before us but seems to us that principle underlying the illustration is incontestable
If the minor derives no benefit in the relevant year of account it can hardly be said that for that year the transfer was for the benefit of the minor child
Section 4 the charging section of the Income taxs Act makes it clear that what is taxed is the total income of the relevant account year and total income according to section 2 15 is the income profits and gains referred to in sub section
1 of section 4 and computed in the manner laid down in the Act
In other words the tax is levied on a yearly basis
It is true that in the present case there was income in the hands of the trustees and the trustees were liable to pay tax thereon
That however is not the question before us
The question before us is whether such income in the hands of the trustees could be included in the total income of the assessee under cl
b of sub s3 of section 16
In our opinion when 912 cl
b of sub section
3 of section 16 talks of benefit of the minor child it refers to benefit which arises or accrues to the minor in the year of account
If there be no such benefit the income cannot be included in the total income of the individual who made the transfer
There is a third type of case which also illustrate the same principle
If only a portion of the income of the trust is reserved for the minor child cl b would apply and that portion of the income which is set apart for the benefit for the child would be taxable in the hands of the settler
All these illustrations only establish the principle that the minor child must derive some benefit in the relevant year of account before cl
b would apply
Furthermore we are also of the view that cls
a and b of the sub section must be read together Clause a begins with the expression so much of the income of a wife or minor child of such individual as arises directly or indirectly and this is followed by the four circumstances numbered i ii iii and iv
There is no doubt that so far as cl
a is concerned there must be income of the wife or minor child
Mr Rajagopal Sastri has not disputed this
The obvious intention of the Legislature in enacting cl
b was to see that the provisions of cl
a were not defeated by the assessee creating a trust and in order to deal with that mischief it enacted cl
Instead of the expression so much of the income of a wife or minor child the expression used in cl
b is so much of the income of any person or association of persons etc
Obviously when a trust is created the income is income in the hands of the trustees
But the underlying principle in the two cls
a and b appears to be the same namely there must be income of the wife or minor child under cla and there must be some benefit derived by the wife or minor child in the year of account under clb
This is consistent with the scheme of section 16 913 and particularly sub section
3 thereof
which is intended to foil an individual s attempt to avoid or reduce the incidence of tax by transferring his assets to his wife or minor child etc
When however the minor child derives no benefit under the trust deed in the year of account it is not consistent with the scheme of section 16 to say that even though there is no accrual of and income or benefit in the year of account in favour of the minor child yet the income must be included in the total income of the individual concerned
Our attention has been drawn to section 64 of the Income tax Act 1961 43 of 1961
That section corresponds to section 16 of the Income tax Act 1922 and cl
v of section 64 has made the position clear by using the expression immediate or deferred benefit so that even a benefit which is postponed and does not arise in the year of account will not entitle the Department to include the income in the hands of the trustees in the total income of the settler
We do not however think that the Act of 1961 can be taken as declaratory of the law which excited previously nor can s 64 v be taken as determinative of the true scope and effect of cl
b of sub section
3 of section 16
The Legislature may have thought fit in its wisdom to widen the scope of the law that existed previous to it so as to take in deferred benefits as well
We think that we must interpret cl
b of sub section
3 of the context of the section as it occurs in the Income tax Act of 1922
We have been referred to two English decisions Dale vs Mitcalfe 1 and Mauray vs Commissioners of Inland Revenue 2
One of the decision Dale vs Mitcalfe 1 related to section 25 of the English Income Tax Act 1918 8  9 Geo
V C 40 and the other related to section 201c of the English Finance Act 1922 12 and 13 Geo V C 17
Those provisions were differently worded and appear in a different 914 context and decisions of the English Courts given on provisions differently worded and appearing in a different context are not in our opinion helpful in determining the true scope and effect of cl
b sub section
3 of section 16 of the Income tax Act 1922
We have therefore come to the conclusion that on a true construction of cl
b of sub section
3 of section 3 the view expressed by the High Court was correct and the sum of Rs 410 did not form part of the total income of the assessee
The High Court correctly answered the first question referred to it
We now turn to the second question
The relevant clause of the trust deed of December 1 1941 is cl 7 which reads as follows The trustees shall hold and stand possessed of the Trust Fund mentioned in the second Schedule hereto and the accumulations thereof referred to in clause 3 thereof upon Trust to pay the net interest and income thereof to the Settler s son MANILAL for the maintenance of himself his wife and for the maintenance education and benefit of all his children till his death
 The question before us is whether under this clause the income received by the assessee is impressed with a trust in favour of himself his wife and children to whom he is accountable as a trustee for the amount received
In other words the question is whether the trust deed of December 1 1941 created two trusts the one requiring the trustees to pay the income from the trusts funds to the assessee and the second requiring the assessee to spend the income for the maintenance of himself and his wife and for the maintenance education and benefit of his children
In cases where property is given to a parent or other person standing or regarded as in loco parentis with a direction 915 touching the maintenance of the children the question often arises whether the settler intended to impose a trust by the direction or whether the direction was only the motive of the gift
The line between the two classes of cases has not been drawn always very firmly
It is however clear that in construing provisions of this kind the Court will not enforce or treat as obligatory a mere wish or desire or hope on the part of the settler that the donee of the fund should or would ought to or is expected to apply it for the benefit of other persons on the other hand the Court does regard as binding and obligatory and does enforce a direction or trust in favour of third parties if such a binding obligation can be clearly ascertained from the document
Instances of cases where no trust is created and of cases where trust is created and detailed at pages 85 and 86 of Lewin on Trusts 15th Edition
We are unable to hold that in the case before us cl
7 of the trust deed merely expressed a wish or desire or hope on the part of the settler
We are in agreement with the High Court that the direction contained in cl 7 created a trust in favour of the assessee his wife and children
The expression for the maintenance of himself and his wife and for the maintenance education and benefit of all his children is not indicative of a mere desire or hope
It imposes a binding and obligatory trust
In re
Booth Booth vs Booth 1 a testator gave the residue of his estate to his executors on trust to pay to his wife or permit her to receive the annual income thereof during her life for her use and benefit and for the maintenance and education of my children
It was held that the wife took the income subject to a trust for the maintenance and education of the 916 children
A similar view was expressed in Raikes vs Ward 1 and Woods vs Woods 2 On behalf of the appellant our attention was drawn to section 8 of the II of 1882 which states that the subject matter of a trust must be property transferable to the beneficiary and it must not be merely beneficial interest under a subsisting trust
It is contended that the assessee held a beneficial interest in the income from the trust funds under the trust deed of December 1 1941 and in respect of beneficial interest another trust could not be created in favour of himself his wife and children
We think that this argument proceeds on a misconception
The assessee did not create a second trust in respect of the beneficial interest which he held under the trust deed of December 1 1914
The assessee father created two trusts by that trust deed one requiring the trustees to pay the trust income to the assessee and the other requiring the assessee who was himself a trustee to spend the income for the maintenance education and benefit of his children
It is not disputed that by a single document more than one trust may be created
It is not therefore true to say that the subject matter of the trust in the present case was merely a beneficial interest under a subsisting trust
Under section 41 of the Income tax Act it was open to the Department either to tax the trustees of the trust deed or to tax those on whose behalf the trustees had received the amount
The true position of the assessee in this case was that he was a trustee and not the sole beneficiary under the trust deed
He held the income on trust for himself his wife and his children
The shares of the beneficiaries were indeterminate and therefore under the first proviso to section 411 of the 917 Income tax Act it was open to the Department to levy and recover the tax at the maximum rate from the assessee but that did not entitle the Department to include the sum of Rs 14170 in the total income of the assessee as though he was the sole beneficiary under the trust deed Mr Rajagopal Sastri made it clear that the intention of the Department was to include the sum in the total income of the assessee in order to levy and charge super tax on him
This we do not think the Department was entitled to do
In respect of the sum of Rs 14170 the assessee was a trustee within the meaning of section 41 of the Income tax Act appointed under a trust declared by a duly executed instrument in writing and as such trustee he had the right to contend that his assessment in respect of the money received by him not as a beneficiary but as a trustee could only be made under the first proviso to section 41 1
We have therefore come to the conclusion that on the second question also the answer given by the High Court was correct
The result therefore is that the appeal fails and is dismissed with costs
Appeal dismissed


Summary:
In 1953 the assessee created a trust in respect of a sum of money and provided that the interest on that amount was to be accumulated and added to the corpus and that his minor daughter C was to receive the income from the corpus increased by the addition of interest when she attained the age of 18 years
In the relevant account year when C was still a minor the income derived from the trust fund was Rs 410 Earlier in 1941 the assessee s father had created a trust in respect of certain shares and money directing the trustees to pay the net interest and income thereof to the assessee for the maintenance of himself and his wife and for the maintenance education and benefit of all his children till his death
In the relevant account year a sum of Rs 14170 accrued as income in the hands of the assessee from the said trust funds 903 The taxing authorities included both these incomes in the total income of the assessee  Held that neither of these two incomes could be included in the total income of the assessee
Under section 163b of the Indian Income tax Act upon which the authorities relied the assessee could only be taxed on the income from the trust funds for the benefit of his minor child if in the year of account the minor child either received the income or it accrued to her or she had a beneficial interest in the income in the relevant year of account
In the present case though there was income in the hands of the trustees and they were liable to pay tax thereon there was no benefit to the minor child in that year
As such the sum of Rs 410 did not form part of the total income of the assessee
The trust deed of 1941 created two trusts the one requiring the trustees to pay the income from the trust funds to the assessee and the second requiring the assessee to spend the income for the maintenance of himself and his wife and for the maintenance education and benefit of his children
It was not a case where the settler merely expressed a wish or desire or hope but he gave as direction which created a trust in respect of the income in the hands of the assessee in favour of himself his wife and children
The assessee did not create the second trust in respect of the beneficial interest which he held under the trust of 1941 and section 8 of the Indian Trusts Act which forbade the creating of such a trust was inapplicable
The assessee was a trustee and not the sole beneficiary and since the shares of the beneficiaries were Indeterminate it was open to the Department to levy and recover tax at the maximum rate from the assessee as trustee under the first proviso to s411 but the Department was not entitled to include the sum of Rs 14170 in the total income of the assesse as though he was the sole beneficiary under the trust deed