KAPOOR CHAND (DEAD) versus ASSTT. COMMNR. OF INCOME TAX
[2015] 10 S.C.R. 871, Supreme Court of India, 2015
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
[2015] 10 S.C.R. 871 
KAPOOR CHAND (DEAD) 
v. 
ASSTT. COMMNR. OF INCOME TAX 
(Civil Appeal No. 67S of 2005) 
JULY 14, 2015 
[A.K. SIKRI AND N.V. RAMANA, JJ.] 
A 
B 
Income Tax Act, 1961 - s. 64(1) (iii), Explanation 2A -
Applicability of- Trust created for the benefit of minor children c 
- The two trustees (including the assessee) became partners 
in a partnership firm - Income arising to the Trust from the 
membership of the trustees in the firm - Whether taxable u/ 
s. 64(1) (iii) - Held: The income of a minor child is taxable at 
the hands of individual - However, in the present case, the D 
income has not accrued to the minors in the relevant 
assessment year, in view of the stipulation in the Trust-deeds 
that the income would be available to the minors on their 
attaining majority- Thus assessee's income was not taxable 
u/s. 64(1) (iii). 
E 
Allowing the appeal, the Court 
HELD: 1. It is clear from a plain reading of Section 
64(1) (iii) of Income Tax Act, 1961 that while computing F 
the total income of any individual, the income of a minor 
child of such individual from the admission of the minor 
to the benefits of partnership in a firm is to be included 
as the income of the said individual. The Explanation 
2A clarifies that if the minor child is a beneficiary under a G 
trust, income arising to the trust from the membership 
of the trustee in a firm shall also be treated as income of 
th~ child and provisions of sub-clause (iii) of Section 64 
(1) shall get
attracted even in that eventuality. [Para 7] 
[875-H; 876-A,B] 
H 
871
' 
872 
SUPREME COURT REPORTS 
[2015] 108.C.R. 
A 
2. The provision that is contained in Explanation 
2A is only to take care of the income, even when a trust 
is created. It does not go further and make any provision 
to the effect that even when the income earned by the 
trust cannot be utilized tor the benefit of the minor during 
B his minority the Explanation 2A shall be attracted. There 
is no such stipulation even in the said Explanation. 
Moreover, the language of Section 64 (1) (iii) is clear and 
categorical which makes the income of minor child 
taxable at the hands of individual. [Para 12] [879-B-D] 
c 
D 
3. The income which is not to be given or spent for 
the benefit of the child so long as he is minor, his income 
cannot be treated as income of a "minor child" and taxed 
at the hands of individual. [Para 9] [877-E-F] 
Commissioner of Income Tax vs. M.R. Doshi 
(211) ITR 1 (SC)- relied on. 
Yogindraprasad N. Mafatlal vs. Commissioner of 
E 
Income Tax, Bombay City-1109 ITR 602(Bom)-
referred to. 
4. 
In the present case one of the conditions 
contained in the trust deeds was that the income so 
F generated by the trust, shall not be given to or spent for 
the benefit of the minor children till they attain majority 
and the money was to be handed over to them only on 
attaining the majority which would mean that the income 
was available to these persons when they cease to be 
G the minors. Thus, the requirement that the share of 
income is at the hands of
minor child is not satisfied in 
the present case. [Paras 8 and 12] [876-E-F; 879-D] 
5. The Department is not remedyless inasmuch as 
H the income earned by the two minors would not go
KAPOOR CHAND (DEAD) v.ASST. COMMNR. OF 
873 
INCOME TAX 
untaxed. On attaining majority, when the aforesaid A 
money in the form of income is received by the two 
individuals, it would be open to the Department to tax 
the income at that time. Or else, the Department could 
take up their cases under Section 166 of the Act if 
permissible. However, that course of action was not · B 
taken by the Department in the present case. [Para 13] 
[879-E-F] 
(211) ITR 1 (SC) 
109 ITR 602(8oM) 
Case Law Reference 
relied on 
referred to 
para 8 
para 8 
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 675 
c 
of2005 
D 
From the Judgment and Order dated 24.10.2003 of High 
Court of Uttaranchal at Nainital in Income Tax Appeal No. 01 
of2003. 
Rohit Sthalekar, Avi Tandon, Kamlendra Mishra for the 
Appellant. 
Arijit Prasad, Anil Katiyar for the Respondent. 
E 
The Judgment of the Court was delivered by 
F 
A. K. SIKRI, J. 1. The facts in brief, which give rise to the 
present appeal filed by the assessee against. the impugned 
judgment dated 24.10.2003 passed by the High Court of 
Uttaranchal at Nainital, are as under: 
G 
2. The brother-in-law of the appellant, namely, Shri Ram 
Niwas Agarwal had created two trusts for the benefit of two 
minor children of the appellant, Kapoor Chand. One trust 
known as Priti Life Trust was for the benefit of Km. Priti who H
874 
SUPREME COURT REPORTS 
[2015] 10 S.C.R. 
A 
was aged about 7 years and the other trust was created in the 
name of Anuj Family Trust for the benefit of master Anuj, minor 
son of the appellant, Kapoor Chand. 
Both these trustees became partners in the partnership firm. 
B ·The said partnership firm earned profits in the year 1980-1981 
with which we are concerned in the present appeal and share 
of the two trusts was given to them. 
3. Since these trusts were for the benefit of two minor 
c children of the appellant, invoking the provisions of Section 
64(1)(iii) of Income Tax Act, 1961 (for short "the Act), the 
Assessing Officer included the said income in the income of 
the assessee and taxed as such. 
D 
4. The appellant contested the assessment by filing 
appeal before the Commissioner of Income Tax (Appeals). 
The CIT (Appeals) allowed the appeal by order dated 
30.01.1996 holding that since the minors had no right to receive 
the income of the trusts till the time they were minors, the 
E provisions of Section 64(1 )(iii) read with Explanation 2A of 
the Act would not be attracted. It would be relevant to mention 
here that one of the important terms of both the trust deeds 
was that income so earned by the trusts shall not be received 
by two minors during their minority and will be spent for their 
F 
benefits only once they attain the majority. Another fundamental 
clause in both the trust deeds was that in case any of the 
beneficiaries dies before attaining
majority, his/her share would 
be given to the other sibling. 
G 
5. The Department challenged the aforesaid order of the 
CIT (Appeals) before the Income Tax Appellate Tribunal, New 
Delhi (for short "the Tribunal"). The Tribunal allowed the appeal 
and set aside the order of the CIT (Appeals). Dis-satisfied 
with the outcome, the appellant approached the High Court of 
H Uttaranchal by way of an appeal filed under Section 260A of
KAPOOR CHAND (DEAD) v. ASST. COMMNR. OF 
875 
INCOME TAX [A.K.SIKRI, J.] 
the Act which appeal has been dismissed by the High Court A 
vide impugned judgment dated 24.10.2003 affirming the order 
of the Tribunal. Undeterred, the appellant approached this 
Court by filing special leave petition and leave was granted. 
This is how the present appeal has come up for final hearing. 
6. Before we take note of the contention advanced by 
the learned counsel for the appellant challenging the 
correctness of the impugned judgment, it would be apposite 
to reproduce the relevant provisions of the Act. Section 
B 
64(1 )(iii) as well as Explanation 2A thereof read as under: 
C 
"64(1) In computing the total income of any individual, there 
shall be included all such income as arises directly or 
indirectly-
D 
(i) ........ . 
(ii) ...... .. 
(iii) to a minor child of such individual from the admission 
of the minor to the benefits of partnership in a firm: 
Explanation 2A- For the purposes of clause (iii),where 
E 
the minor child of an individual is a beneficiary under a F 
trust, the income arising to the trustee from the 
membership of the trustee in a firm shall, to the extent 
such income is for the benefit of the minor child, be 
deemed to be income arising indirectly to the minor child 
from the admission of the minor to the benefits of G 
partnership in a firm." 
7. It is clear from a plain reading of the aforesaid Section 
that while computing the total income of any
individual the 
income of a minor child of such individual from the admission H
876 
SUPREME COURT REPORTS 
[2015] 1 O S.C.R. 
A of the minor to the benefits of partnership in a firm is to be . 
included as the income of the said individual. The Explanation 
2A clarifies that if the minor child is a beneficiary under a trust. 
income arising to the trust from the membership of the trustee 
in a firm shall also be treated as income of the child and 
B provisions of sub-clause (iii) of Section 64(1) shall get attracted 
even in that eventuality. 
8. In the present case, as is clear from the facts narrated 
above, no doubt two minor children of the appellant were the 
C beneficiaries under the two trusts. It is also not in dispute that 
the said trustees were the partners in the firm and had their 
shares in the income as partners in the said firm. However, 
the entire controversy revolves around the question as to 
whether it could be treated as income of a "minor child". This 
D controversy has arisen because of the reason that the income 
that had been earned by the trustees was not available to the 
two minor children till attaining the age of majority. As pointed 
out above, this was one of the conditions contained in the trust 
deeds that the income so generated by the trust, shall not be 
E given to or spent for the benefit of the minor children till they 
attain majority and the money was to be handed over to them 
only on attaining the majority which would mean that the income 
was available to these persons when they cease to be the 
F minors.
This very question came up before this Court in almost 
identical circumstances in the case of Commissioner of 
Income-Tax vs. M.R. Doshi [(211) ITR 1 (SC)]. The Court, after 
taking note of some judgments of High Courts including the 
judgment of High Court of Bombay in Yogindraprasad N. 
G Mafatlal vs. Commissioner of Income-Tax. Bombay Citv-1 [109 
ITR 602 (Born.)] interpreted the provisions of Section 64(1 )(v) 
of the Act in the following manner:-
"Section 64(1) (v) requires, in the computation of the total 
H 
income of an assessee, the inclusion of such income as
KAPOOR CHAND (DEAD) v. ASST. COMMNR. OF 
877 
INCOME TAX [A.K.SIKRI, J.] 
arises to the assessee from assets transferred, A 
otherwise than for adequate consideration, to the extent 
to which the income from such assets is for the 
immediate or deferred benefit of, inter alia, his minor 
children. The specific provision of the law, therefore, is 
that the immediate or deferred benefit should be for the B 
benefit of a minor child. Inasmuch as in this case the 
deferment of the benefit :s beyond the period of minority 
of the assessee's three sons, since the assets are to be 
received by them when they attain majority, the provisions 
of Section 64( 1 )(v) have no application." 
C 
9. Since the judgment of the Bombay High Court in 
Yogindraprasad N. Mafatlal (supra) has been affirmed by this 
Court, on going through the said judgment of High Court of 
Bombay we find that there is a very detailed discussion while D 
interpreting the provision mentioned therein. In this case, the 
Bench comprising Tulzapurkar and Desai, JJ. (as their 
Lordships then were) wrote separate but concurring opinion. 
Justice Desai in his opinion gave three reasons for coming 
to the conclusion that the income which is not to be given or E 
spent for the benefit of the child so long as he is minor, his 
income cannot be treated as income of a "minor child" and 
taxed at the hands of individual. These reasons can be 
summarized as below: 
F 
"(i) The benefit which may be immediate or deferred must
still be a benefit of the minor child. In view of the fact 
that the said expression is still retained in the relevant 
provisions it is not possible to accept the argument that 
the "deferment" can be beyond the minority of the child. 
G 
If the enjoyment of the benefit is postponed beyond the 
minority of the child it cannot be fairly regarded and 
accepted as a benefit even deferred for the minor child. 
(ii) In order to attract the provision, the minor child must H
878 
SUPREME COURT REPORTS · 
[2015] 10 S.C.R. 
A 
have a direct benefit of the interest in the income and the 
assets transferred to the trustees. Where the trust 
contains a stipulation that the income is 
to 
be 
accumulated or added to the corpus it cannot be held 
B 
that the child has any direct benefit in that income. 
(iii) Benefit, if any, receivable by the child must be certain 
and vested. It cannot be the mere possibility of a benefit 
or benefit available on the fulfillment of a contingency." 
C 
10. In the present case, as pointed out above, specific 
stipulation which is contained in both the trust deeds is that in 
case of demise of any of.the minor the income would accrue 
to the other child. Therefore, the receipt of the said income is 
also contingent upon the aforesaid eventuality and the two 
o minors had not received the benefit immediately for the 
assessment year in question viz. as "minor" children. 
11. Learned counsel appearing for the respondent 
submitted that the aforesaid stipulation in the trust deeds is 
E devised mainly to have the income escaped in the hands of 
the individuals and it was precisely the reason because of 
which Explanation 2Awas inserted by the Finance Act, 1979. 
In support, he has produced memo corresponding the 
provision in the Finance Bill, 1979 and referred to para 55 
F · thereof which reads as under:-
G 
H 
"55. Under another existing provision, the income rising 
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 benefits of which the minor is 
admitted. With a view to countering a device for 
circumventing this provision through interpolation of a trust, 
it is proposed to provide that where a minor child of an 
individual is a beneficiary under a trust and the rustee
KAPOOR CHAND (DEAD) v. ASST. COMMNR. OF 
879 
INCOME TAX [A.K.SIKRI, J.] 
joins in any partnership business with any person, the A 
income arising to the trust, to the extent it is for the benefit 
of the minor child, will be included in the total income of 
that parent who has the higher income." 
12. We are afraid the aforesaid explanation does not help 
8 
the Department. The provision that is contained in Explanation 
2A is only to take care of the income even when a trust is 
created. It does not go further and make any prov_ision to the 
effect that even when the income earned by the trust cannot 
be utilised for the benefit of the minor during his minority the c 
Explanation 2A shall be attracted. We do not find any stipulation 
even in the said Explanation.Moreover, the language of Section 
64(1 )(iii) is clear and categorical which makes the income of 
minor chi!d taxable at the hands of individual. Thus, in the first 
instance it has to be shown that the share of income is at the D 
hands of minor child which requirement is not satisfied in the 
present case. 
13. We may add that the Department is not remedyless 
inasmuch as the income earned by the two minors would not E 
go untaxed. On attaining majority when the aforesaid money 
in the form of income is received by the two individuals it would 
be open to the Department to tax the income at that time. Or 
else, the Department could take up their cases under Section 
166 of the Act if permissible. However, that
course of. action 
F 
was not taken by the Department in the present case. 
14. In view of the aforegoing conclusions we are of the 
view that the impugned judgment dated 24.10.2003 of the High 
Court does not lay down the correct proposition of law. This G 
civil appeal is accordingly allowed and the impugned judgment 
dated 24.10.2003 passed by the High Court is set aside. 
Kalpana K. Tripathy 
Appeal allowed. 
H