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2001 DIGILAW 1012 (MAD)

Commissioner of Income Tax v. K. J. Ramaswamy

2001-09-05

A.SUBBULAKSHMY, R.JAYASIMHA BABU

body2001
Judgment :- R. JAYASIMHA BABU, J. The assessment years are 1981-82 and 1982-83. This court in the case of CIT v. Sitalakshmi (Minor), in circumstances were similar to those in this case, held in favour of the assessee and against the Revenue. That decision however would not apply to the facts of the case before us, as Explanation 2A to section 64 was incorporated in the statute with effect from April 1, 1980, and remained a part of the statute till its repeal with effect from April 1, 1993. The assessment years with which we are concerned are 1981-82 and 1982-83. The decision relied upon by learned counsel is one which was rendered in relation to an assessment year prior to 1980. Explanation 2A to section 64 of the Income-tax Act reads as under : "for the purposes of clause (iii), where the minor child of an individual is a beneficiary under a 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 benefit of partnership in a firm." That Explanation makes it clear that income is deemed to arise indirectly to the minor from the admission of the trustee to the benefits of the partnership. The mere fact that the minor's right to receive the income is postponed till he attains the age of majority does not defeat this Explanation. The law deems the income to have arisen indirectly to the minor by virtue of the trustee having been admitted to the benefits of the partnership and the time at which it is to be distributed is of no relevance in this context. The Tribunal has held that the income credited to the minor's account the trustee having been admitted to the benefit of a partnership firm, that amount was not taxable in the hands of the father solely by reason of the trust deed providing for the accumulation of the income till the minor attains majority. The Tribunal has held that the income credited to the minor's account the trustee having been admitted to the benefit of a partnership firm, that amount was not taxable in the hands of the father solely by reason of the trust deed providing for the accumulation of the income till the minor attains majority. The Tribunal has failed to take note of the effect of the Explanation 2A to section 64.The question referred to us, namely : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the share income of the minors who were beneficiaries of a trust which was a partner in a registered firm cannot be clubbed in the hands of the assessee under section 64(iii) of the Income-tax Act, 1961 ?" is, therefore, answered in favour of the Revenue and against the assessee.