Law: Income Tax Act, 1922

Section: 16(3) (a), (b)

Income-tax-Transfer of assets to wife and minor child-Cross transfers-Transfer by A to B as trustee for benefit of B's wife and minor children-Similar transfer on same date by B to A as trustee for benefit of A's wife and child-Applicability of S. 16(3) - Section 16(3)(6) whether applies to trusts - Indian Income-tax Act, 1922, S. 16(3) (a) & (b). The respondent A. N. C. executed a deed of trust conveying certain stocks and debentures as well as his interest in landed properties valued in all at Rs. 4,98,000 to his brother, J. N. C., who was to hold such properties in trust for the benefit of J. N. C.'s wife and two daughters, one married and the other a minor. On the same day the brother, J. N. C., created a similar trust involving assets and properties of the same nature and value as was covered by the first mentioned trust, appointing the respondent, A. N. C., as trustee for the benefit of A. N. C.'s wife and major son. The Income-tax Officer applied the provisions of section 16(3) of the Income-tax Act, 1922, and included income from the assets given in trust to the respondent's brother, J. N. C., in the assessment of the respondent. The respondent in appeal contended that the provisions of section 16(3) applied only in the case of transfer of assets by an individual, directly or indirectly, to his wife or minor children and that since, in the present case, the assets had been transferred only to a trust of which the trustee was the assessee's brother and the beneficiaries were the wife and children of the said brother, the provisions of section 16(3) had no application. The Appellate Assistant Commissioner negatived such contention with the observation that, as between the two brothers, the cross transactions have to be looked at as a whole and taking into account the fact that the date of the trust deeds was the same and the trust properties were of identical nature and value, the wife and the son of the respondent derived the same benefit as the wife and children of his brother. The arrangements made by the two brothers by executing the two trust deeds constituted one disposition with the result that in effect the respondent…