Law: Income Tax Act, 1961

Section: 61

Income-tax---Total income---Inclusions---Contribution made by assessee to trust created by her husband---Considered as gift with no power of revocation---Interest income of trust attributable to contributions made by assessee not includible in income of assessee---Indian Income Tax Act, 1961, S.61. The husband of the assessee created two trusts for the benefit of his would-be daughter in law and would-be son-in-law. Clause 19 of the trust deed declared that the trusts shall be irrevocable. However, in clause 22 of the said deed it was stipulated that if the intended marriage did not take place within a period of 20 years from the date of creation of the trusts, the said trusts would become void and the trust properties would become reinvested in the settlor as the beneficial owner. The assessee, who was the mother of the minor children, made contributions to the trusts. The Income-tax Officer held that in view of clause 22 of the trust deed, the trust could not be treated as an irrevocable trust. The Income-tax Officer included the interest income of the trust attributable to the contributions made by the assesse, in the hands of the assessee. On appeal, the Appellate Assistant Commissioner held that the assessee was not the author of the trust and she had no power of revocation of the transfers or contributions and deleted the interest income added to the assessees income. On appeal by the Department, the Tribunal held that the income arising from the transferred assets could not be assessed to tax in the hands of the assessee. On a reference: Held, that the assessee was not the author of the trusts. Clause 22 of the trusts would not come into operation during the assessment years under consideration but would come into operation after 20 years. Therefore, the contributions made by the mother of the minor children to the trusts would be considered as gifts made by her to the trusts with no power of revocation. Therefore, the Tribunal was correct in holding that the interest income attributable to the contributions made by the assessee to the revocable trust created by her husband for the benefit of his would-be son-in-law/daughter¬in-law could not be assessed…

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