Law: Income Tax Act, 1961

Section: 64(1)(iii)

Law: Partnership Act, 1932

Section: 30

Section 64(1)(iii) of the Income-tax Act, 1961 - Transfer of assets - For benefit of spouse or minor child - Assessment year 1977-78 - A trust was created for benefit of assessee's minor children, and assessee was appointed as trustee -Trust funds were invested in two firms and assessee, in his capacity as trustee, became a partner in firms and consequently, income from firms enured for benefit of assessee's minor children - Tribunal held that creation of trust was only a device, and in reality it were minors who had been admitted to benefits of partnership, but Tribunal did not question genuineness of trust - Whether it was correct to say that minor children were admitted to benefits of partnership, and trust itself was not a partner through trustee and that section 64(1)(iii) was attracted - Held, no - Whether Explanation 2A inserted in section 64 from 1-1-1980 was only clarificatory and could be applied to this case which related to assessment year 1977-78 - Held, no FACTS J created a trust by a deed dated 1-2-1976 with a view to providing education, medical aid and marriage expenses, etc., of four minor children of M, the assessee. M was appointed as the trustee. The four minor beneficiaries were to have the profits and the losses equally and their interest in the corpus of the trust was also equal. The assessee as the trustee invested the trust fund in two firms and as trustee on behalf of the trust he became a partner of those firms. The income thus received by the trust from the firms was for the benefit of the minor children of the assessee. For the assessment year 1977-78 the assessing authority held that actually the minors were receiving the profits of the partnership firms and they were inducted to the benefits of the partnership though the medium of the trust, thus attracting section 64(1)(iii). The amounts received for the benefit of the minor children were, therefore, assessed in the hands of the assessee. The assessee appealed to the AAC who held that the minors were not admitted to the benefit of partnership. They were only beneficiaries under the trust. It was the trust which was the partner and, therefore, section 64(1)(iii) had no…

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