I have created a trust for the deferred benefit of my four minor sons. One of the paras in the trust deed provides that after the cessation of benefits to the beneficiaries, the corpus together with accretion and accumulated income shall pass on to my wife, provided she survives. Otherwise, they shall belong to my sons in equal shares and in the absence of any one or more beneficiaries shall belong to the other surviving beneficiaries. I, as a settler, derive no benefit from the trust. The four sons have no right to claim any portion in the income till they are minors and as such they do not have any vested interest in the property and income of the trust and the income gets capitalised from year to year.
The income in terms of the trust deed vests in the beneficiaries only after they attain majority. The assessing officer, invoking the provisions of sub-section (1A) of Section 64, proposes to tax the income from the trust after giving a benefit of exemption provided in the said Section on year to year basis in my hand. Is he really entitled to do so?
The facts mentioned show that no minor child has any vested interest in the income arising from the trust while he is a minor and the income is to get capitalised from year to year. Thus, as no income vests in or comes to the hands of any of the minor children nor does any income accrues to them, the question of including any such income in the hands of the settler, who is the father, does not arise. In other words, because no income accrues to a minor, the provisions contained in Section 64 (1A) can neither get attracted nor apply.
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As the provision in question relates to creating an artificial income in the hands of the assessee, it has to be strictly construed. The provisions contained in Section 64(1A) can only apply to a case where the child is a minor at the time of receiving or enjoying any benefit out of the transferred property. If that were not so, the provisions would have not been worded in the manner it has been. The provision has to be read as it stands and the consequences flowing from such reading are to follow.
From a bare reading of the provision, one finds that for an artificial fiction to be created under the said provision for computing the total income of an individual under Section 64 (1A), the benefit should accrue to the beneficiary during the period of minority. If the benefits/assets are to be received by the beneficiaries when they attain majority, the said provision will not be attracted. (See the Supreme Court