KAPOOR CHAND (DEAD) vs. ASSTT. COMMNR. OF INCOME TAX

CIVIL APPEAL No. 675/2005Supreme Court[2015] 10 S.C.R. 87114 July 2015Bench: 2 JudgesAuthor: A.K. SIKRI, N.V. RAMANA9 pages
AI SummaryAllowed

What were the facts?

The assessee, Kapoor Chand, had two trusts created for the benefit of his two minor children, Km. Priti and Master Anuj. The trustees of these trusts became partners in a partnership firm and earned profits. The Assessing Officer included the income of the trusts, arising from the partnership, in the assessee's total income under Section 64(1)(iii) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal, holding that Section 64(1)(iii) was not attracted because the trust deeds stipulated that the income would only be available to the minors upon attaining majority. The Income Tax Appellate Tribunal reversed this decision, and the High Court upheld the Tribunal's order. The assessee then appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the income arising to the trust from the partnership was not taxable in the hands of the assessee under Section 64(1)(iii) read with Explanation 2A of the Income Tax Act, 1961. The Court reasoned that while Section 64(1)(iii) mandates the inclusion of a minor child's income from partnership benefits in the individual's total income, and Explanation 2A extends this to income arising to a trust for the benefit of the minor child, a crucial condition is that the income must be for the benefit of the minor child. In this case, the trust deeds explicitly stipulated that the income would not be given or spent for the benefit of the minor children until they attained majority. Therefore, the requirement that the income is at the hands of a 'minor child' was not satisfied. The Court clarified that Explanation 2A does not extend to situations where the income earned by the trust cannot be utilized for the benefit of the minor during their minority. The Court noted that the revenue was not remediless, as the income could potentially be taxed when received by the individuals upon attaining majority or under Section 166 of the Act, though these courses were not pursued. The appeal was allowed, and the High Court's judgment was set aside.

What were the issues?

1. Whether the income arising to a trust from the membership of its trustees in a partnership firm is taxable in the hands of the individual (assessee) whose minor children are beneficiaries of the trust, under Section 64(1)(iii) read with Explanation 2A of the Income Tax Act, 1961, when the trust deeds stipulate that the income is not to be utilized for the benefit of the minors during their minority. Assessee's contention: The assessee argued that Section 64(1)(iii) and Explanation 2A are attracted only if the income is for the benefit of the minor child. Since the trust deeds clearly stated that the income would be available to the minors only upon attaining majority, the condition of benefit to a 'minor child' was not met. They relied on the principle that deferment beyond minority cannot be considered a benefit to a minor child. Revenue's contention: The revenue contended that Explanation 2A was inserted to counter devices for circumventing the provisions of Section 64(1)(iii) through trusts. They argued that the insertion of the trust was a mechanism to escape taxation and that the income, even if deferred, was intended for the benefit of the minor children.

Which sections of the Income-tax Act were involved?

Section 64(1)(iii),Section 166

AI-generated summary — verify with the full judgment below

[2015] 10 S.C.R. 871 KAPOOR CHAND (DEAD) v. ASSTT. COMMNR. OF INCOME TAX (Civil Appeal No. 67S of 2005) JULY 14, 2015 [A.K. SIKRI AND N.V. RAMANA, JJ.] A B Income Tax Act, 1961 - s. 64(1) (iii), Explanation 2A - Applicability of- Trust created for the benefit of minor children c - The two trustees (including the assessee) became partners in a partnership firm - Income arising to the Trust from the membership of the trustees in the firm - Whether taxable u/ s. 64(1) (iii) - Held: The income of a minor child is taxable at the hands of individual - However, in the present case, the D income has not accrued to the minors in the relevant assessment year, in view of the stipulation in the Trust-deeds that the income would be available to the minors on their attaining majority- Thus assessee's income was not taxable u/s. 64(1) (iii). E Allowing the appeal, the Court HELD: 1. It is clear from a plain reading of Section 64(1) (iii) of Income Tax Act, 1961 that while computing F the total income of any individual, the income of a minor child of such individual from the admission of the minor to the benefits of partnership in a firm is to be included as the income o

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 166

All 143 judgments and leading authorities on Section 166 →

Recent GST High Court judgments

Search GST case law →