COMMISSIONER OF INCOME TAX Vs. BEHRAM B DUBASH

JUDGEMENT

(1.) The following common question of law is referred u/s. 256(1) of the Income-tax Act, 1961, for consideration of this Court by the Tribunal in I. T. A. Nos. 3126.Bom.1983 and 446.Bom.1984 dated September 17, 1985, pertaining to the assessment years 1978-79 and 1979-80, at the instance of the assessee :

(2.) The factual matrix giving rise to the question referred is as follows :

(3.) The assessee, Behram B. Dubhash, was married to one Mehroo according to Zoroastrian rites on May 12, 1966. Both were Parsis. Out of the wedlock a female child, by name Farida, was born on November 30, 1970. A suit came to be filed by Mehroo for restitution of conjugal rights being Suit No. 36 of 1974, before the Parsi Chief Matrimonial Court at Bombay. Pending the said suit she filed another suit for divorce being Suit No. 13 of 1974 and a decree dissolving the marriage was passed on the ground of desertion. Under the terms of the decree dated June 16, 1975, the assessee was directed to provide permanent alimony and the custody of the child to his wife as well as for their maintenance. Under the said decree the assessee was required to create a trust in a sum of Rs. 5,50,000 by appointing the Central Bank Executor & Trustee Co. Ltd., as trustees. The custody of the female child, Farida, was to be with the mother. The trustees had to pay the net income of the trust fund to Mehroo till the child attained eighteen years of age on November 30, 1988. Thereafter the income was to be directly paid to Farida till she completed thirty years of age. On her completing the age of thirty years, the trustees were to deliver the entire trust fund to the said Farida. During the minority of Farida, Mehroo had to spend 5/11th of the income received by her from the trustees for the education of the said child and the balance for her benefit and maintenance in such manner as the mother deemed fit and she was not accountable to anybody in that behalf. For the accounting year 1978-79, Mehroo received a sum of Rs. 36,230 from the trustees as per the directions of the settlor (the asses-see). In the next year she received a similar amount, viz., Rs. 33,950. As per the terms of the settlement Mehroo was required to spend the said amount on the child. The Income-tax Officer brought these amounts to charge by including them in the net income of the assessee u/s. 64(1)(vii). The assessee appealed, and the Commissioner of Income-tax (Appeals) sustained the order. Aggrieved by the findings of the aforesaid authorities the assessee filed I. T. A. Nos. 3126.Bom.1983 and 446.Bom.1984. The Tribunal passed a detailed order, after hearing the parties at length, holding that the trust created by the assessee did not fall within the scope of Sec. 64(1)(vii) and reversed the concurrent findings. The Tribunal held that the trust was for adequate consideration inasmuch as it was to discharge a preexisting liability on his part.