COMMISSIONER OF INCOME TAX Vs. T PONNAIAH

JUDGEMENT

(1.) The Income-tax Appellate Tribunal has referred the following question under section 256(1) of the Income-tax Act, 1961, for the opinion of this court :

(2.) The assessee in an individual. He was the owner of the house bearing Municipal No. 8-3-1032, Sreenagar Colony, Hyderabad. On 14/04/1975, he settled a half share in the said house in favour of his major son, Sri Paul Ravinder Ponnaiya. By another settlement deed dated 2/07/1976, he settled the other half of the house under a trust for the benefit of his two minor sons, Ezekiel and Immanuel. The elder/major son, Paul, was appointed the trustee. The object of the trust dated 2/07/1976, with which alone we are concerned herein, was to provide for the education of the two minor children. The wife of the assessee was named as the alternative trustee. The trust deed provided that from the income accrued each year, the amount remaining after meeting the expenses on managing the trust and all expenses of the beneficiaries necessary and incidental to their education, should be accumulated and handed over to the minors on their attaining majority. The half share in the property was also to be handed over to the minors on their attaining majority. For the assessment years 1977-78 and 1978-79, the Income-tax Officer held that the income arising from the half share settled for the benefit of the minors ought to be included in the income of the assessee. On appeal, however, the Appellate Assistant Commissioner held that it cannot be so included. The Revenue carried the matter to the Income-tax Appellate Tribunal. Relying on certain decisions of the High Courts, the Tribunal held that section 6(1)(vii) of the Act has no application to the income accumulated. It, however, observed that in so far as the income which is actually applied for the education and maintenance of the minors is concerned, it is liable to be included in the income of the assessee under section 64(1)(vii). Thereupon, the question aforesaid was asked to be referred by the Revenue and was referred.

(3.) Section 64(1)(vii) of the Act, in so far as it is relevant, reads as follows :