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Report No. 12

Chapter V

Incomes of other Persons, Included in Assessee's Total Income

Notes to clause 63

Existing section 16(1)(c) deals with two kinds of transfers: (1) transfer of income only, without transfer of the corpus, and (2) revocable transfer of the corpus. In order to prevent the two kinds of transfers being mixed up, it is considered desirable to separate the two into two sections.

The draft clause under discussion deals with the first kind of transfer. The existing section uses the words "settlement or disposition" and then goes on to define these words as including, besides other things, "disposition" (see second proviso). For the sake of brevity, only the word "transfer" has been used in the draft throughout the group of clauses incorporating section 16(1)(c). The word 'transfer' has been defined separately.

The existing section contains the words "from assets remaining the property of the settlor or disponer". These words do not easily convey the exact meaning. The obvious intention is to refer to a case where there is no transfer of the property from which the income arises. This is made clear in the draft.

Provisos 1 and 3 to the existing section 16(1)(c) are framed in wide language so as to convey the impression that they are applicable to transfers of mere income also. But since transfers of mere income (that is, transfers covered by the draft clause under discussion) fall within the section "whether revocable or not", it seems incongruous to give any definition of "revocable" in respect of such transfers. It could not have been the intention that if the transfer of income is itself irrevocable, then the section will not apply. The first and third provisos should therefore be confined to transfers of corpus, being revocable. The corresponding draft clauses1 accordingly narrow down the scope.

1. See draft clause 65, 66.

Other changes are verbal.

Notes to clause 64

One or two verbal changes have been made, which do not need any comments.

Notes to clause 65

The existing provision, i.e., section 16(1)(c), third proviso, applies only to "settlement or disposition". It does not mention "transfer", but obviously all transfers of corpus are also covered by the proviso, since the main para, of section 16(1)(c), latter part, speaks of "revocable transfer of assets", and the proviso is intended to save certain transfers which, though revocable, are not revocable for a certain period. Hence the draft mentions transfers.

Sub-clause (1)- The existing provision speaks of a settlement etc. which is not revocable during the life-time of the "person". This "person" is obviously the transferee (see the opening line of the existing section 16(1)(c) which begins with "all income arising to any person"). This has been made clear in the draft in para. (a). In the case of a transfer by way of trust, the transferee, that is, the person to whom the income arises, is in theory, the trustee, but in substance the beneficiary. This has also been specifically provided for in the draft.

Sub-clause (2)- The verbal changes made are consequential.

Notes to clause 66

The small verbal changes made are consequential1,

1. See not to draft clauses 63 and 65.

Retransfer of "income", mentioned in the existing section and also in the draft, will be applicable where, though the transfer is of corpus, the income is retransferable or resumable.

The definition of "settlement or disposition", contained in the second proviso, has been replaced by a definition of transfer. The definition of "settler or disponer" contained in the existing second proviso, does not seem to be necessary. The intention behind the definition, probably, was to clarify that in the case of a settlement by two or more persons, each of the settlers is regarded as a settlor. It is unnecessary to have such a provision by way of specific definition.

Notes to clause 67

The words "being a male" have been added after "an individual". The reason is, that the provision in question applies only to males as is now settled by the Supreme Court1.

1. C.I.T. v. Sodro Devi, (1957) 32 ITR 615 SC.

Item (i)- The existing sections 16(3)(a) and 16(3)(b) both begin with the words "so much of the income". This is provided in the draft clause, opening lines, by the words "all such income", and repetition in the item corresponding to section 16(3)(b) has been avoided.

The significance of section 16(3) lies in the principle that the income of one person (wife, child etc.) is regarded as the income of another person. In other words, the income arising to A is attributed to B. This has been brought out directly in the draft by commencing each item with words "to his wife" etc. (The existing items begin with words denoting the property and not the person).

The words "her husband" have been replaced by "such individual" for the sake of precision.

The words "of which" a person is a partner, have been replaced by "in which", as being more happy in the context.

Items (ii), (iii) & (iv)-See notes to item (i).

Item (v)-The existing section 16(3)(b), while speaking of "minor child", does not exclude the case of a married daughter. But an exception should be made for married daughters here also, as has been made by the existing section 16(3)(a), item (iv), since there is no reason for not having the same provision in both the cases. The words "not being a married daughter" have, therefore, been added in the draft.

Income-Tax Act, 1922 Back

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