Direction for Accumulation of Income

Direction for Accumulation of Income .

Every person on transfer of Property must be in position to enjoy to income or profit that arise out of such property during his lifetime. Therefore, direction for accumulation of income beyond certain period is void. But there are certain exceptions to this rule.

Direction for Accumulation

Direction For Accumulation is prescribed in Chapter II of Transfer of Property Act as follows -

S.17 Direction for accumulation -

(1) Where the terms of a transfer of property direct that the income arising from the property shall be accumulated either wholly or in part during a period longer than-

(a) the life of the transferor, or

(b) a period of eighteen years from the date of transfer,

such direction shall, save as hereinafter provided, be void to the extent to which the period during which the accumulation is directed exceeds the longer of the aforesaid periods, and at the end of such last-mentioned period the property and the income thereof shall be disposed of as if the period during which the accumulation has been directed to be made had elapsed.

(2) This section shall not affect any direction for accumulation for the purpose of-

(i) the payment of the debts of the transferor or any other person taking any interest under the transferor; or

(ii) the provision of portions for children or remoter issue of the transferor or of any other person taking any interest under the transfer; or

(iii) the preservation or maintenance of the property transferred,

and such direction may be made accordingly.

The basis underlying this principle that as Land is to be enjoyed by the profit that arise out of such a land and just as  law prevent the restraint on alienation, so also law disfavour  any attempt to prevent the income being enjoyed by the owner of the land and for the time being. So such accumulation of income is not allowed by law under section 17 . It means direction of accumulation of income is valid if it is first up to the life of transferor or second upto period of 18 years from the date of the transfer.

Example

A transfers property to B in 1940 which is with the direction that the income arising out of property is to be accumulated till 1970. i.e. for 30 years. A dies in 1965 . The period during which the transferor is alive is more than 18 years from the date of the transfer but being the longer of the two periods, the direction is valid till 1965. if however the transferor dies in 1950. Then longer period would be 18 years and accordingly the direction would remain valid till 1958.

Exceptions

However Such direction for accumulation of the income is valid even beyond the above stated period under section 17( 1) if the direction is for the purpose of

(a) The payment of the debts of the transferor , or

(b) The provision of portion for the children or ramoter issue of transferor ,or of any other person taking interest under the transfer ,or

(c) The provision for maintenance of property transferred, or

(d) where the property is transferred for the benefit of public or any other object beneficial to mankind for example charitable purposes.

       In short the direction for accumulation of the income is a particular mode of restraining the enjoyment of the property. According to the principal laid down in Section 17 such direction for accumulation would be void  and inoperative but this section provides  an exception and permits a direction for accumulation of income to operate in certain cases. This Section allows  accumulation of income upto the life of transferor ,or up to the period of 18 years, from the date of the transfer, whichever is longer.