Jagannadha Das, J. - (1.) This is an appeal under section 66A of the Indian Income-tax Act from the judgment of the High Court of Bombay given on a reference to it by the Income-tax Applies Tribunal under section 66 of the Act.
(2.) The proceedings relate to the four assessment year, 1942-43, 1943-44, 1944-45, and 1945-46,and arise under the following circumstances: There was a Hindu undivided family consisting of one (1) Ramjibhai (2) his son, Ratilal Nathalal-the respondent before us, (3) Ramjibhai's wife, Kamlawanti, (4) Ratilal's wife, Kantabai and (5) Ramjibhai's unmarried daughter, Pushpa, on the 27th July, 1933, Ramjibhai and Ratilal, who were the sole coparceners, at the time, of the said Hindu undivided family, executed a trust deed is respect of four items of house property belonging to the joint family, which owned at the time and constituted to own other properties also. The effect of the trust deed was that the income of the property settled on trust was to be enjoyed by Ramjibhai during his lifetime, and that after his death, the said income was to be enjoyed by the respondent, Ratilal, alone with a right of residence provided in favour of his mother, Kamlawanti in part of one of the houses comprised in the trust deed. After the death of the respondent Ratilal, the income is to be enjoyed by his wife, Kantabai, and the natural born sons in existence at the time of the death of the survivor of Ramjibhai and Ratilal. There was an express power of revocation of the trust deed reserved to the said Ramjibhai by a specific clause therein. Ramjibhai enjoyed the income during his lifetime but the said income was being assessed as joint family income under section 16(1) (c) of Act and as an addition to the other admitted joint family income.
(3.) Section 16 of the Indian Income-tax act was modified in 1939 and clause (c) of sub-section (1) thereof as amended is as follows: "16 (1) (c). In computing the total income of an assessee- ...... ......... ....... ...... ..... all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether affected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939 (7 of 1939), from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settler or disponer, 'and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor.: Provided that for the purposes of his clause 'a settlement, disposition or transfer 'shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to the settlor', disponer or transferor, or in any way gives the settlor, disponer or transferor, a right to reassume power directly or indirectly over the income or assets: Provided further that the expression "settlement or disposition" shall for the purpose of this clause include any disposition, trust, covenant, agreement or arrangement, and the expression, "settlor or disponer" in relation to a 'settlement' or disposition 'shall include any person by whom the settlement or disposition was made: ...... ......... ....... ...... ..... It is by virtue of this clause and in view of the power of revocation of the trust having been expressly reserved in favour of Ramjibhai by the trust deed, that the income in his hands was being assessed without dispute on the footing that the settlor was the Hindu undivided family, and that the income of Ramjibhai is therefore, to be treated as the income of the Hindu undivided family. Ramjibhai died on the 23rd July, 1940. This Income-tax authorities continued, after the death of Ramjibhai, to assess the income, in the hands of the respondent arising from the properties settled as the family income. The respondent objected on the ground that under the terms of the settlement it was only his individual income and that section 16(1) (c) had no application to him. The income-tax authorities overruled this contention. The assessee appealed to the Income-tax Appellate Tribunal; but by order the 16th March, 1950, it confirmed the view taken by the income-tax authorities. Thereupon at the instance of the respondent, the Tribunal stated a case to the High Court of Bombay under section 66(1) of the Act and referred the following question for its decision; "Whether in the circumstances of the case and on the true construction of the settlement deed, is the income from the trust property liable to be included in the income of the assessees Hindu undivided family - The contention of the assessee before the High Court was two-fold: (1) that the settlor under the trust deed was not the Hindu undivided family as the income-tax authorities were inclined to hold, but that the settlement was by two individual male members of the family, viz., Ramjibhai and Ratilal; and (2) that, in any case , the income in the hands of Ratilal was his individual income and not the joint family income. On the first point, the learned Judges held against the assessee's contention. In their view the two individuals, Ramjibhai and Ratilal executed the trust deed not in their individual capacity but as the sole coparceners of the Hindu undivided family and representing the said family. On the second point, however, they held in favour of the assessee and against the Commissioner. This appeal has accordingly been brought by the Commissioner of Income-tax against that decision.;