G.K.MITTER, J. - (1.) IN this reference the point of issue is whether a trust deed was executed by the assessee contains a provision for the retransfer directly or indirectly of the income or assets of the trust property to him or in any way gives him a right to reassume power directly or indirectly over the said income or assets. It was argued on behalf of the Revenue that the trust deed contains more than one such provision by reason whereof the transfer of assets to the trustees can be said to be revocable within the meaning of s. 16(1)(c) of the INdian IT Act and all income from the trust property must be deemed to be the income of the assessee and taxed as such.
(2.) THE settlor in this case owned valuable immovable properties situate in Calcutta and elsewhere. Being minded to settle these for the benefit of himself, his three sons, one being unmarried, and two daughters-in-law, he executed a deed of trust on 10th Aug., 1949, under which he along with his sons became the trustees. THE properties described in the schedule to the deed are the trust properties subject to the conditions laid down in cl. (5) of the document. THE deed recites that the settlor was possessed of the properties mentioned in the schedule to it as also of the benefit of a mortgage executed by Madhu Sudhan Das Burman and others in his favour for a sum of Rs. 4,30,000 with interest and being desirous of settling the properties including all cash and bank balances belonging to him for the benefit of the persons mentioned, he was executing the deed of trust. As the question involved is one of the proper construction of the document it is necessary to quote the exact language of it so far as the relevant portions are concerned. THEy are as follows : "Now this indenture witnesseth that... in consideration of the natural love and affection which the settlor has and bears for his sons... and his daughters-in-law... he, the settlor both hereby grant, transfer, convey, assign and assure unto the trustees all these messuages, lands, hereditaments and premises Nos. 7, Hastings Street, 64/1, Ritchie Road, 6, Dovar Road, 10, Dovar Road, 15 and 15/1, Harish Chatterjee Street, subject to the condition of cl. 5 hereof and a strip of land being the unsold portion of 39 and 39/1 Beltola Road, and three buildings at Puri and two houses at Darjeeling... and the balance of the principal sum of the said mortgage moneys with all interest and all money and cash balance as aforesaid... to have and to hold the said messuages, lands, hereditaments, and premises herein mentioned or intended so to be subject to the condition of cl. 5 hereof and moneys advanced on mortgage and lying at credit in various banks unto the trustees upon the trusts for the purposes and subject to the powers, provisions and agreements hereinafter declared and contained concerning the same and the settlor hereby declares that the trustee or trustees for the time being shall stand possessed of all the said several messuages, lands, hereditaments and premises herein mentioned subject to the condition of cl. 5 hereof and all moneys advanced on mortgage, cash balance and other moneys and all other properties whatsoever which the settlor is not possessed of whether described in the said schedule or not hereinafter collectively called 'the trust properties'... Clause 1.--To collect the rents, issues and profits of the trust properties and to receive and collect the interest of the moneys advanced on mortgage as well as the principal thereof, and out of the monthly collections and receipts, firstly, to set apart 33 1/3per cent of the annual collections or a sufficient sum each and every month as the trustees or trustee for the time being shall consider necessary to meet the municipal taxes, and for repairs of the immovable properties belonging to the trust under these presents and also to meet the income-taxes or other taxes or impositions which may be payable annually or otherwise in respect of the trust properties and to pay at the first instance the sum of Rs. 400 per month out of the balance income to the settlor during the term of his natural life and the rest and residue to the said Dhirendra Mullick, Robindra Mullick and Purnendro Mullick in equal shares. After the demise of the settlor, the trustees or the trustee shall pay the said balance of income to the said Dhirendra Mullick, Robindra Mullick and Purnendro Mullick in equal shares and if they or any of them are dead, then to the heirs or heir of them or any one of them absolutely after such heirs or heir has or have attained the age of 18 years. Clause 5.--The trustees or trustee for the time being shall out of the trust properties pay to the settlor a sum of Rs. 60,000 either in lump or instalments. If the trustees or trustee for the time being pay the said sum of Rs. 60,000 as aforesaid within 12 months from the date hereof, the premises Nos. 15 and 15/1, Harish Chatterjee Street, will revert to the trust, otherwise the settlor may sell the said premises and for the deficit, if any, the trust properties shall be charged. Clause 10.--The trustees or trustee for the time being shall have the power to raise a loan to the extent of Rs. 50,000 only on such terms and rate of interest as the trustees or the trustee for the time being shall consider necessary on the mortgage of any of the properties for the time being belonging to the trust, created by these presents for the purpose of constructing a building on the said premises No. 64/1, Ritchie Road, and/or premises No. 10, Dovar Road, and/or premises No. 7, Hastings Street, and/or premises Nos. 15 and 15/1, Harish Chatterjee Street, Calcutta, provided always mortgagee or mortgagees shall not be bound to see to the application of the money so raised on mortgage. Clause 12.--The trustees or trustee for the time being shall have power during the life time of the settlor with his consent and thereafter at their or his absolute discretion to invest out of the trust properties sum or sums to the extent of Rs. 25,000 in the mortgage of immovable property or properties or in such business or businesses as he or they shall think fit. The interest or the profits as the case may be derived out of the said mortgage or business or businesses shall after meeting all expenses and outgoings be divided equally between the trustees. But the corpus, viz., Rs. 25,000, shall be invested for the purpose of purchasing immovable property or properties or trust stocks or securities and shall form part of the trust created by these presents. Clause 13.--By an agreement dt. 26th Nov., 1947, made between the settlor and one Rash Behari Banerji, the settlor has entered into an agreement to advance a sum of Rs. 25,000 only to the said Rash Behari Banerji for the purpose of conducting testamentary proceedings and/or litigation in the hon'ble High Court at Calcutta (in the goods of Raja Sarat Chandra Rai Choudhury deceased of Chanchal in the District of Halda) being testamentary suit No. 1 of 1947 (Kali Kumar Chatterji vs. Rash Behari Banerjee and Ors.) in consideration of getting out of the said estate, if the said suit is won by or if some terms of settlement are concluded with or if the said suit is disposed of in favour of said Rash Behari Banerjee a sum of Rs. 1,25,000 only being four times the said sums of Rs. 25,000 as and by way of remuneration plus the said principal sum of Rs. 25,000. Pursuant to the said agreement, the settlor has already paid to the said Rash Behari Banerji a sum of Rs. 20,000 and the balance of Rs. 5,000 still remains unpaid. The trustees or the trustee for the time being shall have power to pay the said balance of Rs. 5,000 to Rash Behari Banerji when called upon to do so and in case the said suit is won or some terms of settlement are concluded with or the said suit is disposed of in favour of the said Rash Behari Banerji the said principal sum of Rs. 25,000 with an additional sum of Rs. 60,000 by way of profits will be refunded to the trust estate and the rest and residue shall be taken absolutely by the settlor." As it is necessary to examine the above provisions of the trust deed in the light of s. 16(1)(c) of the Indian IT Act, it is necessary to set out the relevant provisions thereof as follows : "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 this 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 purposes 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 : Provided further that the clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person and from which income the settlor or disponer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him." Leaving out of account the provisos it would appear that the section was aimed at charging in the hands of the transferor all income arising under a settlement to "any person" be he the transferor or not, if the transfer was a revocable one.
(3.) THE word "revocable" has been given a special meaning by the first proviso which is divisible into two parts. By the operation of the first part a settlement or transfer is to be treated as revocable if there be any provision in it for a direct or indirect retransfer of the income or the assets to the settlor. In other words it means that if the income of the properties, the subject- matter of the settlement accrues to some third person, but there is a provision for the same being made over to the settlor either directly or got at by him in any manner indirectly the settlement comes within the mischief of the section. THE same result is to follow if the assets are first transferred to somebody with a provision for the settlor being able to get the same back again by any direct or indirect means. THE second part of the proviso is aimed at preventing a transferor from being able to exercise a right over the income or the assets which he would have had but for the transfer. In substance the effect of the whole proviso is that to be out of the mischief of the section the settlor must divest himself from the income of the subject-matter of the trust or the beneficial enjoyment of the ownership thereof unreservedly. THE Second proviso defines what is a settlement or dispostition and who is a settlor or disponer for the purpose of the section. THE third proviso is a rider not only to the main section but also to the first proviso to it. But for the third proviso a settlement or disposition containing for the provision for retransfer of even a small fraction of the income to the settlor would render the whole income of the settlement chargeable in his hands. This proviso is aimed at ameliorating that situation by providing that the portion of the income from the trust properties which is settled on a third person is to be assessed in his hands if the settlor does not retain any power to deflect the same for a period exceeding six years or during the lifetime of the donee; provided, however, that if by the settlement such deflection was possible after the period of six years or after the lifetime of the donee the settlor would then become again assessable thereon. THE third proviso also goes to show that the settlement as a whole does not come within the mischief of the section if the revocability attaches only to a part of the income. It is further to be noted that the proviso does not touch a provision for retransfer of any part of the assets to the settlor or a right of the assessee to reassume power over the same within the meaning of the first proviso. Consequently, if the settlement enables the settlor to get a retransfer of the assets or to reassume power over the same after the date of the transfer the whole settlement become revocable and the settlor becomes assessable in respect of the whole income. The relevant provisions of the English statutes are not in pari materia with the above provisions : consequently, an examination of the English authorities will hardly be helpful in finding out the real import of the Indian statutory provisions. The notable decisions on s. 16(1)(c) cited at the bar were the cases of Ramji Keshavji vs. CIT (1945) 13 ITR 105 (Bom), and CIT vs. Kikabhai Premchand (1948) 16 ITR 207 (Bom). In the first of these cases there was a consent decree in a partition suit between the members of a Hindu family consisting of the assessee, his sons, daughters and his wife. By the decree all the properties in the possession of the assessee were declared to be his self-acquired propertis and it was agreed between the parties that a trust deed should be executed in respect of a house property in Bombay in terms of a draft agreement annexed thereto. The wife of the assessee was to be paid the net income of the property. A deed of trust was executed in due course by which all the right, title and interest of the assessee in the said premises were disposed of reserving to him the right to occupy during his life time a portion of the property which was already in his occupation. The deed provided that the trustees should collect the rents etc. and after meeting the necessary charges of collection and insurance premium, pay over the balance of the income to the wife for her life subject to the obligation on her part to maintain thereout the minor children so long as they resided with her. In case of the wife predeceasing the assessee the trustees were to pay from and after her death the balance of the income to the settlor for his lifetime. In case of the assessee's or his children's protracted illness the wife could apply to the trustees for payment of moneys to her to meet the medical expenses. The income tax authorities sought to include the income from the property in the total income of the assessee who, however, claimed protection under the third proviso to s. 16(1)(c). Kania and Chagla JJ. were unanimous in holding that the last-mentioned provision in the trust deed did not amount to one for retransfer of the assets or income or resumption of power directly or indirectly to the assessee within the meaning of the first proviso to s. 16(1)(c). With regard to the retention of the use of a portion of the property by the assessee, Kania J. said that it was not a retransfer or reassumption of the power contemplated by the first proviso. He observed however that "the words 'retransfer or reassume' necessarily involve a second transaction of a later time." He repelled the argument of the revenue Department that the provision for payment of the income to the assessee after the death of his wife amounted to a retransfer directly or indirectly of the said income or in any even reassumption of the power over the income or assets. He stated : "... the question is whether a contingent claim which may arise under a settlement, is covered by the proviso. Speaking for myself, I should very much hesitate before accepting this contention of Commissioner which imports into the proviso words which are not there. The settlor does not get a retransfer of the income or assets or a reassumption of power over the income or assets by reason of the proviso alone. He gets it by reason of the proviso, coupled with a contingency, which may or may not happen. It is only on the occurrence of the contingency that he acquires the right, and it appears arguable that this proviso does to cover such a case." Chagla J. agreed with the conclusions of Kania J., but took a different view with regard to the contingent claim of the assessee to the income after the death of his wife. He said : "... the words of the section are wide enough to cover even a provision for retransfer which is contingent in its nature. Proviso (1) to the section, when it refers to any provision, does not in any way qualify the nature or the character of the provision. If we find in the trust deed that there is a provision for retransfer, to my mind the proviso would apply whether the nature of the provision is that it postpones the retransfer on a contingency happening or it provides for the retransfer on a certain event happening." The learned judge went on to consider the relation between the first proviso and the third proviso and observed : "In my opinion sub-cl. (c) of s. 16(1) refers to all revocable transfers--transfers which are revocable in fact--transfer in which there is a provision for revocation on the part of the settlor. The proviso (1) then extends the definition of a revocable transfer and it provides that where in a deed of transfer there is a provision for retransfer directly or indirectly of the income of the assets to the settlor, or where such a deed in any way gives the settlor the right to reassume power directly or indirectly over the income or assets, such a deed must be deemed to be revocable transfer. Whereas proviso (1) extends the definition of revocable transfer, proviso (3) contains a limitation--a limitation of time which applies both to revocable transfers under the substantive provision of the sub-cl. (c) and also those which are deemed to revocable transfers within the meaning of proviso (1). What proviso (3) lays down is that when you have a deed which is not revocable for a period exceeding six years or during the lifetime of the person who is beneficiary and for whose benefit the property is settled, then such a deed does not come within the operation of sub-cl. (c) of s. 16(1), provided the other conditions, with which I need not deal at present, are also satisfied.... If you take a deed which is deemed to be revocable within the meaning of proviso (1), then if the provision for retransfer or the right to reassume power does not come into operation till after the period which exceeds six years or beyond the lifetime of the persons benefited, then also proviso (3) applies." ;