R B SHAH Vs. COMMISSIONER OF INCOME-TAX BOMBAY

JUDGEMENT

(1.) The question that has been referred to us for our opinion under section 66(1) of the Indian Income-tax Act, 1922 at the instance of the assessee runs as follows :- "Whether on the facts and in the circumstances of the case, the entire income from property held under trust dated 3rd April, 1946, could be included in the total income of the assessee under section 16(1)(c) read with its first proviso ?"

(2.) The material facts giving rise to this question may briefly be stated. The question relates to the assessment year 1953-54 the corresponding previous year being the year ended 31st March 1953. The assessee R. B. Shah is an individual whose main 1946 the assessee settled certain properties worth Rs. 2 lakhs on certain trusts. The net income of the properties held under trust, after meeting the incidental expenses, was first to be paid fully to the assessee til his brother Virendra attained majority. After Virendra attained majority, 50% of the net income from the trust was to be paid to the assessee and 50% was to be utilised by the trustees for the maintenance, education, advancement and upbringing of Virendra and his sister Saroj until Saroj or got married, whichever was earlier, the balance of the income was to be paid to Virendra. There were further provisions about the disposal of the income and assets after the death of the assessee and Virendra, with which we rent concerned in this reference. Admittedly before the commencement of the year of account Virendra attained majority, with the result for the assessment year in question it was the second clause of the deed that was applicable, namely, 50% of the net income from the trust was to be paid to the assessee and 50% was to be utilised for the maintenance, education, advancement and upbringing of Virendra and his sister Saroj.

(3.) Before the Income-tax Officer the assessee contended that the income from the property held under trust was liable to be taxed in the hands of an association of persons and not in his own hands. The Income-tax Officer did not accept this contention and included the whole of the income from the properties settled upon trust in the total income of the assessee. The matter was carried in appeal to the Appellate Assistant Commissioner, who confirmed the inclusion of the full income from the trust properties in the assessee's total income. He did so on the ground that the settlement came within the extended meaning of 'revocable transfer' as specified in the first proviso to section 16(1)(c). He took the view that the provision in the trust deed whereby the assessee as the settlor had made himself eligible for atleast 50% of the income form the trust properties clearly brought the settlement within the scope of the first proviso as also the third proviso. The assessee carried the matter further in second appeal to the Appellate Tribunal. It was contended on behalf of the assessee before the Appellate Tribunal that the settlement did not come within the first proviso to section 16(1)(c), because the settlor had no right to reassume power directly or indirectly over the income or assets. It was contended that the proviso contemplated two stages, namely, creation of a settlement and subsequent commission of an act which would result in the reassumption of power over the income or assets of the trust and that in the instant case all that had happened was that the assessee had settled certain properties on trust and he had done nothing subsequently in order to get 50% of the income from the trust properties. Relying upon this Court's decision in the case of Ramji Keshavji vs. C.I.T., Bombay, reported in 13 ITR 105 it was submitted that atleast 50% of the income from the trust properties should be excluded from the income of the assessee. On behalf of the Department it was urged that the decision in 13 ITR 105 was not at all relevant to the point at issue it was clear from the provisions of the trust deed that immediately on attainment of majority by Virendra the assessee became entitled to half the income from the trust properties and as such the trust was deemed to be a revocable trust falling within the first proviso to section 16(1)(c). The Tribunal dismissed the appeal and while doing so took the view that the settlement dated 3rd April, 1946 must be deemed to be revocable because it contained a provision for the re-transfer of the income of the trust properties to the assessee or it gave him a right to reassume power over the income of the trust properties. IT further held that no doubt in the beginning the assessee could take over the whole income and subsequently he could take over half the income, but the extent of the income over which the assessee had a right was not material, the decisive thing being the provision in the settlement to transfer the assets which made it possible for the assessee to secure a part of the whole of the income from the properties transferred to the Trust. As is stated above it is at the instance of the assessee that the aforementioned question has been referred to us for our opinion.