MAHARAJA OF PITHAPURAM Vs. COMMISSIONER OF INCOME TAX, MADRAS

JUDGEMENT

(1.) This appeal arises on a reference by the Commissioner of Income-tax, Madras, on the requisition of the appellant, under S. 66 (a), Income-tax Act, 1922, of the following question of law, viz. : "Whether the income of the year 1938-39 derived from the assets comprised in the revocable instruments of trust and settlement executed by the petitioner in favour of his four daughters on 5 April 1938, i. e., before the commencement of the Indian Income-tax Act, 7 of 1939, can be deemed to be income of the petitioner under revocable transfers of assets as contemplated by cl. (c) of sub-s. (1) of S. 16, Indian Income-tax Act, 11 of 1922, as amended by the Indian Income- tax (Amendment) Act 7 of 1939."

(2.) For the year 1939-1910, the appellant was assessed to income-tax on a total income of Rs. 2,19,610, which included a sum of Rupees 1,77,874, representing the total of the income arising from assets settled on his four daughters by the appellant by four deeds, all dated 6 April 1933, and all of which, subject to the necessary variation in the name of the particular beneficiary, were subject to the same conditions, viz.: (i) the properties were to be held in trust for each of his daughters by the appellant during his lifetime as trustee and after his death by his eldest son, the Yuvarajah of Pithapuram, as trustee; (ii) the properties were to be held in trust for each of the daughters for life and on their death, for their issue, male and female, and, in the event of any of the said daughters dying without issue, the properties were to revert to the holder for the time being of the Pithapuram estate; (iii) the appellant reserved to himself the full power to revoke the settlement or make any fresh disposition he liked; (iv) the trustee for the time being had the right to convert (into money) the properties described in the schedules and invest the same in any of the recognised securities under the Trust Act; (v) so long as the appellant was the trustee he had the absolute and uncontrolled discretion to invest in any kind of securities as he liked and without reference to the provisions of the Trust Act.

(3.) In each year of assessment up to and including the year 1938-1939, the income arising from the properties settled on each of the daughters was assessed separately in the name of each, though the assessment was made on the appellant as their trustee. In the assessment year 1939-1940, the Income-tax Officer sought to apply an alteration in the law enacted by S. 18, Income-tax (Amendment) Act, 1939 (Act 7 of 1939), which came into force on 1 April 1939, by virtue of a Government Notification in terms of S. 1 (2) of the Act, and to treat the income of the daughters as the income of the appellant. The appellant's objections to this course have so far been without success, and are the subject of this appeal. The material part of S. 18 of the Act of 1939 is as follows : "18. In S. 16 of the said Act,- (a) for sub-ss.(1)and (9) the following sub-sections shall be substituted, namely : (1) In computing the total income of an assessee- (c) all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939, from assets remaining the property of the settlor or disponer shall be deemed to be income of the settlor 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 this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the re-transfer 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 this 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."