KESHAVLAL PUNJARAM Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Tribunal under Section 66(1) of the Indian Income-tax Act, 1922, and the questions raised involve the construction of8. 16 of the Indian Income-tax Act. The year of assessment is the year 1939-40, and the accounting year is from April 1, 1938, to March 31, 1939.

(2.) THE facts giving rise to the questions raised are these. On April 18, 1928, the assessee executed a settlement of certain hundis and promissory notes, which were transferred to trustees, and under Clause (2) of the settlement the trustees were to pay the income arising from the settled fund to Harshadrai, the son of the settlor, during his life, and by Clause (3), after the death of Harshadrai, the trustees were to hold the trust funds in trust for his heirs according to Hindu law, and by Clause (10) the settlor reserved to himself a general power of revocation. On December 13, 1938, that is to say, during the accounting year, the settlor executed another deed revoking Clauses (2) and (10) of the original settlement, that is to say, the life interest to his son and the power of revocation, and declared fresh trusts during the lifetime of the son. THEn he reserved a power to revoke, wholly or partially, the trusts, powers and provisions declared by the document, which I am now stating, or the trust deed of April 18, 1928, and to declare such new or other trusts of and concerning the same or any part or parts thereof for the benefit of Harshadrai, his children or lineal descendants or for the benefit of any other child or children of the settlor, their, his or her lineal descendants in such manner and in such proportions as the settlor might think fit. I will as-sume that that is a limited power of revocation, and that the settlor could only revoke the trusts for the purpose of declaring new trusts in favour of the class mentioned. That being the condition of the settlements, the question is whether under Section 16 of the Indian Income-tax Act, the income of the trust fund has to be added to that of the assessee-settlor for the purposes of income-tax. THE relevant provisions of Section 16 are that in computing the total income of an assessee all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor. THEn there are three provisos, and, in my opinion, only the first of them is relevant. That provides : 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.

(3.) THE questions also relate to the income of a settlement made in favour of one of the settlor's daughters, Kantagauri. So far as the question of the power of revocation is concerned, I think the daughter's settlement is substantially in exactly the same terms as the son's settlement; but on the particular assessment with which we are dealing no question arises as to the daughter's settlement, because the original settlement in her favour was made in December, 1930, and that reserved a general power of appointment, but the modification of the power of appointment was contained in a deed of January 20, 1940, after the accounting period, so that there is no doubt that in the case of the daughter there was revocable transfer of assets.