RAMJI KESHAVJI Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference made by the Income tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act.

(2.) THE relevant facts are these. THE assessee had a son Shivji by his first wife, a son Vassanji by his second wife, his third wife Kamalabai and three sons and three daughters by the said wife. Disputes arose in the family about the rights of the adult sons, and High Court Suit No. 1836 of 1936 was filed by Vassanji against the assessee and the other members of the family claiming that all the estate in the hands of the assessee was joint family property and the parties were entitled to their rights on that footing. After the litigation had gone on for some time, a consent decree was taken on December 23, 1938. Under that consent decree it was inter alia declared that all the properties in the possession of the assessee were his self-acquired properties. It was further declared that in respect of the Ulster Road house in Bombay a trust deed should be executed in accordance with the draft which was annexed as schedule "C" to the consent decree. By the consent decree it was further provided that defendant No. 6 (i. e. the wife of the assessee) should be paid the net income of the said Ulster Road property from and after January 1, 1939. In pursuance of the said consent decree the assessee, who was defendant No. 1 in that litigation, executed a trust deed in respect of the Ulster Road property. THE relevant portions of the deed can be briefly summarized as follows. By the trust deed the assessee transferred the Ulster Road property to the trustees. In doing that he used the following words: And all the estate right title interest property claim and demand whatsoever of him the settlor of in and to the said premises and every part thereof except and reserving unto the settlor the right to occupy during his lifetime the portion of the said premises and also the garage on the said premises occupied by him. . . . In respect of the income it was provided that the trustees should collect the rents and after paying the necessary charges of collection and the premia for insurance during the lifetime of Kamalabai, pay the balance to Kamalabai for and during her lifetime and down to her death, subject to the obligations during the lifetime of the settlor to maintain thereout during their respective minorities her children by the settlor so long as they reside with her and to run the household at Nasik in the manner and to the extent as the said Kamalabai may deem fit. Under Clause 4 it was provided that from and after the death of the said Kamalabai the said trustees shall pay the balance (hereinafter called "the said income") of the said rents, interest, dividends and other income of the said trust premises after meeting the costs and expenses referred to above to the settlor for and during his life if he shall survive her. Under Clause 5 it was provided as follows: Provided always that the said trustees shall from time to time at the request in writing of the said Kamalabai and after her death at the request in writing of the settlor if he shall survive her realise from the said trust premises and pay to her or to the settlor (as the case may be) such sum or sums of money as she or he may require them to realise for the purpose of enabling her or him to meet and defray the expenses of any auspicious or inauspicious occasion in respect of all or any of the settlor's children by the said Bai Kamalabai not herein-otherwise expressly provided for or the expenses of any protracted illness of the said Bai Kamalabai or the settlor or any of their children or of any other member of the settlor's family or the expenses relating to the preservation or improvement of health by means of a change of air or otherwise of the said Bai Kamalabai or of the settlor or any of their children or any such member as aforesaid but so nevertheless that the aggregate of the surplus so realised and paid as aforesaid to the said Bai Kamalabai or to the settlor Shall not in any six consecutive months exceed the sum of Rupees two thousand nor exceed in any event whatever the total sum of Rupees ten thousand.

(3.) I shall consider next each of the grounds urged on behalf of the Commissioner in this connection. The first is that the settlor has retained the use of a portion of the property for himself and the use of the garage. Against that it is sufficient to observe that this is not a re-transfer or reassumption of the power, contemplated by the proviso. The words "retransfer or reassume" necessarily involve a second transaction of a later time. The only question which can be debated in respect of this clause is whether at the moment of settlement his whole property less this right of residence was transferred, or the whole property was transferred and the settlor retained this right for himself. In any event there is no question of re-transfer because after the settlement there is no further step taken to alter the position of the parties in respect of this right of occupancy. The second ground urged is that under Clause 3 of the deed of trust the settlor has provided for the maintenance of his wife and children and, therefore, he gets the benefit, directly or indirectly, of the income or assets. I may point out that this again is not a re-transfer or re-assumption of the power over the income. In my opinion, the argument that by this clause the settlor has retained for himself a benefit, because his obligation to maintain his wife and children to the extent of the income of this property is fulfilled, is unsound. To carry to its logical conclusion, the contention of the Commissioner must be that, even after a man's wife and children have established in a Court of law a right of separate residence and maintenance, and under an order of the Court he is ordered to settle separate property for the maintenance and residence of his wife and children, and although in those circumstances the settlor has got no control over the income or the disposal because he is by this arrangement absolved from the legal obligation of maintaining his wife and children, he derives benefit from that and is thus directly or indirectly retransferring the income to himself. In my opinion, this contention is quite unsound. He may be free from a legal obligation, but he is retransferring nothing to himself. I do not think that the Indian Income-tax Act ever contemplated that the income which is so settled and which has so gone completely out of the control of the settlor, is still to be computed in the total income of the assessee.