MAHARAJA OF PITHAPURAM Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS appeal arises on a reference by the 'commissioner of Income-tax, Madras, on the requisition of the appellant, under Section 66 (2) of the Indian 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 April 5, 1933, i. e. before the commencement of the Indian Income-tax Act},. VII of 1939, can be deemed to be income of the petitioner under revocable transfers of assets as contemplated by Clause (c), of Sub-section (1) of Section 16 of the Indian Income-tax Act, XI of 1922, as amended by the Indian Income-tax Amendment Act, VII of 1939 ? For the year 1939-40 the appellant was assessed to income-tax on a total income of Rs. 2,19,640, which included a sum of Rs. 1,77,374, representing the total of the income arising from assets settled on his four daughters by the appellant by four deeds, all dated April 5, 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 Yuvaraja 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 Indian Trusts 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 Indian Trusts Act.

(2.) IN each year of assessment and 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 Section 18 of the INdian INcome-tax (Amendment) Act, 1939' (VII of 1939), which camp into force on April 1, 1939, by virtue of a Government Notification in terms of Section 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.

(3.) IN the first place, it is dear to their Lordships that under the express terms of Section 3 of the INdian INcome-tax Act, 1922, the subject of charge is not the income of the year of assessment, but the income of the previous year. This is in direct contrast to the English INcome-tax Acts, under which the subject of assessment is the income of the year of assessment, though the amount is measured by a yardstick based on previous years. The difference is well illustrated by the distinction that in England the source of income must still be extant in the year of assessment but that that is not of relevance in INdia, Their Lordships may refer to the able judgment of Rankin J. in Behari Lal Mullick v. Commr. of INcome-tax (1927) 2 I. T. C. 328 with which they agree.