COMMISSIONER OF INCOME TAX Vs. S M BOSE

JUDGEMENT

(1.) THIS is a reference made by the Tribunal under s. 66 of the Indian IT Act at the instance of the CIT. The assessee is Sir S. M. Bose, the present Advocate-General of West Bengal. In the assessment for the year in question the income from certain properties purchased by the assessee in the names of his sons and made the subject matter of a trust in favour of his daughter were added to his own income. The assessee appealed, but on appeal the AAC came to the conclusion that these properties were the subject-matter of a bona fide trust and that the income from these properties belonged to the daughter and could not be regarded as part of the income of the assessee. The income was therefore excluded from the total income of the assessee for the purposes of the assessment. There was an appeal to the Tribunal and the CIT contended that the AAC was wrong in holding that the income from the trust property was not assessable as part of the assessee's income. The Tribunal however upheld the view of the AAC that the income from these trust properties formed no part of the assessee's income and could not be assessed to tax as being part of it. The CIT being dissatisfied asked the Tribunal to state a case and the Tribunal have stated the following questions :--

(2.) NO argument has been addressed to us which would suggest that the trust deed of 15th Dec., 1941, was not a valid and proper trust in favour of the assessee's daughter. The document is annexed to the case and it is in the ordinary form of an out and out trust on the English model. The settlor settles certain property on himself as trustee to hold the property in trust for the beneficiary who is his daughter. There is an out and out divesting and there is no power of revocation and the settlor does not retain any right whatsoever over the property either the corpus or the income. The deed provides that the trustee is to take possession and after paying outgoings he has to pay the income of the trust estate to his daughter Aloka during the term of her natural life for her sole and separate use. There are provisions as to how the income is to be dealt with on the death of Aloka. But it is to be observed that the settlor retains no control whatsoever over that income and has no right to it.

(3.) PROVISIONS are made to prevent frivolous litigation and prevent questioning the bona fides of the trustee, but those provisions do not have the effect of giving the settlor a right to reassume power directly or indirectly over the income or the assets. After this deed was executed the income of these properties belonged to the cestui que trust and if the settlor as trustee used this income he would be guilty of a breach of trust. The first proviso to s. 16(1)(c) only contemplates cases where the settlor can lawfully reassume power over the income or the assets. Unless that was so, the proviso would cover every trust where a settlor has made himself trustee because a trustee acting dishonestly could always assume control over the income.