COMMISSIONER OF INCOME TAX Vs. JITENDRA NATH MALLICK

JUDGEMENT

(1.) IN this reference the point of issue is whether a trust deed was executed by the assessee contains a provision for the retransfer directly or indirectly of the income or assets of the trust property to him or in any way gives him a right to reassume power directly or indirectly over the said income or assets. It was argued on behalf of the Revenue that the trust deed contains more than one such provision by reason whereof the transfer of assets to the trustees can be said to be revocable within the meaning of s. 16(1)(c) of the INdian IT Act and all income from the trust property must be deemed to be the income of the assessee and taxed as such.

(2.) THE settlor in this case owned valuable immovable properties situate in Calcutta and elsewhere. Being minded to settle these for the benefit of himself, his three sons, one being unmarried, and two daughters-in-law, he executed a deed of trust on 10th Aug., 1949, under which he along with his sons became the trustees. THE properties described in the schedule to the deed are the trust properties subject to the conditions laid down in cl. (5) of the document. THE deed recites that the settlor was possessed of the properties mentioned in the schedule to it as also of the benefit of a mortgage executed by Madhu Sudhan Das Burman and others in his favour for a sum of Rs. 4,30,000 with interest and being desirous of settling the properties including all cash and bank balances belonging to him for the benefit of the persons mentioned, he was executing the deed of trust. As the question involved is one of the proper construction of the document it is necessary to quote the exact language of it so far as the relevant portions are concerned. THEy are as follows :

(3.) THE word "revocable" has been given a special meaning by the first proviso which is divisible into two parts. By the operation of the first part a settlement or transfer is to be treated as revocable if there be any provision in it for a direct or indirect retransfer of the income or the assets to the settlor. In other words it means that if the income of the properties, the subject- matter of the settlement accrues to some third person, but there is a provision for the same being made over to the settlor either directly or got at by him in any manner indirectly the settlement comes within the mischief of the section. THE same result is to follow if the assets are first transferred to somebody with a provision for the settlor being able to get the same back again by any direct or indirect means. THE second part of the proviso is aimed at preventing a transferor from being able to exercise a right over the income or the assets which he would have had but for the transfer. In substance the effect of the whole proviso is that to be out of the mischief of the section the settlor must divest himself from the income of the subject-matter of the trust or the beneficial enjoyment of the ownership thereof unreservedly. THE Second proviso defines what is a settlement or dispostition and who is a settlor or disponer for the purpose of the section. THE third proviso is a rider not only to the main section but also to the first proviso to it. But for the third proviso a settlement or disposition containing for the provision for retransfer of even a small fraction of the income to the settlor would render the whole income of the settlement chargeable in his hands. This proviso is aimed at ameliorating that situation by providing that the portion of the income from the trust properties which is settled on a third person is to be assessed in his hands if the settlor does not retain any power to deflect the same for a period exceeding six years or during the lifetime of the donee; provided, however, that if by the settlement such deflection was possible after the period of six years or after the lifetime of the donee the settlor would then become again assessable thereon. THE third proviso also goes to show that the settlement as a whole does not come within the mischief of the section if the revocability attaches only to a part of the income. It is further to be noted that the proviso does not touch a provision for retransfer of any part of the assets to the settlor or a right of the assessee to reassume power over the same within the meaning of the first proviso. Consequently, if the settlement enables the settlor to get a retransfer of the assets or to reassume power over the same after the date of the transfer the whole settlement become revocable and the settlor becomes assessable in respect of the whole income.