Case: Commissioner of Income Tax, Bombay City Vs. Ratilal Nathalal

settlement it was only his individual income and that section 16(1) (c) had no application to him.The income-tax authorities overruled this contention. The assessee appealed to the Income-tax Appellate Tribunal; but by order the 16th March, 1950, it confirmed the view taken by the income-tax authorities.Thereupon at the instance of the respondent, the Tribunal stated a case to the High Court of Bombay under section 66(1) of the Act and referred the following question for its decision;"Whether in the circumstances of the case and on the true construction of the settlement deed, is the income from the trust property liable to be included in the income of the assessees Hindu undivided family?"The contention of the assessee before the High Court was two-fold :(1) that the settlor under the trust deed was not the Hindu undivided family as the income-tax authorities were inclined to hold, but that the settlement was by two individual male members of the family, viz., Ramjibhai and Ratilal; and (2) that, in any case, the income in the hands of Ratilal was his individual income and not the joint family income.On the first point, the learned Judges held against the assessees contention. In their view the two individuals, Ramjibhai and Ratilal executed the trust deed not in their individual capacity but as the sole coparceners of the Hindu undivided family and representing the said family. On the second point, however, they held in favour of the assessee and against the Commissioner.This appeal has accordingly been brought by the Commissioner of Income-tax against that decision.4. The view taken by the High Court that the settlement deed was executed by both Ramjibhai and Ratilal on behalf of the Hindu undivided family as the settlor has not been disputed before us on either side. The sole question for our consideration is whether or not the view taken by the High Court on the second point is right. The view taken by the learned Judges of the High Court appears from the following passage in the judgement. "Now the settlement of this property was made by Ramjibhai and Ratilal not in their individual capacity but as members of the joint family and as representating that family. It is clear on this trust deed that the income which Ratilal receives after the death of Ramjibhai is received by him not on behalf of the joint family but in his own individual capacity. Ratilal alienated the property in one capacity and he receives the benefit under the trust deed in the altogether different capacity. Therefore it cannot be stated that this trust deed in any way benefits the joint family".The learned Attorney-General for the Income-tax Commissioner, while not seriously disputing that on the mere construction of the trust deed the income in the hands of Ratilal were intended to be his individual income, contends that the learned Judges erred in imposing any question of capacity in which the income is held by Ratilal, into the application of section 16(1) (c).He puts his argument in this way. The last portion of section 16(1)(c) provides that all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be the income of the transferor. The first proviso to section 16(1)(c) enacts that a settlement shall be deemed to be revocable if it contains any provision for the transfer directly or indirectly of the income or assets to the settler. The second proviso, enacts that the expression settlor in relation to a settlement shall include any person by whom the settlement or disposition was made. It is, therefore, urged that by virtue of the second proviso. Ratilal though only one of the two persons who executed the settlement deed, is the "settlor", and that the provision in the trust deed that the income was to be enjoyed by Ratilal after the death of Ramjibhai is, in substance, "a provision contained in the trust deed for a retransfer of the income to the settlor". In this view, the last portion of clause (c) of sub-section (1) of section 16 is attracted and the income arising to Ratilal must be deemed to be income of the transferor, i. e. of the Hindu undivided family, in view of the finding not disputed by either side that the settlor was the joint family.The fallacy of this argument consists in treating the respondent Ratilal as one out of two settlors for the purpose of the second proviso while treating the family as the settlor for the purpose of the last portion of clause (c) of section 16(a). If, at the outset, the settlor was the Hindu undivided family and the trust deed was executed by both the persons as the sole surviving coparceners representing the family, the second proviso which treats one out of a group of settlors as the "settlor" cannot come into operation because the Hindu undivided family is a unit independent of and larger than the two coparceners and is not merely a collection of the individuals who acted on its behalf.Therefore, the provision in the settlement deed giving the income back to Ratilal, even if it be taken as a retransfer of the income, cannot be treated as such retransfer to the original settlor, viz., the Hindu undivided family. Hence the last portion of clause (c) of section 16(1) does not come into operation.It follows accordingly that the contention on behalf of the appellant that what was intended under the terms of the trust deed as the individual income of the respondent Ratilal, becomes the joint family income by a process of successive application of the fictions enacted in the last portion of clause (c) of section 16(1), and the two provisos thereto, cannot be accepted. This is enough to dispose of the appeal.It is unnecessary, therefore, to express any opinion on the contention raised in reliance on --- Ramji Keshavji, v. Commr. of Income-tax, Bombay, AIR 1945 Bom 254 (A), that there is no retransfer of income in this case.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The fallacy of this argument consists in treating the respondent Ratilal as one out of two settlors for the purpose of the second proviso while treating the family as the settlor for the purpose of the last portion of clause (c) of section 16(a). If, at the outset, the settlor was the Hindu undivided family and the trust deed was executed by both the persons as the sole surviving coparceners representing the family, the second proviso which treats one out of a group of settlors as the "settlor" cannot come into operation because the Hindu undivided family is a unit independent of and larger than the two coparceners and is not merely a collection of the individuals who acted on its behalf.Therefore, the provision in the settlement deed giving the income back to Ratilal, even if it be taken as a retransfer of the income, cannot be treated as such retransfer to the original settlor, viz., the Hindu undivided family. Hence the last portion of clause (c) of section 16(1) does not come into operation.It follows accordingly that the contention on behalf of the appellant that what was intended under the terms of the trust deed as the individual income of the respondent Ratilal, becomes the joint family income by a process of successive application of the fictions enacted in the last portion of clause (c) of section 16(1), and the two provisos thereto, cannot be accepted. This is enough to dispose of the appeal.