Case: Motilal Chhadami Lal Jain Vs. Commissioner Of Income Tax , Delhi Etc

have held that they represent cases of diversion. That analogy cannot be extended to cases such as the present 15. We would also like, in this context, to refer to section 24(1)(iv) of the Income-tax Act, 1961. It provides for a deduction, in the computation of income from house property, in respect of the amount of an annual charge on the property. The statutory provision was initially wide enough to rope in cases of such charges irrespective of the purpose for which they were created and even where they were voluntarily created by an assessee. But the provision has been amended with effect from April 1, 1969, to exclude deduction of an annual charge voluntarily created by the assessee. The case before us is not one of income from house property computed under sections 22 to 24 and we are referring to this only as a matter of interest. This amendment also indicates that a charge voluntarily created would stand on a different footing from super-imposed chargesFor these reasons, we agree with the view taken by the High Court and hold that the assessee is liable to tax on the entire rental income of Rs. 21, 000 16. Turning now to the second question before us, it talks of the income from the properties "purported to have been transferred to the trust" and, in the words in quotation, lies the crucial issue in the case. There is no dispute that the income from the property is applied wholly for religious and charitable purposes. Section 4(3)(i) of the Indian Income-tax Act, 1922, and its successor section 11(1)(a) of the Income-tax Act, 1961 (in so far as they were applicable to the assessment years before us), exempt the income derived by an assessee from "property held in trust or other legal obligation" for such purposes. This exemption has been denied to the assessee on the short ground that the properties (with the income from which we are concerned) continue to vest in the assessee and have not been effectively transferred to the trust. This is said to be so for two reasons. The first is that the trust has been created in respect of immovable properties of the value of more than Rs. 100 and this is possible only if the properties had been duly conveyed to the trustees by a deed duly stamped and registered. The second is that the deeds of trust themselves do not speak of the corpus of the properties being held in trust. Clause (3) of the 1947 deed only stipulates that the income from the properties will be the income of the trust. A little later also the deed proceeds to set out the " properties the income from which will be used for the purposes of the trust". In other words, the deed only records the assessees desire to utilise the income for the objects mentioned in the deed and not for his personal benefit. The document of 1960 does not improve matters any further. So, it is said, no valid trust has been created by the assessee to merit the claim for exemptionWe are of the opinion that the view of the High Court proceeds on an unduly narrow construction of the deeds of 1947 and 1960. We have pointed out that, under the deed of 1947, the karta of the assessee-family is the sole trustee to execute the objects of the trust. It appears to have been overlooked that, while a registered conveyance to the trustees by the owner of immovable property is necessary where the trustees are persons other than the author, this requirement does not arise where the author of the trust is to be the sole trustee. While a trust is not complete until the trust property is vested in trustees for the benefit of the cestui que trust, this can be done by the settlor where he is himself the trustee, by a declaration of trust, using language which, taken in connection with his acts, shows clear intention on his part to divest himself of all beneficial interest in it and to exercise dominion and control over it exclusively in the character of a trustee. Section 6 of the Indian Trusts Act, 1882, makes this clear beyond all doubt. In the present case, there is a deed which makes clear the unequivocal intention to utilise the income from the properties in the manner set out in the deed of trust. It is in the context of the above legal position that one has to understand the references in the trust deed to the income from the properties belonging to the trust. Indeed, this is made clear by the conduct of the party all through and the language of the second deed. The assessees full ownership of, and unqualified right to enjoy the properties gets restricted and qualified on the execution of such a trust deed by the various conditions set out and imposed by the trust deed. The execution of the trust deed creates an overriding title in the beneficiaries thereunder (viz., the various cross-sections of the public covered by it) to require that the income from the properties which are made the subject-matter of the trust be utilised in the manner set out therein and in no other manner. Indeed, after the execution of the trust deed, the properties are no longer held by the assessee as the absolute owner thereof ; they are held by the assessee under trust and a legal obligation to apply the income exclusively for charitable purposes, thus attracting the provisions for exemption contained in the ActFor the reasons discussed above, we are inclined to take the view that the deed of 1947 should be construed as a valid trust which has the effect of diverting the income at the source and that the income thereafter has ceased to be the income of the assessee-family. We, therefore, answer the question referred to the High Court on this issue in favour of the assessee17.

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

Explanation:
1[ds]We are of the opinion that this contention cannot be accepted. As we have pointed out earlier, the right given to the college to sue the company is only the right to recover part of amount which has already accrued to the assessee. The creation of a charge in favour of the college does not make any difference. It only obliges the company to pay a part of the rent to the college on behalf of the assessee but the existence of a mere obligation is not sufficient to constitute diversion of income. The classic statement of the true principle is set out in CIT v. Sitaldas Tirathdas 1961 (41) ITR 367 , 374would also like, in this context, to refer to section 24(1)(iv) of the Income-tax Act, 1961. It provides for a deduction, in the computation of income from house property, in respect of the amount of an annual charge on the property. The statutory provision was initially wide enough to rope in cases of such charges irrespective of the purpose for which they were created and even where they were voluntarily created by an assessee. But the provision has been amended with effect from April 1, 1969, to exclude deduction of an annual charge voluntarily created by the assessee. The case before us is not one of income from house property computed under sections 22 to 24 and we are referring to this only as a matter of interest. This amendment also indicates that a charge voluntarily created would stand on a different footing from super-imposed chargesFor these reasons, we agree with the view taken by the High Court and hold that the assessee is liable to tax on the entire rental income of Rs. 21,now to the second question before us, it talks of the income from the properties "purported to have been transferred to the trust" and, in the words in quotation, lies the crucial issue in the case. There is no dispute that the income from the property is applied wholly for religious and charitable purposes. Section 4(3)(i) of the Indian Income-tax Act, 1922, and its successor section 11(1)(a) of the Income-tax Act, 1961 (in so far as they were applicable to the assessment years before us), exempt the income derived by an assessee from "property held in trust or other legal obligation" for such purposes. This exemption has been denied to the assessee on the short ground that the properties (with the income from which we are concerned) continue to vest in the assessee and have not been effectively transferred to the trust. This is said to be so for two reasons. The first is that the trust has been created in respect of immovable properties of the value of more than Rs. 100 and this is possible only if the properties had been duly conveyed to the trustees by a deed duly stamped and registered. The second is that the deeds of trust themselves do not speak of the corpus of the properties being held in trust. Clause (3) of the 1947 deed only stipulates that the income from the properties will be the income of the trust. A little later also the deed proceeds to set out the " properties the income from which will be used for the purposes of the trust". In other words, the deed only records the assessees desire to utilise the income for the objects mentioned in the deed and not for his personal benefit. The document of 1960 does not improve matters any further. So, it is said, no valid trust has been created by the assessee to merit the claim for exemptionWe are of the opinion that the view of the High Court proceeds on an unduly narrow construction of the deeds of 1947 and 1960. We have pointed out that, under the deed of 1947, the karta of the assessee-family is the sole trustee to execute the objects of the trust. It appears to have been overlooked that, while a registered conveyance to the trustees by the owner of immovable property is necessary where the trustees are persons other than the author, this requirement does not arise where the author of the trust is to be the sole trustee. While a trust is not complete until the trust property is vested in trustees for the benefit of the cestui que trust, this can be done by the settlor where he is himself the trustee, by a declaration of trust, using language which, taken in connection with his acts, shows clear intention on his part to divest himself of all beneficial interest in it and to exercise dominion and control over it exclusively in the character of a trustee. Section 6 of the Indian Trusts Act, 1882, makes this clear beyond all doubt. In the present case, there is a deed which makes clear the unequivocal intention to utilise the income from the properties in the manner set out in the deed of trust. It is in the context of the above legal position that one has to understand the references in the trust deed to the income from the properties belonging to the trust. Indeed, this is made clear by the conduct of the party all through and the language of the second deed. The assessees full ownership of, and unqualified right to enjoy the properties gets restricted and qualified on the execution of such a trust deed by the various conditions set out and imposed by the trust deed. The execution of the trust deed creates an overriding title in the beneficiaries thereunder (viz., the various cross-sections of the public covered by it) to require that the income from the properties which are made the subject-matter of the trust be utilised in the manner set out therein and in no other manner. Indeed, after the execution of the trust deed, the properties are no longer held by the assessee as the absolute owner thereof ; they are held by the assessee under trust and a legal obligation to apply the income exclusively for charitable purposes, thus attracting the provisions for exemption contained in the ActFor the reasons discussed above, we are inclined to take the view that the deed of 1947 should be construed as a valid trust which has the effect of diverting the income at the source and that the income thereafter has ceased to be the income of the assessee-family. We, therefore, answer the question referred to the High Court on this issue in favour of the assessee