Case: Commissioner Of Income-Tax, Punjab, Jammu &amp;Kashmir, Himac Vs. Raghbir Singh

over the income or assets. The provision may even be for retransfer indirectly or for conferring power to reassume indirectly over the income or the assets. But the actual retransfer or exercise of the power to reassume is not necessary; if there be a provision of the nature contemplated, the proviso operates.6. The terms of the deed may now be examined. The shares were settled upon trust, and four trustees one of whom was the respondent were appointed. Genuineness of the trust is no longer in dispute. The direction that the shares are to stand in the name of the Chairman for the time being appears to have been necessitated by S. 33 of the Indian Companies Act, 1913 which prevented notice of any trust, expressed, implied or constructive to be entered on the register. The deed recites that the shares are to be held on trust irrevocably by the trustees for all or any of the purposes mentioned therein. The purpose for which the shares are to be held in the first instance is to pay off the debt due to R. B. Seth Jessa Ram Fateh Chand, and it is only after the debt is paid off that the directions in cls. (b) to (f) of cl. 2 come into operation. The deed is in terms expressly irrevocable, but on that account the operation of the first proviso is not excluded. If by the direction for application of the income for satisfaction of the debts due by the respondent, it could be said in law that there is a provision for retransfer directly or indirectly of the income or a right to reassume directly or indirectly power over the income, the settlement would be deemed revocable, recital that it is irrevocable notwithstanding.7. But the income from the shares since the execution of the deed of settlement arises to the trustees and it is liable to be applied for the purposes mentioned in the deed. The income has to be applied for satisfaction of debts which the settlor was under an obligation to discharge, but that is not to say that there is a provision for retransfer of the income or assets to the settlor, or that the settlor is invested with power to reassume the income or assets. The assets and the income are unmistakably impressed with the obligations arising out of the deed of trust. The settlor it is true obtains a benefit from the trust consequent upon satisfaction of his liability, but on that account the first proviso is not attracted.8. We are unable to accept the argument of counsel for the revenue that by the use of the expression "indirectly" in the first proviso the Legislature sought to bring within the purview of cl. (c) cases where the settlor was under the guise of a trust seeking to discharge his own liability. The proviso contemplates cases in which there is a provision for retransfer of the income or assets and such provision is for retransfer directly or indirectly. It also contemplates cases where there is a provision which confers a right upon the settlor to reassume powers over the income or assets directly or indirectly. It is the provision for retransfer directly or indirectly of income or assets or for reassumption of powers directly or indirectly over income or assets which brings the cases within the first proviso. Cases in which there is a settlement, but there is no provision in the settlement for retransfer or right to reassume power do not fall within the proviso, even if as a result of the settlement, the settlor obtains a benefit.9. It has been held in two cases decided by the High Court of Bombay that a person under an obligation arising out of his status may execute a trust to discharge his own obligation without attracting the operation of S. 16(1)(c). In Ramji Keshavji v. Commr. of Income-tax Bombay, 1945-13 ITR 105 : (AIR 1945 Bom 254 ) under a consent decrees, the assessee executed a deed of trust conveying certain properties for the benefit of his wife to the trustees. The deed provided that the net income from the properties shall be paid to the assessees wife during her lifetime and that she shall maintain her minor children by the assessee and "run the household". It was held by the High Court that the income derived from the trust property and payable to the assessees wife during her lifetime could not be deemed to be the asesseess income, for the direction in the deed did not amount to a provision for retransfer of the income or assets or for reassumption of power directly or indirectly over income or assets within the meaning of the first proviso to S. 16(1)(c). In D. R. Shahapure v. Commr. of Income-tax, Bombay, 1946-14 ITR 781 (Bom) the assessee with the object of making a provision for his wife made an entry in his business books of accounts crediting Rs.20,000 and endorsed against the entry. "The capital supplied to you will remain entirely mine but you will get the income over it up to the end of your life. This capital I will not take back up to the end of your life but I will do business for you on this capital and see that you get Rs.600 per annum for you". No specific assets were set apart to meet the sum of Rs.20,000 and there were no other entries in the books with regard to it. The High Court held that the entry was an irrevocable covenant to pay the income accruing on Rs.20,000 with a guarantee that it shall be Rs.600 a year, and therefore the case was covered by the third proviso to S. 16(1)(c) of the Act and the income which was paid to the wife under the covenant could not be deemed to be the income of the assessee under the first part of S. 16(1)(c). In our view these cases were correctly decided.

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

Explanation:
0[ds]8. We are unable to accept the argument of counsel for the revenue that by the use of the expression "indirectly" in the first proviso the Legislature sought to bring within the purview of cl. (c) cases where the settlor was under the guise of a trust seeking to discharge his own liability. The proviso contemplates cases in which there is a provision for retransfer of the income or assets and such provision is for retransfer directly or indirectly. It also contemplates cases where there is a provision which confers a right upon the settlor to reassume powers over the income or assets directly or indirectly. It is the provision for retransfer directly or indirectly of income or assets or for reassumption of powers directly or indirectly over income or assets which brings the cases within the first proviso. Cases in which there is a settlement, but there is no provision in the settlement for retransfer or right to reassume power do not fall within the proviso, even if as a result of the settlement, the settlor obtains a benefit.9. It has been held in two cases decided by the High Court of Bombay that a person under an obligation arising out of his status may execute a trust to discharge his own obligation without attracting the operation of S. 16(1)(c). In Ramji Keshavji v. Commr. of Income-tax Bombay, 1945-13 ITR 105 : (AIR 1945 Bom 254  ) under a consent decrees, the assessee executed a deed of trust conveying certain properties for the benefit of his wife to the trustees. The deed provided that the net income from the properties shall be paid to the assessees wife during her lifetime and that she shall maintain her minor children by the assessee and "run the household". It was held by the High Court that the income derived from the trust property and payable to the assessees wife during her lifetime could not be deemed to be the asesseess income, for the direction in the deed did not amount to a provision for retransfer of the income or assets or for reassumption of power directly or indirectly over income or assets within the meaning of the first proviso to S. 16(1)(c). In D. R. Shahapure v. Commr. of Income-tax, Bombay, 1946-14 ITR 781   (Bom) the assessee with the object of making a provision for his wife made an entry in his business books of accounts crediting Rs.20,000 and endorsed against the entry. "The capital supplied to you will remain entirely mine but you will get the income over it up to the end of your life. This capital I will not take back up to the end of your life but I will do business for you on this capital and see that you get Rs.600 per annum for you". No specific assets were set apart to meet the sum of Rs.20,000 and there were no other entries in the books with regard to it. The High Court held that the entry was an irrevocable covenant to pay the income accruing on Rs.20,000 with a guarantee that it shall be Rs.600 a year, and therefore the case was covered by the third proviso to S. 16(1)(c) of the Act and the income which was paid to the wife under the covenant could not be deemed to be the income of the assessee under the first part of S. 16(1)(c). In our view these cases were correctly decided.But the income from the shares since the execution of the deed of settlement arises to the trustees and it is liable to be applied for the purposes mentioned in the deed. The income has to be applied for satisfaction of debts which the settlor was under an obligation to discharge, but that is not to say that there is a provision for retransfer of the income or assets to the settlor, or that the settlor is invested with power to reassume the income or assets. The assets and the income are unmistakably impressed with the obligations arising out of the deed of trust. The settlor it is true obtains a benefit from the trust consequent upon satisfaction of his liability, but on that account the first proviso is not attracted.