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

2. The proceedings relate to the four assessment year,5, andand arise under the following circumstances:There was a Hindu undivided family consisting of one (1) Ramjibhai (2) his son, Ratilalrespondent before us, (3) Ramjibhais wife, Kamlawanti, (4) Ratilals wife, Kantabai and (5) Ramjibhais unmarried daughter, Pushpa, on the 27th July, 1933, Ramjibhai and Ratilal, who were the sole coparceners, at the time, of the said Hindu undivided family, executed a trust deed is respect of four items of house property belonging to the joint family, which owned at the time and constituted to own other properties also.The effect of the trust deed was that the income of the property settled on trust was to be enjoyed by Ramjibhai during his lifetime, and that after his death, the said income was to be enjoyed by the respondent, Ratilal, alone with a right of residence provided in favour of his mother, Kamlawanti in part of one of the houses comprised in the trust deed. After the death of the respondent Ratilal, the income is to be enjoyed by his wife, Kantabai, and the natural born sons in existence at the time of the death of the survivor of Ramjibhai and Ratilal.There was an express power of revocation of the trust deed reserved to the said Ramjibhai by a specific clause therein. Ramjibhai enjoyed the income during his lifetime but the said income was being assessed as joint family income under section 16(1) (c) of Act and as an addition to the other admitted joint familyis by virtue of this clause and in view of the power of revocation of the trust having been expressly reserved in favour of Ramjibhai by the trust deed, that the income in his hands was being assessed without dispute on the footing that the settlor was the Hindu undivided family, and that the income of Ramjibhai is therefore, to be treated as the income of the Hindu undivided family. Ramjibhai died on the 23rd July, 1940.Thisauthorities continued, after the death of Ramjibhai, to assess the income, in the hands of the respondent arising from the properties settled as the family income.The respondent objected on the ground that under the terms of the settlement it was only his individual income and that section 16(1) (c) had no application to him.Theauthorities overruled this contention. The assessee appealed to theAppellate Tribunal; but by order the 16th March, 1950, it confirmed the view taken by theauthorities.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:(1) that the settlor under the trust deed was not the Hindu undivided family as theauthorities 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 ofagainst that decision.

Reasoning:
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.