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Issues Involved:
1. Validity of the trust created by Rao Bahadur Hanmantram. 2. Entitlement of the assessee to claim a reduction of Rs. 9,750 under Section 10 of the Indian Income-tax Act. Issue-Wise Detailed Analysis: 1. Validity of the Trust Created by Rao Bahadur Hanmantram: The core issue revolves around whether a valid trust was created by Rao Bahadur Hanmantram. The Tribunal initially found that although a declaration of trust was made on November 4, 1937, and entries crediting Rs. 2,00,000 to the trust account were made in the assessee's books on October 23, 1938, there was no actual transfer of assets as required under Section 6 of the Indian Trusts Act to constitute a valid trust. The Tribunal noted that the income was devoted to charitable and religious purposes but concluded that the fund producing the income was not held in trust based on the materials presented. The Court emphasized that the Indian Trusts Act does not apply to charitable trusts, but the three certainties required to create a charitable trust were still necessary: 1. A declaration of trust binding on the settlor. 2. Setting apart definite property and the settlor depriving himself of ownership. 3. A statement of the objects for which the property is held (beneficiaries). The Court found no serious dispute regarding the declaration of trust and the statement of objects. The affidavits of Rao Bahadur Hanmantram and other trustees confirmed the declaration. However, the critical issue was whether the property was clearly specified and whether the settlor divested himself of beneficial interest. The Tribunal found that the entries made on October 23, 1938, were merely book entries and did not constitute a separation of trust property from the settlor's other property. There was no evidence that Rs. 2,00,000 in cash was available to the settlor on the day the entries were made. Therefore, the Court agreed with the Tribunal that the second certainty required to create a trust was not met, and thus, no valid trust was created. 2. Entitlement of the Assessee to Claim a Reduction of Rs. 9,750 under Section 10 of the Indian Income-tax Act: The assessee claimed a deduction of Rs. 9,750 as interest payable to the "R.B. Hanmantram Tarachand Charitable Trust Account." The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim on the ground that no valid trust was created. The Tribunal upheld this view, noting that the assessee's claim was for an allowance under Section 10 of the Indian Income-tax Act, not for an exemption under Section 4(3)(i). The Court had to determine whether the amount was payable as interest to a creditor of the assessee, which depended on the validity of the trust. Since the trust was not validly created, the trustees could not be considered creditors of the assessee. Consequently, the claim for deduction under Section 10 could not be allowed. The Court referred to the case of Chambers v. Chambers, where it was held that there can be no trust unless its subject matter is clearly ascertainable and appropriated. Applying this principle, the Court concluded that the property was not ascertained, and the settlor did not divest himself of all beneficial interest. Therefore, there was no valid trust, no creditor, and no allowable interest deduction. Conclusion: The Court concluded that the assessee was not entitled to claim a reduction of Rs. 9,750 from his income under Section 10 of the Indian Income-tax Act due to the absence of a valid trust. The reference was answered in the negative, and the assessee was ordered to pay the costs of the hearing.
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