1948 (3) TMI 43 - HC - Income Tax

Summary

Issues:
1. Whether income derived from securities held under trust is exempt from tax under Section 4(3) of the Income-tax Act.
2. Whether a revocable trust of personalty for charitable purposes is valid under the Common Law.

Analysis:
1. The judgment revolves around the issue of whether the income received from securities held under trust is exempt from tax. The case involved an oral trust made in December 1940, followed by the execution of a trust deed in 1943. The Department contended that the income derived from these securities should be taxed as the income of the assessee under Section 16(1)(c). The court analyzed the relevant provisions of the Income-tax Act, emphasizing the distinction between actual and artificial income. While Section 4(1) charges all income derived in India, Section 4(3) exempts certain classes of income, including income derived from property held under trust for charitable purposes. The court held that the term "received" in Section 4(3) encompasses both actual receipt and income deemed to be received under the Act. Therefore, the income derived from the trust was deemed exempt from tax under Section 4(3).

2. The second issue addressed in the judgment pertains to the validity of a revocable trust of personalty for charitable purposes. The Advocate-General argued that a Parsi individual in India cannot create a revocable trust for charitable purposes. However, the court referred to Common Law principles, citing Tudor on Charities and Halsbury's Laws of England, to establish that under Common Law, it is permissible to create a revocable trust of personalty for charitable purposes. Consequently, the court affirmed that the trust in question was indeed a charitable trust.

In conclusion, the High Court of Bombay held that the income derived from securities held under the trust was not liable to tax under Section 4(3) of the Income-tax Act. Additionally, the court affirmed the validity of the revocable trust for charitable purposes under Common Law principles. The Department was directed to bear the costs of the reference, and the reference was answered in the affirmative.