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Interpretation of a deed of declaration of trust to determine if the net dividend income is liable to be included in the total income of the assessee. Analysis: The High Court of Bombay was tasked with interpreting a deed of declaration of trust to decide if the net dividend income of certain shares held under trust for the benefit of the assessee's wife should be included in the assessee's total income. The deed specified that the income was to be paid to the wife for a set period and was not revocable. The Court analyzed the provisions of section 16(1)(c) and 16(3)(b) of the Income Tax Act to determine the tax liability. Under section 16(1)(c), income arising from a settlement or disposition is deemed to be the income of the settlor unless certain conditions are met. The Court found that the assets in question were vested in the trustee, not the settlor, and therefore did not satisfy the conditions of section 16(1)(c). Additionally, the third proviso to this section exempted income arising from a settlement not revocable for a specified period, which further supported the conclusion that the income did not fall under section 16(1)(c). Moving on to section 16(3)(b), the Court examined whether the income arose from assets transferred for the benefit of the wife. The assessee argued that a declaration of trust did not constitute a transfer of assets. However, the Court referred to the Indian Trusts Act and clarified that a declaration of trust does involve a transfer of property from the settlor to the trustee, even if the settlor is also the trustee. The Court emphasized that the legal capacity of the trustee differs from that of the settlor, satisfying the requirement of transfer under the section. Furthermore, the Court rejected the argument that the transfer was for adequate consideration based on natural love and affection between the parties. It reasoned that the provision in section 16(3)(b) deeming income to be that of the assessee for the benefit of the wife or child implied a different standard of consideration. Natural love and affection between spouses or parents and children were deemed insufficient in this context. Lastly, the Court addressed an argument invoking a Privy Council decision regarding overriding title and diversion of income. While acknowledging the diversion of income, the Court clarified that section 16(3) deals with deemed income, not actual income, and therefore, the income was to be included in the assessee's total income. In conclusion, the Court held that the net dividend income from the shares held under trust for the benefit of the wife should be included in the total income of the assessee under section 16(3)(b), affirming the Tribunal's decision.
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