1951 (3) TMI 45 - HC - Income Tax

Summary

Issues:
Interpretation of Section 16(1)(c) and provisos 1 and 2 in a case involving a joint Hindu family trust deed.

Analysis:
The judgment addresses the question of whether the income received by a family member from a trust deed can be considered as income of the joint family for taxation purposes under Section 16(1)(c). The trust deed in question involved a property belonging to a joint Hindu family, with provisions for income enjoyment by different family members. The key issue was whether the income received by a family member, Ratilal, was deemed to be income of the joint family after the death of the original transferor, Ramjibhai.

The court analyzed Section 16(1)(c) which states that income arising from a revocable transfer of assets shall be deemed as income of the transferor. However, in this case, the power of revocation ended upon the death of Ramjibhai, and during the relevant assessment years, there was no power of revocation vested in Ratilal. The court also examined the first proviso which deems a settlement revocable if it contains a provision for retransfer of income or assets to the settlor. Additionally, the second proviso expanded the definition of "settlor" to include any person involved in the settlement. The court delved into the provisions of the trust deed to determine the true position.

The court considered the contention that the trust deed was executed by the joint family members, Ramjibhai and Ratilal, on behalf of the family, making the joint family the settlor. It rejected the argument that the trust deed only benefited the two male members, emphasizing that under Hindu law, all co-parceners could alienate joint family property. The court concluded that the settlor was the joint Hindu family, not just the individual members.

Furthermore, the court examined whether there was a provision for retransfer of income to the settlor in the trust deed. The Advocate-General argued that the settlement allowed for retransfer to one of the settlors, Ratilal. However, the court determined that the income received by Ratilal was in his individual capacity, not on behalf of the joint family, indicating that the trust deed did not benefit the joint family as a whole. The court highlighted that the trust deed did not intend to benefit the joint family but specific members individually.

In conclusion, the court emphasized the importance of preventing tax avoidance through colorable trust deeds. While acknowledging the interpretative challenges, the court ruled that the income in question was not the income of the joint Hindu family, as the property had been alienated from the family, and the income received by Ratilal was in his individual capacity. The judgment answered the reference question in the negative, indicating that the income was not taxable as joint family income.