1954 (4) TMI 1 - SC - Income Tax

Whether the learned High Court Judges erred in importing any question of capacity in which the income is held by Ratilal, into the application of Section 16(1)(c)? Held that - 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. Appeal dismissed.

Summary

Issues:
- Interpretation of Section 16(1)(c) of the Indian Income-tax Act regarding income arising from a trust deed.
- Determining whether the income from trust property should be included in the assessee Hindu undivided family's income.

Analysis:
The case involved an appeal under Section 66A of the Indian Income-tax Act from the High Court of Bombay's judgment. The dispute revolved around the assessment of income from a trust deed executed by two co-parceners of a Hindu undivided family. The trust deed provided for the income to be enjoyed by one co-parcener during his lifetime and then by his son and family members. The issue was whether the income should be treated as individual income or joint family income under Section 16(1)(c) of the Act.

The High Court held that the trust deed was executed by the co-parceners on behalf of the Hindu undivided family. However, it ruled in favor of the assessee, stating that the income received by the son was his individual income, not joint family income. The Commissioner of Income-tax appealed this decision, arguing that the income should be deemed as joint family income based on the provisions of Section 16(1)(c) of the Act.

The Supreme Court analyzed the provisions of Section 16(1)(c) and the trust deed in question. It noted that the trust deed intended the income to be the individual income of the son, not the joint family income. The Court rejected the Commissioner's argument that the income should be treated as joint family income due to the provisions of the Act. The Court emphasized that the son, as a co-parcener, was not the settlor in the context of the Act, and the trust deed did not result in a retransfer of income to the original settlor, i.e., the Hindu undivided family.

The Court concluded that the income was intended to be the individual income of the son and not the joint family income. Therefore, the appeal was dismissed, upholding the High Court's decision in favor of the assessee. The Court clarified that the provisions of Section 16(1)(c) did not apply in this case, as the trust deed clearly indicated the income as the individual income of the son, not the joint family income.