1967 (2) TMI 5 - HC - Income Tax

Trust deed - deed of relinquishment - income that accrued or arose to the trustees from the trust properties - Exemption u/s. 4(3)(i)

Summary

Issues: Interpretation of trust deed clauses and subsequent amendments regarding income exemption under section 4(3)(i) of the Indian Income-tax Act.

Analysis:
The case involved a trust deed executed by the settlor in 1944, specifying the distribution of income from trust properties. The settlor relinquished his life interest in the income in 1953, and after his death, the income was to go to Lady Kikabhai. Subsequently, Lady Kikabhai relinquished her life interest in 1955 to accelerate the trust in favor of charity. The key question was whether the income accrued post Lady Kikabhai's relinquishment was exempt under section 4(3)(i) of the Act.

The court referred to a similar Supreme Court case involving a trust deed where the wife relinquished her life interest in trust properties for charitable purposes. The crucial distinction highlighted by Mr. Joshi was the specific clause in the trust deed and subsequent amendments, stating Lady Kikabhai's interest was without power of anticipation or alienation. This led to the argument that Lady Kikabhai had no authority to relinquish her interest, making the question of income exemption irrelevant.

Despite the department's contention regarding Lady Kikabhai's competency to relinquish her interest, the court held that since the department did not pursue this issue earlier, it could not be raised at this stage. The court, following the Supreme Court's approach, split the main question into two parts: whether the amended clause came into operation post-relinquishment, and if so, whether the income post-relinquishment was exempt under the Act. The court answered the second question affirmatively, making the first question immaterial for income tax levy determination.

In conclusion, the court ruled in favor of income exemption post Lady Kikabhai's relinquishment, holding that the income accrued to the trustees from the trust properties after 1955 was exempt under section 4(3)(i) of the Act. The Commissioner was directed to pay the costs of the respondent, settling the matter in favor of the trustees.