1970 (12) TMI 24 - HC - Income Tax

Trust - properties dedicated to family deity - assessability of income from property - assessment of trustees

Issues Involved:
1. Whether the Tribunal was right in holding that by the trust deed dated June 7, 1926, there was a transfer of property directly to the trustees.
2. Whether the trustees were rightly assessed under section 9 of the Indian Income-tax Act, 1922.
3. Whether the bona fide annual value of the house at No. 3, Amherst Street, Calcutta, was rightly included in the assessment of the trustees.

Issue-wise Detailed Analysis:

1. Transfer of Property to Trustees:
The Tribunal held that the trust deed of June 7, 1926, created a legal trust, vesting the properties absolutely in the trustees for the benefit of the deities, Radha and Govinda. The Tribunal did not accept the contention that the properties were transferred directly to the deities and that the trustees were merely shebaits or managers. The Tribunal concluded that the trustees were the legal owners of the properties and not the deities.

The High Court upheld this view, stating that the intention of the settlor, as gathered from the entire document, was to appoint trustees and shebaits to manage the properties dedicated to the deities. The court emphasized that the trust deed should be construed as a whole, and the settlor's intention was to create a trust in which the trustees became the owners of the properties. The court rejected the argument that there was an irrevocable and unequivocal dedication to the deities, making them the owners of the properties.

2. Assessment Under Section 9 of the Indian Income-tax Act, 1922:
The Tribunal found that the trustees were rightly assessed under section 9 of the Indian Income-tax Act, 1922. The Appellate Assistant Commissioner and the Tribunal both concluded that the properties had been transferred to the trustees, who became the legal owners, and therefore, the income from these properties was assessable in their hands.

The High Court agreed with this assessment, noting that the trust deed explicitly transferred the properties to the trustees for the benefit of the deities. The court reiterated that the trustees, as legal owners, were liable to be assessed for the income from the properties under section 9. The court referenced the Trusts Act, 1882, to explain that the trust was created with the trustees as the legal owners, holding the properties for the benefit of the deities.

3. Inclusion of Bona Fide Annual Value of No. 3, Amherst Street:
The Tribunal included the bona fide annual value of the house at No. 3, Amherst Street, Calcutta, in the assessment of the trustees. The Tribunal found that a portion of the house had already been let out to tenants before the execution of the deed, and the deed authorized the trustees to let out portions of the house in the future.

The High Court upheld this inclusion, citing two previous decisions. In Commissioner of Income-tax v. Biman Behari Shaw Shebail, it was held that even if a property is not let out, its notional income, which it might reasonably be expected to yield, should be included in the annual income of the owner. The court also referenced Commissioner of Income-tax v. Ganga Properties Ltd., where it was held that the income from property under sections 6 and 9 of the Indian Income-tax Act, 1922, refers to the income of the legal owner, who is assessable on the basis of the bona fide annual value.

The High Court concluded that restrictions on letting out portions of the property did not exempt those portions from being assessed under section 9. The court emphasized that the liability to pay tax on the bona fide annual value arises from the fact of ownership, not the actual receipt of income.

Conclusion:
The High Court answered all the questions in the affirmative, affirming the Tribunal's decisions. The trustees were deemed the legal owners of the properties and were rightly assessed under section 9 of the Indian Income-tax Act, 1922. The bona fide annual value of the house at No. 3, Amherst Street, was correctly included in the assessment. The applicants were ordered to pay the costs of the reference.

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