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TMI Blog1971 (8) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of section 16(1)(c) of the Income-tax Act, 1922, read with the first proviso thereto ?" The assessee was assessed in the status of an individual. He derived income from house properties and from the business of a registered partnership firm H. Ganguly & Co. He had six houses one of which was 24, Mohanlal Street, Calcutta, and the other at Jangambari in the city of Banaras. On March 19, 1953, the assessee created a trust in respect of these two houses. It was provided in the trust deed that the trustees shall pay a sum of Rs. 200 per month to the settlor for life for his own absolute use and benefit out of the income of the trust estate remaining after payment of taxes, rents, etc. In other words, he himself was one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or transferor. It is not necessary that there must be a provision for the retransfer of the entire income. The word " income " includes any part of the income unless there is anything repugnant in the context. The High Court considered that the third proviso to section 16(1)(c) did not explain the first proviso but was a kind of rider or exception to it. Bearing in mind the object behind the enactment of section 16 and on a consideration of the terms of the section, the true meaning and scope of the first proviso seemed to be that the settlement in the present case was revocable in its entirety thus attracting the substantive clause of section 16(1)(c). Clause (c) was introduced in section 16(1) in the year 1939. At the material time se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome the settlor or disponer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him." It is apparent that the above clause of section 16(1) with its provisos is unhappily worded. In Ramji Keishvji v. Commissioner of Income-tax the Bombay High Court considered the scheme of section 16(1)(c). According to that decision the first stage is that when there is a revocable transfer of assets, the income derived from such assets is still to be considered the income of the settlor. The first proviso specifies what would be deemed a revocable transfer in spite of the deed being apparently irrevocable. The relevant question for the first proviso is " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in Commissioner of Income-tax v. Rani Bnuneswari Kuer. In that case the assessee, who owned an estate known as " Tekari Raj ", created a trust with a view to liquidate the debts of Tekari Raj. The beneficiaries under the deed were the settlor, her husband and her sons. It was declared that the settlement made was to be permanent and irrevocable but each beneficiary had full right to make any sort of arrangement about devolution or succession or make such alienation as was considered fit about his share. It was observed that two conditions were necessary for the application of the third proviso to section 16(1)(c), (1) that the trust should not be revocable for a period exceeding six years or during the lifetime of the beneficiary, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case. In the light of the above principles it would not be wrong to say that the effect of the third proviso is that a settlement or disposition containing a provision for retransfer of a part of the income to the settlor would not render the whole income of the settlement chargeable in his hands provided the other conditions contained in the proviso are satisfied. In other words, the proviso comes to the rescue of the settlor in that the portion of the income from the trust properties which are settled on a third person is to be assessed in the hands of that person and not in the hands of the settlor, if the latter does not retain any power to "deflect the same for a period exceeding six years or during the lifetime of the don ..... X X X X Extracts X X X X X X X X Extracts X X X X
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