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TMI Blog1962 (9) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... nt expenses of the trust, clause 7 of the trust deed provided that the net income arising from the trust funds was to be paid to Bai Kasturbai during her lifetime and it also gave liberty to the settlors or any one of them to occupy and enjoy the house property and the lands comprised in the trust deed rent-free and without any obligation for payment of any out goings or moneys in respect thereof. Clause 8 of the deed provided that from and after the death of Bai Kasturbai the trustees shall apply the said net rents, profits and income of the said immovable properties and trust funds to charitable purposes which were further set out in detail in the said clause. The purposes so stated are undisputably charitable purposes within the meaning of section 4 (3) (i) of the Act. In accordance with the trusts created by the trust deed Bai Kasturbai continued to receive the net income of the trust properties as the first beneficiary thereunder in accordance with clause 7 of the said deed. Seth Walchand died on the 8th of April, 1953, and in July, 1955, Bai Kasturbai thought of surrendering her beneficial made a declaration to that effect. In the preamble of the said document of declaration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Income Tax Officer, who took the view that by the renunciation of her beneficial interest by Bai Kasturbai, no income accrued to her as a beneficiary from the trust from 21st July, 1955, onwards, but clause 8 of the trust settlement could not come into operation immediately on the said renunciation because, under the said clause, the benefit to the charity was only to commence on and after the death of Kasturbai and not while she was alive. According to the Income Tax Officer, therefore, the result was that the income arising from the trust properties from and after the 21st July, 1955, in the relevant assessment years was not being received by the trustees on behalf of any beneficiary and it was also not exempt under section 4 (3) (i). Under the first proviso to section 41 (1), therefore, the income relating to the said periods was liable to be taxed at the maximum rate of Income Tax and at the appropriate rate of Income Tax and at the appropriate rate of super-tax in the hands of the trustees themselves. In accordance with this view, the Income Tax Officer made the assessment orders for these years. Against these orders appeals were taken by the assessee to the Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal did not accept the department's contention as to the true construction and legal effect of the declaration and held that under the said declaration there was a renunciation of her beneficial interest by Kasturbai and not a direction for the application of the income thereof. The Tribunal further took the view that the surrender of her beneficial interest by Bai Kasturbai accelerated the interest of the next beneficiary and, therefore, the income from the trust properties subsequent to the date of the said declaration by Kasturbai was income derived from properties held under the trust wholly for religious or charitable purposes and, therefore, exempt under section 4 (3) (i). It accordingly confirmed the decision of the Appellate Assistant Commissioner and dismissed the department's appeals. Thereafter, at the instance of the department it has drawn up a statement of the case and referred the following question to this court : Whether clause 8 of the trust settlement made on the 25th November, 1946, came into operation immediately following the declaration made by Bai Kasturbai on the 21st July, 1955, and as such the income that accrued or arose to the trustees from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded to benefit Kasturbai during her lifetimes as the first beneficiary under the trust and the charitable purposes specified in clause 8 as the next, after the beneficial interest of the first beneficiary had come to an end. No doubt, the intention being to benefit the first beneficiary until she lived, the interest of the next beneficiary is expressed as commencing on or after the death of Bai Kasturbai , but the said expression could not be said to have been intended not to commence the benefit in favour of the charitable object until Kasturbai was dead even through her beneficial interest under the trust deed had come to an end by a voluntary surrender on her part even prior to her death. Both under the Transfer of Property Act as well as under the Succession Act, where on a transfer of property, or on a bequest thereof, an interest therein is created in favour of one person and by the same transaction an ulterior disposition of the same interest is made in favour of another, if the prior disposition under the transfer or bequest fails, the ulterior disposition takes effect although the failure of the prior disposition does not occur in the matter contemplated by the transfero ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t she was making that declaration because out of her regard to the charities mentioned in the said indenture of settlement and to expedite the benefit accruing to the said charities she was desirous of surrendering and releasing the beneficial life interest in her favour under the said indenture of settlement. 5. These words employed by her clearly indicate that she was accelerating the beneficial interest of the charities by surrendering and releasing her beneficial interest under the trust deed. The declaration, which has been made in view of the said intention again, in our opinion, states the same thing. It starts by saying that she was surrendering, releasing and thereafter come the words : quit, claim, transfer and assign . What she was surrendering was the income which was to arise or accrue from the trust properties and which represented her beneficial life interest in the said trust deed. The further words used are that all this, the totality of her beneficial interest under the trust deed, was being surrendered by her to the intent that her beneficial interest may be determined as aforesaid and that the same may be immediately vested in the Trustees and that the Tru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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