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TMI Blog1973 (1) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ovember 2, 1950, H.E.H. the Nizam settled on trust 3% Government of India Conversion Loan, 1946, of the face value of Rs. 22,20,000. The settlor constituted himself as one of the trustees and was to remain, during his life the President of the Board of trustees. The trust has been described as H.E.H. the Nizam's Pilgrimage Money Trust ". Clause 3(c) of the trust, which is relevant, reads as under: " During the lifetime of the settlor, to defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places in Hedjaz and Iraq and making religious offerings and expending monies for charitable purposes as the settlor in his absolute discretion may from time to time think fit and require out of the income as well as the corpus of the trust fund in such manner and to such extent as the settlor may from time to time direct and for all or any of such purposes as aforesaid to pay such monies out of the income of the corpus of the trust fund as the settlor may from time to time require." The total income of interest on securities earned for the assessment year 1958-59 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65] 57 ITR 408 (SC), it is held (at p. 412): "Clause (c) was intended, while seeking to protect a genuine settlement by which the taxpayer intends to part with control over property and its income, to circumvent attempts made by him to reduce his liability to pay income-tax by the expedient of so arranging a settlement or disposition of property that the income does not accrue to him, but he reserves a power over or interest in the property settled or disposed of, or in the income thereof. By clause (c), income arising to any person by virtue of a settlement or disposition whether revocable or not is deemed to be income of the settlor or disponer if the assets remain the property of the latter. Again income arising to any person by virtue of a revocable transfer of assets is deemed to be the income of the transferor. The first proviso then deems a settlement statutorily revocable, if it contains any provision for retransfer directly or indirectly of the income or assets settled, to the settlor, or where it gives to the settlor a right to reassume power directly or indirectly over the income or assets. By the second proviso, the expression ' settlement or disposition ' includes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 donee'." It is in the light of the principles laid down by the Supreme Court that we have to examine the position. It is seen that in the first proviso, the two crucial words are " retransfer " and "reassume power ". In either case, however, the income and the assets must go to the settlor leaving it to his discretion as to, in what manner and for what purpose the income or the asset should be utilised. Such discretion of the settlor can be exercised for purposes outside the trust deed. In other words, if the settlor was placed in the position which prevailed prior to the creation of the trust when he was absolutely free to deal with his property in any manner he liked, then the trust would be deemed to be revocable although ostensibly it is irrevocable. On the other hand, if the income or the assets are retransferred or power over which is reassumed but only for the purpose of discharging the obligations imposed by the trust, or to put it in another way, if the settlor is bound to deal with the income or the asset within the four corners of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trustees and the Princess, the Princess and the trustees executed on September 18, 1952, a deed of release and assignment by which her beneficial rights were assigned to the assessee in lieu of a lump sum payment of Rs. 10 lakhs by the assessee to her. By virtue of clauses (1) and (2) of the deed, a sum of Rs. 1 lakh which was paid to the trustees for and on behalf of the Princess came to be held by the latter on behalf of the assessee. It was duly paid to the assessee. For the years 1953-54 and 1954-55, this sum of Rs. 1 lakh was assessed to tax in the hands of the assessee. For the relevant taxing year, however, the assessee again disputed the tax ability of this sum, Before the Tribunal, it was contended that the amount does not represent income and in the alternative it was contended that in view of the agreement dated October 8, 1949, the said amount is free of tax. The Tribunal held that the exemption from tax was confined to the Princess and the privilege cannot be extended to her assignee, the assessee. The answer to this question depends upon the terms of the agreement and the position of law as urged before us. Clause (2) of the Niloufer Trust categorically state ..... X X X X Extracts X X X X X X X X Extracts X X X X
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