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TMI Blog1966 (10) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... down that, after defraying the expenses for management of the trust properties and certain other expenses, such as, rents, rates, etc., the trustees were to pay to Bai Kasturbai, during her lifetime, the income arising from the trust funds and properties. Further, Seth Walchand himself and Bai Kasturbai, during their lifetime, had the right of residence in some of the house property, free of rent and without any obligation for payment of any outgoings or moneys in respect thereof. These provisions were contained in clause 7 of the deed of trust. The next provision contained in clause 8 of the deed was that, from and after the death of Bai Kasturbai, the trustees were directed to apply the net rents, profits and income of the properties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperties were held under a trust wholly for charitable purposes, and, consequently, the income was exempt from income-tax under section 4(3)(i) of the Income-tax Act (hereinafter referred to as " the Act "). The Income-tax Officer, however, held that the deed executed by Bai Kasturbai did not amount to a renouncement of her rights under the trust deed, and that it really amounted to a transfer of the income received by her for purposes of the use of the trust. Since the income of the trust was receivable by Bai Kasturbai, it could not be held that, the trust properties were held wholly for charitable purposes. On appeal, the Appellate Assistant Commissioner disagreed with the Income-tax Officer and accepted the submission made by the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily worded, so that it will need a slight amendment which we shall indicate later. The real question under dispute was whether, after the execution of the deed of surrender on 21st July, 1955, the income from the trust properties was exempt from income-tax under section 4(3)(i) of the Act or not. In dealing with this question, it has to be kept in view that, even under the deed of trust as originally executed on 25th November, 1946, the income from the trust properties was not the income of Bai Kasturbai. Whenever a valid trust is executed, the property vests in the trustees, and the income accruing from those properties is the income of the trust and not of the beneficiaries. For purposes of income-tax law, however, the income under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to occupy and enjoy rent-free lands, hereditaments messuages and premises discribed in the trust deed. It was further stated by her that the deed was executed with the intent that her beneficial interest may be determined and the same may be immediately vested in the trustees and that the trustees may utilise the same for charitable purposes mentioned in the deed of trust. This deed executed by Bai Kasturbai was clearly valid in view of the provision contained in section 58 of the Indian Trusts Act, 1882 (2 of 1882), which provides that " the beneficiary, if competent to contract, may transfer his interest, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay to her the net income of the trust properties ceased, though the trustees continued to hold the property under the trust. At the same time, the right of Bai Kasturbai to use the immovable properties also ceased to exist. Thereafter, clearly, the entire properties were held by the trustees for the charitable purposes mentioned in clause 8, because that was the only purpose of the trust which remained after this deed of surrender had been executed by Bai Kasturbai. On these facts, it is clear that the income, which accrued from the trust properties thereafter, was income which could be applied or allowed to accumulate for application to the charitable purposes mentioned in clause 8 and for no other purpose. It appears that there was cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties remained with the trustees to be applied in accordance with the other terms of the deed of trust. If it could be held that clause 8 came into operation and permitted the application of that income to the charitable purposes mentioned in it as soon as Bai Kasturbai's rights ceased, even though she remained alive, there would be no difficulty in holding that section 4(3)(i) would have exempted the income from income-tax. In fact, this view was accepted by all the income-tax authorities. However, even if it be held that clause 8 did not come into operation and the trustees were incompetent to apply the income of the trust properties for the purposes mentioned in it so long as Bai Kasturbai was alive, the only effect would be that that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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