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Issues Involved:
1. Applicability of section 4(3)(i) of the Indian Income Tax Act for exemption on trust income. 2. Interpretation of clause 8 of the trust deed in relation to the renunciation of beneficial interest. 3. Legal effect of the declaration made by Bai Kasturbai on July 21, 1955. 4. Applicability of the principle of acceleration in trust settlements. Issue-wise Detailed Analysis: 1. Applicability of Section 4(3)(i) of the Indian Income Tax Act for exemption on trust income: The primary issue is whether the income derived from the trust properties after July 21, 1955, is exempt under section 4(3)(i) of the Indian Income Tax Act. The assessee trust claimed exemption, arguing that upon the surrender of her beneficial interest by Bai Kasturbai, clause 8 of the trust deed came into operation immediately, and the income was held by the trustees for charitable purposes. The Income Tax Officer rejected this claim, stating that the benefit to charity was to commence only after the death of Bai Kasturbai. However, the Appellate Assistant Commissioner and the Tribunal both held that the renunciation accelerated the interest of the charitable purposes, making the income exempt under section 4(3)(i). 2. Interpretation of Clause 8 of the Trust Deed in Relation to the Renunciation of Beneficial Interest: Clause 8 of the trust deed specified that the net income from the trust properties was to be applied to charitable purposes "from and after the death of Bai Kasturbai." The Tribunal and the court interpreted this clause to mean that the benefit to charities would commence immediately upon the renunciation of her beneficial interest by Bai Kasturbai, even if she was still alive. The court held that the expression "from and after the death of Bai Kasturbai" was intended to indicate the natural duration of her interest and not to prevent the commencement of charitable benefits upon her voluntary surrender. 3. Legal Effect of the Declaration Made by Bai Kasturbai on July 21, 1955: The declaration made by Bai Kasturbai on July 21, 1955, stated her intention to surrender and release her beneficial life interest in favor of the trust. The court interpreted this declaration as a clear renunciation of her beneficial interest, rather than a mere direction for the application of her income to charitable purposes. The court emphasized that the language of the declaration indicated a surrender and release of her interest, thereby accelerating the charitable purposes under the trust deed. 4. Applicability of the Principle of Acceleration in Trust Settlements: The principle of acceleration, as discussed in the judgment, applies when the interest of a prior beneficiary ends, accelerating the interest of the subsequent beneficiary. The court referred to the Transfer of Property Act and the Succession Act, which state that the surrender of an interest by a prior beneficiary accelerates the interest of the subsequent beneficiary. The court held that this principle was applicable to the present case, as the renunciation by Bai Kasturbai accelerated the charitable purposes under the trust deed. Conclusion: The court concluded that the surrender of her beneficial interest by Bai Kasturbai on July 21, 1955, accelerated the interest of the charitable purposes under the trust deed, making the income derived from the trust properties exempt under section 4(3)(i) of the Indian Income Tax Act. The question referred to the court was answered in the affirmative, and the Commissioner was directed to pay the costs of the assessee.
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