1946 (9) TMI 1 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income of 11 months and 6 days prior to the date of the deed of trust was income from property held under trust so as to be exempt from taxation under Section 4(3)(i).
2. Whether the assessee owned any undivided share in the corpus of the Keshavji Jadhavji Trust so that he could settle his right, title, and interest in such share upon trusts of his own by means of the deed of October 7, 1940.
3. Whether the income of the last 24 days of the account year, which according to the assessee was attributable to such right, title, and interest, was income from property held in trust or other legal obligation for charitable and religious purposes so as to be exempt from taxation under Section 4(3)(i) of the Act.

Issue-Wise Detailed Analysis:

1. Income of 11 Months and 6 Days Prior to the Deed of Trust:
The Tribunal held that the surplus income derived from the Keshavji Jadhavji Trust estate for 11 months and 6 days from the commencement of the year of account was not income from any property held in trust or other legal obligation for the assessee's own charitable or religious purposes. The income during this period was simply the surplus income of the Keshavji Jadhavji Trust estate and was not exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act. This was based on the earlier judgment where it was determined that although a valid trust could be created of the surplus income, it was only the income applied for charitable and religious purposes and not income from any property held in trust.

2. Ownership of Undivided Share in the Corpus:
The Tribunal found that the immovable properties and securities, the right, title, and interest in which the assessee purported to settle upon trusts of his own, were identical with those forming the corpus of the Keshavji Jadhavji Trust. The corpus of the Keshavji Jadhavji Trust, in terms of the trust deed of April 1, 1908, had been settled absolutely and forever upon those trusts, after separating and handing over the residue to the assessee's late father. Neither the assessee nor his father before him possessed any interest whatsoever in the corpus absolutely settled upon the Keshavji Jadhavji Trust, and all that the assessee was entitled to was the surplus income remaining over that directed to be applied to the objects of the Keshavji Jadhavji Trust. Therefore, the right, title, and interest that the assessee settled upon trust by his deed was only a contingent right depending upon the corpus of the Keshavji Jadhavji Trust leaving a surplus, and it was not property such as can be subject matter of a transfer.

3. Income of the Last 24 Days of the Account Year:
The Tribunal held that the income of the last 24 days of the account year, which according to the assessee was attributable to such right, title, and interest, was not income from property held in trust or other legal obligation for charitable and religious purposes so as to be exempt from taxation under Section 4(3)(i) of the Act. The deed executed on October 7, 1940, purported to settle the right, title, and interest in the properties described in the schedules to the deed of trust of April 1, 1908, upon trust for religious and charitable objects. However, the Tribunal found that the right, title, and interest settled upon trust by the deed was only a contingent right and not property that could be subject to a transfer.

Judgment Summary:
The High Court of Bombay held that the sum of Rs. 23,515 received by the assessee as surplus income of the trust property of the Keshavji Jadhavji Trust, or any part of that sum, is not exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act for the period from November 1, 1939, to October 7, 1940. However, the portion of the income attributable to the period from October 7, 1940, to October 31, 1940, is exempt from taxation under Section 4(3)(i) of the Act. The Court found that the property comprised in the 1908 trust deed is held to apply Rs. 26,030 to religious and charitable purposes contained in that deed and to pay the surplus to the trustees or trustee of the 1940 deed to hold it or apply it for purposes or objects which are religious or charitable. Consequently, the income for the last 24 days is exempt from taxation. The Commissioner must pay the costs.