TMI Blog1975 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... res of Motilal Padampat Sugar Mills Co. Ltd. of the face value of Rs. 1,000 each for the objects therein stated. By clause 2 of the deed of settlement the settlor directed the trustees to pay the net income from the trust to his daughter-in-law, Kamlabai Juthalal, the assessee for the term of her life, and after her, to hold the corpus of the trust fund upon trust and to divide the same in equal shares amongst all the sons of Juthalal Motilal (grand-sons of the settlor). After some years, on May 5, 1956, by a tripartite deed of assignment and gift, Kamlabai Juthalal, the assessee, who was the beneficiary under the earlier deed of settlement, assigned and transferred her right to receive the income from the trust in favour of four grandsons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the income direct from the trust without the instrument executed by the assessee. The Income-tax Officer further pointed out that the assessee had no interest in the corpus of the trust ; that the properties that were assigned by her came into existence only when the income was found due to her under the deed of settlement dated July 1, 1947. On an appeal by the assessee the Appellate Assistant Commissioner rejected the contention of the assessee and dismissed the appeal. On a second appeal before the Tribunal it was contended on behalf of the assessee that the assessee had done everything that was possible in the circumstances of the case to divest herself of her right to participate in the income from the trust for all time to come and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter applied by her in consonance with the provisions of the said deed of assignment and gift. His submission was that there is a clear distinction between obligation to spend money in a particular manner attaching to income and a similar obligation attaching to a source of income ; that every income that accrues or arises is liable to be taxed regardless of the distinction ; that in the present case having regard to the provisions of the deed of settlement and the deed of assignment and gift, the assessee has not abrogated or assigned the source of income and the income which accrues under the deed of settlement is her own income. His submission was that this is a case of an application of income after it had accrued to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural life. However, on May 5, 1956, a deed of assignment and gift was executed by the assessee as assignor to which the trustees under the deed of settlement dated July 1, 1947, are parties and the donees, i.e., the grandsons through their natural guardian, are also parties as assignees. The recitals in this deed of assignment and gift clearly show that out of natural love and affection which the assignor bears to grandsons being the assignees she, the assignor, is desirous of assigning and transferring her life or other interest in the trust fund in the manner therein indicated. There is a further recital to the effect that the gift and assignment of such life interest is accepted on behalf of the assignees by their father and natural gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivided amongst the grandsons who are the assignees in the later deed. Section 9 of the Indian Trusts Act permits a beneficiary to renounce his or her interest under the trust by disclaimer addressed to the trustees. Further, section 58 of that Act permits a beneficiary who is competent to contract to transfer his or her interest. Section 69 of that Act provides that every person to whom a beneficiary transfers his or her interest has the rights, and is subject to the liabilities of the beneficiary in respect of such interest at the date of the transfer. Whether a particular case is one where there is a diversion of income at source before it has accrued to the assessee, or whether it is an application of income by the assessee after it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Commissioner of Income-tax v. Imperial Chemical Industries (India) (P.) Ltd. [1969] 74 ITR 17 (SC). The Supreme Court there held that an obligation to apply the income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee results in the diversion of income. An obligation to apply income which has accrued or arisen or has been received amounts merely to the apportionment of income and the income so applied is not deductible. The true test for the application of the rule of diversion of income by an overriding title is whether the amount sought to be deducted in truth never reached the assessee as his income. We have to consider in the present case the effect of the deed of assignment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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