TMI Blog1966 (10) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... for purposes of determining the liability of the income of the trust to tax. That question has been answered by the High Court in favour of the respondent. The appeals, therefore, fail - - - - - Dated:- 31-10-1966 - Judge(s) : V. RAMASWAMY., J. C. SHAH., V. BHARGAVA JUDGMENT The judgment of the court was delivered by BHARGAVA J.----Seth Walchand Hirachand and his wife, Bai Kasturbai, owned certain shares, had several insurance policies, owned house property and also held lease lands. The two of them together joined in executing an indenture on 25th November, 1946, by which they created a trust. The trustees were both of them themselves and three brothers of Seth Walchand. The provisions of the trust, with which we are concerned, laid 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for charitable purposes. On appeal, the Appellate Assistant Commissioner disagreed with the Income-tax Officer and accepted the submission made by the respondent, holding that the income received by the trust, after the execution of the deed of surrender by Bai Kasturbai, was exempt from tax under section 4(3)(i) of the Act in view of the applicability of section 9 of the Indian Trusts Act, 1882. The Income-tax Appellate Tribunal, on further appeal, upheld the same decision, but on a slightly different ground. The Tribunal's view was that the surrender by Bai Kasturbai was valid under section 58 of the Indian Trusts Act, and, consequently, after that deed was executed, the properties were held wholly for charitable purposes and the income was exempt from tax under section 4(3)(i) of the Act. Thereupon, at the request of the Commissioner of Income-tax, the following question was referred for the opinion of the High Court of Bombay: " Whether clause 8 of the trust settlement made on the 25th November, 1946, came into operation immediately following the declaration made by Bai Kasturbai on the 21st July, 1955, and as such the income that accrued or arose to the trustees from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In clear words, she stated in the deed that she was surrendering, releasing, transferring and assigning unto the trustees all the income which was to arise after that date from the trust properties and that she was also surrendering all her rights, claims and demands under the deed of trust, including her right 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 ". Bai Kasturbai was quite competent to contract so as to transfer her interest under the deed of trust, and by executing the deed dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai. That clause, in clear words, says that the trustees shall apply the said net rents, profits and income, etc., in all or any of the charitable purposes mentioned therein " from and after the death of Bai Kasturbai ". Relying on this last expression, it was urged that unless Bai Kasturbai died, the trustees were not permitted to apply the income for the charitable purposes mentioned in clause. It seems to us that, in this case, it was quite unnecessary to go into this question for the purpose of deciding whether the income of the trust properties, after the deed of surrender by Bai Kasturbai executed on 21st July, 1955, was exempt from income-tax under section 4(3)(i) of the Act. Under that provision, the income from trust properties, held wholly for charitable or religious purposes, is exempt from tax under two circumstances. The first is when that income is actually applied for such religious or charitable purposes, and the second is when it is accumulated for application to such religious or charitable purposes. In this case, as we have indicated above, as soon as Bai Kasturbai executed the deed of surrender, her rights under clause 7 completely ceased and all the income from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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