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TMI Blog1965 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the schedule appearing hereafter, the author now as absolute owner of the said shares has decided to settle on trust three hundred shares numbering 1 to 300 both inclusive, out of the said shares for the benefit of his creditors and other beneficiaries named hereafter and for the objects mentioned hereafter. 2. That the author as holder of 300 shares ... out of the capital of Simbhaoli Sugar Mills Ltd., divesting himself of all proprietary rights in the said shares, hereby declares that the said shares shall from this day be irrevocably held on trust by the trustees to be used by them for all or any of the purposes following, that is to say : (a) To pay off the debts as detailed in Schedule ' A ' attached hereto : These debts were incurred for the benefit of the joint Hindu family of the author and on disruption of the joint Hindu family and partition of properties among its members, made payable by the author. And after his debts are paid off. (b) To provide for the maintenance and education of the children and grandchildren of the author. (c) To open and run hospitals and nursing homes. (d) To open and run school or schools for the education of boys or girls i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the trustee in respect of 300 shares of the Simbhaoli Sugar Mills was the income of the trust and that he had no concern with that income as he had " divested himself irrevocably of the ownership of the shares " and that in any event Rs. 19,856 being the amount due as interest to R. B. Seth Jessa Ram Fateh Chand should be allowed as a permissible deduction in computing the net income from dividend of the shares. The Income-tax Officer rejected the contentions of the respondent, holding that the trust was a " fictitious transaction ". The Appellate Assistant Commissioner held that the respondent had not " irrevocably transferred the 300 shares of the Simbhaoli Sugar Mills " and, therefore, by virtue of section 16(1)(c), proviso one, the respondent could not escape liability to pay tax on the dividend from the share. The respondent appealed to the Income-tax Appellate Tribunal, but without success. At the instance of the respondent the Tribunal drew up a statement of the case and referred the following questions to the High Court at Chandigarh : " (1) Whether the dividend income of 300 shares of the Simbhaoli Sugar Mills Private Ltd. transferred by the assessee to S. Raghbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him. " Clause (c) was intended, while seeking to protect a genuine settlement by which the taxpayer intends to part with control over property and its income, to circumvent attempts made by him to reduce his liability to pay income-tax by the expedient of so arranging a settlement or disposition of property that the income does not accrue to him, but he reserves a power over or interest in the property settled or disposed of, or in the income thereof. By clause (c) income arising to any person by virtue of a settlement or disposition whether revocable or not is deemed to be income of the settlor or disponer if the assets remain the property of the latter. Again income arising to any person by virtue of a revocable transfer of assets is deemed to be the income of the transferor. The first proviso then deems a settlement statutorily revocable, if it contains any provision for retransfer directly or indirectly of the income or assets settled, to the settlor, or where it gives to the settlor a right to reassume power directly or indirectly over the income or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y trust, expressed, implied or constructive, to be entered on the register. The deed recites that the shares are to be held on trust irrevocably by the trustees for all or any of the purposes mentioned therein. The purpose for which the shares are to be held in the first instance is to pay off the debt due to R. B. Seth Jessa Ram Fateh Chand, and it is only after the debt is paid off that the directions in clauses (b) to (f) of clause 2 come into operation. The deed is in terms expressly irrevocable, but on that account the operation of the first proviso is not excluded. If by the direction for application of the income for satisfaction of the debts due by the respondent, it could be said in law that there is a provision for retransfer directly or indirectly of the income or a right to reassume directly or indirectly power over the income, the settlement would be deemed revocable, recital that it is irrevocable notwithstanding. But the income from the shares since the execution of the deed of settlement arises to the trustees and it is liable to be applied for the purposes mentioned in the deed. The income has to be applied for satisfaction of debts which the settler was under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income or assets or for reassumption of power directly or indirectly over income or assets within the meaning of the first proviso to section 16(1)(c). In D. R. Shahapure v. Commissioner of Income-tax the assessee, with the object of making a provision for his wife, made an entry in his business books of account crediting Rs. 20,000, and endorsed against the entry " The capital supplied to you will remain entirely mine but you will get the income over it up to the end of your life. This capital I will not take back up to the end of your life but I will do business for you on this capital and see that you get Rs. 600 per annum for you ". No specific assets were set apart to meet the sum of Rs. 20,000 and there were no other entries in the books with regard to it. The High Court held that the entry was an irrevocable covenant to pay the income accruing on Rs. 20,000 with a guarantee that it shall be Rs. 600 a year, and therefore the case was covered by the third proviso to section 16(1)(c) of the Act and the income which was paid to the wife under the covenant could not be deemed to be the income of the assessee under the first part of section 16(1)(c). In our view these cases ..... X X X X Extracts X X X X X X X X Extracts X X X X
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