# COMMISSIONER OF INCOME-TAX, PATNA v. RANI BHUWANESHWARI KUER

- **Citation:** [1964] 7 S.C.R. 920
- **Court:** Supreme Court of India
- **Decided:** 1964-04-28
- **Bench:** K. Subba Rao, J. C. Shah Ands. M. S!Kri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-patna-v-rani-bhuwaneshwari-kuer-3147
- **Pages:** 10

## Headnote

Indian Income-tax Act, 1922 (11 of 1922) s. 16(l)(cl and its
proviso th1·ee-Deed of trust by assessee-Beneficiaries of the
Trust are assessees and other persons-Trust and revocable within siX years-If the income of the Trust can be included as part
of the income of the assessee.
The assessee (respondent) owner of an estate known as
"Tekari Raj" exe:uted an indenture of trust d"ted January 20,
1941 whereby the "Tekari Raj" and certain Zarnindari properties owned by her were conveyed to certain named trustees
to be held in trust, subject to conditions specified therein. This
deed was created with a view to liquidate the debts of the
Tekari Raj. The beneficiaries under the deed were the settlor,
her husband ahd her five sons. This original deed was modified by a deed of rectification dated December 22. 1941. It was
prov:ided in the original cl. 43 of the deed of trust dated January
20, 1941, that the settlor may at any time during her life revoke· or vary either wholly or partly the trust or any provisions of the deed but not before the payment and discharge
of certain debts and liabilities. Clause 43 of the original deed
was subsequently modified by the 45th clause which was added
by the deed of amendment dated January 12, 1942. By cl. 45
of the deed of amendment the right of revocation was not
exercisable till the Thica leases in favour of the Maharajadhiraj of Darbhanga and - Capt. Maharaj Kumar Gopal Saran
Narain Singh rema;ned good and effective. It was the common
ground that the lease in favour of the Maharajadhiraj of
Darbhanga was to enure till 1965 and the lease in favour of
Capt. Maharnj Kumar Gopal Saran Narain Singh till 1954.
In assessing the assessee to income-tax for the year 1947-48,
the Income-tax Officer incltuded in her total income the income
of the trust. The matter went up to the High Court and the
High Court set aside the assessment order passed by the Income-tax Officer. The High Court held that as the trust was
not revocable for a period of six years, the income received
by the beneficiaries (other than the assessee) was not liable
to be taxed as the assessee's income till the power to revoke
arose in her favour. The appellant obtained special leave
against the order passed by the High Court. Hence the appeal.
The principal question for consideration before this Court
was whether the income received by the beneficiaTies other
than the assessee could be included in the total income of the
assessee under s. J6(1}(c) of the Act.
Held: (i) In terms the third prov!so to s. 16-(l)(c) of the
Income-tax Act excludes from the operation of the principal
clause that part of the income alone which arises to any person
under ~ deed of settlement: it does not remove from its protection the entire deed of trust, if part of the income is not
covered by the conditions prescribed or if the settlor has in
a part of the income interest direct or indirect. The third proviso does not operate to exclude the income which the settlor
receives as a beneficiary from liability to tax.
'(.
t
•
-
_. ~ 7 S.C.R.
SUPREME COURT REPORTS
921
I
1964
(ii) The third proviso to s. 16-(l)(c) of the Act does operate in respect of settlements, dispositions, or transfers which
Oommiuion<r of
are by thQ first proviso revocable for the purpose of that Income-ta>:, Paino
clause.
v.
'
(iii) Two conditions are necessa:ry for the application of
the 3rd proviso to s. 16-(l)(c) of the Income-tax Act: (i) that
the trtlst should not be "'vocable for a period exceeding 6
years or during the life time of the beneficiary and (ii) the
settlor or disponer should have no direct or indirect benefit
from the income given to the beneficiary. The effect of the two
coaditions is that, that part of the income which arises to any
person by virtue of the settlement which is not revocable for
a period of six years or which is not revocable during the life
time of the beneficiary will not be included in the settlor's
income, provided that from. the income of such person th

## Text

1964
.April 28
920
SUPREME COURT REPORTS
(1964]
COMMISSIONER OF INCOME-TAX, PATNA
v.
RANI BHUWANESHWARI KUER
[K. SUBBA RAO, J. C. SHAH ANDS. M. S!KRI, JJ.]
Indian Income-tax Act, 1922 (11 of 1922) s. 16(l)(cl and its
proviso th1·ee-Deed of trust by assessee-Beneficiaries of the
Trust are assessees and other persons-Trust and revocable within siX years-If the income of the Trust can be included as part
of the income of the assessee.
The assessee (respondent) owner of an estate known as
"Tekari Raj" exe:uted an indenture of trust d"ted January 20,
1941 whereby the "Tekari Raj" and certain Zarnindari properties owned by her were conveyed to certain named trustees
to be held in trust, subject to conditions specified therein. This
deed was created with a view to liquidate the debts of the
Tekari Raj. The beneficiaries under the deed were the settlor,
her husband ahd her five sons. This original deed was modified by a deed of rectification dated December 22. 1941. It was
prov:ided in the original cl. 43 of the deed of trust dated January
20, 1941, that the settlor may at any time during her life revoke· or vary either wholly or partly the trust or any provisions of the deed but not before the payment and discharge
of certain debts and liabilities. Clause 43 of the original deed
was subsequently modified by the 45th clause which was added
by the deed of amendment dated January 12, 1942. By cl. 45
of the deed of amendment the right of revocation was not
exercisable till the Thica leases in favour of the Maharajadhiraj of Darbhanga and - Capt. Maharaj Kumar Gopal Saran
Narain Singh rema;ned good and effective. It was the common
ground that the lease in favour of the Maharajadhiraj of
Darbhanga was to enure till 1965 and the lease in favour of
Capt. Maharnj Kumar Gopal Saran Narain Singh till 1954.
In assessing the assessee to income-tax for the year 1947-48,
the Income-tax Officer incltuded in her total income the income
of the trust. The matter went up to the High Court and the
High Court set aside the assessment order passed by the Income-tax Officer. The High Court held that as the trust was
not revocable for a period of six years, the income received
by the beneficiaries (other than the assessee) was not liable
to be taxed as the assessee's income till the power to revoke
arose in her favour. The appellant obtained special leave
against the order passed by the High Court. Hence the appeal.
The principal question for consideration before this Court
was whether the income received by the beneficiaTies other
than the assessee could be included in the total income of the
assessee under s. J6(1}(c) of the Act.
Held: (i) In terms the third prov!so to s. 16-(l)(c) of the
Income-tax Act excludes from the operation of the principal
clause that part of the income alone which arises to any person
under ~ deed of settlement: it does not remove from its protection the entire deed of trust, if part of the income is not
covered by the conditions prescribed or if the settlor has in
a part of the income interest direct or indirect. The third proviso does not operate to exclude the income which the settlor
receives as a beneficiary from liability to tax.
'(.
t
•
-
_. ~ 7 S.C.R.
SUPREME COURT REPORTS
921
I
1964
(ii) The third proviso to s. 16-(l)(c) of the Act does operate in respect of settlements, dispositions, or transfers which
Oommiuion<r of
are by thQ first proviso revocable for the purpose of that Income-ta>:, Paino
clause.
v.
'
(iii) Two conditions are necessa:ry for the application of
the 3rd proviso to s. 16-(l)(c) of the Income-tax Act: (i) that
the trtlst should not be "'vocable for a period exceeding 6
years or during the life time of the beneficiary and (ii) the
settlor or disponer should have no direct or indirect benefit
from the income given to the beneficiary. The effect of the two
coaditions is that, that part of the income which arises to any
person by virtue of the settlement which is not revocable for
a period of six years or which is not revocable during the life
time of the beneficiary will not be included in the settlor's
income, provided that from. the income of such person the
settlor derives no benefit··airect or indirect.
On the construction of the deed of trust it was held that
the deed was not revocable within six yea:rs provided by s. 16
(l)(c) of the Act.
·
Ramji Keshavii v. Commissioner of Income-tax, Bombay,
13 I.T.R. 105, relied on.
(iv) On the facts of this case it was held that ·by virtue
of the third proviso to s. 16-(l)(c) of the Act the income received by the beneficiaries under the deed of trust other than
the assessee could not until the power of revocation arose to
the a~ssee, be deemed to be the income of the assessee for
the purpOse of assessment to income-tax.
QVJL APPELLATE JURISDICTION: Civil Appeal No. 620
of 1963. Appeal by special leave from the judgment and
decree dated 9, 1961 of the Patna High Court in M.J.C. No.
497 of 1957.
N. D. Karkhanis and R. N. Sachthey, for the appellant.
Sarjoo Prasad, B. D. Singh and D. Goburdhan, (or the
r1&pondent.
by
April 28, 1964. The judgment of the Court was deliv,ered
SHAH, J.-Rani Bhuwaneshwari
Kuer-hereinafter re-
.,.
ferred to as 'the assessee' was the proprietor of a seven-sixteenth share in an estate known as 'Tekari Raj', having
inherited that estate from her parents.
The assessee later
acquired by purchase a major portion of the remaining ninesixteenth share in the Raj. The estate held by the assessee
was heavily encumbered, and with a view to arrange for
liquidation of the debts the assessee executed an indenture
of trust dated January 20, 1941, whereby the Tekari Raj
~ and certain zamindari properties owned by the assessee werg
conveyed to certain named trustees to be held in trust, subject
to conditions specified therein. The principal beneficiaries
under the deed after payment of the debts were the assessee,
her husband and her five sons.
Ra11i
BhuwaneB1nca1 i
x,,..
922
SUPREME COURT REPORTS
(1964} -( -
1961
By the 23rd clause of the deed it was directed that after
a"""";,.'°"'• of making certain payments, the trustees shall divide the sur1.._.ia,,, Patna plus of the net rents, issues and profits thereof in the propori',;,.,
tions set out in the clause. The 24th and the 25th clauses
Blu.,,..,...h..,,;
dealt with the devolution of the beneficial interest in the
Kevent of death of any of the beneficiaries. By the 4lst clause
Shah, J.
it was provided that after the debts and liabilities set out in
Sch. 'D' to the deed were paid off and discharged, the settlor
<
shall be entitled to make a permanent trust of some of the
villages demised under the deed . for the maintenance and
up-keep of the 'lekari Forts, observance of Durga Puja and
other purpQses
specified . therein, and in the event of the
settlor dying before payment and discharge of the debts and
liabilities set out in Sch. 'D', and without making any permanent trust for the purposes enumerated, the settlor enjoined the trustees after discharge of the debts mentioned in Sch.
'D' to set apart property fetching a net income of Rs. 20,000 ! •
to form the corpus of the permanent trust to meet the expenses relating to the repair of the Tekari Forts, celebration
~ ·
of Durga Puja and other purposes specified. By the 42nd
clause it was provided that the trust under the deed shall
terminate after payment of the debjs and liabilities set out
in Sch. 'D' or after the death of the last amongst the sons,
whichever event shall last occur, and by the 4Jrd clause it
was provided that if any of the beneficiaries under the deed
or their heirs in future shall challenge the Indenture of Release and Agreement dated December 6, 1939, executed by
the settlor in favour of her husband and the action taken
thereunder. the said beneficiary shall on
making such
objection forfeit his. right as a beneficiary under the deed. lt
was also provided that if there shall be any breach by any
of the beneficiaries or of the covenants or conditions and
limitations imposed under the deed, he, or she. shall not be
entitled to any money or to any ·share in the rents, issues or
usufruct of the trust property and he or she shall be deemed
,,..
to have been excluded from the categories of beneficiaries
and his or her share of the rents, issues and profits will be ,
dealt with or enjoyed by the settlor in her entire discretion,
provided always that the settlor may at any time during her
life by any deed revocable or irrevocable revoke or vary
either wholly or partly the trust or any provisions of the
deed, but not before the payment and discharge of the debts
and liabilities as mentioned in Sch. 'D'. and provided further
that notwithstanding such revocation. of the trust the settlement made under the deed remained good and effective -l
subject to the forfeiture clause set out therein.
·
This deed. was modified by a deed of rectification dated
December 22. 1941, reciting that with the consent of all persons who were parties to the deed of trust, it was direeted
\
...
'r
7 S.C.R.
SuPREME COU:RT REl'OHTS
923
..
•
that at any time during the lifetime of the assessee the asses19~
see had the power to revoke or vary, either wholly or partly, Oommi88ioner of
the trust or any provisions of the deed of trust, but nof so Income-tax, Pain•
as to effect the payment and discharge of the debts and liabiR;;,
lities as mentioned in Sch. 'D' thereto and the original deed Bhu•«aneahwa>i
of trust shall be read and construed as if it containej a
Kuer _
power vested in the settlor (the assessees) during her life
sh,h, J.
by deed to revoke or vary, either wholly or partly, the trust
or any provisions of the said trust, but not so as to effect the
payment and discharge of the debts and liabilities as mentioned in Sch- 'D'.
Another deed called a deed of amendment was executed
by the assessee on January 12, 1942. By this deed paragraphs
22, 32, 33, 35, 36 and 37 of the original deed were cancelled
and other paragraphs including paragraphs 23, 24 and 42
were amended and modified and paragraphs 42(a), 44 and
45 were added. By the amendment of paragraph-23 the Sur·
plus rents, issues and profits of the trust property were to be
divided in seven equal shares and by the amendment made
in cl. 24 it was provided that in the event of the death of
any of the sons, his share of the rents, issues and profits shall
become payable to his heir or heirs. By the modifications in
paragraph-42 it )!as provided that the trust under the deed
may terminate after payment of the debts and liabilities df
the trust that would then be outstanding or a{ter extinguishment of the Thicca leases in favour of the Maharajadhiraj of
Darbhanga or in favour of Capt Maharaj Kumar
Gopal
Saran Narain Singh of Tekari, whichever event shall occur
last. Paragraph 42(a) provided that after the provisions as
laid down in para 41 had been carried out and when the last
contingency set out in para 42 as modified had arisen, the
be~efic!ar!es or the heirs or successors-in-interest or representattves-m-mterest of such of them as had acquired any right
from any of the beneficiaries under the deed shall be entitled
to pai?tion the trust property according to their shares. The
material part of paragraph-45 provided :
"That the settlement made under these presents shall
be ~anent, unalterable and irrevocable so far
the mterest created under these presents are concerned, but each beneficiary shall have full riaht
I? make any !!Ort of arrangement about dev~lu
tion or. succession or make such alienation, as he
may thmk fit. about his share, but the trust created under these presents shail be mevocable so
l?n!l .~e debts mentioned above including all the
liabihtles on the Trust property up to date are
no~ fully paid _up or discharged or so long as the
~cca leases in favour of Hon'ble Maharajadhira1 of Darbhanga or Capt. Maharaj Kumar Gopal
1964
Oommiarirmer of
lncontt-tazt Pattm
Y,
Rani
Bhuuonul&wari
Kmr
Shall, J,
924
•
SUPREME COURT REPORTS
[1964]
Saran Narain Singh remain good and effective
whichever event shall happen last".
Provided that always para 43 of the Indenture of Trust
dated 20th January, 1941, shall hence forth be
read subject to this para.
•
•
•
•
In proceedings for assessment for the assessment year
1947-48 the Income-tax ()_fficer, Gaya-Palamau Circle, Ga ya,
rejected the contention raised by the assessec that the income
under the trust was taxable in the hands of the trustees
under the deed of settlement and applying the provision of
s. J 6(J)(c) of the Indian Inoome-tax Act, 1922, brought the
income of the trust to tax as part of the assessee's income.
The order passed by the Income-tax Officer was confirmed
in appeal to the Appellate Assistant Comm!ssioner. but the
Income-tax Appellate Tribunal reversed that order.
The
Tribunal observed that "revocation involved
taking back
that which was given once, but in the present case there was
nothing done by the assessee by which it could be said that
she had taken back what she had given by the original deed
of trust", and the trost was therefore not a revocable trust
as contemplated by s. 16 (I) (c) of the Income-tax Act.
The High Court of Judicature at Patna directed the
Income-tax Appellate Tribunal under s. 66(2) of the Act to
state a case and to refer the following questions:
(I) Whether the trus( created by the assessee is a revocable trust within the meaning of s. lb(l)(c)
of the Income-tax t ct?
(2) Whether the income from the property which is
the subject-matter of the settlement mentioned in
question (I) can be deemed to be the income of
the assessee under s. 16 (I) (c) of the Income-tax
. .A.ct?
·
The High Court held that the deed of trustdated January 20,
1941 (as modified by the subsequent deed dated January 12,
1942) was within the meaning of s. 16 (I) (c) of the Incometax Act a revocable trust, but not being revocable for six
years from the date of its creation, bv virtue of the third
proviso to s. 16 (I) (c) which controlled not merely the substantive provisions of s. 16 (I) (c) but the first proviso to that
section as well, the income received by the beneficiaries (other
than the settlor) under the deed of trust was not liable to be
included in the income of the assessee. Th·?. High Court accordingly directed that the income of the trust property
which is the subject-matter of the settlement of the trust was
not liable to be assessed to tax under the third proviso to s.
{
(
7S.C.R.
SUPREME COURT REPORTS
925
.
1964
16(l)(c), but only so long as the power of revocation granted
_
by the deed was not exercised by the assessee under the·terms Oommi<ai"""r of
of the deed of trust. The High Court also declared that the Tncome..iax, Palwa
assessee was liable to pay tax on the income received by her
R;,;.
in the character of a beneficiary out of the trust properties.
Bhu.,.,...h-
.
g,....
Against the order passed by the High Court, with special
leave, the Commissioner of Income-tax, Patna, has appealed
to this Court.
The principal question which falls to be determined in
this appeal is whether by the third proviso to cl. (c) of s. 16(1),
income received by the beneficiaries other than the assessee is
income arising to them by virtue of a settlement which is not
revocable for a period exceeding six years, and from which
income the assessee. derives no benefit direct or indirect.
Section l 6(l)(c) provides :
"(l) In computing the total income of an assessee-
(a)
•
•
•
(b)
•
•
•
(c) all income arising to any person by virtue of a
settlement or disposition whether revocable or not,
and whether effected before or· after the commencement of the Indian Income-tax (Amendment)
Act, 1939, <VII of 1939), from assets remaining
the property of the settlor or disponer, shall be
deemed to be income of the settlor or disponer,
and all income arismg to any person by virtue of
a revocable transfer of assets shall be deemed to be
income of the transferor :
Provided that for the purposes of this clause a settlement, disposition or transfer shltU be deemed. to be
revocable if it COlrtaiDt Ml¥ provisions for the
retransfer directly or indirectly of the income or
assets to the settlor, "disponer or transferor, or in
any way gives the settlor,. disponer or transferor a
right to reassume power directly or, indirectly
over the income or assets :
Provided further that the expression "settlement ·or disposition" shall for ·the purpose of this clause include any disposition, trust, covenant. agreement,
or arrangement, and· the expression ''settlor or
disponer" in relation to a settlement or disposition
shall include any person by whom the settlement
or disposition Will! made:
·
Provided further that this clause shall not apply to any
income arising to any person by virtue of a settl~
ment or disposition which is not revocable for a
Shah, J,
926
SUPRE.ME COURT REPORTS
[1964]
1964
Connni~ioner of
Jncome-la:i, Patna
period exceeding six years or during the lifetime
of the person and from which income the settlor
or disponer derives no direct or indirect benefit
but .that the settlor shall be liable to be assessed
v.
Bat&i.
Bkuwa'nUkwari
Kuer
Shah, J.
on the said income as and when the power to revoke arises to him."
The High Court held that the deed of trust was one in which
the assets remained the property of the sett I or, but as the trust
was not revocable for a period of six years the income received
by the beneficiaries (other than the assessee) was not liable to
be taxed as the assessee's income till the power to revoke
arose in his favour.
The point in dispute in this appeal is about the applicability of the third proviso to s. J 6(l)(c), which seeks to exempt
from the operation of the principal clause income which arises
to any person under the deed of settlement executed by the
assessee. Two conditions are necessary for the application of
the third proviso-(i) that the trust should not be revocable
for a period exceedig six years or during the lifetime of the
beneficiary and (ii) the settlor or disponer should have no
direct or indirect benefit from the income given tq the beneficiary.
•
Counsel for the Commissioner contended in the first
instance that the third proviso to s. l6(l)(c) applied to the
trust created by the assessee because in fact within six years
of the date of its execution the deed was revoked, and that
in any event on a true interpretation of the covenants of the
deed of trust it was revocable within six years. The plea
that the trust was in fact revoked within six years was never
raised before the Revenue authorities, the ·Tribunal or even
the High Court, and is plainly unsustainable. There are, it
is true, certain recitals made in the deed dated September 18,
1946, executed by the assessee, which is styled "Deed for further alteration of terms & constitution of trust" by the assessee, that the liabilities referred to in Sch. 'D' to the deed of
· trust dated January 20, 194 l had been fully discharged and
the beneficiaries had been, receiving the surplus rents, issues
and profits according to their respective shares in the same
and the settlor had by a deed of trust dated May 28, 1946
conveyed and settled a portion of her seventh share in the
rents, issues and profits of the trust properties, as well as in
the corpus of Shri Bhubneshwari Hari Haresh Private Trust
for meeting certain expenses. But those recitals do not even
primq facie indicate that the trust was revoked at any time.
We cannot therefore entertain this new ground raised for the
first time in this Court.
·
It may be noticed that whereas under the original cl. 43
of the deed of trust dated January 20, 1941 even though the
,
(
7 s.c.a.
SUPRE.'.\IE COURT REPORTS
927
trust was expressly made revocable, it could not be revoked
1964
before payment of the debts and discharge of the liabilities aommi.!.rioner ol
mentioned in Sch. 'D'. By the 45th. clause which. was added lllCO!Jl<·laz, Pa1by the deed of amendment dated January 12, 1942, the settle-
&ni
ment made under the deed was declared permanent, unalterBlluwaneshwan.
able and irrevocable so far as the interest created under the
x.,,,
deed of amendment was concerned, and was also to stand
· irrevocab.le so long as the debts mentioned in Sch. 'D' and
other liabilities of the trust including all the liabilities on the
trust properties were not fully paid up and discharged and so
long as the leases in favour of the Maharajadhiraj of Darbhanga or Capt. Maharaj Kumar Gopal Saran Narain Singh
remained good and effective, whichever event last happened.
It is conceded that the lease in favour of the Maharajadhira,i
of Darbhanga was to ensure till 1965 and the lease in favour
of Capt. Maharaj Kumar Gopal Saran Narain Singh till 1954.
By cl. 45 of the deed of· amendment the right of revocation
was not exercisable till the Thicca leases in favour of the
Maharajadhiraj of Darbhanga and Capt. Maharaj Kumar
Gopal Saran Narain Singh remained good and effective, and
we are unable to hold that the deed of trust was revocable
within six years as provided by s. !6(l)(c) of the Act.
It was urged on behalf of the Commissioner in the alternative that the third proviso to s. 16(\)(c) did not protect the
assessee against the application of the substantive part of that
clause, because the assessee was deriving under the terms of
, the deed of trust a direct benefit. There are in the third proviso, two cumulative conditions on the existence of which the
exemption from liability to have the. income arising from a
-.
settlement included in the asseSsee's income. The effect of
the two conditions is that, that part of the income which
arises to any person by virtue of the settlement which is nN
revocable for a period of six years or which is not revocable
during the lifetime of the beneficiary will not be included in
the settlor's income, provided that from the income of such
person the settlor derives no benefit direct or indirect. The·
third proviso to s. 16(l)(c) does not operate to exclude the
~ income which the settlor receives as a beneficiary' from liability to income-tax : it merely excludes that part of the ipcome
which is under the deea··of settlement given to another person
from liability to tax in the hands of the settlor, if the ·conditions prescribed by the third proviso are fulfilled.
The contention raised by the Commissioner that if under the deed of
trnst the settlor has reserved to himself as a beneficiary any
part of the income of the property settled, the third proviso
will not apply to the deed of trust runs contrary to :the plain
•• words of the statute. In terms the third ·proviso· excludes
from the operation of the principle clause that part of the
income alone which adses to any person under a deed of
Shah, J.
I
l!t(jJ
tQmmi.,sioncr of
· n···imf·ta.r, P1itw;a
•.
'
Ur,1~i
Ill· 1;1.1·1tnei::l1wari
Kt1tr
.-~·1t11li, ·'·
928
SUPREME COURT REPORTS
[1964)
settlement: it does not remove from its protection the entire
deed of trust, if part of the income is not covered by the
conditions prescribed or if the settlor has in a part of the
income interest direct or indirect.
, ...
Finally, it was contended that the third proviso only
operates in respect of deeds of settlement or disposition which
are referred to in cl. (c), but nofi to deeds of settlement or
disposition which by the first proviso are deemed to be revocabk in the conditions mentioned by the first proviso. In other
words. it is submitted the benefit of the proviso is not available
in those cases where the settlement or disposition is deemed
by the proviso to be revocable, because it contains a provision
for the retransfer directly or indirectly of the income or assets
to the settlor, or in any way it gives the settlor, disponer or
transferor a right to reassume power directly or indirectly
over the income or assets. We are unable to agree with
this contention also. By the first proviso, settlements, dispositions or· transfers of the character described therein, are deemed revocable for the purpose of the principal clause. The function of proviso I and proviso II is plainly explanatory. The
second proviso in terms says that the expression "settlement
or disposition" is to include any disposition, trust, covenant,
agreement. or ~;rrangement, and the expression "settlor or
disooner" is to include any person by whom the settlement or
disposition was ·made.
Similarly the first proviso states that
sen!ements. dispositions or transfers, if they are of the characttt described, shall for the purpose of the principal claus,e be
r!!l'Ocable transfers. If that be the tfoelnterpretation, and we
think it is, it would be impossible to hold that the third proviso
does not operate in respect of settlements, dispositions or
transfers· which are by the first proviso revocable for the purpo.•:e of that cln•ise.
In a case decided by the Bombay High Court Ramji
Keslwvji v. Commissidflo· of Income-tax, Bombay(') Kania,
J., in considering the scheme of s. 16(1)(c) observed:
·"The first stage is that when there is a revocable transfer of assets, the income derived from such assets
is still to be considered the income of the settlor.
The law next specifies by proviso I what would
be deemed a revocable transfer. in spite of the
deed being apparently irrevocable. The relevant
question for that proviso is this: Is this transfer
revocable because it fulfils the conditions contained in the proviso? The answer to that question can
be only, it is revocable, or it is not. If the answer "
is in the negative, no further discussion can arise
(') 13 I.T.R 105.
.(
r
~ 7 S.C.R.
SUPREME COYRT REPORTS
929
beeause, on the face of it, the deed is not revocable
1964
and, therefore, it does not come under Section Oommi.,ivmr of
l 6(l)(c). If, however, the answer to the question lncome-tnx, P"""'
\
is in the affirmative, the deed although ostensibly
iI,.",,i
irrevocable, is deemed to be revocable, and thus
Bhuwa••"hwari
becomes a revocable transfer of assets, within the
Kiw
meaning of the substantive provision of Section
Shah, J.
16(l)(c). Having reached that stage, the law proceeds to consider further what is found in proviso
3. The scheme appears to be that although in fact,
after reading the provisions of Section 16(l)(c) with
proviso I, the transfer is revocable, the law will
not still consider the income derived from such a
settlement the income of the settlor, provided the
settlement is not revocable for a period exceeding
six years or during the lifetime of the person for
whom the income is settled, and further, from
which income the settlor derives no direct or indirect benefit."
In our view that passage correctly summarises the effect of
the ~ird proviso to s. 16(l)(c).
The High Court was therefore right in holding that by
virtue of the third proviso to s. 16(1)(c) of the Indian lncometax Act, 1922, the income received by the beneficiaries under
the deed of trust other than the assessee could not until the
power of revocation arose to the assesssee, be deemed to be the
income of the assessee for the purpose of assessment to
income-tax.
The appeal fails and is dismissed with costs.
Appeal dismiued.