Law:

Section:

Settlements----   ---- Settlement containing clause for forfeiture of beneficiary's rights in certain events Whether "revocable" Settlement not revocable for six years Assessment of income of property as settlor's Legality Income tax Act (XI of 1922), S. 16 (1) (c) Whether third proviso controls first proviso.   A deed of settlement of certain properties, made by the assessee on herself, her husband and children contained a provision that if the beneficiaries or their heirs in future challenged on a certain indenture deed the said beneficiaries shall forfeit their rights as beneficiaries and further that if there shall be a breach by any of the beneficiaries of the covenants and/or conditions and limitations imposed under these presents he or she will not be entitled to any money or to any share in the rents, issues or usufruct of the trust property and he or she will 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. The question being whether the settlement was "revocable" within the meaning of section 16 (1) (c) of the Income-tax Act, 1922 and the income from the property settled could be taxed in the hands of the assessee in the character of settlor :   Held, (i) that though the settlement was expressly stated to be irrevocable section 16 (1) (c) was applicable and the transfer made by the settlement was a "revocable" one ; (ii) the third proviso to section 16 (1) (c) was, however, applicable to the case and the trust was accordingly taken out of the mischief of section 16 (1) (c) ; consequently the income from the property which was the subject matter of settlement of the trusts in this case cannot be taxed in the hands of the assessee in the character of the settlor. Under the third proviso to section 16 (1) (c) of the Act the assessee was, however, liable to be taxed so far as the income accruing to her as and when the power of revocation was exercised under the terms of the deed of trust. The assessee was liable to be taxed in the character of the beneficiary…