Law: Income Tax Act, 1922

Section: 16(1)(c)

Law: Income Tax Act, 1961

Section: 60,61,62,63

Section 62 of the Income-tax Act, 1961 [Corresponding to section 16(1)(c) of the Indian Income-tax Act, 1922] - Transfer of assets - Irrevocable - Assessee created a trust in respect of his two houses - Under said trust deed trustees were to pay to him a specified sum for life for his own absolute benefit - ITO held that entire income from two houses was assessable in his hands inasmuch as by retaining a portion of income from trust properties, trust had become revocable under section 16(1)(c) of 1922 Act - Whether settlement as a whole will not come within mischief of section 16(1)(c) of 1922 Act if revocability relates only to a part of income - Held, yes - Whether since trust created by assessee was genuine and it fulfilled conditions laid down in third proviso to section 16(1)(c) of 1922 Act, only that part of income which accrued or was received by settlor (i.e. assessee) could be assessed as his income - Held, yes FACTS In terms of trust deed relating to a trust created by the assessee in respect of his two houses, the trustees were to pay him a specified sum for life for his own absolute use and benefit out of the trust income after payment of taxes, etc. The ITO held that the entire income from the aforesaid houses was assessable in assessee's hands, inasmuch as he had retained a portion of the income from the trust properties for himself, and the trust had, therefore, become revocable under section 16(1)(c). On second appeal, the Tribunal having found that assessee had irrevocably parted with the two properties and the same had got vested in trust, only the amount actually received by him under the terms of the trust deed could be included in his income. The High Court, on reference, was of view that in order to be revocable under the first proviso to section 16(1)(c) it was sufficient if settlement, disposition or transfer contained a provision for retransfer of a part of income to the settlor, disponer or transferor. According to it, the word 'income' includes any part of the income unless there was anything repugnant in the context and the third proviso did not explain the first proviso but was a kind of rider or exception to it. The High Court,…

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