Law: Income Tax Act, 1922

Section: 4(3)(i)

JUDGMENT Desai, J.-This reference under section 66(1) of the Indian Income-tax Act raises a question, which is common to the Tribunal's orders relating to the assessment years 1956-57 to 1959-60. The question arises in the following manner : Seth Walchand and his wife, Bai Kasturbai, both of whom were possessed of their own properties, decided to settle some of the properties possessed by them upon trust. They accordingly executed a trust deed on the 25th of November, 1946. Under the said trust deed they constituted themselves and three brothers of Seth Walchand as the trustees. The properties comprised in this trust were certain shares and policies of insurance on the life of Seth Walchand and also some shares, some house property and lands belonging to Bai Kasturbai. After providing for the management expenses of the trust, clause 7 of the trust deed provided that the net income arising from the trust funds was to be paid to Bai Kasturbai during her lifetime and it also gave liberty to the settlors or any one of them to occupy and enjoy the house property and the lands comprised in the trust deed rent-free and without any obligation for payment of any outgoings or moneys in respect thereof. Clause 8 of the deed provided that from and after the death of Bai Kasturbai the trustees shall apply the said net rents, profits and income of the said immovable properties and trust funds to charitable purposes which were further set out in detail in the said clause. The purposes so stated are undisputably charitable purposes within the meaning of section 4(3)(i) of the Act. In accordance with the trusts created by the trust deed Bai Kasturbai continued to receive the net income of the trust properties as the first beneficiary thereunder in accordance with clause 7 of the said deed. Seth Walchand died on the 8th of April, 1953, and in July, 1955, Bai Kasturbai thought of surrendering her beneficial interest under the trust deed. On the 21st of July, 1955, she accordingly made a declaration to that effect. In the preamble of the said document of declaration after having referred to the trust deed and clause 7 thereof, to the death of Seth Walchand Hirachand, the present…

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