LexCOMMISSIONER OF INCOME-TAX, GUJARAT versus JAYANTILAL AMRATLAL, AHMEDABAD
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COMMISSIONER OF INCOME· TAX, GUJARAT
v.
JAYANTILAL AMRA,TLAL, AHMEDABAD
May 5, 1961
A
(J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.]
B
Indian Income-tax "Act, 1922, s. 16(1) (c), proviso l-S1ttlor making
charitable trust and registering it under s. 35- Bombay Public Trusts
A ct, 1950-S. 16(1) ( c) proviso 1 whether can be applied to income of
trust on presumption +that sett/or may derive benefit contravening the
Bombay Act-Facts justifying applicability of s. 16(l){c) proviso 1.
J executed a trust deed wmreby he created a charitable trust. The
<ieccl was registered with the Charity Commissioner under the Bombay
Public Trust Act, 1950. For the year 1958-59 the Income-tax Officer
held that since the settlor had reserved to himself wide powers for his
own benefit and had also utilised those PoWers to his benefit, the case
was covered by s. 16(1) {c) of the Income-tax Act, 1922.
Accordingly
the Income-tax Officer taxed the income of the trust in the hands of the
settlor. A similar order was passed for the year 1959-60. In his appeal
before the Appellate Assistant Commissioner the settlor relied on s. 35
of the Bombay Public Trusts Act, 1950 to show that he was thereby
precluded from utilising the funds for his own benefit but his plea was
not accepted.
The Appellate Tribunal, however, relying on the terms
of the deed itself decided in favour of the settlor and the High Court
in reference did the same. The revenue appealed.
HELD : (i) There was no doubt that under the Trust Deed
the
settlor had very wide p<>wers and could direct the Trustees to grant loan to
him.
The Trustees could even grant a loan to a firm ,in which he was
interested.
But this would be contrary to the provisions of s. 35 the
Bombay Trust Act. The said Act to the extent it ·operates must override
provisions in the Trust Deed.
[95JE-954A-BJ
·
The Legislature in proviso 1 to s. 16(1) ( c) is thinking of powers law-
fully gi""1 and powers lawfully exercised. Any person can commit breach
of trust and assume power over income or assets but for that reason the
income of the trust cannot be treated as the income of the settlor under
the proviso.
Conimissioner of lnco11ie-tax, West Bengal v. Sir S. M. Bose. 21
l.T.R. 135 and Commissiofler of Income-tax, Bombay Ncrth v. Mathura-
<ias Manga/das Parekh, I.T. Ref. No. 4/ 54, Judgment by Bombay High
Court dated August 26, 1954, referred to.
c
D
E
F
(ii) The words 're-assume power' give indication to the correct mean-
G
ing of s. 16(l){c) proviso 1.
The latter part of the proviso contem-
plates that the settlor should be able by virtue of something contained
in the Tru;t Deed to take back the power he had over. the assets or
income previous to the execution of the Trust Deed. A provision enabl-
ing the scttlor to give directions to trustees to emP!OY the ass~ts or fu!lds
of the tru;t in a particular manner or for a particular. charitable ob1ect
contemplated by the trust cannot be said to confer a r1ght to re-a;sume
H
power within the first proviso.
Otherwise a settlor could nev.er name
himself a sole trustee. _ The mere fact that the settlor can denve ';"";'•
direct or indirect benefif under a tru~t deed would not brin& the deed within
the first proviso. [9550-H; 966A-BJ
A
B
c
D
E
F
G
H
C.!.T. V. JAYANTILAL (Sikri, /.)
947
Chamberlain v. Inland Revenue Commissioner 25 T.C. 317, Tul.iidar
K<Jlic/1and v. Commis.rioner of Income"tax, 42 I.T.R. 1, Wolfson v. Com-
n1issiorzers oj Inland Revenue, 31 T.C. 141, Saunders v. Commissioners
of Inland Revenue, 37 T.C. 416, referred to.
Commissioner of Income-tax, Punjab '" S. Raghbir Singh, 57 I.T.R.,
408, followed.
On an examination of terms of the Trust Deed the Court held
lhut none of its clauses came within the purview of Proviso 1. [9S6C-F]
CIVIL APPELLATE Ju&ISDICTION : Civil Appeal Nos. 474-477
of 1966.
Appeals by special leave from the judgment and order dated
September 5, 1963 of the Gujarat High Court in Income-tax
Reference No. 19 of 1962.
·
S. T. Desai, A. N. Kirpa/, R. N. Sachthey and S. P. Nayyar
for the appellant (in all the appeals). ·
R. J. Ko/ah, M. L. Bhakta and 0. C. Mathur, for the respon-
dents (in all the appeals).
The Judgment of the Court was delivered by
Sikri, J. These four appeals by special leave are directed
against the judgment of the Gujarat High Court in Income Tax
Reference No. 19 of 1962, whereby the High Court answered
the questions referred to it by tExcerpt shown. Read the full judgment & AI analysis in Lexace.