COMMISSIONER OF INCOME-TAX, PATNA versus RANI BHUWANESHWARI KUER

Citation: [1964] 7 S.C.R. 920 · Decided: 28-04-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

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Judgment (excerpt)

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 with-
in 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 proper-
ties 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 modifi-
ed 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 re-
voke· or vary either wholly or partly the trust or any provi-
sions 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 Maharajadhi-
raj 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 In-
come-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 pro-
tection 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 pro-
viso 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 ope-
rate 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,

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