COMMISSIONER OF INCOME-TAX, PUNJAB, .JAMMU & KASHMIR, HIMACHAL PRADESH, PATIALA versus RAGHBIR SINGH

Citation: [1965] 3 S.C.R. 684 · Decided: 09-04-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Judgment (excerpt)

COMMISSIONER OF INCOME-TAX, PUN.JAB, .JAMMU & 
KASHMIR, IDMACHAL PRADESH, PATIALA 
v. 
RAGHBIR SINGH 
April 9, 1965 
[K. SUBBA RAO, J.C. SHAH ANDS. M. SIKRI, JJ.] 
Indian Income-tax Act, 1922 (11 of 1922), s. 16(1)(c)-Deed of 
trust-Trustees directed to pay debts of settlor and only thereafter 
A 
B 
to apply trust income and property to the various purposes of the 
trust-Such direction whether makes trust revocable-Whether pro-
C 
perty of trust indirectly re-transferred to the settlor-Income from 
trust whether to be ta.ied in hands of settlor. 
The respondent executed a deed of trust in respect of certain 
shares owned by him in a company. The deed directed the trustees 
to apply the income and property of the trust in the first instance 
for paying off the settlor's debts, and thereafter for other purposes 
of the trust. fo proceedings under the Indian In~ome-tax Act, 1922 n 
it was held by the Income-tax Officer that the trust was a fictitious 
transaction. The Appellate Assistant Commissioner held that the 
transfer of the shares for the purpose of the trust Vl'llS not irrevocable 
and therefore under the proviso to s. 16(l)(c) the respondent could 
not escape liability. The Tribunal upheld the order of the Assis-
tant Commissioner but referred to the High Court, inter alia, the 
question whether the income from tl).e trust property ccmld be taxed 
E 
in the hands of the assessee. The High Court answered the question 
in the negative. The Commisoioner of Income-tax, appealed to this 
Court. 
HELD: After the execution of the deed of settlement the income 
from the shares arose to the trustees and was liable to be applied 
for the purposes mentioned in the deed. The income had first to be 
applied for satisfaction of debts which the settlor was under an 
F 
obligation to pay, but this did not amount to a re-transfer of the 
income or assets to the settlor, nor did it invest the settlor with a 
power to re-assume the income or assets. The assests and the income 
were unmistakably impressed with the obligations arising out of the 
trust. The settlor certainly obtained a benefit from the trust conse-
quent upon the satisfaction of his liability, but on that account the 
first proviso to s. 16(1) was not attracted. [690D-F] 
G 
The proviso contemplates cases in ~"ihich there is a provision for 
retransfer of the income or assets and such provision is for re-
transfer directly or indirectly. It also contemplates cases where 
there is a provision which confers a right upon the settler to reas• 
sume power over the income or assets directly or indirectly. It is 
the provision for retransfer directly or indirectly of income or assets 
or for reassurnption of power directly, or indirectly over income or 
H. 
assets which brings the case within the proviso. Cases in which 
there is a settlement, but there is no provision in the settlement for 
retransfer or right to reassume power do not fall within the proviso, 
even if as a result of the settlement, the settler obtains some benefit. 
[690G, HJ 
Ramji, Keshavji v. C.I.T. Bombay, [1945] 13 I.T.R. 105 and D. R. 
Shahapura v. C.I.T., Bombay 14, I.T.R. 781 approved. 
684 
..
• 
C.I.T. V. ItAGHBIB SINGH (Shah,_ J.) 
685 
A 
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 96 to 98. 
of 1964. 
Appeals by special leave from the judgtl\ents and orders dated 
September 22, 1960, and December 6, 1960 of the Punjab High 
Court in Income-tax References Nos. 19 of 1958 and 6 of 1959 
B respectively. 
c 
D 
E 
F 
G 
I1 
S. V. Gupte, Solicitor-General, R. Ganapathy Iyer and R. N. 
Sachthey, for the appellant. 
Deva Singh Randhawa and Harbans Singh, for the respon-
dent. 
The Judgment of the Court was delivered by 
Shah, J. On April 10, 1953 the estate of the joint Hindu 
family of which the respondent was a member was partitioned, 
and the respondent was allotted, besides other properties, 400 
shares of the Simbhaoli Sugar Mills Private Ltd., and was made 
liable to pay a business debt amounting to Rs. 3,91,875/- due by 
the family to R. B. Seth Jessa. Ram Fateh Chand of Delhi. 
On 
April 14, 1953 the respondent executed a deed of trust in respect 
of 300 out of the shares of the Simbhaoli Sugar Mills which fell 
to his share. The following are the material. provisions of the deed 
of trust: 
"AND WHEREAS on partition, the author was allotted 
amongst other properties, four hundred shares of the 
Simbhaoli Sugar Mills Ltd., and fixed with liability 
for discharge of certain debts of th

Excerpt shown. Read the full judgment & AI analysis in Lexace.