HARISHIKESH GANGULI (DEAD) versus COMMISSIONER OF INCOME TAX, CALCUTTA

Citation: [1972] 1 S.C.R. 310 · Decided: 18-08-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Appeal(s) allowed

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Judgment (excerpt)

310 
HARISHIKESH GANGULI (DEAD) 
v. 
COMMISSIONER OF INCOME TAX, CALCUTTA 
August 18, 1971 
(K. S. HEGDE AND A. N. GROVER, JJ.] 
Income-tax Act, 1922, s. 16(1)(c)-Settlor reserving benefit for him-
self under trust created by him-Trust whether becomes a revocable trust 
within meaning of section-Effect of third proviso. 
A 
B 
The assessee derived income from house properties and from the busi-
ness of a registered partnership furn. 
On March 19. 
1953 the assessee 
created a trust in respect of two houses. It was provided in 1ihe trust 
deed that the trustees shall pay a sum of Rs. 200/ -
per month to the 
C 
settlor, for life for his own absolute use and benefit out of the income of 
the trust estate remaining after payment of taxes, rents etc. The Income-
tax Officer held that the income from the aforesaid two properties was 
assessable in the ban&; of the assessee inasmuch as he had retained a por-
tion of the income from the trust properties for himself whereby the trust 
became a revocable trust under the provisions of s. 16(1) ( c) 
of the 
Income-tax Act, 1922. The Appellate Assistant Commissioner up~eld the 
view taken by the Income-tax Officer. 
The Tribunal however held that 
D 
only the sum of Rs. 2400/ - annually payable to the assessee could be 
taxed in his handS. 
In reference the High Court decided against the 
assessee. 
In appeal to this Court by special leave, 
HELD: The effect of the third proviso to s. 16(1) (c) is that a settle-
ment or disposition containing a provision for retransfer of a part of the 
income to the settler would not render the whole income of the settlement 
chargeable in his hand provided the other conditions contained in the pro-. E 
viso are satisfied. In other words the proviso comes to the rescue of the 
settlor in that the portion of the income from the trust properties which 
are settled on a third person is to be assessed in the hands of that person 
and not in the hand of the settler, if the latter does not retain any power 
to "deflect the same for a period exceeding six years or during the life-
time of the dcmee". Thus the settlement as a whole will not come within 
the mischief of s. 16(1) (c) if the revocabiJity relates only to a part of the 
income. [314 H-315 BJ 
F 
A significant change was made in the language with regard to revocable 
transfers in the Income-tax Act, 1961. 
Section 
63(A) of that Act ex-
pressly refers to the whole or any part of the income or assets transferred. 
It can well be said that the necessity for expressly mentioning part of the 
income was felt because under the provisions of the 1922 Act part of the 
income was not covered. [315 C-F] 
There was no dispute in the present case that the trust created was a 
genuine one. Since it fulfilled the conditions laid down . in the third 
proviso only that part of the income which accrued or was received by the 
settlor cou1d be assessed as his income The income accruing to the other 
beneficiaries could not be included in the total income of the assessee. 
[315 Fl 
C.I.T. Patna v. Rani Bhuvaneshwari Kuer, 
[1964]7 
S.C.R. 920, 
~pplied. 
Ramji Kesluivji v. Commissioner of Income-tax, Bombay, 13 1.T.R. 
105, referred to. 
C.1.T. Calcutta v. litendranath Mallick, 50 I.T.R. 313, approved. 
G 
H 
•
~ 
' 
A 
B 
HARISHIKESH GANGULI (DEAD) V, C.I.T., CALCUTTA 
31 ! 
(Grover, J.) 
CML APPELLATE JURISDICTION : Civil Appeal NO. 
1850 
of 1967. 
Appeal from the judgment ailld order dated September 30, 
1966. of the Calcutta High Court in Income-tax Reference No. 
102 of 1962. 
M. N. Banerjee and P. K. Mukherjee, for the appellants. 
Jagdish Sarup, Solicitor-General, R. N. Sachthey and B. D. 
Sharma, for the respondent. 
The Judgement of the Court was delivered by 
Grover, J. 
This is an appeal by special leave from a 
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judgment of the Calcutta High Court answering the following 
question of law referred to it against the assessee and in favour 
of the Revenue :-
D 
E 
F 
G 
H 
"Whether on the facts and in the circumstances of 
the case, the entire or any part of the income from the 
house properties concerned could be included in the 
total income of the assessee by virtue of the provisions 
of s. 16 ( 1 )( c) of ihe Income tax Act, 1922 read with 
the first proviso thereto ?" 
The assessee was assessed in the status of an individual. He 
derived income from house properties and from the business of a 
registered partnership firm H. Ganguly & Co. He had six houses 
one of which was 24, Mohanlal Stree

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