THE COMMISSIONER OF INCOME-TAX, BOMBAY versus SMT. KASTURBAI WALCHAND TRUST, BOMBAY

Citation: [1967] 2 S.C.R. 7 · Decided: 31-10-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
THE COMMISSIONER OF INCOME-TAX, BOMBAY 
v. 
SMf. KASTURBAI WALCHAND TRUST, BOMBAY 
October 31, 1966 
B 
[J. C. SHAH, V. RAMAsWAMI AND V. BHARGAVA, JJ.) 
c 
D 
E 
F 
G 
H 
Income Tw: Act 1922, s. 4(3) (i)-Income of trust property-payable 
to beneficiary during htr lifetime-Thereafter for specified charitable pur-
poses-Beneficiary executing surrender of beneficial 
interest-Thereafler 
whether trust property held wholly for charitable 
purposes and exempt 
from 'IGX-Whether Income of trust property receivable by beneficiary or 
1ry 111111 on behalf of beneficiary. 
By a deed executed in November 1946, the respondent and her bus· 
band created a trust in respe1:t of their properties. In accordance wilh 
Cause 7 of the deed, the income of the trust properties was to be paid 
to the respondent during her lifetime and, by Clause 8 the trustees were 
directed to apply the income, from and after the death of the respondent, 
. to (lertaln cbantable purposes enumerated in the deed. On July 21, 19SS, 
'Ille respondent executed a deed of surrender whereby she gave up her 
beneficial interest in the income of the trust so that 1t may immediately 
vest in the trustees and may be utilised for the charitable purposes men-
tioned in the trust deed. 
In the course of assessment to income tax in respect of the income from 
the trust properties for tho assessment years 1956-57 to 1959-60, it was 
claimed on behalf of tho trust that during the relevant previous yean, the 
properties were held under a trust wholly for charitable purposes, and 
consequently, the income was exempt from income-tax under s. 4(3)(i) 
of the Income Tax Act, 1922. The Income Tax Officer rejected this claim 
on the view that the deed of surrender executed by the respondent did not 
amount to renouncement of her rights under the trust deed and that it 
really amounted to a transfer of the income received by her for the use 
of the trust; and since the income was receivable by the respondE;nt, the 
trust properties were not held wholly for charitable purposes. 
However, 
the Appellate Assistant Commissioner, on appeal held that the income 
from the trust properties was exempt under s. 4(3) (i) and this view 
was upheld by the Tribunal The High Court, upon a reference, 
also 
held in favour of the trust. 
· 
It was also contended on behalf of the department that as clause 8 of 
the trust deed executed in November 1946 provided that the income of 
the trust was to be applied for charitable purposes "from and after the 
death" of the respondent the trustees could not, during her life-time, apply 
the income for any charitable purposes and therefore no exemption could 
be claimed under s. 4(3 )(i). 
HELD: 
The income from the trust properties after July 21, 19SS was exempt 
from tax under s. 4(3)(i). (13 B.CJ 
Whenever a valid trust Is executed, the property vests In the Trustees, 
and the income accruing from those properties is the income of the trust 
and not of the beneficiaries. For purposes of income-tax law, however, 
the income under s. 41 (1) of the Act is treated as received by the Trus-
tees On behalf of the beneficiaries, but is to be taxed in the hands of tho 
Trustees as it would be in the bands of the beoe!lclary for wbom it la 
8 
SUPREME COURT REPORTS 
(1967] 2 S.C.R. 
received. In the present case, therefore, it would be wrong to proceed 
on any assumption that the income of the trust properties wos received 
by the respondent. Once the respondent renounced her interest by the 
deed of July 1955, which was clearly valid in view of s. 5G of the Indian 
Trusts Act, the entire properties were held by the Trustee.> for 1he chari-
table purposes mentioned in clause 8. because that was the only purpose 
of the trust Yr'hich then remained. The income which accrued thereafter 
v.·as income which could he applied or allowed to accumuJatc for applica-
tion to the charitahlc purposes mentioned in clause 8 and for no other 
purpo;e. [IO E; 11 B·H] 
Even if it were to be held that hy virttlc of clause 8 the trustees could 
not apply the inconlc for ch;1ri1ablc purpose<> 
so Jong as the r~pondent 
\vas alive, the only effect would be that the income would accumulate. 
Such ac~u1nulation.'\ 1,1.·ouh.J also be exempt from the liability to income-
tax under s. 4(3) (i) as soon as the rights of the respondent ceased on the 
execution by her of the deed of surrender in July 1955. fl 2 f) 
CIVIL APPELi.Alt: JuR1so1n10~ : Civil Appeals Nos. 180 to 
183 of 1966. 
Appe

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