HARISHIKESH GANGULI (DEAD) vs. COMMISSIONER OF INCOME TAX, CALCUTTA
What did the Supreme Court hold?
The Supreme Court held that the effect of the third proviso to Section 16(1)(c) of the Income-tax Act, 1922, is that a settlement or disposition containing a provision for retransfer of a part of the income to the settlor does not render the whole income of the settlement chargeable in the settlor's hands, provided the other conditions in the proviso are satisfied. These conditions include the settlement not being revocable for a period exceeding six years or during the lifetime of the donee, and the settlor deriving no direct or indirect benefit from the income given to the beneficiary. The proviso rescues the settlor by allowing the portion of income settled on a third person to be assessed in that person's hands, not the settlor's, if these conditions are met. Therefore, the settlement as a whole does not fall within the mischief of Section 16(1)(c) if the revocability relates only to a part of the income. The Court found that the trust was genuine and fulfilled the conditions of the third proviso. Consequently, only the part of the income accrued or received by the settlor could be assessed as his income; income accruing to other beneficiaries could not be included. The appeal was allowed, and the High Court's judgment was set aside, with the question answered in favour of the assessee.
What were the facts?
The assessee, Harishikesh Ganguli, created a trust in respect of two house properties on March 19, 1953. The trust deed stipulated that the trustees would pay the settlor Rs. 200 per month for his life from the trust income after taxes and rents. The Income-Tax Officer (ITO) assessed the entire income from these properties in the assessee's hands, deeming the trust revocable under Section 16(1)(c) of the Income-tax Act, 1922, due to the retained portion of income. The Appellate Assistant Commissioner upheld the ITO's view. The Income-Tax Appellate Tribunal, however, held that only the Rs. 2400 annually payable to the assessee could be taxed in his hands. The High Court, on reference, decided against the assessee.
What were the issues?
1. Whether, on the facts and in the circumstances, the entire or any part of the income from the house properties could be included in the total income of the assessee by virtue of Section 16(1)(c) of the Income-tax Act, 1922, read with the first proviso thereto? Assessee's Contention: The assessee argued that the trust was genuine and that only the portion of income actually received by him (Rs. 2400 annually) should be taxed in his hands. The Tribunal's finding that only the sum of Rs. 2400 annually payable to the assessee could be taxed in his hands was relied upon. Revenue's Contention: The Revenue contended that the settlor retaining a portion of the income made the trust revocable under Section 16(1)(c), rendering the entire income assessable in the assessee's hands. The High Court's view that any provision for retransfer of a part of the income to the settlor was sufficient for revocability was supported.
Which sections of the Income-tax Act were involved?
Section 16(1)(c)
AI-generated summary — verify with the full judgment below
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
The order continues below.
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