COMMISSIONER OF INCOME-TAX, PATNA vs. RANI BHUWANESHWARI KUER
What did the Supreme Court hold?
The Supreme Court held that the third proviso to Section 16(1)(c) of the Indian Income-tax Act, 1922, operates to exclude from the principal clause only that part of the income which arises to another person under a deed of settlement. It does not remove the entire deed from protection if part of the income is not covered by the prescribed conditions or if the settlor has a direct or indirect interest in a part of the income. The proviso does not exclude income received by the settlor as a beneficiary from tax liability. The Court affirmed that the third proviso applies to settlements deemed revocable by the first proviso. Two conditions are necessary for the third proviso's application: (i) the trust must not be revocable for a period exceeding six years or during the beneficiary's lifetime, and (ii) the settlor must have no direct or indirect benefit from the income given to the beneficiary. On the facts, the Court found the deed was not revocable within six years and that the income received by beneficiaries other than the assessee could not, until the power of revocation arose, be deemed the assessee's income for assessment purposes. The appeal was dismissed.
What were the facts?
The assessee, Rani Bhuwaneshwari Kuer, owner of the 'Tekari Raj' estate, executed a deed of trust on January 20, 1941, to liquidate debts. The beneficiaries included the settlor, her husband, and five sons. The original deed was modified by a rectification deed on December 22, 1941, and an amendment deed on January 12, 1942. Clause 43 of the original deed, later modified by Clause 45, granted the settlor the right to revoke or vary the trust, but not before the discharge of certain debts. This revocation right was exercisable only after specific Thica leases, one until 1965 and another until 1954, remained effective. For the assessment year 1947-48, the Income-tax Officer included the trust's income in the assessee's total income. The High Court set aside this order, holding that since the trust was not revocable for six years, income received by beneficiaries other than the assessee was not taxable as the assessee's income until the revocation power arose.
What were the issues?
1. Whether the income received by beneficiaries other than the assessee can be included in the assessee's total income under Section 16(1)(c) of the Indian Income-tax Act, 1922, considering the third proviso to that section? Assessee's Contentions: The assessee argued, and the High Court held, that the income received by beneficiaries other than the assessee could not be included in the assessee's total income until the power of revocation arose, as the trust was not revocable for a period of six years as stipulated by Section 16(1)(c) and its third proviso. The assessee also contended that the third proviso does not exclude income received by the settlor as a beneficiary from tax liability, but rather excludes income given to another person if the conditions are met. Revenue's Contentions: The revenue contended that if the settlor has reserved any part of the income as a beneficiary, the third proviso would not apply to the entire deed of trust. The revenue also argued that the third proviso does not operate in respect of deeds deemed revocable by the first proviso.
Which sections of the Income-tax Act were involved?
Section 16(1)(c)
AI-generated summary — verify with the full judgment below
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-
The order continues below.
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