Judgment

HIDAYATULLAH, J. : This judgment governs the disposal of Civil Appeals Nos. 134 to 137 of 1959. They have been filed by four assesses with special leave, and arise out of similar facts, and it is not necessary to refer to more than one case to consider the point in question.

2. The assessment year under consideration is 1952-53, and the previous year, the Calendar year, 1951. In that year, Mr. Tulsidas Kilachand, one of the four appellants, made a declaration of trust in favour of his wife, a portion of which may be quoted here :

"......... I, Tulsidas Kilachand ........ hereby declare that I hold 244 shares of Kesar Corporation Ltd. and 120 shares of Kilachand Devchand & Co., Ltd ............... upon trust to pay the income thereof to my wife Vimal for a period of seven years from the date hereof or her death (whichever event may be earlier) and I hereby declare that this trust shall not be revocable."

In the year of account, a sum of Rs. 30,404 was received as dividend income on those shares, and the assessee contended that this income, after being grossed up, was not liable to be included in his total income, in view of the third proviso to S. 16(1)(c) of the Indian Income-tax Act. The Income-tax Officer did not accept this contention, and though the assessment order is not before us, we gather from the statement of the case that the reason he gave was that the income had accrued to or had arisen in the hands of Mr. Tulsidas Kilachand and had been paid by him to his wife. The Income-tax Officer held that the words of the proviso "income arising to any person by virtue of a settlement or disposition" did not apply to this income.

3. On appeal, the Appellate Assistant Commissioner held that the case was governed by S. 16(3)(b), and need not be considered under the third proviso to S. 16(1)(c) of the Act. It appears to have been conceded before him that if the former provision applied, the proviso would not save the income from being assessed in the hands of Mr. Tulsidas Kilachand. The appeal was dismissed.

4. In the appeal before the Tribunal, Mr. Tulsidas Kilachand again relied upon the third proviso to S. 16(1)(c), and contented that the case was not governed by S. 16(3)(b) and that dividend income could not be included in his assessment. The Tribunal came to the conclusion that the case was covered either by S. 16(3)(a)(iii) or by S. 16(3)(b), and that the income from the shares was, therefore, liable to be included in the income of Mr. Tulsidas Kilachand. The Tribunal, however, raised and referred the following question under S. 66(1) of the Act to the High Court of Bombay :

"Whether on a true construction of the deed of declaration of trust dated 5th March, 1951, the net dividend income of Rs. 30,404 on 120 shares of Kilachand Devchand & Co., Ltd. and 244 shares of Kesar Corporation Ltd. held under trust by the assessee for the benefit of his wife was income liable to be included in the total income of the assessee?" The High Court came to the conclusion that, though S. 16(1)(c) was not satisfied in view of the third proviso, S. 16(3)(b) was applicable to the case, and answered the question in the affirmative.

5. In the appeal before us, the case for the Department was based both on S. 16(3)(a)(iii) and S. 16(3)(b), while the appellants contended that this disposition fell within the third proviso to S. 16(1)(c). The relevant provisions are :

"16. Exemptions and exclusions in determining the total income.-

(1) In computing the total income of an assessee -

........ ........ ........ ........ ........ ........ ........

(c) all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of