Judgment

HIDAYATULLAH, J. : These are two appeals by the legal representatives of one A. R. Rangachari, who died during the pendency, in the High Court at Madras, of proceedings in a reference under S. 66(1) of the Income-tax Act made by the Income-tax Appellate Tribunal, Madras Bench. The following question was referred to the High Court for its decision :

"Whether the inclusion in the assessee s total income of the profits settled by him on his wife and two daughters is justified in law?"

The High Court answered the question in the affirmative. The appeals have been filed with a certificate granted by the High Court.

2. Rangachari was one of five partners of a firm, Messrs. Chari and Ram, and held a six-anna share in the profits and loss of the partnership. On September 22, 1947, he executed three deeds of settlement, which are marked Exts. A, A-1 and A-2, in favour of his wife, a married adult daughter and a minor daughter. To each of them, he assigned a fourth share of the profits of the firm payable to him (but not the losses), for a period of 8 years, vesting the right in them to receive the said share of profits absolutely and exclusively and declaring the settlements to be irrevocable during the above period. It is not necessary to refer to the three documents, because the terms are the same. A few clauses of the deed. Ex. A. may be quoted. After recitals which included the following:

"Whereas the Settlor has settled upon his minor daughter, Srimathi Meera Bai, one fourth of his share of profits payable to him from the firm for a period of eight years;

And whereas out of natural love and affection, the Settlor is desirous of conferring upon the Beneficiary a similar portion of his share of profits from the firm",

the deed goes on to say:

"Now this Indenture witnesseth as follows :

1. The Settlor hereby assigns unto the Beneficiary all the rights of the Settlor in respect of one-fourth of his share of profits in the firm (but not the losses) payable to him during a period of eight years commencing from the date hereof to be taken and enjoyed by the Beneficiary in absolute and exclusive right.

2. The Settlor shall not have any manner of right or interest in the said one-fourth share hereby settled and the right to receive from the firm one-fourth of the Settlor s share during the said period of eight years shall exclusively vest in the Beneficiary.

3. The Beneficiary shall be entitled directly to receive and collect from the firm the share of profits hereby transferred for the said period of eight years.

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

8. This settlement shall be irrevocable."

3. For the assessment year 1947-48 corresponding to a previous year ending on April 13, 1947, the profits due to Rangachari amounted to Rs. 86,491-13-0. This amount was credited to the account of Rangachari, and Rs. 21,622-15-3, being one-fourth thereof, were transferred to the accounts of each of the three disponees. In the same way, the profits of the previous year ending April 13, 1948, were disposed of. The assessee claimed that these amounts could not be included in his total income for purposes of assessment, being excluded by reason of the third proviso to S. 16(1)(c) of the Income-tax Act. He also contended that the amount payable to his wife and two daughters never became his income, being diverted by an overriding title, and that the case was governed by the rule laid down by the Privy Council in Bejoy Singh Dudhuria v. Commr. of Income-tax, Bengal, 1933-1 ITR 135.

4. The assessee s contentions were not accepted by the Income-tax Officer, and his appeals to the Appellate Assistant Commissioner and the Tribunal also failed. In so far as the assessment year, 1947-48, was concerned, the Income-tax Officer held that the income had already accrued to the assessee, because the deeds were executed five months after the close of the account year. He also held that the transfer to the minor daughter fell within S. 16(3), as there was no adequate