The income received by the beneficiaries (other than the assessee) under the deed of trust was not liable to be included in the income of the assessee under S.16(1)(c) of the Income-tax Act.

Judgment

SHAH, J. : Rani Bhuwaneshwari Kuer - hereinafter referred to as the assessee was the proprietor of a seven-sixteenth share in an estate known as "Tekari Raj", having inherited that estate from her parents. The assessee later acquired by purchase a major portion of the remaining ninesixteenth share in the Raj. The estate held by the assessee was heavily encumbered, and with a view to arrange for liquidation of the debts the assessee executed an indenture of trust dated January 20, 1941, whereby the Tekri Raj and certain zamindari properties owned by the assessee were conveyed to certain named trustees to be held in trust, subject to conditions specified therein. The principal beneficiaries under the deed after payment of the debts were the assessee, her husband and her five sons.

2. By the 23rd clause of the deed it was directed that after making certain payments, the trustees shall divide the surplus of the net rents, issues and profits thereof in the proportions set out in the clause. The 24th and the 25th clauses dealt with the devolution of the beneficial interest in the event of death of any of the beneficiaries. By the 41st clause it was provided that after the debts and liabilities set out in Sch. D to the deed were paid off and discharged,the settlor shall be entitled to make a permanent trust of some of the villages demised under the deed for the maintenance and up-keep of the Tekari Forts, observance of Durga Puja and other purposes specified therein, and in the event of the settlor dying before payment and discharge of the debts and liabilities set out in Sch. D and without making any permanent trust for the purposes enumerated, the settlor enjoined the trustees after discharge of the debts mentioned in Sch. D to set apart property fetching a net income of Rs. 20,000/-to form the corpus of the permanent trust to meet the expenses relating to the repair of the Tekari Forts, celebration of Durga Puja and other purposes specified. By the 42nd clause it was provided that trust under the deed shall terminate after payment of the debts and liabilities set out in Sch. D or after the death of the last amongst the sons, whichever event shall last occur, and by the 43rd clause it was provided if any of the beneficiaries under the deed or their heirs in future shall challenge the Indenture of Release and Agreement dated December 6, 1939, executed by the settlor in favour of her husband and the action taken thereunder, the said beneficiary shall on making such objection forfeit his right as a beneficiary under the deed. It was also provided that if there shall be any breach by any of the beneficiaries of the covenants or conditions and limitations imposed under the deed, he or she shall not be entitled to any money or to any share in the rents,issues or usufruct of the trust property and he or she shall be deemed to have been excluded from the categories of beneficiaries and his or her share of the rents, issues and profits will be dealt with or enjoyed by the settlor in her entire discretion, provided always that the settlor may at any time during her life by any deed revocable or irrevocable revoke or vary either wholly or partly the trust or any provisions of the deed, but not before the payment and discharge of the debts and liabilities as mentioned in Sch. D , and provided further that notwithstanding such revocation of the trust the settlement made under the deed remained good and effective subject to the forfeiture clause set out therein.

3. This deed was modified by a deed of rectification dated December 22, 1941, reciting that with the consent of all persons who were parties to the deed of trust, it was directed that at any time during the lifetime of the assessee, the assessee had the power to revoke or vary, either wholly or partly, the trust or any provisions of the deed of trust, but not so as to affect the payment and discharge of the debts and liabilities as mentioned in Sch. D thereto and the original