The first proviso to S. 16(1)(c) of the Income-tax Act, 1922, only contemplates cases where the settlor can lawfully reassume power over the income or the assets.

Judgement

SIKRI, J. : - These four appeals by special leave are directed against the judgment of the Gujarat High Court in Income-tax Reference No. 19 of 1962, whereby the High Court answered the questions referred to it by the Income-tax Appellate Tribunal against the Commissioner of Income-tax, who is the appellant before us. The reference was in respect of assessment years 1955-56 and 1956-57 in the case of Shri Jayantilal Amratlal (Individual) and in respect of assessments years 1958-59 and 1959-60 in the case of Jayantilal Amratlal Charitable Trust, Ahmedabad. The questions referred are:

(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of Jayantilal Amratlal Charitable Trust was not assessable in the hands of the settlor Jayantilal Amratlal under the first proviso to Section 16 (1) (c) of the Income-tax Act for the assessment years 1955-56 and 1956-57 ?

(2) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the Trust should be considered the assessment of the trustees and that they were entitled to the benefits of the refunds attached to the dividends from the Trust properties for the assessment years 1958 59 and 1959-60?

2. The answer to these questions depends on the true interpretation of S. 16 (1) (c) of the Indian Income-tax Act, 1922, and the interpretation of the Trust Deed dated June 19, 1947, and to appreciate the points fully it is necessary to give a few facts which are stated in the statement of the case.

3. Jayantilal Amratlal, individual, herein after referred to as the settlor, executed a trust deed whereby he settled 80 ordinary shares of M/s. Jayantilal Amratal Ltd., on trust and created a trust known as "Jayantilal Amratlal Charitable Trust" to carry out the following various objects set out in the Trust Deed :

"For the relief of poor, for education, or medical relief, for advancement of religion, knowledge, commerce, health, safety or any other objects beneficial to mankind."

This Trust Deed was registered with the Charity Commissioner under the Bombay Public Trust Act, 1950. The Department accepted this trust as a valid charitable trust and gave the necessary relief to the trustees in respect of the income of the Trust, till the assessment year 1957-58

4. The Income-tax Officer, while dealing with the assessment of Jayantilal Amratlal Charitable Trust for the year 1958-59 wrote a letter to the Trust to show cause why the income of the Trust should not be included in that of the settlor and why the case of the Trust should not be decided accordingly. The Managing Trustee submitted his reply. The Income-tax Officer wrote a lengthy order holding that on the facts the case was covered by the first proviso to S. 16(1) (c). He was impressed both by the vide powers given to the settlor and the way in which the settlor had been utilising his powers under the various clauses of the Trust Deed. He held :

"It is not necessary that there should be diversion of income or assets from charitable purposes to non-charitable purposes to constitute "retransfer of assets to or reassumption of power over" the income or assets of the settlor. It is not even necessary for the purpose of 1st proviso to section 16 (1) (c), especially its later part i.e. "give the settlor a right to reassume power directly or indirectly over the income or assets" that income or assets should be used for personal ends. For diversion of such assets or income from one charitable purpose to another in accordance with the wishes of the settlor and the utlisation of income and investment of income or assets not in full conformity with the desires of the trustees would be enough to drag the Trust property in the ambit of Section 16 (1) (c). In the instant case, the settlor is all in all, he is the managing trustee and in the event of a conflict of opinion amongst the trustees the settler would exercise predominating influence both as man