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1945 Supreme(SC) 9
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD THANKERTON, LORD SIMONDS, LORD GODDARD, SIR MADHAVAN NAIR AND SIR JOHN BEAUMONT.
MAHARAJAH OF PITHAPURAM - Appellant
Versus
COMMISSIONER OF INCOME-TAX, MADRAS - Respondents
On appeal from the High Court at Madras.
Decided On : Feb. 26. 1945.
Solicitors for appellant:Douglas Grant & Dold. Solicitor for respondent: Solicitor, India Office.
Assessment of the previous year's income is governed by the law existing in the year of assessment. Provisions regarding deemed income from revocable transfers apply to transfers made before the amendment unless explicitly excluded by the statute.
Headnote:(A) Income-tax Act, 1922 - Section 16(1)(c) as amended by Income-tax (Amendment) Act, 1939 - Revocable transfer of assets - Deemed income of the transferor - Whether income arising from revocable transfers executed prior to the commencement of the Amendment Act is taxable in the hands of the transferor - The subject of charge is the income of the previous year, but the assessment is governed by the law as it exists in the year of assessment, including amendments in force at that time - Absence of specific retrospective wording in one part of a clause does not exclude the application of the provision to transfers made before the amendment if the plain language of the section covers such transfers.
(B) Finance Act, 1939 - Section 6 - Total income - Determination of total income for the purpose of income-tax or super-tax in accordance with the provisions of the Income-tax Act, 1922, as amended at the date of the Finance Act.
Facts of the case:
A settlor executed deeds of trust and settlement in favor of beneficiaries, reserving the power to revoke the settlements. For several years, the income was assessed in the names of the beneficiaries. However, for a subsequent assessment year, the tax authorities sought to apply an amendment to the law to treat the income from these revocable transfers as the income of the settlor. The settlements had been executed several years prior to the enactment of the amendment.
Findings of Court:
The court found that the deeds constituted revocable transfers of assets. The income arising from such transfers is deemed to be the income of the transferor under the amended section. The court rejected the contention that the amendment did not apply to transfers made before its commencement.
Issues: Whether income derived from assets in revocable instruments of trust and settlement executed before the commencement of the amending legislation can be deemed to be the income of the settlor under the amended provisions of the law.
Ratio Decidendi: In the relevant tax system, while the tax is charged on the income of the previous year, the computation and assessment are governed by the law as it stands in the year of assessment. The plain words of the provision regarding revocable transfers of assets apply regardless of whether the transfer occurred before or after the amendment, and the absence of explicit retrospective language in one part of the clause does not create an implied exclusion for transfers made prior to the amendment.
Result: Appeal dismissed.
Legal Category Hierarchy
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tax law
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income tax
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computation of total income
- revocable transfers of assets
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computation of total income
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statutory interpretation
- retrospective effect
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income tax
Judgement
Appeal (No. 33 of 1944), by special leave, from a judgment and order of the High Court (September 15, 1941) on a reference by the Commissioner of Income-tax, Madras, on the requisition of the appellant, under s. 66, sub-s. 2, of the Indian Income-tax Act, 1922, of the following question of law,
Law. Rep. 72 Ind. App. 141 ( 1944- 1945) Maharajah of Pithapuram v. Commnr. of Income-Tax, Madras 32
namely — "Whether the income of the year 1938-39 derived from the assets comprised in the revocable instruments of trust and settlement executed by the petitioner in favour of his four daughters on April 5, 1933, i.e., before the commencement of the Indian Income-tax (Amendment) Act, VII. of 1939, can be deemed to be income of the petitioner under revocable transfers of assets as contemplated by cl. (c) of sub-s.1 of s. 16 of the Indian Income-tax Act, XI of 1922, as amended by the Indian Income-tax (Amendment) Act, VII of 1939."
The High Court (Leach C.J., Wadsworth and Patanjali Sastri JJ.) answered the question referred in the affirmative.
The following facts are taken from the judgment of the Judicial Committee For the year 1939- 1940 the appellant was assessed to income-tax on a total income of Rs.2,19,640, which included a sum of Rs. 1,77,374, representing the total of the income arising from assets settled on his four daughters by the appellant by four deeds, all dated April 5, 1933, and all of which, subject to the necessary variation in the name of the particular beneficiary, were subject to the same conditions, namely—(i.) The properties were to be held in trust for each of his daughters by the appellant during his lifetime as trustee, and after his death by his eldest son, the Yuvarajah of Pithapuram, as trustee; (ii.) the properties were to be held in trust for each of the daughters for life and on their death, for their issue, male and female, and, in the event of any of the said daughters dying without issue, the properties were to revert to the holder for the time being of the Pithapuram estate; (iii.) the appellant reserved to himself the full power to revoke the settlement or make any fresh disposition he liked; (iv.) the trustee for the time being had the right to convert (into money) the properties described in the schedules and invest the same in any of the recognised securities under the Indian Trust Act; and (v.) so long as the appellant was the trustee he had the absolute and uncontrolled discretion to invest the money in any kind of securities as he liked and without reference to the provisions of the Trust Act.
In each year of assessment up to, and including, the year 1938- 1939 the income arising from the properties settled on each of the daughters was assessed separately in the name of each, though the assessment was made on the appellant as their trustee. In the assessment year 1939- 1940, the Income-tax Officer sought to apply an alteration in the law enacted by s. 18 of the Indian Income-tax (Amendment) Act, 1939 (Act VII. of 1939), which came into force on April I, 1939, by virtue of a government notification in terms of s. 1, sub-s.2, of the Act, and to treat the income of the daughters as the income of the appellant. The appellants objections to that course had so far been without success and were the subject of this appeal.
The material part of s. 18 of the Act of 1939 was as follows—
"18. In s. 16 of the said Act,—
"(a) for sub-ss. (1) and (2) the following sub-sections shall be substituted, namely—
"(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, 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 assets shall be deemed to be income of the transfer
