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