P (PLP)

TYABJI, C. J.‑

This is a reference under section 66 (1), Income‑tax Act, made by the Income‑tax Appellate Tribunal, and the main point in the case is, whether a trust‑deed executed on 24th March 1934 was a revocable settlement within the t meaning of proviso 1 of section 16 (1) (c), Income‑tax (Amendment) Act, 1939. This deed, Ex. T.‑G., was executed by Tayabali A. Mandviwala, who purported thereby to create a trust of certain properties for the benefit of his son, Ghulamali, and his grandsons, Yusuf Ali and Hakimnddin. The settler, Tayabali, constituted himself as a trustee for the three beneficiaries from the date of the deed, and it was provided. in the deed that thereafter the properties subject to the trust were to be managed by the trustee in a particular manner during the duration of the trust, and that the trust was to come to a termination on the death of the settler or when the youngest of the beneficiaries attained majority, whichever event happened later. Clause 13 of the deed was as follows: "That if any of the beneficiaries during the continuance of this Trust is adjudicated an insolvent he shall forfeit all interest in all the Trust moneys, properties, securities, fund, etc., and thereafter the entire trust property and everything appertaining and relating to Trust shall vest and be paid out to the other beneficiary or beneficiaries. Likewise, if the share or interest of any beneficiary during the continuance of this trust in trust properties or any other trust moneys or funds or securities or other properties is attached or any process of Court taken out by any person by execution pro ceedings or otherwise for satisfaction of his claim or payment of money demand against such beneficiary and such attachment or process continues effective for a period of one month and be not removed or raised during one month, then the right or interest of such beneficiary under this Trust in all Trust properties, funds, moneys, securities or other properties, etc., shall stand forfeited and the share so forfeited shall immediately vest in the other beneficiary or beneficiaries : Provided however, that it shall be within my power and at my discretion as Trustee during my lifetime to cancel forfeiture occasioned by attachment or by other. process of Court and to declare such beneficiary eligible and entitled to his share under this Trust deed in everything of the Trust by a separate declaration deed made in writing and executed by me." There was no dispute before this matter came up to this Court about the deed executed by Tayabali being a valid deed effecting a gift by way of a trust in favour of the three beneficiaries. It was contended on behalf of Tayabali that the income of the properties, which were the subject of this trust, had ceased to be his properties and should not be included as his properties in the assessments made for the years 1939‑40, to 1942‑

43. The Tribunal ultimately decided against the assessee on this matter and para. 6 of the judgment of the Tribunal which deals with this matter is as follows: "

6. There is, however, one clause in the second trust deed, dated 24th March 1934, that makes all the difference between the two and goes to support the department's view that that settlement is revocable. The Appellate Assistant Commissioner appears to have lost sight of this clause and it was brought to our notice by the Department Representative who based his case mainly upon it. That clause is to the effect that the beneficiary under the deed shall forfeit all interest in the trust properties and income on his being adjudicated an insolvent, and shall likewise ‑do so if the trust property or income happens to be attached in execution of a decree against him. In such a case the deed directs that the interest so forfeited shall vest in the rest of the beneficiaries. The deed further provides that it shall be within the power of the appellant settler to cancel the forfeiture and declare by a deed that such a beneficiary shall continue to be entitled to the share. It is this particular provision on which the Depart mental Representative has relied. Now, the clause read as a whole will go to show‑ that the forfeiture comes into force immediately on the insolvency of the beneficiary, or on the attachment of the property in execution of a decree if the attachment is not raised within one month. In such a case the interest immediately vests in the remaining beneficiaries. But if a settler has power to snake a restitution to the beneficiary who has thus lost his interest by means of a deed made for the purpose, it means that he has equally a power to make such a disposition which he cannot do unless he has reassumed control over the assets. This particular provision therefore brings the settlement of 24th March 1934, within the ambit of a revocable settlement, under section 16 (1) (c), Income tax Act. At the instance of the assessee, the Tribunal has made a reference to this Court under section 66 (1) and the question referred is as follows : "Whether, in the circumstances of the case and upon a true construction of clause 13 of the deed of trust, dated the 24th March 1 934, it was rightly held that the trust in question was a revocable settlement within the meaning of proviso 1 to section 16 (1), Income‑tax (Amendment) Act, 1939, so as to regard the income there from as the income of the assesses?" The text of clause (c) of section 16, Income‑tax Act is as follows : "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 settler or disponer shall be deemed to be income of the settler 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 transferer." Then follow the provisos. There is no question that with regard to the properties which were the subject of the trust, all the assets had ceased to be the properties of the settler, under the terms of the deed and the only question in this case was, whether the transfer of the assets, effected by the settlement was or was not a revocable transfer. Proviso 1 to clause (c) of section 16 (1) is in these terms: "Provided that for the purposes of this clause a settlement; disposition or transfer shall be deemed to be revocable if it contains any provision for the transfer directly or indirectly of the income or assets to the settler, disponer or transferer or in any way gives the settler, disponer or transferer a right to re‑assume power directly or indirectly over the income or assets. The question before us, therefore, is whether clause 13 of the deed contains a proviso "for the re‑transfer directly or indirectly of the income or assets to the settler" or, any pro vision which in any way gave to the settler "a right to reassume power directly or indirectly over the income or the assets The decision of 'the Tribunal has been set out above. The Point relied upon by the Tribunal was, that under clause 13 under certain circumstances, a beneficiary was to forfeit his rights under the deed, but the settler had reserved to himself a power to cancel the forfeiture. if he so chose. The Tribunal argued. "But if a settler has power to make a restitution to the beneficiary who has thus lost hic interest by means of a deed made for the purpose, it means that he has equally a power to make such a disposition which he cannot do unless he has re‑assumed control over the assets." We find it quite impossible to accept this argument. As clause 13 is worded, the effect of it would be that under certain contingencies the beneficiary' was to lose, his interest under the settlement; and that interest was thereupon immediately to vest in the other beneficiary or beneficiaries. It is argued before us on behalf of the assessee that such a clause was illegal and of no effect, as the interests. of the beneficiaries vested in the beneficiaries from the moment when the deed was executed, under the terms of the deed, and zany such clause, by which the beneficiaries, after their beneficial interests had vested in their., were to be deprived of the benefits which had accrued to them after their beneficial .interests had vested in them, was inoperative in law. Mr. Fatehchand cited In re Maehu (1883) 21 Ch. D. 838, and Dugdole v. Dugdale (1888) 38 Ch. D. 176, in support of his argument. Section 10 (12?), T. P. Act was also referred to Mr. Hakumatrai on the other hard, argued that the terms of the deed were such that the entire deed was invalid according to the Muhammadan law, as he argued under the terms of the deed the beneficiaries were not to receive any benefit at all until the youngest of the beneficiaries had attained majority Mr. Hakumatrai contended that the deed created a trust uncle which the beneficial interests of the beneficiaries were only to vest at a future date, after certain events had taken place. We do not think that we can allow Mr. Hakumatrai to argue that the deed in question was an invalid one because it is clear that no such point was taken before the Income tax authorities or the Tribunal, and the matte does not arise out of the reference before us and does not fall within the purview of section 66 (1). We also consider it unnecessary to discuss the point, whether these clauses were or were not illegal. It is sufficient to say that no matter what view one takes with regard to the legality or effect of the 'clauses in question, it is impossible to say that clause 13 of the deed contains any provision the effect of which was to reserve to the settler a right to re‑assume power over the assets at any time. It appears to us therefore, that the question referred must be answered in the negative, that is to say, the settlement in question was not revocable within the meaning of proviso 1 to section 16 (1) (c), Income‑tax Act: We answer this reference accordingly, and we order that the assessee have the costs of this application. K.M.A/A.H. Reference answered.