Irrevocable trust transfer and no indirect benefit prevent dividend income from being taxed in the settlor's hands.

Dividend income from shares transferred to a public charitable trust was outside the settlor's taxable income where the transfer was irrevocable for more than six years and the deed contained no right of retransfer or reassumption of control. The court held that section 16(1)(c) of the 1922 Act did not apply because the assessee derived no direct or indirect benefit from the trust income. Lending of trust funds to companies in which the settlor and other founders held shares was too remote to amount to a benefit, as a company is a separate legal entity from its shareholders. The dividend income could not be included in taxable income.

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Issues: Whether the dividend income on shares transferred to the trust could be included in the assessee's total income under section 16(1)(c) of the Indian Income-tax Act, 1922, or whether the third proviso excluded it because the transfer was irrevocable for more than six years and the assessee derived no direct or indirect benefit.

Analysis: The transfer of shares to the public charitable trust was for a period exceeding six years and the deed contained no provision for retransfer of the income or assets to the settlor, nor any reservation of power to reassume control over them. The decisive question was whether the assessee derived any direct or indirect benefit from the trust income. The trust deed, properly construed, did not authorise the trustees to lend trust moneys to themselves, and the mere lending of trust funds to companies in which the assessee and the other founders held shares did not, on the facts, amount to a benefit to the assessee. A company is a separate legal entity from its shareholders, and any advantage to the borrowing companies was too remote and contingent to be treated as a benefit to the assessee within the meaning of the proviso.

Conclusion: The third proviso to section 16(1)(c) applied, and the dividend income from the transferred shares could not be included in the assessee's taxable income.

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