Charitable trust exemption extends to deemed income, and a revocable trust of personalty for charity was valid.

Income deemed to accrue under a revocation provision was treated as covered by the exemption for property held under trust for charitable purposes, so the trust income was not liable to tax. The court also recognised that, in the absence of contrary personal law, a Parsi in British India could validly create a revocable trust of personal property for a charitable purpose. On that basis, the trust was held valid and charitable, and the reference was answered in favour of the assessee with the trust income not chargeable to tax.

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Issues: (i) Whether income deemed to accrue to the settlor under the revocation provision was exempt under the exemption clause for property held under trust for charitable purposes. (ii) Whether a revocable trust of personalty made by a Parsi for a charitable purpose was legally valid and charitable.

Issue (i): Whether income deemed to accrue to the settlor under the revocation provision was exempt under the exemption clause for property held under trust for charitable purposes.

Analysis: The charging provision brought within taxable income not only income actually received but also income deemed by legal fiction to accrue or arise. However, the exemption provision for income derived from property held under trust for religious or charitable purposes was construed as extending to income deemed to be received as well as income actually received. The definition of total world income also indicated that income falling within the exemption was outside the application of the Act.

Conclusion: The income from the trust securities was exempt and not liable to tax.

Issue (ii): Whether a revocable trust of personalty made by a Parsi for a charitable purpose was legally valid and charitable.

Analysis: A Parsi in British India was held to be governed, in the absence of personal law, by statutory law or the common law of England. On that basis, a person could validly create a revocable trust of personal property in favour of charity.

Conclusion: The trust was valid and charitable.

Final Conclusion: The reference was answered in favour of the assessee, and the trust income was held not chargeable to tax.

Ratio Decidendi: An exemption provision covering income from property held under trust for charitable purposes applies to income deemed by statutory fiction to accrue or arise, and a revocable trust of personalty in favour of charity is valid where no contrary personal law prohibits it.

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