Avoidance of voidable trust deeds relates back, sustaining reassessment and house-property tax liability on the owner.

Avoidance of a voidable trust deed was treated as relating back to the original date, so legal title revested in the family from inception and the house-property income remained assessable in its hands on the basis of ownership. The Court also held that the later decree setting aside the deeds furnished sufficient material to reopen the earlier assessment under section 34, because the original exclusion rested on an assumption that the trusts were operative. On both points, the reference was answered against the assessee and in favour of Revenue.

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Issues: (i) Whether reassessment under section 34 of the Income-tax Act, 1922 was validly initiated and completed after the trust deeds were set aside; (ii) whether, upon avoidance of the trust deeds, the assessee remained liable to tax under section 9(1) of the Income-tax Act, 1922 on the house-property income as owner of the properties from the dates of the deeds.

Issue (i): Whether reassessment under section 34 of the Income-tax Act, 1922 was validly initiated and completed after the trust deeds were set aside.

Analysis: The original assessment had proceeded on the footing that the trust deeds were operative. Once the family obtained a decree declaring the deeds null and void, a definite and relevant fact came into existence showing that the assessee had been under-assessed. The later judicial determination destroyed the basis on which the earlier exclusion had been made, and that furnished sufficient material for action under section 34.

Conclusion: The reassessment under section 34 was validly initiated and completed, in favour of Revenue.

Issue (ii): Whether, upon avoidance of the trust deeds, the assessee remained liable to tax under section 9(1) of the Income-tax Act, 1922 on the house-property income as owner of the properties from the dates of the deeds.

Analysis: The Court held that avoidance of a voidable transaction operates on the transaction itself, not merely from the date of repudiation. On that principle, the trust deeds stood avoided from their inception, with the consequence that legal title revested in the family from the original dates of the settlements. Since liability under section 9(1) depends on ownership and not merely on receipt of rent, the family had to be treated as the owner throughout and the annual value of the houses was assessable in its hands.

Conclusion: The assessee was liable to tax under section 9(1) on the house-property income from the dates of the trust deeds, in favour of Revenue.

Final Conclusion: The reference was answered against the assessee on both questions, and the house-property income was held assessable in the hands of the family after the deeds were avoided.

Ratio Decidendi: Avoidance of a voidable transaction relates back to the date of the original transaction, and for income from property taxability depends on ownership rather than actual receipt of rent.

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