Charitable trust income exemption follows immediate surrender of life interest under trust deed

A trust deed creating a prior life interest followed by a charitable disposition was construed so that the charitable clause could take effect immediately when the life interest ended by voluntary surrender. The beneficiary's declaration was treated as a genuine surrender and release of her beneficial life interest, not as a fresh transfer of income through the trustees. On that construction, the prior interest determined on 21 July 1955, clause 8 became operative at once, and the trust income thereafter was held wholly for charitable purposes and exempt from tax.

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Issues: Whether, on the beneficiary's surrender of her life interest under the trust deed, clause 8 came into operation immediately so that the income from the trust property from 21 July 1955 onwards was held for charitable purposes and exempt from tax.

Analysis: The trust deed created a prior life interest in favour of the beneficiary and an ulterior charitable disposition thereafter. The expression in clause 8 that the charitable trust would operate "from and after the death" of the beneficiary denoted the normal duration of the prior life interest and did not exclude acceleration if that interest came to an end earlier by voluntary surrender. The beneficiary's declaration was construed as a genuine surrender and release of her beneficial life interest, not as a fresh transfer of income to be applied through trustees. On that construction, the prior interest determined on 21 July 1955 and the charitable disposition became immediately operative. The income thereafter was held under the trust wholly for charitable purposes and fell within the exemption.

Conclusion: The issue was decided in favour of the assessee. Clause 8 operated immediately after the surrender, and the income arising from the trust property from 21 July 1955 onwards was exempt under section 4(3)(i).

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