Trust creation date controls clause (iii) analysis under section 164(1); later assessment-year facts are irrelevant.

For clause (iii) of the proviso to section 164(1) of the Income-tax Act, the relevant enquiry is tied to the circumstances existing when the trust was created, not those prevailing in the assessment year. The provision applies to a trust created before 1 March 1970 by a non-testamentary instrument, where it was created bona fide exclusively for the benefit of the settlor's relatives. The Court accepted that the statutory phrase "having regard to all the circumstances existing at the relevant time" refers to the date of creation of the trust. On that basis, the trust satisfied the clause and the issue was answered in favour of the assessee.

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Issues: Whether, for determining the applicability of clause (iii) of the proviso to section 164(1) of the Income-tax Act, 1961, the relevant circumstances are those existing at the time of creation of the trust or those prevailing in the assessment year.

Analysis: The expression "having regard to all the circumstances existing at the relevant time" was held to point to the circumstances prevailing when the trust was created. The provision concerns a trust created before 1 March 1970 by a non-testamentary instrument and requires satisfaction that it was created bona fide exclusively for the benefit of the settlor's relatives. The Court agreed with the view that the statutory enquiry is tied to the factual position at the time of creation of the trust, not to the later assessment year. Support was also drawn from the Gujarat High Court's interpretation of the same provision.

Conclusion: The relevant time is the date of creation of the trust, and the assessee-trust falls within clause (iii) of the proviso to section 164(1); the question was answered in favour of the assessee.

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