1988 (11) TMI 98 - HC - Income Tax

Court rules in favor of assessee on relinquishing trust interest during coverture

The court held in favor of the assessee in a case involving the power to relinquish beneficial interest in trust properties during coverture. It was ... Assessment, Transfer, Trusts, Wealth Tax Issues Involved:1. Power of the assessee to relinquish her beneficial interest in the trust properties during coverture.2. Validity of the relinquishment under the Indian Trusts Act, 1882.3. Assessability of income from the trust funds in the hands of the assessee after the relinquishment.4. Inclusion of the assessee's life interest in the trust properties in her net wealth for assessment years 1970-71 to 1973-74.Detailed Analysis:Issue 1: Power to Relinquish Beneficial Interest During CovertureThe court examined whether the assessee had the power under the trust deed dated October 4, 1945, to relinquish her beneficial interest during coverture. The Income-tax Officer argued that the trust deed prohibited such relinquishment, drawing analogies from section 58 of the Indian Trusts Act. However, the Appellate Assistant Commissioner and the Tribunal disagreed, stating that the trust deed did not explicitly prohibit relinquishment but only alienation. The court concluded that the expression 'without power of anticipation during coverture' did not mean that the assessee had no power to deprive herself of her beneficial interest. Thus, the court held that the assessee had the power to relinquish her beneficial interest during coverture.Issue 2: Validity of the RelinquishmentThe court considered whether the relinquishment executed by the assessee on August 23, 1969, was valid under the Indian Trusts Act, 1882. The Revenue contended that the relinquishment was invalid as it amounted to a transfer, which was prohibited during coverture. The Tribunal, however, held that the relinquishment was a unilateral act of self-effacement and did not amount to a transfer. The court agreed with this view, stating that the relinquishment did not transfer any new benefit to the husband or son but merely accelerated their existing interests under the trust deed. Consequently, the court held that the relinquishment was valid and not contrary to the Indian Trusts Act.Issue 3: Assessability of Income from the Trust FundsThe court examined whether the income from the trust funds was assessable in the hands of the assessee after the relinquishment. The Tribunal had held that the execution of the release deed did not amount to a transfer of assets by the assessee in favor of the minor children, as the release deed did not create any new interest in their favor but merely accelerated their existing interests. The court agreed with this view, concluding that the income from the trust funds was not assessable in the hands of the assessee after August 23, 1969.Issue 4: Inclusion of Life Interest in Net WealthThe court considered whether the assessee's life interest in the trust properties should be included in her net wealth for the assessment years 1970-71 to 1973-74. The Tribunal had held that the assessee had no life interest to be included in her net wealth after the execution of the release deed. The court agreed, stating that the execution of the release deed resulted in the valid surrender of the assessee's life interest, and thus, it could not be included in her net wealth for the relevant assessment years.Conclusion:The court answered all four questions in the affirmative and against the Revenue, holding that:1. The assessee had the power to relinquish her beneficial interest in the trust properties during coverture.2. The relinquishment executed by the assessee was valid under the Indian Trusts Act, 1882.3. The income from the trust funds was not assessable in the hands of the assessee after August 23, 1969.4. The assessee's life interest in the trust properties could not be included in her net wealth for the assessment years 1970-71 to 1973-74.