Trust deed control test: mere practical influence over trust assets does not trigger settlor taxation without a legal retransfer right.

Proviso 1 to section 16(1)(c) of the Income-tax Act, 1922 applies only where the trust deed itself confers a legal right to retransfer income or assets, or to reassume power over them. A mere practical ability to influence trust affairs, or a power that could be exercised only through breach of trust or in violation of the Bombay Public Trust Act, 1950, is insufficient. The investment and management clauses did not create such a right, and a loan did not amount to dominion over trust property. The proviso was therefore not attracted, and the trust income was not assessable in the settlor's hands.

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Issues: Whether the trust deed contained a provision for retransfer of the income or assets, or conferred on the settlor a right to reassume power directly or indirectly over the income or assets of the trust, so as to attract proviso 1 to section 16(1)(c) of the Income-tax Act, 1922 and render the trust income assessable in the settlor's hands.

Analysis: Proviso 1 to section 16(1)(c) applies only where the deed itself confers a lawful right to retransfer the income or assets, or to reassume power over them. A mere de facto ability to influence trust affairs, or the possibility that the settlor may misuse powers in breach of trust or in violation of the Bombay Public Trust Act, 1950, is not enough. The power of investment under clause 10, read with the management provision in clause 21, could not be treated as a legal right to reassume control when any investment contrary to section 35 of the Bombay Public Trust Act, 1950 would be ineffective and unlawful. A power dependent on the sanction of the Charity Commissioner, or one that can be exercised only by committing a breach of trust or an offence, is not the kind of right contemplated by the proviso. A loan does not amount to dominion over the trust fund in the sense required by the proviso, and the trust property continues to remain an asset of the trust.

Conclusion: Proviso 1 to section 16(1)(c) of the Income-tax Act, 1922 was not attracted, and the trust income was not assessable in the hands of the settlor.

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