Revocable transfer rule under income tax law did not make trust income taxable in the joint family's hands.

Income arising under a trust deed executed by coparceners was held not to be assessable in the hands of the joint Hindu family under Section 16(1)(c) of the Income-tax Act, 1922. The provision deems income from a revocable transfer to be the transferor's income, and its first proviso applies where the settlement provides for retransfer of income or assets to the settlor. Here, the trust income was enjoyed by one settlor in an individual capacity, the family had no beneficial interest in the income or corpus, and the deed did not preserve the property for the family as such. Any ambiguity in the charging provision was resolved in favour of the taxpayer.

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Issues: Whether the income arising under the trust deed executed by the joint Hindu family was assessable as the income of the family under Section 16(1)(c) of the Income-tax Act, 1922.

Analysis: Section 16(1)(c) deems income arising from a revocable transfer to be the income of the transferor, and the first proviso extends that deeming fiction where the settlement contains a provision for retransfer, directly or indirectly, of income or assets to the settlor. The trust deed was made by the co-parceners on behalf of the joint family, but the income thereafter enjoyed by Ratilal was received by him in his individual capacity and not as a member of the joint family. The deed did not preserve the property or income for the family as such, and the other members of the family had no beneficial interest in the income or corpus. The provision for benefit to one settlor in a different capacity was held not to be a retransfer to the settlor in the same capacity in which the property had been alienated. Any ambiguity in the taxing provision had to be resolved in favour of the subject.

Conclusion: The income was not the income of the joint Hindu family and was not assessable in its hands under Section 16(1)(c).

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