Release of prior beneficiary's interest accelerated later beneficiaries' shares, defeating maximum-rate assessment under section 41(1).

A release deed by a prior beneficiary was treated as a relinquishment of the entire trust interest, not as a transfer, assignment or encumbrance. Because the trust deed did not confine the ulterior gifts to the prior beneficiary's natural death alone, the surrender accelerated the interests of the subsequent beneficiaries and made their shares determinate. On that basis, the condition for applying the maximum rate under section 41(1) of the Indian Income-tax Act, 1922 was not satisfied, and the trustees were not liable to be assessed at the maximum rate.

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Issues: Whether, on the facts and having regard to the trust deed and the release deeds, the trustees were liable to be assessed at the maximum rate under the first proviso to section 41(1) of the Indian Income-tax Act, 1922.

Analysis: The release deed executed by the prior beneficiary amounted to a relinquishment of his entire interest under the trust and not to an attempt to transfer, assign or encumber that interest. The trust deed did not show that the interests of the subsequent beneficiaries were confined to the contingency of the prior beneficiary's natural death alone. In the absence of such a restriction, the surrender of the prior interest operated to accelerate the interest of the ultimate beneficiaries. As their shares became determinate, the condition for applying the maximum rate under section 41 was not satisfied.

Conclusion: The question was answered in the negative and the trustees were not liable to be assessed at the maximum rate under section 41(1).

Ratio Decidendi: A surrender or release of a prior beneficiary's interest accelerates the interest of the subsequent beneficiaries unless the instrument clearly limits the ulterior gift to failure by natural death alone, and such a release is not, by itself, an attempt to transfer, assign or encumber the interest.

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