Charitable trust income exemption applies after valid surrender of beneficial interest and occupation rights, leaving income for charitable purposes.

A valid trust vests the property in the trustees, and the trust income is not the beneficiary's income. After the beneficiary validly surrendered her beneficial life interest and rent-free occupation rights, those rights ceased under the trust deed. The remaining trust purpose was the charitable application or accumulation of the income, so the income accruing from 21 July 1955 onwards fell within the charitable exemption. The Court held that the income from the trust properties was exempt from income-tax under the relevant charitable provision, and the appeals failed.

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Issues: Whether, after the beneficiary executed a deed surrendering her beneficial life interest and rights under the trust, the income accruing to the trustees from the trust properties from 21 July 1955 onwards was exempt from income-tax as income of property held wholly for charitable purposes.

Analysis: A valid trust vests the property in the trustees, and the income of the trust is not the income of the beneficiary. The beneficiary's rights under the trust deed were capable of transfer under section 58 of the Indian Trusts Act, 1882, and the deed of surrender effectively extinguished her right to receive income and enjoy the rent-free occupation rights. Once those rights ceased, the remaining purpose of the trust was the charitable application or accumulation of the income under the trust deed. Even if the charitable clause was not immediately operative during her lifetime, the income thereafter necessarily stood accumulated for application to charitable purposes and thus fell within the exemption.

Conclusion: The income from the trust properties from 21 July 1955 onwards was exempt from income-tax under section 4(3)(i) of the Income-tax Act, 1961 and the appeals failed.

Ratio Decidendi: Where a beneficiary validly surrenders her beneficial interest under a trust so that the trust income thereafter can only be applied or accumulated for charitable purposes, the income of the trust becomes exempt under the charitable exemption provision.

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