Trust income exemption turns on present setting apart for charitable purposes within taxable territories, not future discretionary use.

Income from trust property is exempt under section 4(3)(i) of the Indian Income-tax Act, 1922 only if it is actually applied, or consciously accumulated for application, to religious or charitable purposes within the taxable territories. A mere future discretion to spend the income either within or outside those territories does not amount to a valid accumulation, because the statute requires a present act of setting apart the income for the specified purpose. Keeping the income in suspense, without earmarking it for charitable or religious application, fails the statutory condition.

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Issues: Whether income derived from trust property was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922 when, during the settlor's lifetime, the income was accumulated without being set apart for any specific religious or charitable purpose and the trustees retained discretion to apply it either within or outside the taxable territories after the settlor's death.

Analysis: The exemption under section 4(3)(i) applies only where income from trust property is actually applied, or is accumulated for application, to religious or charitable purposes within the taxable territories. The expression "accumulated for application" requires a present and conscious act of setting apart the income for that purpose. Income kept in suspense with a future option to apply it either within or outside the taxable territories is not an accumulation for purposes within the taxable territories. The proviso confirms that the relevant condition is the actual application or accumulation of the income for the specified purpose, and a mere intention or desire to spend the income equally on several objects does not amount to a legal setting apart.

Conclusion: The income was not exempt under section 4(3)(i), because it had not been set apart or accumulated for application to religious or charitable purposes within the taxable territories.

Ratio Decidendi: Income from property held under trust is exempt only if, during the relevant accounting year, it is actually applied or consciously set apart in praesenti for application to religious or charitable purposes within the taxable territories; a contingent future discretion to choose among mixed objects does not satisfy the statutory condition.

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