Revocable trust income exemption turns on whether revocation was exercisable within six years under settlement terms.

Section 16(1)(c) of the Indian Income-tax Act, 1922 fastened settlor liability on income arising under a settlement or revocable transfer, but the third proviso excluded income payable to another person where the settlement was not revocable for more than six years or during the beneficiary's lifetime and the settlor derived no direct or indirect benefit. On the amended trust deed, revocation could not be exercised until specified debts were discharged and the leases continued, so the power of revocation was not exercisable within six years. The proviso applied even though the settlement was otherwise treated as revocable and the assessee had a separate beneficial interest; income of the other beneficiaries was not treated as the assessee's income until the revocation power arose.

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Issues: Whether the trust created by the assessee fell within section 16(1)(c) of the Indian Income-tax Act, 1922 so that the income arising to the beneficiaries could be treated as the assessee's income.

Analysis: Section 16(1)(c) fastened tax liability on the settlor where income arose under a settlement or revocable transfer, and its third proviso excluded only such income as arose to another person under a settlement that was not revocable for a period exceeding six years or during the beneficiary's lifetime, provided the settlor derived no direct or indirect benefit. The deed, as amended, postponed the exercisability of revocation until the specified debts were discharged and the thicca leases remained effective, and the Court held that the power of revocation was not exercisable within six years. The proviso was further held to apply even though the settlement was deemed revocable under the earlier proviso and even though the assessee had some beneficial interest in a separate part of the trust income; the exemption operated on the income arising to the other beneficiaries.

Conclusion: The trust was not revocable within six years for the purposes of the third proviso, and the income received by the other beneficiaries could not be treated as the assessee's income until the power of revocation arose.

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