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Issues: Whether the income arising from trust property, settled by the members of a Hindu undivided family with a reserved power of revocation, was liable to be included in the income of the assessee Hindu undivided family under Section 16(1)(c) of the Indian Income-tax Act after the death of one of the settlors.
Analysis: The trust deed was executed by the two sole coparceners as representatives of the Hindu undivided family, and that family was therefore the settlor for the purpose of the provision. The income paid to the respondent after the death of Ramjibhai was intended, on the construction of the deed, to be his individual income. The revenue sought to apply the deeming provisions by treating the respondent as one settlor and then treating the payment back to him as a retransfer to the original settlor. That approach was rejected because the Hindu undivided family, being a separate juristic unit for the purpose of the settlement, could not be split up into its component coparceners for invoking the second proviso and then reassembled as the settlor for the main clause. The deemed inclusion provision therefore did not operate.
Conclusion: The income received by the respondent could not be treated as the income of the Hindu undivided family under Section 16(1)(c); the question was answered in favour of the assessee and against the Revenue.
Ratio Decidendi: Where a settlement is made by members of a Hindu undivided family on behalf of that family, the family alone is the settlor for the purpose of Section 16(1)(c), and the deeming fiction of retransfer cannot be invoked by splitting the family into individual coparceners to tax income reserved for one coparcener as family income.
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