Settlor taxation on settled property income limited to the amount actually reserved for the settlor, not the beneficiaries' share.

Income from settled house properties under section 16(1)(c) of the Income-tax Act, 1922 was not fully assessable in the settlor's hands merely because a part of the income was reserved for him. The governing rule treated income from a settlement or revocable transfer as taxable in the settlor's hands, but the third proviso excluded income settled in favour of another beneficiary where the settlement was not revocable for the prescribed period and the settlor derived no direct or indirect benefit from that portion. The provision was construed to include only the amount actually payable to and received by the settlor, while income attributable to the other beneficiaries remained outside his total income.

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Issues: Whether, on the facts and in the circumstances of the case, the entire income from the settled house properties, or only the portion payable to the settlor as beneficiary, could be included in the assessee's total income under section 16(1)(c) of the Income-tax Act, 1922.

Analysis: The governing rule under section 16(1)(c) is that income from a settlement or revocable transfer is assessed in the hands of the settlor, but the third proviso excludes the income from the settlement in favour of another beneficiary where the settlement is not revocable for the prescribed period and the settlor derives no direct or indirect benefit from that portion. The Court applied the earlier construction of the provision and held that the first proviso does not compel inclusion of the whole income merely because a part of the income is reserved to the settlor. The later comparison with section 63 of the Income-tax Act, 1961 confirmed that the older provision did not expressly treat a reserved part of the income in the same way.

Conclusion: Only the amount actually payable to and received by the settlor could be included in his income, and the income attributable to the other beneficiaries could not be assessed in his hands.

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