Rectification deed and trust validity upheld where correction reflected true intention and beneficiaries faced only corpus risk.

A rectification deed may operate from the inception where it merely records the parties' true intention and corrects an accidental omission in the original trust deed; the principal deed was therefore read with the rectification. On that reading, the trust remained valid because the settled property was only the partner's share in the firm and the beneficiaries' exposure was confined to the trust corpus. A contingent business risk did not create an onerous gift or impose unlimited personal liability on the minor beneficiaries. The assessee held the share in a fiduciary capacity, so the trust income was excluded from the assessee's total income.

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Issues: (i) Whether the rectification deed could operate retrospectively so that the principal trust deed had to be read with the rectification from the inception. (ii) Whether, on reading both deeds together, the trust was valid and the income from the firm's share was liable to be excluded from the assessee's total income.

Issue (i): Whether the rectification deed could operate retrospectively so that the principal trust deed had to be read with the rectification from the inception.

Analysis: A rectification is permissible where the written instrument does not reflect the real intention of the parties. The legal effect is not to alter past facts, but to correct an inadvertent omission and record the true bargain intended from the beginning. The power to seek rectification under the Specific Relief Act supports such correction, and where the original deed itself discloses that the omission was accidental, the rectification may relate back to the date of the original instrument.

Conclusion: The rectification deed was clarificatory and operated from the inception; the principal deed had to be read along with it.

Issue (ii): Whether, on reading both deeds together, the trust was valid and the income from the firm's share was liable to be excluded from the assessee's total income.

Analysis: The property settled in trust was only the partner's share in the firm, with the beneficiaries' exposure limited to the corpus of the trust. A mere possibility of future losses in the firm does not convert the share into a liability or make the gift onerous. Under the Transfer of Property Act, a gift is avoided only where it is truly burdened by an obligation; here, the amended deed confined risk to the corpus, and the trust deed did not impose any unlimited personal liability on the minor beneficiaries. The assessee, continuing as partner, held the share in a fiduciary capacity for the beneficiaries, resulting in diversion of income to the trust.

Conclusion: The trust was valid, and the income from the trust was rightly excluded from the assessee's total income.

Final Conclusion: The Revenue's challenge failed, the trust arrangement was upheld, and the income was not assessable in the assessee's hands.

Ratio Decidendi: A rectification deed that merely records the true intention of the parties may operate from the inception, and a trust is not invalid merely because the settled asset carries a business risk, so long as the beneficiaries are not burdened with unlimited liability beyond the corpus.

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