Charitable trust validity and revocability turn on divestiture and absence of any right to reclaim assets.

A trust deed validly creates a charitable trust when the settlor expressly divests identified property, the trust assets are sufficiently ascertained, and the charitable objects are specific; on that footing, the trust was treated as properly constituted. A settlement is not revocable within section 16(1)(c) of the Income-tax Act, 1922 unless it contains a provision for retransfer of income or assets, or a right in the settlor to reassume power over them; administrative control, investment powers, or continued trusteeship do not by themselves make the trust revocable. The income therefore remained exempt under section 4(3)(i).

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Issues: (i) Whether a valid trust came into existence under the deed of trust dated 11 October 1939. (ii) Whether the trust was a revocable trust within section 16(1)(c) of the Income-tax Act, 1922, and whether its income was exempt under section 4(3)(i) of that Act.

Issue (i): Whether a valid trust came into existence under the deed of trust dated 11 October 1939.

Analysis: The deed expressly transferred the identified properties to the trustees, recited prior setting apart of the trust assets, and showed complete divestiture of the settlor's title in favour of the trust. The trust property was sufficiently ascertained, and the court treated the credit entry and book debt as capable of forming the subject-matter of a trust when coupled with a formal registered deed and actual appropriation to charitable objects. The charitable objects were specific and satisfied the legal requirements of a charitable trust.

Conclusion: The trust was validly created and the finding was in favour of the assessee.

Issue (ii): Whether the trust was a revocable trust within section 16(1)(c) of the Income-tax Act, 1922, and whether its income was exempt under section 4(3)(i) of that Act.

Analysis: Section 16(1)(c) applied only where the settlement contained a provision for retransfer of income or assets, or a right in the settlor to reassume power over them, directly or indirectly. The relevant clauses in the deed dealt with administration, investment, and appointment of trustees, but did not confer any right to take back the trust property or resume ownership. The court distinguished authorities relied on by the Revenue because those cases involved revocation clauses, loan powers, direct benefit, or materially different trust deeds.

Conclusion: The trust was not revocable within section 16(1)(c), and its income remained exempt under section 4(3)(i); the finding was in favour of the assessee.

Final Conclusion: The reference was answered wholly for the assessee, with both questions decided against the Revenue and the trust treated as valid and tax-exempt on the footing found by the Tribunal.

Ratio Decidendi: A trust deed is not revocable under section 16(1)(c) unless it itself contains a provision for retransfer of the income or assets, or a right in the settlor to reassume power over them; administrative control, investment powers, or the settlor's continuing role as trustee do not by themselves attract the provision.

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