TaxTMI 
TaxTMI 
1975 (7) TMI 25
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....shares amongst all the sons of Juthalal Motilal (grand-sons of the settlor). After some years, on May 5, 1956, by a tripartite deed of assignment and gift, Kamlabai Juthalal, the assessee, who was the beneficiary under the earlier deed of settlement, assigned and transferred her right to receive the income from the trust in favour of four grandsons, Rajendrakumar, Virendrakumar, Gopalkrishna and Mahendrakumar. On these facts the question that arose for consideration which has been referred to for our determination is : " Whether, on the facts and in the circumstances of the case, the provisions of the deed of assignment dated May 5, 1956, executed by Smt. Kamlabai Juthalal resulted in a diversion of income before it reached her hands or an application of income after it was received by her ? " The Income-tax Officer following his reasoning in a similar case held that the income of the trust should be included in the income of the assessee, Kamlabai Juthalal, for the relevant assessment year. He rejected the contention on behalf of the assessee that income was diverted at source before it reached the assessee as her income and was, therefore, not liable to be regarded as incom....
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....as executants and by agreeing to pay the income to the donees. The Tribunal accordingly found that the obligation created by the assessee to pay the income from the trust to the donees under the terms of the deed of assignment and gift was one whereby the income was diverted before it reached her hands. Mr. Joshi on behalf of the revenue contended that the income which has been assigned by the assessee by the deed of assignment and gift dated May 5, 1956, first accrued to the assessee and it was thereafter applied by her in consonance with the provisions of the said deed of assignment and gift. His submission was that there is a clear distinction between obligation to spend money in a particular manner attaching to income and a similar obligation attaching to a source of income ; that every income that accrues or arises is liable to be taxed regardless of the distinction ; that in the present case having regard to the provisions of the deed of settlement and the deed of assignment and gift, the assessee has not abrogated or assigned the source of income and the income which accrues under the deed of settlement is her own income. His submission was that this is a case of an appli....
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....ansfer of her life or other interest in the trust fund in favour of the assignees the trustees have agreed to join " in these presents for the purpose of the payment of the net income of the trust fund by them to the assignees in the manner stated in the deed of assignment ". The operative part of this deed of assignment says " In consideration of the premises and of the natural love and affection which the assignor bears to her grandsons the assignees and for diverse other good causes and considerations her thereunto moving she the assignor doth hereby assign and transfer unto the assignees all that the net income of the trust fund ......... and all the estate right title interest property claim or demand of the assignor into and upon the said net income as aforesaid to have hold receive and take the same unto the assignees for ever absolutely to the intent that the assignees shall be entitled to receive from the date of these presents from the trustees for the time being of the said deed of settlement the net income of the trust fund or the investments thereof which the assignor would have received but for the present assignment and transfer during her life time. " It is quite....
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....me effect is the ratio of the decision of the Supreme Court in Commissioner of Income-tax v. Imperial Chemical Industries (India) (P.) Ltd. [1969] 74 ITR 17 (SC). The Supreme Court there held that an obligation to apply the income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee results in the diversion of income. An obligation to apply income which has accrued or arisen or has been received amounts merely to the apportionment of income and the income so applied is not deductible. The true test for the application of the rule of diversion of income by an overriding title is whether the amount sought to be deducted in truth never reached the assessee as his income. We have to consider in the present case the effect of the deed of assignment and gift executed by the assessee on May 5, 1956. As pointed out in sections 58 and 69 of the Indian Trusts Act a beneficiary who is competent to contract can transfer and assign his or her interest under a trust in favour of any other person and the transferee is entitled to such interest subject to any liability which might have been imposed under the deed of settlement. By the deed....