1. The question that is referred at the instance of the revenue is as under :
'Whether, on the facts and in the circumstances of the case and having regard to the provisions of the trust deed dated March 31, 1932, and the two release deeds dated December 31, 1956, the trustees were liable to be assessed at the maximum rate under the 1st proviso to section 41(1) of the Indian Income-tax Act, 1922 ?'
2. The assessees are the trustees of a trust created by one Tribhuvandas by a trust deed dated March 31, 1932, and the question referred to arises with reference to the assessment year 1959-50, the relevant accounting year being Samvat year 2014. The trust deed provided that the trustees were to collect the income and after appropriating specified amounts for expenses were to pay the balance to the settlor during his lifetime and after his death to pay the balance to his wife, Jamnabai, and son, Shantilal. Clause 4(c) of the trust deed contained provisions as regards disposal after the death of the settlor and it is as under :
'4. (c) To pay the balance every month only for the purpose of carrying on the expenses of the family and of the said feasts unless and until such latter expenses have been provided as above and for no other purposes whatsoever to, -
(A) The settlor's wife Bai Jamnabai for life........
(B) After the said Jamnabai's death to the said Shantilal until his death, insolvency or attempt to transfer, assign or encumber his right to receive it or an attachment thereon or sale thereof, whichever of the said event happens earliest;
(C) And on the happening of any of such events other than the death of the said Shantilal, either to pay the same to the said Shantilal's wife, only for carrying on or there out themselves to carry on the expenses of the family as the trustees shall in their absolute discretion think fit until my son the said Shantilal dies and on his death to dispose of the corpus....' Shantilal was given a power of appointment by the trust deed to taken effect after his death, but he has not exercised this power.
3. On December 31, 1956, Shantilal and his wife, Rukmini, executed separate deeds of relinquishment. The operative part of the deed executed by Shantilal provides as under :
'NOW THIS INDENTURE WITNESSETH that in pursuance of such his desire and in consideration of the natural love and affection of the Releasor for the beneficiaries the Releasor doth hereby release surrender and assign unto the beneficiaries all that the interest for life under the said hereinbefore recited indenture of settlement dated the March 31, 1932, during his life in the trust property may merge and be extinguished in the reversion and inheritance thereof and that the trust property comprised in the said hereinbefore recited indenture of settlement dated March 31, 1932, and the moneys or investments representing the same may become immediately vested in possession of the beneficiaries and..... in pursuance of such his desire the Releasor doth hereby release and disclaim all that the power of appointment and the power reserved to firm under the said hereinbefore recited indenture of settlement dated the March 31, 1932, to the intent that the said powers hereby released may henceforth be extinguished and that the Releasor may henceforth be precluded from exercising the said powers or any of them for or in relation to any trust funds or property now or at any time hereafter be subject to the trust of the said hereinbefore recited......' On the same day, by a separate release deed, Rukmini, wife of Shantilal, and released, surrendered and assigned all here interest under the trust deed in favour of the beneficiaries.
4. Settlor, Tribhuvandas, died on July 23, 1935, and his wife, Jamnabai, died on February 15, 1952. Thereafter, on December 31, 1956, the settlor's son, Shantilal, and his wife, Rukmini, both relinquished there interest under the trust deed in the trust property.
5. When the matter came up before the Income-tax Officer he took the view that surrender of life interest by Shantilal amounted to an attempt to transfer or assign his right under the trust deed. Accordingly, Shantilal's interest under the trust deed was terminated as provided in paragraph (B) of clause 4(c) of the trust deed and after such termination of income received by the trustees was to be applied as provided in clause 4(c) for meeting the expenses of the family of Shantilal. In view of this finding the Income-tax Officer took the view that the shares of the beneficiaries were indeterminate and unknown and that the income was, therefore, to be taxed at the maximum rate.
6. The assessees filed an appeal before the Appellate Assistant Commissioner. He took the view that the surrender of interest by Shantilal amounted only to self-effacement and not transfer or attempt to transfer; that such surrender of life interest by the Shantilal had only the effect of accelerating the succession as provided by the trust deed. He, therefore, set aside the order passed by the Income-tax Officer and held that the sum of Rs. 2,000 which was set aside to carry out repairs, etc., was the only amount that was liable to be assessed at the maximum rate and the balance of the income of the trust was to be assessed either in the hands of the beneficiaries directly or in the hands of the trustees at the appropriate rate applicable to the beneficiaries. The revenue went in second appeal before the Tribunal. Before the Tribunal, only one contention was urged on behalf of the revenue. That related to the true nature and effect of the relinquishment. It was almost conceded before the Tribunal that if the relinquishment by Shantilal had the same effect for the purpose of the trust settlement as his death, then, under the said settlement Shantilal's sons who were all majors on December 31, 1956, would be entitled to the trust income in equal shares. Relying upon the decision of this High Court in Commissioner of Income-tax v. Shrimati Kasturbai Walchand Trust : 51ITR255(Bom) , the Tribunal took the view that the interest of the sons of Shantilal was accelerated as a result of the relinquishment of interest by Shantilal and his wife, Rukmini, and the Tribunal dismissed the appeal that was filed on behalf of the revenue. The question referred to above arises from this order passed by the Tribunal.
7. Mr. Joshi on behalf of the revenue submitted that by executing the release deed dated December 31, 1956, Shantilal transferred or assigned his interest under the trust deed and, therefore, Shantilal's interest in the trust estate was terminated as provided by paragraph (B) of clause 4(c) of the trust deed otherwise than on his death and accordingly the provisions of paragraph (C) of the said clause were attracted in the present case.
8. At the outset it may be stated that even though such a contention was advanced on behalf of the revenue before the Income-tax Officer and the Appellate Assistant Commissioner, the said contention was not advanced when matter was heard in appeal by the Tribunal. Before the Tribunal it was almost conceded that if relinquishment by Shantilal has the same effect for the purposes of the trust settlement as his death, then, under the trust settlement Shantilal's sons who were all majors on December 31, 1956, would be entitled to the trust income in equal shares. The question of assessing the trust income at the maximum rate would only arise if the said relinquishment by Shantilal has not the same effect as the death of Shantilal. In view of the execution of the deed of release by Shantilal what is the effect of such release is beyond doubt in view of the decision of this court in Shrimati Kasturbai Walchand Trust's case : 51ITR255(Bom) above referred to. It was held in that case that the surrender of interest by a prior beneficiary accelerates the interest of the subsequent beneficiary both under the Transfer of Property Act as well as the Succession Act and the same principle is applicable to settlements. But, in cases where an intention is clearly expressed that it is only in the event of the prior disposition failing in a particular manner that the ulterior disposition will take place, then the failure or the coming to an end of the prior bequest in any other manner than that contemplated by the transferor or donor does not accelerate the ulterior disposition. Mr. Joshi has not drawn our attention to any provision of the trust deed which provides that the interest of the sons of Shantilal would only arise if Shantilal met with a natural death only. That being the position, the interest of the ultimate beneficiaries will be accelerated. Ordinarily, as the particular question which is now canvassed by Mr. Joshi before us was not raised before the Tribunal, on a reference from the order of the Tribunal such a plea cannot be permitted to be raised. Even apart from that, the contention of Mr. Joshi cannot be accepted. The provisions of paragraph (B) of clause 4(c) of the trust deed provided for a contingency arising after Jamnabai's death to Shantilal until his death, insolvency or attempt to transfer, assign or encumber his right to receive it an attachment thereon or sale thereof whichever of the said event happens earliest. The argument of Mr. Joshi is that by executing the release deed Shantilal attempted to transfer, assign or encumber his interest in the trust estate. It is not possible for us to accept this contention. The effect of the operative part of the deed of release executed by Shantilal is that thereby his entire interest under the trust deed in the trust estate is relinquished and even the powers of appointment which were conferred upon him are given up or surrendered. Such a thing cannot be treated or regard as an attempt to transfer, assign or encumber his interest in the trust property. That being the position, the argument of Mr. Joshi that the provisions of paragraph (C) of clause 4(c) of the trust deed have come into operation cannot be accepted. So far as the interest of the sons of Shantilal is concerned, their shares have been determined and there is no question of applying the provisions of section 41 of the Indian Income-tax Act, 1922.
9. In result, our answer to the question referred is in the negative. The revenue shall pay the costs of the assessees.