1. The main question that arises in this reference is as to the construction and effect of two documents of trust dated 12th October, 1941, and 13th November, 1941, executed by one Mrs. Bhikhaiji H. Bennet transferring certain properties in trust to the trustees named in the said instruments. The assessee is Dadabhoy G. Broacha, a relation of the settlor. Under the trust deeds, which were in identical terms (only a copy of one of them and that too an attenuated copy was placed before us), the life interest was given to Dadabhoy in the income from one-fourth of the properties transferred to the trustees under the two trusts. After the lifetime of Dadabhoy his interest was to go to his widow and children provided they continued to profess the Zoroastrian faith and were not married to non-Parsees. Under the said trust deeds the assessee was receiving the income from the assets being one-fourth of the properties transferred by Mrs. Bhikhaiji and that income was being assessed as his individual income.
2. On the 10th August, 1954, the said Dadabhoy executed document entitled 'assignment of life interest'. By this document Dadabhoy purported to assign his right, title, and interest in the trust fund known as the Dadabhoy trust fund and in the net income which may accrue or arise or may become payable from that rust fund. From the recitals of this document the terms of the earlier trust deeds, which for the sake of convenience we shall hereafter refer to as the 'Bennet Trusts', appear with reasonable clarity. Under the Bennet trusts, Mrs. Bhikhaiji as the settler created four different trusts in favour of her four children, each trust to be called by the name of that child. We are not here concerned with the trusts in favour of the other children. We are concerned only with the trust in favour of her brother, the assessee, Dadabhoy Cursetji and her children and children's children. By the trust in favour of Dadabhoy she created the 'Dadabhoy's trust fund' and among other terms provided that the net income of the Dadabhoy trust fund shall go to the said Dadbhoiy during her lifetime and after deducting the expenses of the trust, the balance after deducting the expenses for his sole use and benefit. On the death of Dadabhoy leaving a Zoroastrian widow and children the corpus of the said Daddbhoy's trust fund was to be divided into as many equal shares or parts as shall correspond with the total number of children and the widow of Dadabhoy provided that in every case the children and the widow continued to be Zoroastrians and shall not have married non-Zoroastrians and to give one part of the trust to each such child of the said Dadabhoy. The part given to his widow was called the 'Dadabhoy's widow's trust fund' and the remaining part of the corpus, the income of which was set apart for distribution among the children was called 'the residue of Dadabhoy's trust fund'. After the lifetime of the children the property was again to be divided and to vest on certain terms in the children's children. If at the date of the death of Dadabhoy any child of his had pre-deceased him, his or share was to go to his grand-children by that child.
3. In the present reference we are not really concerned with the terms of the Bennet trusts except in so far as they tend to explain what were the provisions of the deed of assignment executed by Dadabhoy on 10th August, 1954.
4. Now the deed of assignment of the life interest executed by Dadabhoy contains a long recital of the previous provisions as to this property contained in the Bennet trusts and reproduces substantially its terms and then proceeds to recite 'AND WHEREAS the assignor is at present of 67 years of age AND WHEREAS out of natural love and affection which the assignor bears to the assignees he is desirous of realising and determining his life interest or any other interest in the said trust fund by way of absolute gift in order to accelerate the enjoyment thereof by the assignees is the manner hereinafter appearing AND WHEREAS the annual net income coming to the share of the assignor under and by virtue of the said hereinbefore indenture of trust comes to Rs. 15,000 and for the propose of stamp duty the maximum amount which will be or become payable to the assignees by virtue of the release and assignment intended to be hereby executed will come to Rs. 1,80,000. Now this indenture witnesseth as follows :
1. In consideration of the premises and of the natural love and affection which the assignor bears to the assignees and for diverse other good causes and considerations him thereunto moving HE the assignor doth hereby release surrender assign and transfer by way of absolute gift upto the assignees ALL that the share right title and interest of the assignor in the net income OF the said trust fund known as Dadabhoy's trust fund forming part of the trust fund settled by the said indenture of trust dated the 18th day of December, 1940, at present consisting of the securities and shares more particularly described in the schedule hereunder written or the proceeds thereof the investments for the time being representing the same and which net income may accrued or arise or may become payable from and after the first day of September, 1954, during the lifetime of the assignor for or in respect of the said trust fund forming part of the securities more particularly described in the schedule hereunder written or the proceeds thereof or the investments thereof together with full power to demand sue or recover and receive the same and to give discharges to the trustees for the said income hereby assigned as aforesaid AND ALL the right title interest claim and demand of the assignor into and upon the said net income as aforesaid and into and upon the said Dadabhoy's trust fund as aforesaid TO HAVE HOLD RECEIVE AND TAKE the same upto the assignees absolutely in equal shares to the instant that the assignees shall receive in equal shares from and after the first day of September, 1954 from the trustees for the time being of the said indenture of trust the net income of the trust fund known as Dadabhoy's trust fund or the proceeds thereof or the investments thereof which the assignor would have received but for the present assignment during his lifetime.'
5. The department considered the terms of this deed and declined to accept the deed of assignment of the life interest as a surrender or acceleration brought on by surrender of the interest of Dadabhoy and on the other hand treated the income arising from the Bennet trusts in favour of the assessee, Dadabhoy, as his individual income from the assets transferred directly or indirectly to his wife and children by Dadabhoy under section 16(3), sub-clauses (iii) and (iv). They thus taxed it for the relevant years in the hands of Dadabhoy. The reference relates to the assessment years 1955-56 to 1959-60, corresponding to the account years ended 31st March, 1955, to 31st March, 1959.
6. The Income-tax Officer held that the income payable to the wife and the three minor children as a result of the deed of assignment was liable to be taxed under section 16(3), because there was a transfer of assets within the meaning of that section. When the matter went up to the Tribunal in appeal by the assessee, the Tribunal reversed the decisions of the tax authorities. It held that upon a proper construction of the document of assignment executed by Dadabhoy it could not be said that there was any transfer or assignment at all but that the document ways merely a document of surrender or release and the interest which Dadabhoy had, being given up the rights of the parties under the Bennet trusts were to that extent accelerated. The Tribunal held 'By executing the document what the assessee has done is merely to affect his interest. If his interest had been surrendered or released then there is nothing on which the assignment or transfer which are other expressions used in the document, would operate. In our view, the document is merely a surrender or release and the expression 'transfer' or 'assign' are merely surpluses (surplusages). It is well settled that if a person merely surrenders or releases any interest he does not effect any transfer of property. It is merely falling of a lesser interest or estate into a greater. By reason of the document dated August 10, 1954, it is only an interest of the beneficiaries who are named or for whom provision has been made under the earlier documents referred to therein that gets accelerated. They drive their interest not by reason of the assignment or transfer but by reason of their own rights existing in the documents dated October 12, 1941, and November 13, 1941. In our opinion, no assets have been transferred so as to bring into operation the provisions of section 16(3) (a) (iii) or (iv) as the case may be, as there was merely a surrender of life interest. If follows that the inclusion in the assessee's income of the income from the said trust received by the wife and minor children is not proper.'
7. On behalf of the department Mr. Joshi has attacked this finding and he has taken us through the terms of the deed of assignment and pointed out in what respects the deed of assignment goes far beyond the terms and stipulation contained in the Bennet trusts. He has urged that really what Dadabhoy was doing by this deed of assignment was to make a disposition of whatever life interest he had got under the Bennet trusts and that disposition also was not upon similar terms as contained in the Bennet trusts. In other words, the interest which the beneficiaries under the Bennet trusts now get by virtue of the deed of assignment is an interest conferred upon them by the deed of assignment itself and can by no construction of either document be said to be an interest arising from the Bennet trusts. Therefore, he urged that in pith and substance the assignment of 10th August, 1954, was an independent disposition in itself and could by no stretch of language be said to be a mere relinquishment of the interest which Dadabhoy had got under the Bennet trusts nor can it amount to a mere acceleration of the subsequent rights created by the Bennet trusts in favour of his children and grandchildren. Mr. Kolah, on the other hand, has argued on behalf of the assessee that what Dadabhoy did was no more and no less than to give effect to the Bennet trusts but only earlier than was provided by relinquishing or surrendering his own interest in the Bennet trusts.
8. Apart from this, Mr. Kolah has urged that this contention is devoid of force if one considers the provisions of section 16(3), sub-clauses (iii) and (iv). He has urged that for the purposes of his contention he would assume that Dadabhoy had not surrendered or relinquished such interest as he obtained under the Bennet trusts, nevertheless section 16(3), sub-clauses (iii) and (iv) would not be attracted in the circumstances of the case, because sub-section (3) of section 16 runs as follows :
'(3) In computing the total income of any individual for the purpose of assessment, there shall be included -
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly -
(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; or
(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration;......'
9. What Mr. Kolah emphasises are the words in both the sub-clauses (iii) and (iv) income 'from assets transferred' to the wife in one case or to the minor child in the other case. He points to the provisions of the deed of assignment and urges that all that Dadabhoy did by this deed of assignment was to assign or transfer his income which he was receiving from the Bennet trusts and the income being directly assigned or transferred to his children upon the terms mentioned in the document, there was no income 'from assets transferred' but the income itself was transferred. To that extent, therefore, neither sub-clause (iii) nor sub-clause (iv) would be attracted in the present case. This is an alternative argument which he has urged assuming that the first point was not correctly decided by the Tribunal and the there was really a transfer or an assignment.
10. It would be convenient to discuss the latter point first, for if the contention succeeds then it is unnecessary to go into the first point as to whether there was in this case a surrender or relinquishment of his interest by Dadabhoy.
11. We have already reproduced the material portions of the deed of assignment dated 10th August, 1954. In the preamble itself the assignor has stated what he wishes to achieve by the following words :
'And Whereas out of natural love and affection which the assignor bears top the assignees he is desirous of releasing and determining his life interest or any other interest in the said trust fund.'
12. By the words 'the said Trust Fund' is obviously meant the Dadabhoy's trust fund establish by the Bennet trusts. It is clear from these words that the intention is top release or determine his life interest or any other interest in the said trust fund. In the very next recital in the preamble he refers to 'the annual net income coming to the share of the assignor under and by virtue of the said hereinbefore Indenture of trust.... Therefore, the document itself has drawn a clear-cut distinction between the life interest vesting in Dadabhoy and the annual net income coming to the share of Dadabhoy. In the operation part of the document i.e., in clause 1 the same distinction is maintained '.... the assignor doth hereby release, surrender assign and transfer by way of subsolute gift upto the assignee all that the share right title and interest of the assignor in the net income of the said trust fund known as Dadabhoy's trust fund forming part of the trust fund settled by the said indenture of trust dated the 18th day of December, 1940, at present consisting of the securities and shares.'
13. In the further recital in the operative portion of the document, reference is again made to the income by the words 'and which net income may accrue or arise or may become payable from and after the first day of September, 1954, during the lifetime of the assignor'. In the further recital what is being transferred is inter alia stated 'And All the right title interest claim and demand of the assignor into and upon the said net income as aforesaid To Have Hold Receive And Take the same upto the assignees absolutely..... '. It is clear from these recitals in the deed of assignees itself that Dadabhoy is in the first place parting with his life interest in the Dadabhoy's trust fund and secondly the income from the trust fund including the future income indicated by the words 'which net income may accrue or arise or may become payable form and after the first day of September, 1954'. Thus the document refers to the life interest of Dadabhoy or the right to receive the income from the Dadabhoy's trust fund and in contradistinction the income itself and what is being clearly assigned is not only the right to receive the income but such income as has accrued or will accrue in future. The distinction is clear and palpable.
14. Now it seems to us clear that the life interest or the right to receive the income from the Dadabhoy's trust fund was itself property or assets in the hands of Dadabhoy. If authority were wanted for such a proposition the question is settled by the decision of the Privy Council in M. E. Molla v. Official Assignee of the High Court of Judicature to Rangoon. In that case the question was whether the right to receive interests under a settlement was immoveable property of the purpose of section 17 of the Registration Act. The Privy Council held that the interest in that case of the son under his father's settlement was immovable property within the meaning of the Transfer of Property Act, because in that case it was a benefit to arise out of land. In describing the rights to receive income the Privy Council accepted the following statement of Lord Atkin in Ma Yait v. Official assignee :
'That is a very plain and ordinary settlement, and it gives very plain and well understood rights to all the parties who benefit under the settlement : a vested right in the income, contingent rights in the corpus;....'
15. Upon this view we have no difficult in holding, that the life interest or the right to receive the income from the Dadabhoy's trust fund which vested in Dadabhoy during his lifetime would be property or assets in his hands. We have also shown that under the terms of the deed or assignment Dadabhoy had not only assigned his right title and interest in the income but also in the future income by the words 'which net income may accrue or arise or may become payable from the after the first day of September 1954, during the lifetime of the assignor'. Therefore, what was in substance transferred by the deed of assignment was an asset or property of Dadabhoy and the income in future to be derived from that property. Upon these facts we think that sub-clauses (iii) and (iv) of section 16(3) (a) would be clearly attracted. The asset which was transferred was the right of Dadabhoy to receive the income from the Dadabhoy trust fund and whatever income was being received by his wife and minor children was directly to arise out of that asset which was transferred by him to his wife and children.
16. Mr. Kolah urged that there was no distinction to be made upon the facts of this case between the income arising from the Dadabhoy trust fund and his life interest or his right to receive the income. He urged that apart from the income there was no life interest left and therefore the two were synonymous so far as the facts and circumstances of this case were concerned. We have already shown that that is not how the document is worded. The document itself draws a clear-cut distinction between the life interest of Dadabhoy and the income arising in consequence of that life interest, but when we find that even the future income which 'may accrue or arise or may become payable from and after the first day of September 1954' was assigned by the document it is clear that that could not have been assigned unless there was a right to receive the future income. If there was no right to receive the future income there was nothing to assign. Upon the terms of the document itself, therefore, it is clear that the life interest or the right to receive the income was distinct and apart from the income itself.
17. Mr. Kolah referred to two decisions, one in Commissioner of Income-tax v. Keshavlal Lallubhai Patel, and the other in Sevantilal Maneklal Sheth v. Commissioner of Income-tax. So far as the first decision is concerned, he only relied upon the remark in that decision that section 16(3) created an artificial income and for that reason should be construed strictly. We are in respectful agreement with what is laid down there, but giving the section the strictest construction we cannot see how it will not apply in the present case. We need not reiterate the ground we have already stated for so holding. So far as Sevantilal's case is concerned, again the decision is upon the facts completely inapplicable to the present case, but Mr. Kolah relied upon the remarks at page 57 in the judgment of the Division Bench delivered by my learned brother that what is contemplated in section 16(3) (a) (iii) is 'income which arises directly or indirectly from asset transferred and it was not income from income'. That remark was made in the special circumstance of that case where the department had sought to tax an amount received by the wife as capital gains in the hands of the husband after the wife had sold an asset transferred to her by her husband. None of these cases would effect the conclusion which we have reached.
18. Then we turn to the other contention in this case which arises upon the decision of the Tribunal in paragraph 4 of its order. We have referred to the finding of the Tribunal that by the execution of the deed of assignment Dadabhoy merely surrendered or released his interest and that the document amounted merely to a surrender or release and that it did not amount to a document of transfer or assigment. The reason why the Tribunal came to that conclusion was that they found upon an examination of the terms of the deed of assignment that the children of Dadabhoy 'derived their interest not by reason of the assignment or transfer but by reason of their own rights existing in the documents dated October 12, 1941, and November 13, 1941 (the Bennet Trust) '. So far as the deed of assignment is concerned, after reciting that the assignor (Dadabhoy) was releasing and surrendering by way of an absolute gifts his right title and interest in the net income of the said trust funds and 'which net income may accrue or arise or may become payable from the after the first day of September, 1954' the document vests the right transferred to the assignees (his wife and children) by the following words, 'TO HAVE HOLD RECEIVE AND TAKE the same unto the assignees absolutely in equal shares to the instant that the assignees shall received in equal shares from and after the first day of September, 1954, from the trustees for the time being of the said indenture of trust the net income of the trust fund known as Dadabhoy's trust fund or the proceeds thereof or the investments thereof which the assignor would have received but for the present assignment during his lifetime'. In paragraph 2 the trustees of the Dadabhoy trust similarly undertook that they shall during the lifetime of the assignees pay to them the net income of Dadabhoy's trust funds in equal shares. This disposition, such as it is, is by paragraph 1 clearly made 'during the lifetime of the assignor for and in respect of the said trust funds..... ' Therefore, the document is of limited operation, that is to say, during the lifetime of the assignor, and creates limited rights. In other words, the document says that during the lifetime of the assignor (Dadabhoy) his wife and children are to enjoy the property in equal shares. In the first place, nothing is said regarding the corpus. We have already shown that under the Bennet trust the provisions which were to take effect after the lifetime of Dadabhoy were quite different. There Dadabhoy's trust fund was to be divided into as many parts as there were surviving children or if any of them had pre-deceased Dadabhoy, as there were grandchildren and the wife, and separate trust were to be created for the benefit of each one of these surviving children, grandchildren or wife. There is no such provision here and in fact the document itself indicates that the equal shares are to be enjoyed only during the lifetime of the assignor. Secondly, we have already shown that great anxiety was shown by the settler of the Bennet trust, Mr. Bhikhaji, that none of her children or children's children should marry a non-Zoroastrian or a non-Parsee spouse or themselves give up the Zoroastrain religion or cease to be Parsees, but the deed of assignment has no reference to this important wish of the settlor of the Bennet trust, nor is it shown that those to their income to that extent. Therefore, it is clear that the provision of the deed of assignment are radically different provisions and confer an independent right upon the wife and children to receive the benefits so to say proprio vigore and no because there were any terms in the Bennet trusts which had to be complied with. The deed of assignment and the rights which it gives to the wife and children were to operate independently of the Bennet trusts and its provisions. Under these circumstances, it can hardly the said that there is nothing more than a mere relinquishment or release of his interest by Dadabhoy or a mere surrender of his life interest. He has created positive new rights in his wife and children which rights arise only because of the terms of the deed of assignment and not because of any provisions of the Bennett rusts.
19. In volume 34 of Halsubury's Laws of England, article 1062, at page 607 the doctrine of acceleration is thus illustrated :
'Where there is a gift to a person for life, and a vested gift in remainder expressed to take effect on the death of the first taker, the gift in reminder is construed as a gift taking effect on the death of the first taker or any earlier failure or determination of his interest; the result is that if the gift to the first taker fail in his lifetime or is disclaimed or surrendered then the person entitled to reminder will take immediately on the failure or determination of the prior interest, and will not be kept waiting until the death of the first taker. The principle applies to personalty as well as to realty.'
20. This statement itself shows that where a surrender or disclaimer truly takes place, the person entitled in the reminder must take and take immediately on the failure or determination of the prior interest and such person takes the same interest which he or she would be entitled to in terms of the gift. That is not the case here. The interest which the wife and children of Dadabhoy take under the deed of assignment is not an interest which they take under the terms of the Bennet trusts, but as we have shown, what they take is such right or interest as is given to them is by the deed of assignment itself. In such a case there can be no true surrender or disclaimer. In fact, it is clear that the real terms of the Bennett trusts will after the deed of assignment being to operate only at the death of Dadabhoy.
21. Upon the view that we have taken, it is clear that the tribunal was in error in the view that it took in paragraph 4 of its order, particularly the very basis of that decision shown by the remark that 'they (the wife and children of Dadabhoy) derive their interest not by reason of the assignment or transfer but by reason of their own rights existing in the documents dated October 12, 1941, and November 13, 1941.' We think we have said enough to show that in our opinion the interest which the wife and children took was not derived form the Bennet trusts but was derived directly by virtue of the provisions of the deed of assignment. There is a clear error of law in the reasoning of the Tribunal.
22. In the result, we answer the question referred in the affirmative. The assessee will pay the costs of the Commissioner.