1. The following question has been referred for our decision :
'Whether clause 1(c) of the trust deed as subsequently amended by deeds dated March 31, 1950, and July 15, 1953, came into operation immediately following the deed of relinquishment dated May 20, 1955, executed by Lady Kikabhai and as such the income that accrued or arose to the trustees from the trust properties from May 20, 1955, onwards was exempt under section 4(3)(i) of the Ac ?'
2. The brief facts upon which the question has been referred are as follows :
3. On 24th October, 1944, the late Sir Kikabhai Premchand, the settlor, executed a trust deed in respect of 300 shares of the Bank of India Ltd. and 100 shares of the Bombay Life Insurance Co. Ltd. The provisions of the trust deed were that the income from the trust property was to belong to Sir Kikabhai Premchand during his lifetime. On his death the income was to go to Lady Kikabhai Premchand if she survived him. By clause 1(b) of the trust deed, Lady Kikabhai Premchand was entitled to the net income 'during her lifetime without power of anticipation or alienation'. After the death of the survivor of the settler and his wife, the net income was to go, after payment of certain remuneration to the trustees, to certain charitable trusts which the settlor had created previously for the maintenance of those trusts. It is unnecessary to mention the details of those charitable trusts, because it is not in dispute here that those trusts were charitable trusts which fell within the ambit of section 4(3) (i) of the Indian Income-tax Act being wholly for religious or charitable purposes. If, after the utilisation of the income from the trust properties for the benefit of those specified charitable trusts, any income was available, it was to be utilised for the maintenance of any nursing home, hospital or any institution for medical relief.
4. The trust deed came to be modified twice, once on March 31, 1950, and again on July 15, 1953. On July 15, 1953, the settlor relinquished his entire life interest in the income from the trust properties and announced his intention in doing so as follows :
'The intention of the above variation being that after the execution of these presents no part of the net income of the trust funds shall be payable to the settlor during his lifetime as provided in the original sub-clause (a) of clause (1) of the said settlement but that the net income of the trust fund shall hereafter be paid to Lady Kikabhai Premchand for and during her lifetime without power of anticipation or alienation and that on and after her death the trust fund shall be held upon the same trusts and subject to the same powers and provisions as are provided in the said settlement after the death of the survivor of the settlor and the said Lady Lily Kikabhai Premchand.'
5. After this relinquishment by the settlor, the income from the trust fund was continued to be paid to Lady Kikabhai Premchand until the death of Sir Kikabhai Premchand on December 5, 1953. No amount was paid to Lady Kikabhai Premchand after the death of Sir Kikabhai Premchand.
6. On May 20, 1955, Lady Kikabhai Premchand executed a deed whereby she in her turn relinquished and surrendered her life interest with a view to accelerating subsequent trust in favour of charity. The relevant clause was as follows :
'NOW THESE PRESENTS WITNESS that in order to effectuate her said desire the said Lady Lily Kikabhai Premchand both hereby release and surrender to the trustees of settlement No. 12 and to all other persons interested in the trust premised therein all that her life estate and interest in the net income of the trust fund limited to her for life by settlement No. 12 to the intent that the trust fund shall forthwith be and remain vested in the trustees of settlement No. 12 free of her said life estate or intent as though she were dead and the subsequent trust of and concerning the trust fund may be accelerated.'
7. Now, but for the intervention of this life estate in favour of the settlor and his wife, it is not dispute that the income derived from the trust property and held under trust is wholly for religious or charitable purposes and, therefore, is clearly covered by the provisions of section 4(3) (i) of the Indian Income-tax Act, and the refund with the trustees applied for would have to be granted. But the contention on half of the department has been that, in view of the life interest in favour of Lady Kikabhai, the income is liable to be taxed in the hands of the trustees as if it were income payable to her.
8. Now, in this respect it seems to us that the question referred is fully covered by the recent decision of the Supreme Court in Civil Appeals Nos. 180 to 183 of 1966, Commissioner of Income-tax v. Smt. Kasturbai Walchand Trust, decided on October 31, 1966. The clause in that case, clause (8), was in almost identical terms. We shall presently refer to one point of distinction which Mr. Joshi has pointed out on the basis of which he urges that the conclusion should be different in the present case. The question as originally framed in that case was in identical terms with the question framed in the reference before us. In that case the Supreme Court was concerned with a trust deed executed by Seth Walchand Hirachand and his wife, Bai Kasturbai, and after the lifetime of Seth Walchand, Kasturbai similarly relinquished the life interest which she had in the trust properties in favour of certain charities previously established. The relevant clause in that case was clause (8), which ran as follows :
'Bai Kasturbai Walchand doth hereby surrender, release, quit, claim, transfer and assign upto the trustees all the income to arise as from the 21st day of July one thousand nine hundred and forty-five from the trust funds of the investments for the time being representing the same and her beneficial life interest and all her rights, clams and demands under the said indenture of settlement including the liberty to occupy and enjoy rent free the lands, hereditaments, massages and premises described in the first and second schedules hereto to the intent that her beneficial interest may be determined as aforesaid and that the trustees may utilise the same for charitable purposes mentioned in the said indenture of settlement.'
9. Mr. Joshi has stressed one point of distinction between the relinquishment by the wife in that case and the relinquishment in the present case. He points to clause 1(b) of the original settlement in the present case in which the interest given to Lady Kikabhai Premchand was in the following words :
'for and during her lifetime without power of anticipation or alienation.'
10. Similarly he points out that even in the deed of modification dated July 15, 1953, the interest created in favour of Lady Kikabhai Premchand was worded as 'for and during her lifetime without power of anticipation or alienation'. He says that this clause constitutes the distinguishing feature between the present case and the case of the Walchand Trust before the Supreme Court. Mr. Joshi has urged that Lady Kikabhai Premchand had no power whatever to thus relinquish her interest and if that be so, the question referred does not arise for consideration.
11. No doubt, this question was raised before the Tribunal as appears from paragraph 4 of the Tribunal's order dated 7th February, 1961, but after it was negatived it does not appear that the department at any stage agitated it any further. Certainly when the reference was asked for and when the present question was referred, no further steps were taken by the department to get the question now sought to be raised referred to this court. A similar attempt was made in the Walchand Trust case before the Supreme Court and was turned down by the Supreme Court by observing :
'It may be mentioned that, at one stage, an attempt was made on behalf of the Commissioner of Income-tax to raise the question about the validity of this deed of surrender, but, when the Commissioner asked the Tribunal to refer a question about the competence of Bai Kasturbai to renounce her beneficial interest under the trust settlement, that request was refused by the Tribunal. The commissioner did not, thereafter, move the High Court to obtain a statement of the case from the Tribunal on that question, so that, in these appeals, it is no longer open to the Commissioner to contend that Bai Kasturbai was not competent to renounce her beneficial interest.'
12. It seems to us that those remarks apply with equal force in the present case. The department not having moved to obtain a statement of the case from the Tribunal on the question of the competency of Lady Kikabhai Premchand to renounce her beneficial interest cannot now raise that question before us.
13. So far as the question actually referred is concerned, the Supreme Court in Walchand Trust case pointed out that the question referred in that case really comprised two questions and should conveniently have been broken up into two parts. We think that for the same reasons as appear in the judgment of the Supreme Court, we will also split up the present question as follows :
'1. Whether clause 1(c) of the trust deed as subsequently amended by deeds dated March 31, 1950, and July 15, 1953, came into operation immediately following the deed of relinquishment dated May 20, 1955, executed by Lady Kikabhai, and
2. If so, whether the income that accrued or arose to the trustees from the trust properties from May 20, 1955, onward was exempt under section 4(3) (i) of the Ac ?'
14. We answer the second question in the affirmative and upon that answer the first question is not material for the determination of the levy of income-tax and, therefore, does not arise. The commissioner shall pay the costs of the respondent.
15. Question No. 2 answered in the affirmative.