1. The facts relating to this reference under section 66(1) of the Indian Income-tax Act, 1922, are few and the question of law raised is simple, as a matter of fact, far too simple.
2. One Rustom D. N. Wadia created a settlement by his will read with one of his three codicils to the will. The material clauses are in the third codicil dated 28th December, 1937. Clause 2(d) and 2(e) of that codicil are the only relevant clauses and they read as under :
'2. The executors and trustees appointed by my said will and hereinafter referred to as my trustees shall divide all the rest and residue of my estate wheresoever situate or treat the same as divided into two equal moieties and shall hold the said moieties upon the respective trusts hereinafter declared with regard to the respectively :...............
(d) My trustees shall pay the net income of the other of the said moieties to my son, Dady, until his death or until he shall do or suffer any act or thing the effect of which would be to vest his right to the said income in any other person or persons but for this present provision or to divest him of the said right;
(e) From and after the happening of any of the events terminating the said Dady's right to the net income of the said other moiety, my trustees shall divide the said other moiety into three equal sub-parts and pay the net income of one of such sub-parts to the Dady's daughters, Zarine until her death and subject thereto shall hold the said sub-part upon trust absolutely for her only child or for all her children in equal shares and shall pay the net income of another of the said three sub-parts to the said Dady's daughter, Leila, until her death and subject thereto shall hold the said sub-part upon trust absolutely for her only child or for all her children in equal shares and shall pay the net income of the third of the said three sub-parts to the said Dady's son, Sheryar, until his death and subject thereto shall hold the said sub-part upon trust absolutely for his only child or for all his children in equal shares.'
3. The son, Dady, named in clause 2(a) is the assessee concerned in this reference. Rustom died on 23rd January, 1956. Thereafter, the assessee executed a deed of release dated 28th August, 1958. The relevant portion of the deed of release dated 28th August, 1958, is as under :
'Now this indenture witness that in consideration of the releasor's (assessee) natural love and affection for his children, the releasees, the releasor doth hereby release unto the releases all that his right to receive the net income of the said moiety which moiety now consists of the shares...... to have and to hold the releasor's right hereby released unto the release and their respective heirs, executors, administrators and assigns in equal shares.'
4. At the date of this release the assessee had three children, but only one of them, a son named Sheryar, was a minor. The revenue sought to include the income from the trust coming to the share of Sheryar after the deed of release in the assessable income of the assessee on the basis of the provisions contained in section 16(3)(a)(iv) contending that the deed of release was really a transfer by the assessee of his interest under the trust to his minor son, Sheryar. The Tribunal has upheld that contention of the revenue.
5. The question of law referred is :
'Whether, on a proper construction of annexure 'A' there was a transfer on an asset to the minor child within the meaning of section 16(3)(a)(iv) so as to justify the sum of Rs. 2,390 being taxed in the hands of the assessee ?'
6. It may be mentioned that the annexure 'A' referred in the question refer to the said codicil dated 28th December, 1937.
7. Now the material words of the deed of release are : 'the releasor doth hereby release unto the releases'. The word 'release' clearly implies the extinction of the right, title and interest of the releasor in the property or asset which he releases which was only his life interest. It is of importance to note that no words of transfer have been used in this clause. There is a clear distinction between a release and a transfer. In a release the releasor merely releases his right, title and interest. In other words, he extinguishes or puts an end to his right, title and interest. The release does not by itself, create any interest in another person in that which is released. For the present consideration the word 'release' has the same effect as the word 'surrender' or 'disclaim'. It is really a unilateral act. A transfer, on the other hand, needs two parties, the transferor and the transferee. In a transfer the right, title and interest which the transferor has is transferred by him to the transferee. It is the cessation of the right in the transferor coupled with the creation of a corresponding right in the transfer. In the case of a release, however, the creation of a right in another person may follow as a matter of law, but not by reason of the release effected by the releasor. In a transfer, however, the transfer from the transferor to the transferee takes place by reason of the transfer. The distinction is too clear and has been established for a very long time to need any further elaboration. Mr. R. J. Joshi, the learned counsel for the revenue, however, drew our attention to a decision of this High Court in Commissioner of Income-tax Dadabhoy G. Broacha. Each case must, however, turn on the facts of each case, and particularly the words used in the document said to be the document of release. In the document in that case the operative words were 'the assignor doth hereby release, surrender, assign and transfer by way of absolute gift unto the assignees.' In that document the words of release as well as of transfer were used in one and the same sentence which was the operative part of the document. On the other facts and circumstances of that case, it was held that it was a document, not of release, but of transfer. No such complication arises in our case because the only operative word used in the document before us is 'release'.
8. It is true that in our document, although the word used in 'release', it states that the 'releasor doth hereby release unto the releases'. In our opinion the use of the words 'unto the releasees' does not make any difference. The intention of the document is quite clear and it is that by that document the assessee wanted to release his right, title and interest under the trust. As it is a simple release and not a transfer, the provisions of section 16(3)(a)(iv) are not attracted.
9. But even if we were to assume, which, of course, we do not hold, that the deed of release is not a real release but is a transfer, the result, in our opinion, would not be any different. Under the provisions of sub-clause (d) of clause 2 of the codicil the assessee was entitled to the income until his death or until he did any act the effect of which would be to vest his right to the said income in any other person or persons. Under the provisions of sub-clause (c) of clause 2, the children of the assessee would become entitled to that income on the happening of any of the events terminating the assessee's right to the income. If the release were to be treated as a transfer, the effect would be that the moment the assessee executed the deed of release, his interest under the trust would immediately cease under the provisions of sub-clause (d) of clause 2 and his children's right under sub-clause (e) would immediately get accelerated which right the children would have otherwise acquired only upon the death of the assessee. So, even if the deed of release is held to be a transfer, the right in favour of the assessee immediately came to an end and his children became entitled to that right, not by reason of the transfer, but independently by reason of the provision in their favour contained in sub-clause (e). In that event, the income of the minor son cannot be said to arise from assets transferred either directly or even indirectly by the assessee to the minor son. After the date of the release the income would arise not by virtue of the asset, namely, the life interest, transferred by the assessee, but by reason of the independent right which the minor son had under sub-clause (e) of clause 2 of the codicil.
10. Under the circumstances, we answer the question in the negative.
11. The revenue will pay the assessee's costs.