CHAGLA, C.J. - This reference is based on the following facts. Bai Navajbai, the assessee, made an oral trust in December 1940 in respect of securities of the face value of five lakhs of rupees and the object of the trust was to pay the income to a Parsi Hunnarshala. A deed of trust was executed on the 25th August, 1943. Before the Tribunal the Department challenged the contention of the assessee that there was an oral trust prior to the execution of the trust deed but that contention was overruled and the Tribunal found as a fact that there was an oral trust in December 1940. The question that arises is whether the income received from these securities is exempt from tax or not. The deed of trust contains a clause, clause 10, which enables the settler to revoke this trust, either wholly or partially, and it is common ground that the oral trust made by the assessee in December 1940 was also subject to this power of revocation. It is contended by the Advocate-General on behalf of the Department that under Section 16 (1) (c) the income which is derived from these securities is deemed to be the income of the assessee. Although the income arises to the trustees and not to the assessee by a legal fiction the Income Tax Act makes this the income of the assessee. To that extent the Advocate-General is right because the whole basis of the Income Tax Act is to deal with not only actual income but also artificial income. Then we come to Section 4 of the Act which is the charging section and it charges to tax, as far as the residents in India are concerned, all income, profits and gains from whatever sources derived which accrue or arise or are deemed to accrue or arise in British India during such year, and there can be no doubt that reading Section 16 (1) (c) with Section 4 (1), this artificial income created by Section 16 (1) (c) would form part of the total income of the assessee. But Section 4 (3) exempts certain classes of income from the total income of the assessee and sub-section (3) states that any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them and clause (i) of that sub-section with which we are concerned exempts the class of income which is derived from property held under trust or other legal obligation wholly for religious or charitable purposes, the income applied, or finally set apart for application, thereto. Now the whole argument of the Advocate-General is that whereas the charging section deals with income both actual and artificial the exempting sub-section only deals with the actual income and not artificial income. Therefore, according to the Advocate-General, although the assessee may be charged under Section 4 on the income both actually received by him as also the income artificially deemed to have been received by him under section 16 (1) (c), when it comes to exemption under section 4 (3) the only income which can be exempted is the income actually received by the assessee. There is no doubt in this case that the income which the assessee says should not be charged is derived from property held in trust or under a legal obligation wholly for charitable purposes. The question only is whether that income has been received by the assessee. Now it is impossible to put upon the expression 'received' in Section 4 (3) the construction which the Advocate-General consents for. In our opinion 'received' in that sub-section means not only actual receipt but also what is deemed to be received under the Act. If we were to accept the contention of the Advocate-general, though agricultural income is on of the classes of income exempted under the Act, if a revocable trust had been created with regard there to the assessee would not be exempted in connection with that agricultural income because according to the Advocate-General the assessee does not actually receive that income but is only deemed to have received it under Section 16 (1) (c). Now that would be a construction totally repugnant to all ones conceptions of the Income-tax Act because it has been held over and over again that agricultural income is totally outside the ambit and purview of the Income-tax Act. But a simpler answer to the Advocate-generals contention is the definition of 'total world income' is defined as including all income, profits and gains whether accruing or arising except income to which, under the provisions of sub-section (3) of Section 4, this Act does not apply. Therefore that definition makes it clear that the exemptions contained in Section 4 (3) would have the result of the Income-tax Act not applying to these classes which are enumerated in that sub-section. In other words that income, or that class of income which is mentioned in Section 4 (3) is not made chargeable to tax and to which the Act is not made applicable. Therefore in our opinion the Tribunal was right in deciding that the income which was derived from the securities settled on this trust was not liable to tax.
The other contention raised by the Advocate-General is whether this particular trust is a charitable trust at all. The argument advanced by the revocable trust of personally for a charitable purpose. Now it is will-established that a Parsi has no personal law which governs him in British India and he is either governed by the statutory law of this country or in the absence of statutory law he is governed by the Common Law of England an under the Common Law as stated both in Tudor on Charities (p. 551) and in Halsburys Laws of England (vol. 4, p. 200), it is open a person to make a trust of personalty in favour of charity which is a revocable trust. Therefore in our opinion the answer to the question raised by the Tribunal must be in the affirmative.
The Department must pay the costs of the reference.
Reference answered in the affirmative.