1. This reference under Section 66(1) of (be Indian Income-tax Act, 1922, is at the instance of the Commissioner of Income-tax (Central), Calcutta, and arises out of the income-tax assessment of Shri Shyamlat Bhuwalka, the assessee, in the assessment year 1957-58.
2. The facts found and/or admitted arc, inter alia, as follows. The assessee is an individual. He executed a deed of trust on the 8th October, 1953, which was duly registered. Under the deed various sums of money were set apart for charitable purposes to perpetuate the memory of the deceased parents of the assessee and for their spiritual benefit and a public, religious and charitable trust was set up.
3. In the assessment the Income-tax Officer added the sum of Rs. 9,738, being the interest accruing to the trust, to the income of the assessee on the ground that the said sums of money had not been handed over in cash to the trustees and that mere entries in the books of a concern which did not have the cash balance cm the date of transfer in favour of the trust did not constitute a gift.
4. The Income-tax Officer also considered Clauses 4, 9, 21, 39(vi), 40 and 42 of the deed and held that the cumulative effect of the said clauses was that the trust was wholly illusory and the settlor could not be held to have divested himself of control over the trust funds. He concluded that, therefore, the trust-fund remained the property of the settlor.
5. The assessee appealed to the Appellate Assistant Commissioner who upheld the order of the Income-tax Officer.
6. There was a further appeal by the assessee to the Income-tax Appellate Tribunal. After consideration of the facts and circumstances including entries in various books the Tribunal came to the conclusion that the said sum of Rs. 1,50,000 was actually paid out on the 8th October, 1953, and that there was no justification for holding that there was no delivery of possession of the said amount.
7. On a consideration of the trust deed the Tribunal also held that a valid trust was created after satisfying all the four conditions laid down in Section 6 of the Indian Trusts Act and there was nothing objectionable in the Clauses 4, 9, 21, 39(vi), 40 and 42 of the deed which could not be construed to mean that the settlor did not divest himself of the ownership and control of the trust funds. The decision in Commissioner of Income-tax v. Sir Kikabhai Premchand  16 ITR 207, cited on behalf of the revenue, was distinguished by the Tribunal on facts. The Tribunal held that the addition of the said sum of Rs. 9,738 to the income of the assessee was erroneous and directed deletion of the same.
8. From the order of the Tribunal the following question has been referred :
' Whether, on the facts and in the circumstances of the case and on a proper interpretation of annexure ' A ', there was a valid trust su as not to justify the inclusion of Rs. 9,738 in the assessment of the assessee, the settlor '
9. No one appeared on behalf of the assessee at the hearing. The only contention of Mr. Suhas Sen, learned counsel for the revenue, before us was that this trust should be deemed to bo revocable within the meaning of Section 16 of the Indian Income-tax Act, 1922, inasmuch as the settlement contained a provision which gave the settlor a right to reassume power directly over the assets of the trust and, therefore, in computing the total income of the settlor the income arising by virtue of this settlement should bo deemed to be the income of the settlor. Mr. Sen based his argument on Clause 9 of the deed which is set out hereinbelow :
' The trustees may invest the trust fund either in the purchase or mortgage of immovable properties or in such investments whether authorized by the Indian Trusts Act, 1882, or not or in dupostts with or loans to any company, person or firm including the firm or firms in which the settlor or the trustees or any of them may be directly or indirectly interested and on such terms as to interest as the trustees may think proper with power to the trustees to alter, vary or transpose such investments from time to time in such manner as they may in their absolute discretion think fit for others of the same or of a like or of different nature, '
10. Mr. Sen contended that this clause permitted the settlor to obtain possession of the entire amount of the trust fund by way of a loan or a deposit without payment of any interest.
11. In support of his contentions Mr. Sen relied upon and cited the decision in the case of Sir Kikabhai Premchand  16 ITR 207. The facts in that case were that in a trust deed executed by Sir Kikabhai Premchand on the 9th February, 1940, for the purpose of establishing, equipping and maintaining a sanatorium for the benefit of the deserving and needy persons and their families belonging to specified Hindu communities, inter alia, the following provisions were made :
(a) Power was given to the settlor to purchase for himself the trust properties both movable or immovable notwithstanding the fact that the purchaser would be a trustee and notwithstanding any rule of law or equity to the contrary.
(b) Power was given to the settlor to make a loan to any person including himself with or without security or howsoever as the settlor would determine as if he were absolutely entitled to such money.
(c) The settlor who constituted himself a trustee was made not accountable either to the Advocate-General or to the Collector and was made not liable for any act or omission on his part in the course of management or for the consequences as if he was the sole owner of the trust estate and entitled to all the income thereof.
12. Construing the above clauses, the Bombay High Court held that under the deed, the settlor derived an indirect benefit in the income of the trust estate and, therefore, the third proviso of Section 16(1)(c) did not apply, and the income of the trust was subject to tax in the hands of the settlor.
13. Mr. Sen, it is to be noted, based his arguments not on the third proviso, but on the first proviso to the said Section 16(1)(c), the material portions whereof is, inter alia, as follows :
' 16. Exemptions and exclusions in determining the total income.--(1) In computing the total income of an assessee--...
(c) all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor :
Provided that for the purposes of this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to the settlor,disponer or transferor, or in any way gives the settlor, disponer or transferor a right to reassume power directly or indirectly over the income or assets. '
14. The proceedings being ex parte, Mr. Sen very fairly drew our attention to a subsequent decision of the Supreme Court in the case of Commissioner of Income-tax v. Jayantilat Amratlal : 67ITR1(SC) . The deed in that case gave wide powers to the settlor who could direct the trustees to set aside any portion of the income of the trust for certain purposes. He could also direct any specific fund or investment or property forming part of the trust and/or the income thereof to be utilised and applied exclusively for one or more charitable objects. He had further power to direct the trustees to hand over the income of the trust or any part thereof to any institution, association or society to apply for all or any of the charitable purposes without being bound to see the application thereof. He had power to direct the trustees to invest the trust funds in shares of companies or in debentures or in giving loans to any public company or firm of good standing and reputation and he could direct the trustees to vary the investments. There was a separate clause providing that ' all questions arising in the management and administration of the trust or powers thereof and all differences of opinion among the parties to be disposed of in accordance with the opinion of the settlor during his lifetime '.
15. It was contended before the Supreme Court that under this deed, the settlor retained absolute power over the income and corpus of the trust estate and that the first proviso to Section 16(1)(c) should be applied as the deed gave the settlor the right to reassume power directly or indirectly over the income and assets of the trust. The Supreme Court considered what was meant by reassumption of power and, in his judgment, Sikri J. observed as follows (at page 10) :
' What then is the fair meaning of Section 16(1)(c), proviso (i) It seems to us that the words ' reassume power ' give indication to the correct meaning of the proviso. The latter part of the proviso contemplates that the settlor should be able, by virtue of something contained in the trust deed, to take back the power he had over the assets or income previous to the execution of the trust deed. A provision enabling the settlor to give directions to trustees to employ the assets or funds of the trust in a particular manner or for a particular charitable object contemplated by the trust cannot be said to confer a right to reassume power within the first proviso. Otherwise a settlor could never name himself a sole trustee. It seems to us that the latter part of the proviso contemplates a provision which would enable the settlor to take the income or assets outside the provisions of the trust deed......
Coming to the various clauses of the trust deed......what he (settlor)can direct under Clause 4 is the application of income to a particular charitable purpose. Similarly under Clause 6 he can nominate the charitable object and the fund or investment which should be utilised for that object, This is in no sense a power to reassume control. Clause 8 enables the settlor to delegate the carrying out of a particular charitable object. For instance he could direct some contributions to be made to a hospital or a school without obliging the trustees to see that the hospital or the school docs not misapply the funds. Clauses 10 and 11 which enable the settlor to give directions regarding the investment must be read subject to the provisions of the Bombay Public Trusts Act and the general principles of law relating to trusts. We have already said that he could not legally direct a loan to be made to himself. Further, it is difficult to subscribe to the proposition that a loan to a company in which the settlor is interested would give power to the settlor over the assets within the meaning of the first proviso. Clause 21 only shows the wide powers which the settlor has reserved to himself. None of these clauses come within the purview of proviso (i).' .
16. Mr. Sen also cited Commissioner of Income-tax v. Brojendra Nath Kundu : 110ITR326(Cal) , where this court, following Jayantilal Amratlal's case : 67ITR1(SC) , rejected the contention of the revenue and held that none of the clauses in the trust deed in that case gave the settlor a right to reassume power directly or indirectly over the income or the assets of the trust.
17. In the instant case, the power given to the trustees under Clause 9 of the deed is to invest the trust funds. Purpose of such investment can only be earning of or augmenting the income of the trust, the choice of investment being left to the trustees. Investments sanctioned by the clause includes loan or deposit to any company, person or firm including the firm or firms in which the settlor or the trustees may be directly or indirectly interested, and on such terms as to interest as the trustees may think proper. But, ex facie, the clause does not permit the trustees or settlor to grant loans to themselves in their personal capacity. In the case of Jayantilal Amrallal : 67ITR1(SC) the Supreme Court quoted withapproval an observation of the Bombay High Court in the case of Commissioner of Income-tax v. Muthuradas Mangaladas Parekh (ITR No. 4 of 1954 decided on August 26, 1954---unreportcd), where the Bombay Plight Court negatived a similar contention by saying that the ' Trustees would be committing a breach of the law if they were to advance moneys to themselves. There is a clear prohibition under Section 54 of the Trusts Act,'and did not accept the proposition that a loan to a company in which the settlor is interested would necessarily result in reassumption of giving powerby the settlor over the assets within the meaning of the first proviso to Section 16(1)(c).
18. In view of the law laid down by the Supreme Court the provisions of Clause 9, in our opinion, cannot be said to empower the settlor to exercise such dominion or control over the assets as to fall within the mischief of the first proviso to Section 16(1)(c). Even if a loan is granted to a firm in which the settlor is interested, this does not confer a right on the settlor to reassume that power over the trust funds which tie had before the trust was executed. Power, if any, in the hands of the settlor would be that of a trustee and, accordingly, would be limited. It cannot be a reassumption of the power of an absolute owner.
19. Mr. Sen has also drawn our attention to an unreported decision of this court in Income-tax Reference No. 262 of 1971 (intituled Commissioner of Income-tax v. Sathyabhama Debi Bhuwalka), where the same trust deed was considered on a question similar to the question before us. The said reference was decided ex parte without any argument being advanced by either side and the question was answered in favour of the assessee. We make it clear that our present judgment is not based on this ex parte decision.
20. For the reasons given above, we cannot persuade ourselves to accept the contentions of the revenue. We answer the question referred in the affirmative and in favour of the assessee. At the behest of the revenue, we make it clear that this decision is confined to the interpretation of Section 16(1)(c) of the Indian Income-tax Act, 1922, and not the provisions of the later Act of 1961. There will be no ordcr as to costs.
C.K. Banerji, J.
21. I agree.