Beaumont, C.J:— This is a reference made by the Income-tax Tribunal under Section 66(1) of the Income-tax Act, 1922, and the questions raised involve the construction of Section 16 of the Income-tax Act. The year of assessment is the year 1939–1940, and the accounting year is from 1st April 1938 to 31st March 1939.
2. The facts giving rise to the questions raised are these. On 18th April, 1928, the assessee executed a settlement of certain hundis and promissory notes, which were transferred to trustees, and under clause (2) of the settlement the trustees were to pay the income arising from the settled fund to Harshadrai, the son of the settlor, during his life, and by cl. (3), after the death of Harshadrai, the trustees were to hold the trust funds in trust for his heirs according to Hindu law, and by cl. (10) the settlor reserved to himself a general power of revocation. On 13th December, 1938, that is to say, during the accounting year, the settlor executed another deed revoking cls. (2) and (10) of the original settlement, that is to say, the life interest to his son and the power of revocation, and declared fresh trusts during the lifetime of the son. Then he reserved a power to revoke, wholly or partially, the trusts, powers and provisions declared, by the document, which I am now stating, or the trust deed of 18th April, 1928, and to declare such new or other trusts of and concerning the same or any part or parts thereof for the benefit of Harshadrai, his children or lineal descendants or for the benefit of any other child or children of the settlor, their, his or her lineal descendants in such manner and in such proportions as the settlor might think fit. I will assume that is a limited power of revocation, and that the settlor could only revoke the trusts for the purpose of declaring new trusts in favour of the class mentioned. That being the condition of the settlements, the question is whether under Section 16 of the Income-tax Act, the income of the trust fund has to be added to that of the assessee-settlor for the purposes of income-tax. The relevant provisions of S. 16 are that in computing the total income of an assessee all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor. Then there are three provisos, and, in my opinion, only the first of them is relevant. That provides:
“For the purposes of this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the re-transfer 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 re-assume power directly or indirectly over the income or assets.”
3. The argument of the assessee is that the assets have been transferred to the trustees, and under the limited power of revocation contained in the second deed there is no power to alter the destination of the assets, nor has the settlor any power to acquire for himself any interest in the income. Having regard to the fact that we are dealing with an Act which imposes a tax on income, it is, no doubt, relevant to notice that the settlor cannot, at any rate directly, re-assume for his own benefit any income of the settled funds. But we have to take the words of the second deed as we find them, and, in my opinion, the second deed does amount to a revocable transfer of assets, or rather I would say that the two deeds together involve a revocable transfer of assets. The settlor under the limited power of revocation contained in the second deed can revoke all the trusts, powers and provisions declared by that deed, and he can appoint the settled funds absolutely to his son or another child of his or a child of the son, and I apprehend that if he appointed a beneficiary, he could direct the trustees to transfer the funds to that beneficiary, and they would have to do so. Or he could, under the limited power of appointment, introduce new trustees for-the purposes of new trusts which he was declaring. That again would amount to a revocation of the transfer of assets. Therefore, I think, the case falls within the substantive provisions of S. 16(1)(e). I think also it falls within proviso which I have read.
4. That proviso seems to be in the nature of a definition of what is meant by “a revocable transfer of assets,” and it includes transfer with a right to the transferor to re-assume power. The settlor undoubtedly has power under the limited power of revocation to assume power, which he possessed, to direct the income to be paid to one beneficiary rather than another, and though he may not by that means directly affect his own income, it is quite possible that in certain cases he could, by exercising that power of giving the income to one person rather than another, affect the tax to which he is liable under the Income-tax Act. The settlor with such power might direct that income payable to a minor son, and, therefore, to be aggregated with his income under S. 16(3), should thereafter be payable to a major son, and so avoid such aggregation. So that, one cannot say that a mere right to assume power over income by giving it to one beneficiary rather than another is a matter with which the Commissioner of Income-tax cannot have any concern. At any rate, it seems to me quite clear that the settlor has, under the limited power of revocation, assumed power which he previously possessed before he made any settlement at all to hold the income of the settled assets.
5. The Income-tax Officer and the Assistant Commissioner and the tribunal held that the income of the trust funds under these settlements was to be aggregated with the income of the settlor, and I think that view is right. The questions also relate to the income of a settlement made in favour of one of the settlor's daughters Kantagauri. So far as the question of the power of revocation is concerned, I think the daughter's ‘Settlement is substantially in exactly the same terms as the son's settlement; but on the particular assessment with which we are dealing no question arises as to the daughter's settlement, because the original settlement in her favour was made in December 1930, and that reserved a general power of appointment, but the modification of the power of appointment was contained in a deed of 20th January, 1940, after the accounting period, so that there is no doubt that in the case of the daughter there was revocable transfer of assets. The first question raised is:
“Whether the trust deed (Harshadrai Trust) dated 18th April, 1928, as modified by the deed dated 13th December, 1938, creates a revocable transfer of assets within the meaning of S. 16(1)(c) of the Act?”
6. The answer is in the affirmative. The second question raises a similar point in connexion with Kantagauri's trust. That also will be answered in the affirmative. The third question is consequential, and it is:
“Whether the income of the property which is the subject of the settlements mentioned in questions (1) and (2) or either of them can be deemed to be income of the assessee under S. 16(1)(c) of the Act?”
7. The answer to that question is also in the affirmative. The assessee to pay costs.
8. Chagla, J.:— I agree.
9. Answer accordingly.