R.C. Mankad, J.
1. The Income-tax Appellate Tribunal ('the Tribunal' for short) has referred to us for our opinion the following questions under section 256(1) of the Income-tax Act, 1961 ('the Act' for short) :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in concluding that the deed of assignment dated December 6, 1951, executed by the assessee did not suffer from any infirmity
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that only half of the income from the residuary property of the late Shri Pestanji Contractor could be taxed in the assessment of the assessee for the assessment years. (a) 1970-71 and (b) 1971-72 ?'
The facts leading to this reference, briefly stated, are as follows :
The assessment years under reference are 1970-71 and 1971-72. The assessee. Pirojshah P. Contractor, since deceased was the son of one Pestanji Contractor. Pestanji Contractor died on August 16, 1941, leaving a will dated June 4, 1941, and a codicil dated July 23, 1941. Pestanji Contractor died leaving behind him his widow, Jerbai three sons, namely, Pirojshah (the assessee), Manekshah and Nadirshah and three daughter, namely, Pirojbai, Dinbai and Gulbai. Jerbai and Pirojshah (the assessee) were appointed as executors and trustees under the will. The only clause of the will which is relevant for the purpose of this reference is clause 17. Clause 17, inter alia, provides that income from the residuary property should be allotted equally to Jerbai and the assessee during their lifetime and that, after the death of Jerbai, the said income, in its entirety, should be given to the assessee for his personal use. It is not necessary to set out the details regarding disposition of residuary property after the death of both Jerbai and Pirojshah (the assessee). Jerbai died on April 6, 1951. After the death of Jerbai, under the aforesaid clause 17 of the will of Pestanji Contractor, the assessee became entitled to the entire income from the residuary property. On December 6, 1951, the assessee executed a deed of assignment under which he transferred and assigned his right in respect of half of the income from the residuary property in favour of his three children, namely, Mani, Fali and Rusi. It is stated before us that, after the assessee executed the deed of assignment, only half of the income derived from the residuary property was taxed in the hands of the assessee up to the year 1970-71. In the assessment year 1970-71, the Income-tax Officer passed an assessment order taxing only Rs. 23,106 which represented half the income derived from the residuary property. As observed above, this order was passed on the basis of a deed of assignment executed by the assessee. The Commissioner of Income-tax passed an order under section 263 of the Act holding that entire income derived from the residuary property was liable to be taxed in the hands of the assessee and, therefore, the assessment order passed by the Income-tax Officer for the assessment year 1970-71 to the extent that in taxed only half of the income from the residuary property in the hands of the assessee was prejudicial to the interests of the Revenue. He, therefore, directed the Income-tax Officer to assess the whole of the said income in the hands of the assessee and revise the assessment accordingly. It may be mentioned here that, before the Commissioner passed the said order under section 263 of the Act, the assessee preferred an appeal before the Appellate Assistant Commissioner challenging the addition of interest income of Rs. 77,968 representing interest earned on the compensation money which was invested with a bank in fixed deposit. However, it is not disputed that the Commissioner passed the order under section 263 of the Act before the Appellate Assistant Commissioner took up the assessee's appeal for hearing.
2. So far as assessment year 1971-72 is concerned, the Income-tax Officer has held that the assess was liable to the assessed in respect of the entire income derived from the residuary property and not half of the income, as held earlier.
3. The assess preferred an appeal before the Tribunal against the order passed by the Commissioner under section 263 of the Act for the assessment year 1970-71. He also preferred appeals to the Appellate Assistant Commissioner against the revised assessment order passed by the Income-tax Officer for the assessment year 1970-71 and the assessment order for the assessment year 1971-72. The Appellate Assistant Commissioner disposed of the appeals preferred by the assessee by a common order dated March 31, 1975. The Appellate Assistant Commissioner took the view that the entire income derived from the residuary property was taxable in the hands of the assess. He also rejected the assessee's plea that the entire interest income derived from the compensation money which was invested with in bank in fixed deposit was not taxable in his hands. Being aggrieved by the decision of the Appellate Assistant Commissioner, the assessee and the Revenue preferred appeals before the Tribunal. These appeals and the assessee's appeal against the Commissioner's order under section 263 of the Act were heard together and disposed of by the Tribunal by a common order dated August 28, 1976.
4. The Tribunal took the view that the assessee was liable to be assessed only in respect of half the income derived from the residuary property. It held that the assessee had acquired a right income derived from the residuary property under the will of his father and that he had a right to assign such right in favour of his children. What the assessee had assigned was the right to receive income to the extent of half of the income of the residuary property and such assignment would not come within the mischief of section 60 of the Act. So far as the interest on the fixed deposit was concerned, it rejected the contention of the assess. It is not, however, necessary to set out in detail the grounds on which the assessee's claim was rejected since the interest on the fixed deposit is not the subject-matter of this reference. As observed above, the Tribunal took the view that the assessee was liable to be assessed only in respect of half of the income derived from the residuary property. The Revenue felt aggrieved by the decision of the Tribunal and, therefore, at its instance, the questions which are set out above are referred to us for our opinion.
Clause 17 of the will executed by Pestanji Contractor, in so for as it is relevant, reads as follows :
'17. All the property, excluding those filed above, or any of the property mentioned in this will, whose disposition is considered to be illegal due to legal interpretation, should be considered be allotted equally to my wife. Jerbai, and my son, Pirojshah, till they survive. After the death of my wife, Jerbai, the entire income from such property should be given to Pirojshah for lifetime. In case, Pirojshah dies before, Jerbai should utilise half the income for her lifetime and the rest half of the income should be given to Smt. Shaheram, wife of Pirojshah, and the benefit of the children of Pirojshah (children include sons and daughters) and Shaheram should keep an account of it. After the death of Jerbai and Pirojshah the remaining movable or immovable property which I have at present or any property I may earn hereafter or get in inheritance or that which reverts to me as provided in paras 13, 14, and 15 of this will or any property mentioned in this will whose disposition is considered illegal and/or and property which is life (sic) be mentioned in this will, all such property should be divided in three equal parts and allotted with ownership rights to the children of Pirojshah, Nadirshah and Manekshah, respectively. In case Manekshah and Nadirshah both of the them have no children then my entire residuary movable as well as immovable property should go to the children of Pirojshah, with ownership rights, and that should be divided among the sons and daughter equally. If only either Manekshah or Nadirshah had children then the entire residuary property should be equally divided in two parts and one parts should go to the children or Pirojshah and another part should go to the children of either Nadirshah or Manekshah, whoever has children, as the case may be. The division of the property among the children should be equal and such division should be carried out when the last of the children of Pirojshah becomes 18 years of age.'
5. It is clear from the aforesaid clause that the assessee and Jerbai were entitled to the income derived from the residuary property in equal shares during the lifetime of both and after the death of Jerbai. The assessee was entitled to received the entire income from the said residuary property. After the death of Jerbai on April 6, 1951, the assessee became entitled to the entire income derived from the residuary property. The assessee had the right to receive this income during his lifetime. In other words. he had a right and interest in the residuary property. The assessee had, therefore, a right to transfer or assign this asset or portion thereof. There is no legal provision which prohibited the assessee from transferring or assigning his right to receive income from the residuary property during his lifetime. There is nothing in the will also which prevented the assessee from assigning his right to receive income. The assess was, therefore, within his right in executing the deed of assignment on December 6, 1951, transferring or assigning his right, title and interest in half of the income of the residuary property in favour of his children.
In CIT v. Smt. Kasturbai Walchand Trust : [1967]63ITR656(SC) the facts were as follows :
Under a trust created by Seth Walchand Hirachand and his wife, Bai Kasturbai, the trustees were to pay the income from the trust properties, after defraying expenses, to Bai Kasturbai during her lifetime. Under clause 8 of the deed, from and after the death of Bai Kasturbai, the trustees were to apply the net income of the trust, at their discretion, on certain public charitable purposes. After the death of Seth Walchand, Bai Kasturbai executed a deed on July 21, 1955, declaring that the did thereby 'surrender release, quit, claim, transfer and assign unto the trustees all the income to arise as from July 21, 1955, from the trust funds.... and her beneficial life interest and all her rights, claims and demands..... including the liberty to occupy and enjoy rent-free all lands, hereditarments, messages and premises...... to the extent that her beneficial interest may be determined..... and that the same may be immediately vested in the trustees and that the trustees may utilise the same for charitable purposes'. In the context of the above facts, the question which arose before the Supreme Court was whether the income from the trust properties subsequent to the execution of the deed for the assessment years 1956=57 to 1959-60 was exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922. The Supreme Court held that the deed executed by Bai Kasturbai was clearly valid in view of the provisions contained in section 58 of the Indian Trusts Act, 1882 (2 of 1882), which provides that 'the beneficiary, if competent to contract, may transfer his interest, but subject to the law for the time being in force as to the circumstances and extent in and to which the may dispose of such interest.' The Supreme court held that Bai Kasturbai was competent to contract so as to transfer her interest under the deed of trust, and by executing the deed dated July 21, 1955, she surrendered all her rights. The right which had accrued to her under clause 7 of the deed of trust was the right to use certain immovable properties and to receive the net income arising from the trust properties. The right to receive the income arose because of the obligation laid on the trustees to pay the net income to her during her lifetime. That was clearly the right as a beneficiary under the trust and when she executed the indenture dated July 21, 1955, she surrendered that right in favour of the trust for charitable purposes, so that her right became extinguished.
6. The above decision of the Supreme Court supports the view which we have taken that the right which had accrued to the assessee under clause 17 of the will was a right to receive income from the residuary property and that the assessee had a right to transfer or assign half of the income derived from the residuary property in favour of his children. The deed of assignment is clearly legal and valid. That being the position, the assessee was liable to be assessed only in respect of half of the income derived from the residuary property, as rightly held by the Tribunal. No other question arises for our consideration in the present reference.
7. In the view which we have taken, both the question referred to us for our opinion are answered in the affirmative and against the Revenue. Reference stands disposed of accordingly with no order as to costs.