Holding

The rent is fully assessable to the assessee because the payment to the college is a self‑imposed application of income, not a diversion, and the trust deed, where the settlor is also the sole trustee, validly transfers the property to the trust, rendering its income exempt under the Act.

Summary

The Hindu Undivided Family (M.C. Jain) leased its premises to Jain Glass Works Ltd for an annual rent of Rs 21,000, of which Rs 10,000 was contractually payable directly to a college run by a charitable trust. The Court held that this arrangement is merely a self‑imposed application of income and does not divert the rent, so the entire Rs 21,000 is taxable in the hands of the HUF. The HUF also claimed that income from certain properties transferred to the Chhadami Lal Jain Trust was exempt under the income‑tax provisions for charitable trusts. The Court found that, because the settlor was also the sole trustee, the trust deed effected a valid transfer of the properties, thereby diverting the income at the source and making it exempt. Consequently, the appeals were allowed in part, confirming tax on the full rent and granting exemption on the trust income.

Issues considered

Whether the Rs 10,000 portion of the annual rent payable to the Chhadami Lal Jain Degree College is to be treated as income of the assessee HUF for tax purposes
Whether the income from properties transferred to the Chhadami Lal Jain Trust is exempt under Section 4(3)(i) of the Income‑Tax Act, 1922 (now Section 11(1)(a) of the Income‑Tax Act, 1961)

Legislation cited

Income Tax Act, 1922s. 2(l)(a), s. 4(3)(i)
Income Tax Act, 1961s. 11(1)(a), s. 24(1)(iv)
Indian Trusts Acts. 6

Subjects

income taxrental incomediversion of incomecharitable trustexemptionHindu Undivided Familyleaseapplication of income

Judgment

MOTILAL CHHADAMI LAL JAIN
.. v.
A
COMMISSIONER OF INCOME TAX, DELHI ETC.

APRIL 8, 1991

[S. RANGANATHAN, KULDIP SINGH AND B
N.M. KASLIWAL JJ.]

Income Tax Act, 1961: Assessment years 1962-63, 1968-69, 1969-
70 and 1973-74--Assessee Hindu undivided family consisting of Appel-
lant Chhadamilal Jain as the Karta and his son-Income derived from
• property as well as hire, rent and commission from the lessee-Jain Gl~s C
Works (p) Ltd. Company-Lease Deeds dated 3.5. 1960 and 5.5.62 with
the company-Rental income-Out of the annual rent of Rs.21,000,
Jessee to pay Rs. 10,000, direct to a College-Whether this amount is
includible in the income of the Assessee? Held yes; liable to pay tax on
the entire rental income.
D
Section ll( l)(a)/Section 4(3)(i) of the Income Tax Act 1922-
lncome from Certain properties transferred to a charitable Trust-
--! Vesting of-Properties in the Trustees-Income accruing from such
·--( properties is income of the Trust and not of the assessee.-Registered
Conveyance of the properties to the trustees is necessary but it is not
necessary where owner himself is the sole trustee. E

For the assessment year 1962-63 the assessee-family returned
Rs.11,000 as the rent received from the lessee Company. Regarding the
balance of Rs.10,000, it was contended on behalf of the assessee that
- _._ this amount being directly payable by the lessee company under the
lease deed dated S.S.62 to the Trust College, this ceased to be the F
income of the assessee. This contention was negatived by the Depart-
ment right upto the Income Tax Appellate Tribunal.

The other point of dispute concerned the income accruing from
certain properties claimed to have been transferred by the family to a
charitable Trust created under a Trust Deed dated 14.11.1947. The O
I.T.O. assessed the income from these properties in the hands of the
-~ family taking the view that the Trnst deed only purported to transfer
income from the properties and not the corpus and therefore, this
income was not eligible for exemption under section 4(3)(i) of the Indian
Income Tax Act 1922. Assessee's appeal to the Appellate Assistant
Commissioner failed but further appeal to the Tribunal succeeded. H

237
238 SUPREME COURT REPORTS [1991] 2 S.C.R.

A Thus the assessee agrieved on the first contention and the depart-
ment on the second contention sought references to the High Court. In
respect of assessment year 1962-63 two questions were referred to the
High Court on the above two points. A question in respect of the first
point was also referred for the assessment years 1968-69 and 1969-70
and two questions on the two points mentioned above were referred to
B the High Court in respect of assessment year 1972-73.

As the High Conrt answered these questions against the assessee,
it preferred four appeals covering the four assessment years in
question.

Allowing the appeals in respect of assessment years 1968-69 and
c 1969-70 and party allowing the other two appeals in respect of assess-
ment years 1962-63 and 1973-74, this Court,

HELD: (1) The assessee is the owner of the properties in question
leased out to the company on an annual rent of Rs.21,000. This is
D · Income of the family. The assessee's agreement with the company that
Rs.10,000 out of the rent due to it should be paid directly to the College r
is only a mode of application of the income by the family which makes r--
no difference in its liability to tax on the entire rent of Rs.21,000 nor
does the fact tbat the college has been given a right to sue for and
recover this sum directly from the company in case of default, alter this
E position. The payment to, or recovery of, Rs.10,000 by the college will
only discharge, in part, the liability of the company to pay a rent of
Rs.21,000 to the assessee under the lease deed. The creation nf a charge
in favour of the college does not make any difference. It only obliges the
company to pay a part of the rent to the college on behalf of the assessee
. but the existence of a mere obligation is not sufficient to constitute
F · diversion of income. Where the obligation flows out of an antecedent
and independent title in the former, it effectively slices away a part of
the corpus of the right of the latter to receive the entire income '!lld so it
would be a case of diversion. On the other hand, where the obligation is
self-imposed or gratuitous it is only a case of an application of income.
We, therefore, agree with the High Court that the assessee is liable to
G tax on the entire rental income ofRs.21,000. [24SF-246A, E; 247C-D, 2488] -!'

(2) A registered conveyance of immovable property to the
trustees is necessary where the trustees are persons other than the
author. But this requirement does not arise where the author is himself
to be the trustee. While a trust is not complete until the trust property
H is vested in trustees for the benefit of the cestui que trust, this can be
M.C. JAIN v. C.I.T. DELHI (RANGANATHAN, J.( 239

done by the settlor, where be is himself the trustee, by a declaration of A
trnst, using' language which, taken in connection with his acts, shows a
clear Intention on bis part to divest himself of all beneficial interest in it
and to exercise dominion and control over it exclusively as a trustee.
Section 6 of the Indian Trusts Act, makes this clear beyond all doubt.
The a.sseSsee's full ownership of an unqualified right to enjoy the pro-
perties gets restricted by the trust deed, which creates an overriding B
title in the beneficiaries regarding the use of the income from such
properties In the manner set out therein and no other. In fact after the
execution of such a trust deed, the properties are no longer held by the
assessee as the absolute owner thereof but as a trustee with a legal
obligation to apply the income exclusively for charitable purposes, thus
attracting the provisions for exemption contained in the Act. We are C
Inclined to take the view that the Trust deed of 1947 should be con-
strued as a valid trust which bas the effect of divertingthe income at the
source and that the income thereafter ceased to be the income of the
assessee-family. [248G-249B, C-D; E-FJ

C.I. T. v. Sitaldas Tirathdas, [1961) 411. T.R. 367, S.C. Murlidhar D
I Himmatsingka v. I. T.O., [1966) 62 I.T.R. 323, S.C. Mahaliram Santh-
--\ alia v. C.J. T., [1958] 33 I.T.R. 261, referred to. ·

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1426
to 1428 (NT) of 1975.
E
From the Judgment and Orders dated 24.2.1972 & 23.4.1974 of
the Allahabad High Court in Income Tax Reference Nos. 456/68 & 47
' · "- of 1973.
WITH
Civil Appeal No. 1653 (NT) of 1991. F

Raja Ram Aggarwal and E.C. Aggarwal for the Appellant.

Dr. V. Gauri Shankar, B.B. Ahuja, S. Rajappa and Ms.
A. Subhashini for the Respondents.

The Judgment of the Court was delivered by

RANGANATHAN, J. These four matters arise out of income tax
assessments of the same assessee and involve the same questions. We
grant leave in the Special Leave Petition after condoning the delay of
141 days in the circumstances set out in the application for condona- H
240 SUPREME COURT REPORTS [1991] 2 S.C.R.

A t10n of delay and proceed to dispose of all the four appeals by this
common judgment.

The assessee-appellant in all these cases is a Hindu Undivided
Family (HlJF) known as M/s Moti Lal Chhadami Lal Jain carrying on
busiqess at Ferozabad. The HUF consisted of the karta, Chhadamilal
B Jain, and his son Bimal Kumar Jain. Civil Appeal No. 1426 of 1975
relates to the assessment year 1962-63, Civil Appeal Nos. 1427 and
1428 relate to assessment years 1968-69 and 1969-70 and the other
remaiqing Civil Appeal relates to the assessment year 1973-74.

The facts relevant for the assessment year 1962-63 may now be ~
set out:
c
For the assessment year in question (the previous year for which
ended on 12.7.1961), the assessee HUF derived income from property
as well as hire, rent and commission from Jain Glass Works (P) Ltd.
(hereinafter referred to as 'the company'). On 3.5.1960, the assessee
D family had granted a perpetual lease of certain buildings, furnaces and
lands owned by it to the company. It appears that a firm known as Jain y-
Glass Works P. Ltd. had taken on lease the above assets of tlte HUF at r-
an annual rent of Rs.62,000 for running its business in the manufacture
of glassware. The lease deed recited that the company which had taken
over the running business of the firm was to continue to have its
E factory for manufacture of glassware on the land belonging to the. joint
family and continue to use and en joy all the facilities for the
manufacture of glassware on the bhatties belonging to the family. In
consideration of the use of all the above premises, the company was to
pay the HUF an annual rent of Rs.21,000 for the period during which
the company continued to have its factory in the premises of the lessor
F and also to pay the HUF ll commission at one per cent of the total
turnover of the company for financial year. Under clause 3 of the lease
deed, the company was to pay the annual rent of Rs.21,000 in the
following manner:

(a) Rs.10,000 to Shri Chhadami Lal Jain Trust Degree College,
G Ferozabad.

(b) Rs.11,000 direct to the lessor M/s. Moti Lal Chhadami Lal,
HUF.

On 5.5.1962, another agreement was entered into between four
H parties the two male members of the assessee HUF, the company, the
M.C. JAIN v. C.I.T. DELHI [RANGANATHAN, J.J 241

Clihadami Lal Jain Trust (hereinafter referred to as 'the Trust') and
A
the Chhadami Lal Jain Degree College (hereinafter referred to as 'the
College) which is an educational institution run by the Trust. This
document referred to the earlier lease agreement between the family
and the company and its terms. The agreement recorded, inter alia that
out of the total rent of Rs.21,000 payable by the company, a sum of
Rs.10,000 would be paid to the college and the balance to. the HUF in B
four equal quarterly instalments. Clause 7 of the deed reads as follows:

"That in the event of the 'second party' failing to pay the
.. rent every quarter in accordance with the above mentioned
conditions or violates the terms of this agreement, then, in
the first place, the 'fourth party' shall have Juli rights to C
recover Rs.10,000 (ten-thousand rupees) per year as rent
by recourse to the Court in whatsoever manner it deems fit
and shall have first charge on the full property mentioned
below. Subsequently, the 'first party' shall recover the
balance of Rs. I l ,000 per year rent alongwith the interest
costs and expenses from the 'second party' and such reco- D
very will not be objected to by the 'second party' or its
successors."

For the assessment year 1962-63 the assessee family returned
Rs.11,000 as lease rent received from the company. It was claimed that
the balance of Rs.10,000 was the income of the trust and hence not E
part of the income of the assessee. It was explained that the
University, while granting affiliation to the college had imposed a
_z condition that security should be given for the running expenses of the
college and as such a security was given . by creating a charge of
Rs.10,000 in favour of the college on the immovable property of the
joint family. The contention was that the sum of Rs.10,000 out of the F
rent payable by the leassee for the property got diverted by overriding
title to the college and ceased to be the income of the assessee. This
contention was negatived by the Income Tax Officer (I.T.O.), the
Appellate Assistant Commissioner (A.A.C.) and the Income tax
'Appellate Tribunal (the Tribunal). The Tribunal, however, directed
.~ the I. T. 0. to give appropriate reliefu/s 88 in respect of this amount. G

Another bone of contention between the parties related to the
income from certain properties claimed to have been transferred by
the assessee family to the Trust on 14.11.1947. On that date, the
assesssee executed a Trust Deed which was also registered at Feroza-
-< bad. By this deed, Chhadami Lal, the karta of the assessee family, H
242 SUPREME COURT REPORTS (1991] 2 S.C.R.

expressed his desire to create a charitable trust which would fulfill the
A needs of education, religion and medical facilities in the town of
Ferozabad. He, therefore, proceeded to create a trust which would run
a boarding house, a dharamshala with a temple, a commercial ·and
industrial Institute, a Jain Dharam School, a Jain Aushadhalya, a
students' scholarship fund and a public library and reading room.
B Clause 3 of the deed provided.

"That the expenditure of the trust and expenses for the
above-mentioned objects will be made from the income of
the following properties which income will be of the trust. I
will have no personal concern with this income nor will be
used for my personal benefit but will be spent on the aims
c of the turst."

Chhadami Lal constituted himself the trustee to look after the trust as
long as he lived and manage its affairs. The deed then proceeded to set
out the details of "the property the income from which will be used for
D the purpose of the trust". The properties were said to be of the value
of Rs.6, 12,000 and to yield an income of about Rs.18,000 per annum. '

On the strength of the above document, the assessee HUF was
not assessed on the income from the properties for the assessment year
1949-50. However, while scrutinising the accounts for the assessment
E years 1951-52 to 1959-60, the l.T.O. assessed the income from the
properties in the hands of the family, as he was of opinion that the
Trust Deed only purported to transfer the income from the properties
to the Trust but not the corpus thereof and that, therefore, the income )·
was not eligible for exemption under s. 4(3 )(i) of the Indian Income
·tax Act, 1922. Appeals by the assessee to the A.A.C. and the Tribunal
F were unsuccessful.

It was be mentioned here that, on 9th August, 1960, Shri
Chhadami Lal and his son had executed another registered document.
This document referred to the creation of the Trust in 1947 which, it
was stated, had been running several educational and charitable
G institutions regularly and successfully. The document proceeded to ~.
say:

"Thus there has been a great progress in the working of the
above-mentioned institutions and the property above-
mentioned was felt to be insufficient in the year 1957;
H therefore, both of us thought it proper that in order to run
'
M.C. JAIN v. C.l.T. DELHI [RANGANATHAN, J.I 243

the trust successfully, the properties mentioned below
A
should also be invested in the trust and to be under the
same so that Shri Chhadami Lal Jain Trust should always
run properly and the public good that has been done upto
now, as stated above, should continue to be so done in the
same rather better way. Public good should continue to be
done. Therefore, we executants had given to the trust on B
the !st July, 19.57 the following property the value of which
was Rs.25,000 [by) cancelling mutation thereof in respect
thereof in our name and giving up possession of the below-
mentioned property, at the same time, had transferred it to
the Trust. Since the. !st of July, 1957, we have had no
connection with the property mentioned below nor shall we
(
have any concern with it is the future."

The deed then proceeded to mention the details of the property
"which has been in the use of the trust above mentioned since 1957 and
will continue likewise to be in the use of the trust always". It then
proceeded to appoint eleven persons who were to be trustees to con- D
.., tinue to run the Trust and the institutions. Chhadami Lal, Bimal
-<. Kumar and his wife were three of the trustees, the others being out-
siders. Then followed several clauses. Clause 3 referred to "the pro-
perties which has been given to the trust before and now" and
empowered the trustees to sell or lease out the land to construct a
building for the trust if i't was found necessary. Clause 5, however, E
prohibited the trustees from "puttting the property of the trust to
personal use, wasting it or from mortgaging and selling it except in
accorda_nce with clause 3."

Despite this document, the l.T.O. assessed the family on the
income from the above properties. Appeals to the A.A.C. failed but F
the Tribunal allowed the appeals of the assessee. For the assessment
year 1962-63, the Tribunal, following its earlier orders in the case of
the Trust viz. LT.A. No. 17157 of 1963-64 and LT.A. No. 11774 of
1964-65, allowed the assessee's appeal.

The assessee, aggrieved by the Tribunal's decision on the first G
r contention and the department, aggrieved by the decision on the
second contention, sought references to the High Court. Thus, two
questions were referred to the High Court in relation to the assessment
year 1962-63 (I.T. Ref. 456/1968). These questions were:

( 1) Whether on a proper construction of the lease deeds dated H
244 SUPREME COURT REPORTS [1991) 2 S.C.R.

3.5.1960 and 5.5.1962 and the accompanying facts and circums-
A
tances of the case, the sum of Rs.10,000 is the income of the
assessee and not that of Chhadami Lal Jain Degree College?

(2) Whether, on the facts and circumstances of the case, the
income of Rs.14,000 from properties purported to have been
B transferred to Seth Chhadami Lal Jain Trust was not assessable
in the hands of the assessee family?

I.T.R. 47 of 1973 related to assessment years 1968-69 and 1969-
70 for which the relevant previous years ended on 1-9-67 and 1-9-68.
For these assessment years also, the inclusion of the income of
Rs.13,920 from the properties claimed to have been transferred to the
c Trust in the assessments of the HUF having been deleted by the Tri-
bunal following its orders in the appeals relating to 1964-65 to 1967-68,
the following question was referred to the High Court (in R.A. Nos. 88
and 89 of 1972-73 dated 8-12-72):

D "Whether on the facts and in the circumstances of the case,
income of Rs.13,920 from properties purported to have
been transferred to the trust was not assessable in the
hands of assessee family?"

It may be mentioned that though a reference was also made by the
E Tribunal on the other question regarding income from the property (in
R.A. No. 90 and 91of1972-73 dated 7-3-72), that was not the subject
matter of I.T.R. 47/73 and hence we are not concerned with that here.

In I.T.R. 168/79 which relates to the assessment year 1973-74,
three questions were referred to the High Court, of which we· are con-
F cerned with only two here. These are:

"(2) Whether on the facts and in the circumstances of the
case, income of Rs.6,329 from properties purported to
have been transferred to the Trust was not assessable in the
hands of the assessee family?
G
(3) Whether on a proper construction of the lease cleeds
dated 3-5-1960 and 5-5-1962 and accompanying facts and
circumstances of the case, the sum of Rs.10,000 is the
income of the assessee and not that of Chhadami Lal Jain
Degree College?"
H
M.C JAIN v. Cl.T. DELHI IRANGANATHAN, J.] 245

The questions referred were answered by the High Court against
A
the assessee and in favour of the Department. The judgment of the
High Court in I.T.R. 456/68 is reported in (1977) 106 l.T.R. 909
(All.). This judgment contains the reasons for the conclusion on the
question relating to the rental income is concerned. But so far as the
other question is concerned, the High Court answered it following its
earlier decision in l.T.R. 72 of 1969 arising out of the Tribunal's orders B
in the case of the trust in LT.A. Nos. 17157 of 1963-64 and LT.A. No.
11774 of 1964-65 referred to earlier and reported in (1977) 106 I.T.R.

. 179 (AIL). The judgment in l.T.R. 47/73 follows the decision in I.T.R.
456/68. In l.T.R. 168/79, again, the ruling in (1977) 106 I.T.R. 909
{All.) has been followed and the decision given against the assessee.
These are the three judgments in appeal before us.
c
Before considering the questions arising in these appeals we
would like Jo point out that there is no information before us as to
what has happened (a) in the assessment years 1950-51to1959-60; {b)
in the intervening assessment years 1963-64 to 1967-68 and, again,
from 1970-71 to 1972-73; {c) in the assessment years subsequent D
thereto; and (d) for assessment years 1968-69 and 1969-70 so far as the
issue regarding the rentafincome is concerned. We are indeed surprised
that even the assesseewho, in all probability, must have been affected
by the assessments for those years, should not have cared to place the
relevant information before us. It is regretiable that neither party has
cared to verify whether any appeals before the authorities or refe- E
rences in the High Court or appeals or special leave petitions are
pending for those-years. It would have been helpful to both sides if an
"'· attempt had been made to find out all the information so that all the
connected matters could have been consolidated and heard together.

So far as the question of rental income is concerned, we agree F
with the view taken by the High Court. The assessee is the owner of
the properties in question and has leased out the properties in question
to the company for an annual rent of Rs.21,000. This is the income of
the family. The assessee's agreement with the company is only that
Rs. 10,000, out of the rent due to it, should be paid directly to the
·.~ College. This is only a mode of application of the income by the family G
wrnch will make no difference in its liability to tax on the entire rent ot
Rs.21,000'. Nor does the fact that the College has been given a right, by
the fouF party agreement, to sue for and recover the sum of Rs.10,000
diFectly from the company in case of default alter this position. That is
1 only a mode of recourse provided to the College for tl\e enforcement
of the promise made to it by the assessee. The payment to, o• recovery H
246 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A of, Rs.10,000 by the College will only discharge in part the liability of
the company to pay a rent of Rs.21,000 to the assessee under the lease
deed.

It is contended on behalf of the assessee that it would not be
correct to treat this as a case of a mere application, by the assessee, of
B a part of the rental income due to, and receivable by, it. The right
given to the College to sue the company, directly coupled with the
creation of a charge in its favour on the property yielding the rent for
such payment, has the result of diverting that part of the rental income
at the very source or inception. Under the second agreement, it is
urged, not merely an amount of Rs.10,QOO _par annum but the very
right to receive, and enforce the payment of, that part of the rent is
c assigned to the College by the assessee. Its effect is th11t the income
from the property thereafter accrues partly to the assessee and partly
to the Co!lege with the result that the assessee is left only with the right
to receive Rs.11,000 from the company every year. Reliance is placed,
in this context, on the decisions in C.l. T. v. Sita/das Tirathdas, [1961]
o 411.T.R. 367, S.C. and Murlidhar Himmatsingka v. I. T.O., [1966] 62
l.T.R. 323, S.C.

We are of opinion that this contention cannot be accepted. As we
have pointed out earlier, the right given to the College to sue_ the
company is only the right to recover part of amount which has already
E accrued to the assessee. The creation of a charge in favour of the •
College does not make any difference. It only obliges the company to
pay a part of the rent to the College on behalf of the assessee but the
existence of a mere obligation is not sufficient to constitute diversion
of income. The classic statement of the true principle is set out in
C.I. T. v. Sita/das Tirathdas, (supra):
F
"Obligations, no doubt, there are in every case, but it is the
nature of the obligation which is the decisive factor. There is
a difference between an amount which a perosn is obliged
to apply out of his income and an amount which by the
nature of the obligation cannot be said to be a part of the
G income of the assessee. Where by the obligation, income is
diverted before it reaches the assessee, it is deductible. But
where the income is required to be applied to discharge an
obligation (self imposed and gratuitous) after such income
reaches the assessee, the same consequence in law does not
follow. It is the first kind of payment which can truly be
H excused and not the second. The second payment is merely
M.C. JAIN v. C.I.T. DELHI IRANGANATHAN, J.] 247

an obligation to pay another a portion of one's own income
A
which has been received and is since applied. The first is a
case in which the income never reaches the assessee who,
even if he was to collect it, does so, not as part of his
income but for and on behalf of the persons to whom it is
payable."
B
In the above passage, it is clear, the expressions "reaches the assessee"
and "has been received" have been used not in the sense of the income
being received in cash by one person or another. What the passage
emphasises is the nature of the obligation by reason of which the
income becomes payable to a person other than the one entitled to it.
Where the obligation flows out of an antecedent and independant title C
in the former (such as, for example, the rights of dependants to main-
tenance or of coparceners on partition, or rights under a statutory
provision or an obligation imposed by a third party and the like), it
effectively slices away a part of the corpus of the right of the latter to
receive the entire income and so it would be a case of diversion. On the
other hand, where the obligation is self-imposed or gratuitous (as D
here) it is only a case of an application of income.

The case of a sub-partnership, referred to on behalf of the asses-
see, is really a case on the borderline. It is possible to take a view that
it is nothing more than a case of one partner agreeing to divide his
share of profits from a firm with others and, indeed, this was the view E
taken earlier: see, Maha/iram Santhalia v. C.I. T., [1958] 33 I.T.R.
261. But, apparently in view of the commercial necessities which com-
pel the formation of sub-partnerships, a series of judicial decisions,
approved in Murlidhar Himmatsingka v. I.T.O., (supra) have held
that they represent cases of diversion. That analogy cannot be
extended to cases such as the present. F

We would also like in this context to refer to S. 24(1)(iv) of the
Income-tax Act, 1961. It provides for a deduction, in the computation
of income from house property, in respect of the amount of an annual
charge on the property. The statutory provision was initially wide
enough to rope in cases of such charges irrespective of the purpose for G
which they were created and even where they were voluntarily created
by an assessee. But the provision has been amended w .e.f. 1-4-1969 to
exclude deduction of an annual charge voluntarily hy the assessee. The
case before us is not one of income from house property computed
under Ss. 22-24 and we are referring to this only as a matter of interest.
This amendment also indicates that a charge voluntarily created would H
248 SUPREME COURT REPORTS [1991) 2 S.C.R.

!\ stand on an different footing from super-imposed charges.

For these reasons, we agree with the view taken by the High
Court and hold that the assessee is liable to tax on the entire rental ._,.,
income of Rs.21,000.

B Turning now to the second question before us, it talks of the
income from the properties Hpurported to have been transferred to the
Trust" and in the words in quotation lies the crucial issue in the case.
There is no dispute that the income from the property is applied wholly
for religious and charitable purposes. S. 4(3)(i) .of the Indian Income-
tax Act, 1922 and its successor section ll{l)(a) of the Income-tax Act,
1961 (insofar as they were applicable to the assessment years before
c us) exempt the income derived by an assessee from "property held in
trust or other legal obligation'" for such purposes. This exemption has
been denied to the assessee on the short ground that the properties
(with the income from which we are concerned) continue to vest in the
assessee and have not been effectively transferred to the Trust. This is
D said to be so for two reasons. The first is that the trust has been created
in respect of immovable properties of the value of more then Rs.100 .,-
and this is possible only if the properties had been duly conveyed to .,.._
the trustees by a deed duly stamped and registered. The second is that
the deeds of trust themselves do not speak of the corpus of the proper-
ties being held in trust. Clause 3 of the 1947 deed only stipulates that
E the income from the properties will be the income of the trust. A little
later also the deed proceeds to set out the "properties the income from
which will be used for the purposes of the trust". In other words, the
deed only records the assessee's desire to utilise the income for the
objects mentioned in the deed and not for his personal benefit. The
document of 1960 does not improve matters any further. So, it is said,
F no valid trust has been created by the assessee to merit the claim for
exemption.

We are of the opinion that the view of the High Court proceeds
on an unduly narrow construction of the deeds of 1947 and 1960. We
have pointed out that, under the deed of 1947, the karta of the assessee
G family is the sole trustee to execute the objects of the trust. It appears _, ·
to have been overlooked that while a registered conveyance to the
trustees by the owner of immovable property is necessary where the
trustees are persons other than the author, this requirement does not
arise where the author of the trust is to be the sole trustee. While a
trust is not complete until the trust property is vested in trustees for the
H benefit of the cestui que trust, this can be done by the settlor, where he
M.C. JAIN v. C.I.T. DELHI [RANGANATHAN, J.) 249

is himself the trustee, by a declaration of trust, using language which, A
taken in connection with his acts, shows a clear intention on his part to
divest himself of all beneficial interest in it and to exercise dominion
and control over it exclusively in the character of a trustee. Sec. 6 of
the Indian Trusts Act, makes this clear beyond all doubt. In the pre-
sent case there is a deed which makes clear the unequivocal intention B
to utilise the income from the properties in the manner set out in the
deed of trust. It is in the context of the above legal position that one
has to understand the references in the trust deed to the income of the
properties belonging to the trust. Indeed, this is made clear by the.
conduct of the party all through and the language of the second deed.
The assessee's full ownership of, and unqualified right to enjoy, the
properties gets restricted and qualified on the execution of such a trust C
deed by the various conditions set out and imposed by the trust deed.
The execution of the trust deed creates an overriding title in the be-
neficiaries thereunder (viz. the various cross sections of the public
covered by it) to require that the income from the properties, which
are made the subject matter of the trust, be utilised in the manner set D
out therein and no other. Indeed, after the execution of the trust deed,
the properties are no longer held by the assessee as the absolute owner
thereof; they are held by the assessee under trust and legal obligation
to apply the income exclusively for charitable purposes, thus attracting
the provisions for exemption contained in the Act.
E
For the reasons discussed above, we are inclined to take the view
that the deed of 1947 should be construed as a valid trust which has the
effect of diverting the income at the source and that the income there-
after has ceased to be the income of the assessee-family. We therefore
answer the question referred to the High Court on this issue in favour
of the assessee.
F
In the result of C.A. 1427-8/75 are allowed and the other two
civil appeals are allowed in part. There will, however, be no order .
regarding costs.

R.N.J. C.A. 1427-28/75 allowed.
CA. 1426/75 & 1653/91.
partly allowed.