' GUL MUHAMMAD KHAN, J.-This case has been referred to this Court by the Income-tax Appellate Tribunal, Peshawar Bench, Peshawar (hereinafter referred to as the Tribunal under section 66 (1) of the Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, Rawalpindi. It solicits our reply to the following question of law :- "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the income from house property in this case was not assessable in the hands of the assessee for both the years ?"
2. This reference relates to the assessment years 1966-67 and 1967-68. The facts leading to it are that the respondent, who is a Central Government employee, derives his income from salary. He also owns a house in Karachi which had been requisitioned by a Government Department at the relevant time but no rent had been fixed. The respondent, ride a deed of settlement dated 18th October 1965, had assigned a sum of Rs, 500 p m. Out of the rental income of that house to his wife Mst. Masooda Akhtar for life, in consideration of natural love and affection. The relevant portion of the deed settling the income runs as under :- "To hold the same unto and for the use of the donee, absolutely and irrevocably and without any condition whatsoever. The donee has accepted the settlement. The donee shall henceforth be responsible for proportionate dues, taxes, and other outgoings in respect of the aforesaid rent."
On 2nd February 1967, the house was outright gifted by the assessee in the name of his wife but the Tribunal in its final order has not approved the gift and no reference on that decision has been filed.
3. On the return of income filed by the assessee, the Income-tax Officer did not accept the effectiveness of settlement of income in favour of assessee's wife. The entire income from the house was, therefore, included in the income of the assessee and taxed. An appeal filed by the assessee before the Appellate Assistant Commissioner failed. He, however, succeeded in his appeal before the Tribunal. It was found that the assessee had settled irrevocably a sum of Rs, 500 p.m. Out of the income of his house, in the name of his wife for life. The Tribunal further held that as the assessee did not derive any direct or indirect benefit from it, the third proviso to section 16 (1)
(c) of the Income-tax Act was attracted. The result was that the settled income from the house had to be excluded from the income of the assessee as it could not be assessed in his hands.
4. Before the learned counsel for the petitioner could proceed on the merits of his case, the learned counsel for the respondent raised the following two preliminary objections-
(1) that as the assessm ent pertained to two years, there could not be a single reference;
(2) that as the case had been decided by the Income-tax Appellate Tribunal at Peshawar, the reference could not be made for this Court.
5. As regards the first objection, it is prima facie clear that though two assessments for two years had been assailed in two appeals yet only one reference has been sent to this Court by the Tribunal. The question of law raised is common to both the cases but in view of the provisions of section 33 A read with section 66 of the Act, two separate references should have been filed. The heading of the reference application (Annexure `E' for the year 1966-67) shows that another similar application had also been filed. The applicant is Commissioner of Income-tax. No fee was required to be paid by him for making the references. It is, however, quite clear that the applicant made two applications while the Tribunal passed a single order and thought it fit to make only one reference for both the years. The applicant. Therefore, is not at fault and it will serve no useful purpose if the Tribunal is directed to send the second reference at this stage to meet this technical plea. We, therefore, do not think it advisable to refuse to consider the reference on that score.
6. As for the second point, it is to be seen that section 5-A empowers the Central Government to appoint an Appellate Tribunal to exercise functions conferred on it by the Income-tax Act. There is, therefore, one Tribunal for whole of Pakistan. Section 5-A (5) provides that powers and functions of the Appellate Tribunal may be exercised and discharged by Benches constituted from members of the Tribunal by the President of the Tribunal. Under section 5-A (8) the Appellate Tribunal has the power to regulate its procedure including the places at which the benches shall hold their sitting.
The Bench which decided the case in question sat at Peshawar. It, however. Could sit at Rawalpindi or Islamabad or at any other place. The jurisdiction of the High Court, therefore, could not be determined by the mere fact as to where the Bench held its sitting. Both the parties in this case reside within the territorial jurisdiction of Lahore High Court. The assessment was B made at Rawalpindi. The first appeal was also heard there. Even the Bench of the Appellate Tribunal could sit there if the Tribunal so decided. The office of the Tribunal is to be at Lahore in view of rule 5 of the Appellate Tribunal Rules, 1948. Under rule 7 the appeals before the Tribunal are to be presented at Lahore to the Registrar or to an office authorised by him. Rule 7 applies to the references to be filed before the Tribunal in view of rule 36. According to rule 39 the reference application is to be heard by the same Bench which heard the appeal unless the President of the Tribunal directs otherwise.
In the circumstances we are not persuaded to hold that only the Peshawar High Court had the jurisdiction.
7. As to the merits of the case, it had been found as a fact by the Tribunal that the income of the house had been settled in the name of the wife and that the same was never used directly or indirectly by the assessee. The Appellate Commissioner had relied on a judgment of the Madras High Court in the case of Dr. T. M. A. Pai (1) but he did not apply his mind to see if the case of the assessee was covered by the contents of the third proviso to section 16 (1) (c) of the Income-tax Act. The Tribunal considered the views in previous decisions of Income-tax Appellate Tribunal in I. T.
A. No, 675 of 1963-64 reported as (1968) 17 Tax. 58 and I. T. A. No, 675 of 1963-64 decided on 31st April 1967 on similar question to hold that when the income of a property is settled for a period of not less than 6 years the donee and not the settlor is liable to pay tax. That case was also referred before the Income-tax Appellate Commissioner but he found it inapplicable in view of the fact that the implication of section 9 of the Act had not been considered while deciding the case. The Tribunal also relied on one of its own cases I. T. A. 1271/68.69, decided on 24th June 1968, wherein it observed as under :- "Section 16 (1) (c) is not confined to settlement or disposition of income arising from property other than house property only. The (1) (1954) 25 I T R 75 words in clause (c) are income from 'assets' and the word 'assets' occur in sub-clause (iii) of subsection (3) of section 16 and in the later provision 'assets' have never been interpreted to mean only property other than house property. Moreover there is a separate head and separate section in the Income-tax Act in respect of various incomes.
On the analogy of the Departmental Representative's argument business income under section 17 may also not be considered for purposes of section 16 (1) (c) and so on and so forth. In fact by the incorporation of clause (c) the Legislature has refused to accept the settlement or assignment and it was in the context of this legislative intention that the phrase 'deemed to be his income' has been employed, meaning thereby it is the settler's income like any other of his income, not in the fictional sense but in the true sense of the term. In our clear view the word 'assets' as used in section 16 (1)
(c) includes all types of assets including houses property."
8. The Income-tax Authorities are entitled to go into the question of the ownership of property and to make assessm ent on the real owner. Such a finding is a question of fact and has to be accepted as such in reference proceedings. In the case in hand the finding of the Tribunal was that the settlement for life of a sum of Rs, 500 p.m. Out of the income of the house at Karachi was genuine.
The entire income had gone to the account of the donee and she alone derived benefit from that.
The Tribunal also repelled the contention that the assessee was deriving any indirect benefit from the income assigned. The asset, however, remained the property of the settlor/ petitioner.
9. Section 16 (1) (c) and its third proviso which cover the situation may be reproduced hereunder for reference :- "16 (1) (c)-All income arising to any person by virtue of a settlement or disposition whether revocable or not 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 the income of the transferor. Third proviso provided further that this clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding 6 years or during the life time of the person and from which income the settlor or disponer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him."
This proviso exempts from the operation of the clause, transfers which are irrevocable for a period exceeding 6 years or during the life time of the transferee provided the settlor has no interest in the income for that period. The irrevocability conceived here is to be understood in the sense as defined in the first proviso. It may also be noted that under general la as contained in section 126 of the Transfer of Property Act, and sections 78 and 79 of the Trust Act, a settlement or a disposition is irrevocable for all time unless an express power of revocation is reserved in the deed.
10. It was argued by the learned counsel for the petitioner that if assets remain the property of the settlor or disponer, the liability to be assessed remains that of the settler or disponer, whether the settlement or disposition is revocable or not. Similarly if a transfer is revocable even then the transferor and not the transferee is liable to be assessed for tax. As per the third proviso to section 16 (1) (c) it was pleaded that as it had its operation independent of the main clause it was governed by section 16 (3) (a) (iii). The learned counsel for the respondent relied on Ramji Kishawarji v. C. I. 7'. (1) and Naeem's Journal January 1977 issue, page 60 to say that his case was covered by third proviso to section 16 (1) (c). In the first case which was also relied on by the Tribunal for its decision, the assessee who had executed a deed of trust in favour of his wife for life in pursuance to a Court decree was held not liable to be assessed for the income arising out of the trust properties in view of third proviso to section 16 (1) (c). The second case is not relevant to the controversy in hand.
11. It will be seen that the contention raised by the petitioner has no force. Under the main clause, the income arising by virtue of the settlement or disposition from assets remaining the property of the settlor, is regarded as the income of the settlor irrespective of the irrevocability or otherwise of the settlement. The third proviso whether an exception to clause (c) of section 16 (1) or an independent provision specifically excludes the operation of clause (c) by expressly declaring that "provided further that this clause shall not apply to an income arising to any person by virtue of a settlement or disposition... ...... ". In the circumstances, if the settlement or disposition answers the requirements of the third proviso, such income cannot be aggregated in the income of the assessee. Reliance is also placed on D. R. Shahapure v. C. I. T., Bombay (2). In that case the husband on marrying a 5th wife wrote an entry in his account book setting apart a sum of Rs, 20,000 and stipulating that the wife was to have no right to this capital sum. This capital sum would remain invested in the husband's business during the wife's life-time and with the business done, the husband would see that the wife got a minimum income of Rs, 600 per annum. If there should arise any shortfall or loss, the husband (the settlor) would make it good. This sum of Rs, 600 could be spent by the wife as she liked and she was further entitled to any extra income over Rs, 600 from the business. No specific asset was set aside equivalent to Rs, 20,000. It was held that the settlement fell under the main clause and was within its mischief, but it was saved by the third proviso.
12. The points involved in Ramji's and Shahpure's cases referred to above are quite similar to the one in hand. The interpretation of the third proviso by the Courts since before 1947 has been uniform and there has been no difference of opinion on its effect. Therefore, if all the conditions as given in that proviso are satisfied then the donee and not the settlor or the disposer will be liable.
The Tribunal has also been taking the same view and we uphold that as the correct view.
' For the reasons given above, we do not find any force in the submissions made by the learned counsel for the petitioner. Our answer to the question is in the affirmative. The petitioner shall pay costs of the respondent, (1)(1945) 43 I T R 105
(2) (1946) 14 I T R 781