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2. On November 2, 1950, H.E.H. the Nizam settled on trust 3% Government of India Conversion Loan, 1946, of the face value of Rs. 22,20,000. The settlor constituted himself as one of the trustees and was to remain, during his life, the President of the Board of trustees. The trust has been described as "H.E.H. the Nizam's Pilgrimage Money Trust". Clause 3(c) of the trust, which is relevant, reads as under :

"During the lifetime of the settlor, to defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places in Hedjaz and Iraq and making religious offerings and expending monies for charitable purposes as the settlor in his absolute discretion may from time to time think fit and require out of the income as well as the corpus of the trust fund in such manner and to such extent as the settlor may from time to time direct and for all or any of such purposes as aforesaid to pay such monies out of the income of the corpus of the trust fund as the settlor may from time to time require."

3. The total income of interest on securities earned for the assessment year 1958-59 was Rs. 82,853.

4. The ITO held that tax was assessable in the hands of the settlor. The reason culled out was that in terms of Clause 3(c) of the trust deed, the settlor reserved to himself the power to appropriate the entire income of the trust for defraying expenses incurred on pilgrimage of himself or the members of his family whom he took along with himself. The AAC agreed with the view taken by the ITO. He held firstly that the Nizam had unfettered powers to expend the trust income on any religious and charitable purposes of his choice, meaning thereby, not necessarily on the objects laid down in the trust. Secondly, he found that in the previous years, the trust was held to be revocable and the income from the trust was assessed in the hands of the assessee.

"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."

13. The learned judge at page 165 observed :

"In other words, the proviso comes to the rescue of the settlor in that the portion of the income from the trust properties which are settled on a third person is to be assessed in the hands of that person and not in the hands of the settlor, if the latter does not retain any power to 'deflect the same for a period exceeding six years or during the lifetime of the donee'."

14. It is in the light of the principles laid down by the Supreme Court that we have to examine the position. It is seen that in the first proviso, the two crucial words are "retransfer" and "reassume power". In either case, however, the income and the assets must go to the settlor leaving it to his discretion as to in what manner and for what purpose the income or the asset should be utilised. Such discretion of the settlor can be exercised for purposes outside the trust deed. In other words, if the settlor was placed in the position which prevailed prior to the creation of the trust when he was absolutely free to deal with his property in any manner he liked, then the trust would be deemed to be revocable although ostensibly it is irrevocable. On the other hand, if the income or the assets are retransferred or power over which is reassumed but only for the purpose of discharging the obligations imposed by the trust, or to put it in another way, if the settlor is bound to deal with the income or the asset within the four corners of the trust deed, such a case would not fall within the purview of the first proviso. Merely because the settlor is entitled to give some directions to the trustees and the trustees are obliged to carry out those directions although such direction relates to handing over of the income of the trust to the settlor, the trust would not be revocable as long as the money so transferred to the settlor is meant for the purpose for which the trust is created.