The distinction between the application of income and the alienation of income is important. The mere application of income in pursuance of an obligation under a contract or under a statute does not affect the ownership of that income or enable the income so applied to be deducted from total income1. Where, however, an effective gift, settlement, declaration of trust or transfer is made, declared or executed before the right to the income has arisen, the donor or settlor is divested of his interest in the income2. A gift taking effect at a future date, dependent on the donee
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