Transferability of trust and HUF interests upheld where transfers were otherwise lawful and not merely tax-motivated

A beneficiary's beneficial interest in trust property is transferable under section 58 of the Indian Trusts Act unless the trust deed or some other law restricts that right, and trustees need only recognise the assignee without varying the trust terms. A transfer is not invalid merely because it reduces future wealth-tax exposure, provided it is otherwise lawful and not a colourable device. A sole surviving coparcener and karta of a Hindu undivided family may also validly alienate the HUF's property interest, and the Revenue cannot impeach such a gift absent a legal prohibition or a challenge available only to family members.

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Issues: (i) Whether a beneficiary under a trust can transfer his beneficial interest in the trust property without the trustee's consent and whether such transfer is invalid as a device to evade tax. (ii) Whether a sole surviving coparcener and karta of a Hindu undivided family can validly gift the HUF's interest in the corpus of the trust fund.

Issue (i): Whether a beneficiary under a trust can transfer his beneficial interest in the trust property without the trustee's consent and whether such transfer is invalid as a device to evade tax.

Analysis: The trust deed did not prohibit transfer of the beneficiary's interest. Section 58 of the Indian Trusts Act recognises the beneficiary's competence to transfer his beneficial interest, subject only to any legal restriction. Section 11 of the Indian Trusts Act was held inapplicable because the trustees were not asked to alter the trust or depart from its terms; they were merely directed to recognise the assignee in place of the beneficiary. The transfer was therefore treated as a transfer of beneficial interest and not as a modification of the trust. The court also held that the fact that the transaction incidentally reduced future wealth-tax exposure did not make it impermissible, since it was otherwise lawful and not a colourable device.

Conclusion: The beneficiary could validly transfer the beneficial interest without the trustee's consent, and the transfer was not invalid merely because it resulted in tax relief.

Issue (ii): Whether a sole surviving coparcener and karta of a Hindu undivided family can validly gift the HUF's interest in the corpus of the trust fund.

Analysis: The assessee was the sole surviving coparcener when the assignment was made and, under Hindu law, could dispose of the family property as his own, subject to recognised limitations. The transfer was considered valid unless barred by some other law, and none was found. The Revenue, being a stranger to the family, could not challenge the validity of the gift on grounds that would at best make it voidable at the instance of affected family members. The court further held that the arrangement was not a prohibited device and that the rule against perpetuity did not assist the Revenue in attacking the transfer.

Conclusion: The gift of the HUF's interest in the corpus was valid and could not be challenged by the Revenue.

Final Conclusion: The transfers were legally effective, the beneficial interest was properly valued on the basis adopted by the assessee, and the Revenue's challenge failed.

Ratio Decidendi: A beneficiary's beneficial interest in trust property is transferable under section 58 of the Indian Trusts Act, and where the transfer is otherwise lawful, it is not invalid merely because it reduces future tax liability; likewise, a sole surviving coparcener may validly alienate the family property, and such transfer cannot be impeached by the Revenue absent a legal prohibition.

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