TaxTMI 
TaxTMI 
2003 (5) TMI 38
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....d ceased to exist in law and a new trust came into existence by virtue of the deed dated December 31, 1970, and, therefore, the assessee was liable to pay gift-tax in respect of the property transferred for which the trust was created under each of the trust deeds. The Commissioner upheld the orders of the Gift-tax Officer. When the matter was carried to the Tribunal, in the Revenue Appeals Nos. 930 to 933/AHD of 1986, from which the present reference arises, two Members of the Bench differed and their opinions were referred to a Third Member, who expressed the view that the assessee was not liable to pay gift-tax in respect of the declaration made on December 31, 1970. In his opinion rendered by the Judicial Member, it was held that the trust created under the deed dated April 11, 1961, which was initially irrevocable, became revocable at the end of six years and one day. On December 31, 1970, the settlor did not revoke the entire trust but only substituted clause 2(b) and clause (3) thereof and revoked clause (15) under which the trust was earlier revocable at the end of the said period. The learned Judicial Member observed that the settlor had parted with the property unde....
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....lding that the assessee was not liable to gift-tax in respect of the declaration made in December, 1970. Learned counsel for the Revenue contended before us that, for all intents and purposes, a new trust was created under the deed dated December 31, 1970. He submitted that the increase in beneficiaries in some of the deeds, as also making the shares of the beneficiaries definite in all the deeds, amounted to creation of new trusts. He submitted that the original trust was revocable while under the new trust, the property was ultimately to be vested in the beneficiaries after a period of fifteen years, and the trust was now made irrevocable. Such drastic changes in the settlement brought about a totally new set up. In support of his contention, learned counsel relied upon the decision of this court in Anarkali Sarabhai v. CGT [2003] 259 ITR 97, in which, in the context of the fact that, by exercising the power of appointment, no corpus of the trust fund was transferred but only the right of Anarkali Sarabhai to receive the trust funds came to be transferred by her in favour of the four trusts of which she was the settlor, it was held that there was no question of any gift hav....
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....the property in the context of the beneficiaries and specifications of the shares of the beneficiaries did not have the effect of divesting the ownership of the property which had continued to vest in the trustees. He submitted that the change in the beneficiaries in some of these settlements did not create any transfer of property, because, the transfer was by virtue of creating a trust itself which was already created under the deed dated April 11, 1961. It was also submitted that, by making the trust irrevocable also, no transfer took place and no new trust was created. Learned counsel for both the sides have referred, from the original record transmitted to this court, to the settlement deed dated April 11, 1961 (N. Sakarlal settlement), and the deed dated December 31, 1970, in respect of the same settlement (N. Sakarlal settlement) by which the changes were effected. It is submitted that the other deeds and changes are similar in cases of all the settlements. In N. Sakarlal settlement, the settlement deed dated April 11, 1961, it has been mentioned in the initial recital, after naming the five trustees, that the trustees had agreed to be the first trustees, all being par....
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....and to accumulate the balance of net income and to add the same to the corpus and it is hereby expressly agreed and declared that any act bona fide done by the trustees or any payment bona fide made by the trustees or the decision of the trustees in respect of the amount to be spent or applied in pursuance of the provisions of this clause shall be final and binding on all persons claiming under these presents and shall not be questioned in any court" It will be seen from this clause that the trust was a discretionary trust and the beneficiaries' shares were not specified. The deed specifies the powers and duties of the trustees in detail and thereafter reserves the power of revocation, in clause (15), which is reproduced hereunder: "15. These presents shall remain irrevocable for a period of six years and one day from the day hereof. After the expiration of the said period it shall be lawful for the settlor at any time or times by any deed or deeds for the settlor at any time or times by any deed or deeds revocable or irrevocable inter vivos or by his last will or codicil thereto to alter, vary or absolutely to revoke all or any of the uses trusts powers provisions and limita....
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....e event of the death of any of them the said Ben Chandravati Sakarlal, Ben Malvika Sakarlal and Harsh Navnitlal before March 31, 1985, the income coming to the share of such deceased person shall be divided equally amongst the legal heirs of such deceased person." Similarly, the original clause (3) of the deed of trust was substituted by the following clause (3) : "3. On the 1st day of April 1985, to pay, transfer and hand over the trust fund together with the accumulation of income, if any, the trustees shall pay transfer and hand over the trust fund together with accumulations of income if any to wife and children of the said Nandkishore Sakarlal in equal shares absolutely." Furthermore, by the said subsequent deed of December 31, 1970, the settlor revoked the earlier clause (15) and made the trust irrevocable. It was, in terms, stated at the end that, save as altered and varied by this document dated December 31, 1970, all other trusts, powers provisions, covenant and conditions contained in the said deed of trust dated the April 11, 1961, shall remain in full force and effect. This subsequent deed was signed by the settlor in the presence of two witnesses and even the ....
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.... If the donee dies before acceptance, the gift is void." In the Gift-tax Act, the word "donee" is defined in clause 2(viii) so as to mean any person who acquires any property under a gift, and where a gift is made to a trustee for the benefit of another person, includes both the trustee and the beneficiary. Under the definition of the word ('gift" in section 122 of the Transfer of Property Act, a person accepting the gift is called the donee, as mentioned therein. The meaning of the word "gift" under the Gift-tax Act is significantly different from its meaning under the Transfer of Property Act. The essentials of a gift for the purposes of the Gift-tax Act are: (i) there must be a voluntary transfer of property within the meaning of section 2(xxiv) by one person to another, and, (ii) such transfer should be without consideration in money or money's worth. The essential difference that widens the scope of "gift" for the purposes of the provisions of the Gift-tax Act, is due to the enlarged meaning of the expression "transfer of property" in section 2(xxiv). The expression "transfer of property" as defined in clause (xxiv) of section 2 of the Gift-tax Act means any disposition....
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....ng of the phrase as per section 2(xxiv) of the Gift-tax Act and the property that was transferred to the trustees never reverted to the settlor, because, that part of the trust deed continued to operate. There was no fresh trust created nor was the property again transferred in the name of the trustees. The trustees remained the same. Even if the trustees had changed, that property would have vested by operation of law to the new trustees by virtue of the provisions of section 75 of the Indian Trusts Act, which provides that, whenever any new trustee is appointed under section 73 or section 74 all the trust property for the time being vested in the surviving or continuing trustees or trustee, or in the legal representative of any trustee, shall become vested in such new trustee, either solely or jointly with the surviving or continuing trustees or trustee, as the case may require. Thus, even though the trust could have been revoked after six years and one day, being the period for which it was irrevocable, in view of the power reserved by the settlor in clause (15) of the trust deed, it was not, in fact, revoked and the same trust that was created by clause (1) of the trust deed co....
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....e creation of the trust and the transfer of trust property which was already effected in the name of the trustees, the trust itself cannot be said to be revoked or the property that was transferred to the trustees cannot be said to have been reverted to the settlor by virtue of such changes in the subordinate clauses having bearing on the disposition of the trust property which continued to vest in the trustees. There was, therefore, no revocation of the trust that was created by the trust deed dated April 11, 1961, and since the entire property continued to vest in the same trustees even after the changes were effected in clauses 2(b), and (3) of the original trust deed by substituting the new clauses, which had a bearing only on the question as to how the property that already vested in the trustees should be dealt with for the benefit of the cestui que trust, there was no fresh gift made by the deed of December 31, 1970, and the gift already made by transferring trust property to the trustees when the trust was created on April 11, 1961, and when the gift-tax was paid on the entire value of that property, was never revoked since the trust created and perfected under that deed wa....
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....ch he was entitled to, giving reasons for his opinion, which was to the effect that there was a transfer of totality of interest in the property by the subsequent deed of December 31, 1970, and that was different from what was done earlier. It is thereafter that, before the matter could be referred to the Third Member, in view of the difference of opinion on the points on which they differed, the Judicial Member made certain remarks in writing on May 22, 1985, by referring to the opinion of the Accountant Member dated May 9, 1985. The matter was referred by the President to the Third Member of the Tribunal, who rendered his opinion on March 13, 1986, on the points on which the two members had differed, and in conformity with the majority view, the appeals were allowed on August 27, 1986, by the original Members of the Bench. On that very day, after the appeals were allowed, the Accountant Member, referring to the remarks which were made on May 22, 1985, by the Judicial Member after the differing opinion was rendered by the Accountant Member, observed to the effect that the second order passed by the learned Judicial Member was not warranted and tried to justify as to why the genera....