TaxTMI 
TaxTMI 
1980 (12) TMI 4
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....ssment years 1967-68 and 1968-69. It appears that one Shri Girdharilal Hansraj Kamani had executed registered indenture of settlement on May 21, 1960, settling on trust for public, religious and/or charitable purposes the property known as " Kamani Mansion " bearing No. 3, Allenbery Road, Calcutta, in favour of six trustees specified in the said deed. As mainly the construction of the said trust deed is relevant for our purpose it would be instructive to refer to the relevant provisions. After the recital the trust deed declared in the habendum clause as follows: " Now this declaration and indenture made in Calcutta on this the 21st day of May, 1960, hereby witnesseth that in pursuance of the said desire and in consideration of the premises mentioned above the settlor doth hereby grant, assign and transfer and convey absolutely and irrevocably for ever unto the trustees the said immovable property made up of lands and buildings comprising the property, 'Kamani Mansion' at premises No. 3, Allenbery Road, in the city of Calcutta, more fully described in the said schedule already referred to above marked 'A' appended here together with all the rights, title and interest of the sett....
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.... the owner and occupier's taxes and/or any other cesses or levies which might be imposed in accordance with the law on the said property by the Calcutta Corporation and/or any other authorities under the law attributable to the said two flats in comparison with the accommodation offered by the said entire property shall always be borne and/or paid personally by the settlor throughout his life and in the event of his death and his wife surviving him, by his said wife out of his or her respective personal resources. (b) In addition, the trustees shall pay an amount of Rs. 9,000 (rupees nine thousand only) per every calendar year of 12 months to the said settlor throughout his natural life or in the event of his predeceasing the said wife at the rate of . Rs. 9,000 (rupees nine thousand only) per annum throughout her natural life. (c) The surplus left over after payment of these amounts to the settlor and/or his wife as the case may be shall be appropriated at an amount equal to or not less than 50% of such surplus to public religious and/or public charitable purposes for example (i) advancement of learning and/or the grant of continuous subscription to endowments, scholarships, stipe....
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....e fund every year or from time to time of the income, profits or gains produced by the said trust fund at a rate or not exceeding 50% of the net surplus of the income profits or gains over the expenditure, outgoings and liabilities incurred by the trustees shall always be ascertained on completion of the accounts as well as on completion of the check of these accounts by an independent accountant or auditor maintained for and at the end of every accounting year observed by the trust, such accounting year may consist of a period of less than 12 months for the first accounting year and shall always consist of 12 months for other subsequent accounting years." Essentially, therefore, it appears that under cl. 10 of the deed, the trustees were enjoined to permit the settlor and his wife to occupy and reside free of rent in two flats on the second floor of the trust property for their lives and to pay an amount of Rs. 9,000 for every calendar year for the settlor and his wife and after the settlor's life, to his wife. The surplus left over after the payment of this amount to the settlor or his wife was to be applied in the manner specified in the said clause to the public, religious a....
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....vji v. CIT [1945] 13 ITR 105 (Bom), a decision in which an observation of Kania J., which was not agreed to by Chagla J., and was later on dissented to by a Division Bench judgment of the Calcutta High Court, would require consideration later. In that case, the settlor retransferred a house property to a trust but he reserved the right to occupy a portion of the property during his lifetime. It was held, in that case, that there was no provision for retransfer. The only difference, according to the AAC, as between the said case and the instant case before us, was that in the instant case the assessee had reserved to himself not only the right to occupy a part of the premises transferred to his trustees but also stipulated that an annual payment of Rs. 9,000 should be made to him by the trustees. The AAC was of the view that this difference was only quantitative and did not have any qualitative significance. Therefore, according to the AAC, the instant case was covered by the ratio of the decision of the Bombay High Court. The AAC, therefore, held that there was no provision in the trust deed for " re-transfer ", directly or indirectly, of any part of the income or assets originally....
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....d that the trust was created before April 1, 1961, but it does not appear from the orders of the ITO or the order of the AAC or the order of the Appellate Tribunal that the question as to whether the provisions of this trust deed should be considered in the light of 1922 Act or 1961 Act was agitated. Furthermore, we must observe that the question posed before us assumes that the controversy between the parties has to be resolved in the light of the provisions of the 1961 Act. Therefore, strictly perhaps it would not be right to embark upon the question as to whether the 1961 Act applied or the 1922 Act applied. But since this point was touched in the order of the ITO and since in resolving the contentions of the parties, refer had to be made to certain changes, which the Supreme Court has described as significant changes in the 1961 Act, it would be relevant to refer to the relevant provisions of both the 1922 Act and the 1961 Act. The relevant provision, as we have mentioned, of 1922 Act is the provision of s. 16(1)(c) of the Indian I.T. Act, 1922. Section 16 deals with the question how the total income of an assessee is to be computed and s. 16(1)(c), with its provisos, reads ....
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....st which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or (ii) made before the 1st day of April, 1961, which is not revocable for a period exceeding six years: Provided that the transferor derives no direct or indirect benefit from such income in either case. (2) Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income." " 63. 'Transfer' and 'revocable transfer' defined.-For the purposes of ss. 60, 61 and 62 and of this section, (a) a transfer shall be deemed to be revocable if (i) it contains any provision for the retransfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets; (b) 'transfer' includes any settlement, trust, covenant, agreement or ....
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....ts whether these were effected before or after the commencement of the Amendment Act of 1939. There, by certain deeds of trust and settlement dated 5th April, 1933, the assessee had settled the properties on each of his daughters with a provision reserving to himself powers to revoke the settlements or to make fresh dispositions as he deemed fit. For the assessment year 1939-40, the I.T. authorities had held that the income of the year 1938-39, derived from the assets comprised in the deeds, should be deemed to be the income of the assessee under s. 16(1)(c) of the Act, as amended by the Amendment Act of 1939 and this view was upheld by the High Court. It was held by the judicial Committee that the income from the properties were rightly deemed to be the income of the assessee under s. 16(1)(c) of the Act. There, delivering the opinion, Lord Thankerton observed at p. 223 of the report as follows: " In the first place, it is clear to their Lordships that under the express terms of section 3 of the Indian Income-tax Act, 1922, the subject of charge is not the income of the year of assessment, but the income of the previous year. This is in direct contrast to the English Income-tax....
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....bserved at p. 566 of the report, first, that the provision was amended from 1st April, 1971, and his Lordship set out the amended proviso to s. 13(1)(c) of the Act and thereafter his Lordship went on to say that the answer to the question referred to their Lordships would depend on the interpretation of the first proviso to s. 13(1)(c), as amended. Therefore, his Lordship was reiterating the proposition that the amended provision, viz., the provision which was applicable at the time of determination of the question, would be applicable, irrespective of the fact when the trust was created. His Lordship further went on to observe that the trust deed fell within the ambit of the controversy, if so, no fault could be found with the conclusion arrived at by the Tribunal. His Lordship further held that it was not disputed that the assessee-trust was created before the commencement of the 1961 Act. Then the contention that cl. 39 of the said trust deed could be seen as it existed before 1961 Act, was rejected as being without merit at p. 567 of the report. Therefore, in our opinion, read in the proper context, the observation of the Punjab and Haryana High Court, upon which learned advoca....
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....rust come within the mischief of s. 16. But that had been brought out by the 1961 Act. It appears that in the case of Hrishikesh Ganguly v. CIT [1971] 82 ITR 160, the Supreme Court made the following observations at pp. 164 and 165 : " The view expressed in the Ramji Kesavji's case [1945] 13 ITR 105 (Bom) was approved by this court in CIT v. Rani Bhuvaneshwari Kuer [1964] 53 ITR 195 at 201. In that case, the assessee, who owned an estate known as 'Takari Raj', created a trust with a view to liquidate the debts of Takari Raj. The beneficiaries under the deed were the settlor, her husband and her sons. It was declared that the settlement made was to be permanent and irrevocable but each beneficiary had full right to make any sort of arrangement about devolution or succession or make such alienation as was considered fit about his sharp. It was observed that two conditions were necessary for the application of the third proviso to s. 16(1)(c) : (1) that the trust should not be revocable for a period exceeding six years or during the lifetime of the beneficiary, and (2) the settlor or disponer should have no direct or indirect benefit from the income given to the beneficiary. The fo....
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....revocable and that the whole of the income was to be added to the income of the settlor because there was a reservation of a part of the income. The controversy arose in the context of the 1922 Act. The Calcutta High Court proceeded on the basis that in order to be revocable under the first proviso to s. 16(1)(c) of the 1922 Act, it was sufficient if the settlement, disposition or transfer contained a provision for the retransfer of a part of the income to the settlor, disponer or transferor and it was not necessary that there must be a provision for a retransfer of the entire income. The word " income " included, according to the Calcutta High Court, any part of the income unless there was anything repugnant in the context. The Calcutta High Court considered that the third proviso to s. 16(1)(c) did not explain the first proviso but it was a kind of a rider to an exception. Though, with very great respect, it appears to us that this was the correct view, yet this view was not upheld by the Supreme Court and the Supreme Court was of the view that the power to retransfer or reassume control over a part of the income or assets would not make the trust revocable. But the Supreme Court....
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.... 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 as 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. Mr. Desai says that if a settlor can derive some direct or indirect benefit under a trust deed, the trust deed would fall with in the first proviso. But the first proviso does not use these words. The words 'direct or indirect benefit' occur only in the third proviso. This court held in Commissioner of Income-tax v. Raghbir Singh [1965] 57 ITR 408 (SC) that although the settlor in that case obtained a benefit from the trust-payment of these debts the first proviso was not attracted." Relying on the aforesaid paragraph, learned advocate for the assessee, contended that in order to come within the mischief of prov. (1) to s. 16(1)(c) what was necessary was that there should be a provision to enable the settlor to take the income or assets outside the pro....
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....ectly' appearing in the first proviso to section 16(1)(c) must necessarily mean and qualify the words 'retransfer' or 'reassume'. Even if it is to be indirectly, then it has got to indirectly retransfer or reassume. Reading the above clauses of the trust deed set out above, it is impossible in our view to read them as a provision which `retransfers' the legal title from the settlor to himself as owner or which gives him a right to 'reassume' as owner. These clauses, in our view, are clauses of control and regulation of the administration of trust by the trustees. They appear under 'powers of the board of trustees', 'the number of trustees' and 'appointment, retirement and removal of trustees'. The language of these clauses and the context in which they appear do not give any right to the settlor to 'retransfer' the trust properties to himself as owner or to 'reassume' these trust properties for himself either directly or indirectly. Clause 12 quoted above is a clause relating to investment and the power of investment by the trustees. It is not a power to retransfer the trust properties or to reassume the trust properties for the settlor himself personally. Clause 12(e) relates to f....