Commissioner of Income Tax vs Smt. Indu Bala Sen Trust

Shambhu Prasad Singh, J.—By a common order dated the 26th February, 1970, the Income Tax Appellate Tribunal, Patna Bench, Patna (hereinafter referred to as "the Tribunal") has stated the case and referred the following two questions to this court in Nos. 114 and 115 (Patna) of 1968-69 for the assessment years 1961-62 and 1962-63 :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in infusing the idea of tenancy-in-common of Dayabhaga law in the instant trust deed or the same has to be interpreted on its own terms and provisions ?

(2) Whether, on the facts and circumstances of the case, the Tribunal had rightly held that the shares of the beneficiaries were determinate and, therefore, the 1st proviso of Section 41(1) of the Income Tax Act, 1922, was not applicable ?"

The assessment related to the same subject-matter for the aforesaid two successive assessment years. Hence, a common reference was made in both the cases.

Smt. Indu Bala Sen, widow of late Shri Ashutosh Sen, executed a deed of trust dated the 2nd January, 1956, for the immediate benefit of her two sons, Satipati Ashutosh Sen and Trambak Ashutosh Sen, and two daughters, Anuba Sen and Anita Sen. For the time being the trust was created in respect of a sum of Rs. 50,000 only and the sum was made available to the trustees on the 23rd April, 1958. The first trustees were late Shri P.R. Das, Bar-at-law, and Shri Ujjal Narain Sinha, Bar-at-law, and a third one from among the members of the family of the settlor to be appointed by them. It is not in dispute that Smt. Indu Bala Sen had four sons and four daughters and the family is governed by the Dayabhaga school of Hindu law.

A question arose before the Income Tax Officer whether the assessment was to be made in respect of the income from the trust in the hands of the trustees as association of persons under the first proviso to Section 41(1) of the Indian Income Tax Act, 1922 (Section 164 of Income Tax Act, 1961), hereinafter referred to as "the Act" or the shares of the beneficiaries, i.e., the aforesaid two sons and two daughters, were determinate and they were to be assessed separately in respect of their shares in the income of the trust. It was contended on behalf of the trust, the assessee, that the shares of the beneficiaries, namely, the two sons and two daughters, were determinate and the assessment should be made in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf the profits and gains were receivable.

The Income Tax Officer did not accept the aforesaid contention holding that the shares of the beneficiaries were not determinate and it was a case for assessment under the first proviso to Section 41(1) of the Act in respect of the income of the trust in the hands of the trustees as association of persons. The Appellate Assistant Commissioner also upheld the assessment and dismissed the appeals of the assessee. When the matter came up before the Tribunal, it examined the matter at length and summed up the position as follows :

(1) The conception of joint tenancy is unknown in Hindu Law except in the case of Mitakshara school;

(2) In the case of Dayabhaga school, the property held by more than one member of a Hindu family, must be held to be of the nature described as tenancy-in-common;

(3) For such a property the shares of the beneficiaries in the estate or beneficial interest in the case of a trust must be held to be determinate; and

(4) Even In case of no express mention in the deed of trust, it should be held that the shares of the beneficiaries are equal.

The Tribunal, therefore, held that the Income Tax Officer and the Appellate Assistant Commissioner had erred in applying the first proviso to Section 41(1) of the Act to the case. Thereafter, the Commissioner of Income Tax, Bihar, prayed for reference to this court and the Tribunal has made the reference on those applications.

The Tribunal while allowing the appeals of the assessee referred to various authorities cited before it before coming to the above-quoted conclusions, but at the same time held that the authorities were not exactly to the point and it was a case of first impression. The matter was also argued before us at some length by Mr. Jagdish Sahay appearing on behalf of the department in support of the reference and Mr. J. C. Sinha on behalf of the assessee-trust. The answers to the questions referred to this court do not really depend on the interpretation of the provisions of Section 41(1) of the Act. Therefore, it is not necessary to quote or refer to the provisions of that section. The answers to the questions referred depends on the answer to the question whether the share of the beneficiaries named under Sub-clause (i) of Clause (1) of the trust deed, which will be quoted hereafter, is determinate or indeterminate. Answer to this question has to be arrived at with reference to the general law on the subject and interpretation of the trust deed itself. Both Mr. Jagadish Sahay and Mr. J. C. Sinha conceded that :

(i) when any interest is held by more than one person, except in the case of a Mitakshara coparcenary, such persons will ordinarily be tenants-in-common and not joint tenants and their shares in the property will be determinate ; and

(ii) it will also be so in case the interest is created by a deed unless on the construction of the terms of the deed it appears that the intention of the person executing the deed was not to create a tenancy-in-common and define the shares of the persons in whose favour the deed created the interest.

They, however, differed from each other on the interpretation of the trust deed. According to Mr. Sahay, it was manifest from the terms of the deed that the share of the aforesaid two sons and two daughters of Smt. Indu Bala Sen was not determinate and it was not a case of tenancy-in-common. On the other hand, according to Mr. J.C. Sinha, the trust deed created interest similar to tenancy-in-common in favour of the aforesaid two sons and two daughters and their shares must be held to be determinate.

The portion of the trust deed which is relevant for the decision of the case is Clause (1) thereof, which reads as follows :

"(1) We the trustees and trustee for the time being of these presents shall stand possessed on the said sum of Rs. 50,000 (rupees fifty thousand only) and such other sum or sums as may be handed over to us by the settlor (hereinafter called the "trust fund") UPON TRUST to invest it in the purchase of the land and to erect buildings in any part of India and to let out the same in whole or in part for such period and upon such terms and conditions as the trustees shall consider proper and to hold such investments upon the following trust, namely :

(i) The trustees shall apply the income of the trust fund for or towards the maintenance and education of Satipati Ashutosh Sen, son of the settlor during his life and for the maintenance or Trambak Ashutosh Sen during his life and the settlor''s two daughters, namely, Anuba Sen and Anita Sen, until their death or marriage whichever shall first happen and shall accumulate the surplus if any of such income by investing the same in any of these investments hereinafter mentioned and shall hold the same as an accretion to the trust fund provided that on the death or marriage of the said Anuba Sen and Anita Sen the income of the trust fund shall be applied by the trustees for or towards the maintenance of the said Trambak Ashutosh Sen and Satipati Ashutosh Sen.

(ii) After the death or marriage of the said Anuba Sen and Anita Sen and on the death of the said Trambak Ashutosh Sen and Satipati Ashutosh Sen the trustees shall hold the capital and income of the trust fund in trust absolutely for the sons or son of the settlor''s sons, namely, Flt./Lt. Shanker Ashutosh Sen, Trambak Ashutosh Sen, Umapati Ashutosh Sen and Satipati Ashutosh and if more than one in equal shares.

(iii) If the said Flt./Lt. Shanker Ashutosh Sen, Trambak Ashutosh Sen, Umapati Ashutosh Sen and Satipati Ashutosh Sen shall die leaving no son, the trustees shall hold the trust fund and the accumulations and income thereof or so much thereof, respectively, as shall not have been applied under the trusts and powers hereinbefore contained in trust for the heirs of the settlor absolutely."

In my opinion, the contention of Mr. Sahay has to be accepted and that of Mr. Sinha to be rejected. It is apparent from Sub-clause (i) of Clause (1) of the deed that Smt. Sen did not intend that each one of her two sons and two daughters should have equal, i.e., 1/4th, or even definite share in the income of the trust and that should vest in them. She merely conferred upon one of her sons, Trambak Ashutosh Sen, and the two daughters a right to be maintained out of the income of the trust and on the other son, Satipati Ashutosh Sen, a right to be maintained as well as to be educated out of the income of the trust. Three of the beneficiaries were granted merely a right of maintenance whereas the 4th one was granted a right of maintenance as well as education. Prima facie, more money would have to be spent by the trustees on him than on the other three. It follows from that that it was not the intention of Smt. Sen that all the four immediate beneficiaries should derive equal benefit from the income of the trust. That apart, the most important term in Sub-clause (i) of Clause (1) which demolishes the contention of Mr. Sinha is that the trustees were to accumulate the surplus, if any, "after meeting the expenses on the maintenance of Trambak Ashutosh Sen and of the two daughters and maintenance and education of Satipati Ashutosh Sen" by investing the same in any of these investments hereinafter mentioned and the trustees were to "hold the same as an accretion to the trust fund". Had the intention of Smt. Indu Bala Sen been to determine the share of her aforesaid two sons and two daughters in the income of the trust there could be no question of accretion to the trust fund of surplus, if any, after meeting the expenses over their maintenance and education.

Sub-clause (a) of Clause (1) also supports the aforesaid interpretation of the terms of the deed, for, after the death or marriage of the aforesaid two daughters and the death of the aforesaid two sons, the income of the trust fund was to be held by the trustees for the absolute benefit of the sons or son of all the four sons of Smt. Indu Bala Sen and if the sons or son of the four sons were more than one, then the benefit was to be derived by them in equal shares. It is remarkable that accretion to the trust fund on account of surpluses, if any, as stated in Sub-clause (i), was not to go to the heirs of the two daughters and two sons mentioned therein according to their share, i.e., 1/4th each, but it was to go to the sons or son of the four sons of Smt. Indu Bala Sen existing after the death of the last surviving beneficiary named in Sub-clause (i). It is also important that while in Sub-clause (ii) it is expressly stated that the beneficiaries named therein, namely, the sons or son of the four sons were to get the income of the trust fund in equal shares, it is not so stated in Sub-clause (i). After having given my most anxious consideration to the question of interpretation of the terms of the deed, I am of the view that the trust deed did not create any tenancy-in-common in favour of the immediate beneficiaries named in Sub-clause (i) of Clause (1); rather, three of them got a mere right of maintenance and one the right of maintenance and education out of the income of the trust. Their shares were not defined or determined and they could not claim that each one of them had a right to get 1/4th of the income of the trust spent over him.

Law discussed and conclusions arrived at as to the interpretation of the terms of the trust deed in the preceding paragraphs are themselves sufficient for answering the two questions referred by the Tribunal for the opinion of this court, but as learned counsel for the department as well as the assessee cited before us some authorities in support of their respective contentions, I also propose to refer briefly to them. In support of his contention Mr. Sinha relied on the following decisions: SRI SRI JYOTISHWARI KALIMATA AND OTHERS Vs. COMMISSIONER OF INCOME TAX, BIHAR and ORISSA., ., Visheswar Singh Vs. Commissioner of Income Tax, ., COMMISSIONER OF Income Tax, WEST BENGAL Vs. PULIN BEHARI DEY., . and COMMISSIONER OF WEALTH-TAX ANDHRA PRADESH Vs. TRUSTEES OF H. E. H. NIZAMS SUPPLEMENTAL FAMILY TRUST., .. In Jyotishwari Kalimata''s case a Bench of this court held that the deities in each separate group for whose benefit the settlor created a trust by two deeds of the same were to be assessed separately as their shares were well-defined in law. Paragraph 7 of the trust deed of that case clearly stated that the trustee or shebait would make an account of the income and expenditure of the trust properties at the end of the Bengalee month of Chaitra, and if there was balance out of the income after meeting the expenses described then the balance would be held by him in trust for use and benefit of the deities or thakurs and would form part of the corpus of the trust properties respectively dedicated to the deities or thakurs as aforesaid. Manohar Lall, Acting C.J., who spoke for the court, emphasised the use of the words "respectively dedicated" and observed that these words made it clear that the excess of the income over the expenditure belonged to that particular deity from whose income the balance was derived and was in the hands of the trustee. This case is of no help to the assessee inasmuch as here, as noticed earlier, the surplus, if any, was not to belong to any of the beneficiaries concerned but was to be an accretion to the trust fund for the benefit of remote beneficiaries named in Sub-clauses (ii) and (iii) of Clause (1) of the trust deed.

In Raja Bahadur Visheshwar Singh''s case, another Bench of this court held that the share of the beneficiaries-deities was determinate not only in respect of schedule B properties as held by the Tribunal, but it was also determinate with regard to income from property mentioned in schedule C of the trust deed. Sarjoo Prosad J., who delivered the main judgment, relied on the earlier Bench decision of this court in Jyotishwari Kalimata''s case, already referred to above. Shearer J, agreed with Sarjoo Prosad J., though he added that he was inclined to doubt the correctness of the decision in Jyotishwari Kalimata''s case and when a suitable occasion arose it might have to be reconsidered, Be that as it may, this decision does not support the case of the assessee any further than the decision in Jyotishwari Kalimata''s case.

In Commissioner of Income Tax v. Pulin Behari Dey, Harries C.J. of the Calcutta High Court held that where a Hindu made a gift or bequest to two Hindus without a specification of shares, they took in equal shares as tenants-in-common and not as joint tenants and that a deity being a juristic person in Hindu law the same rule should be applied to a gift or bequest to two deities without a specification of shares. He relied on the Bench decision of this court in Jyotishwari Kalimata''s case and also referred to various other decisions. The learned Chief Justice in that case had to interpret a trust deed created by the settlor and also a will made by his wife. In the will the charitable purposes were set out and after the payment the executors and trustees of the will were to spend the remainder of the rents and profits on the worship of the two idols for whose benefit the trust was created. The learned Chief Justice emphasised this aspect of the matter and observed that "in the will the executors were given an absolute discretion in applying the property for certain objects, but they are given no discretion as to how the remainder of the income is to be applied ; that is to be applied to the maintenance and the worship of the two deities."

In the instant case, as observed earlier, there is a direction in the trust deed as to how the remainder (surplus) of the income of the trust is to be applied; it was to be held as accretion to the trust fund by the trustees.

The decision in Commissioner of Wealth-tax v. Trustees of H. E. H. Nizam''s Supplemental Family Trust also does not support the assessee''s contention in the case before us. There the trust deed provided for accumulation of income of the trust properties and prohibited distribution of the income during the lifetime of the settlor. It was provided that after his death the beneficiaries would be entitled to the income in certain definite shares. The deed also provided that, in the event of any of the beneficiaries not surviving the settlor, his or her share would devolve according to his or her personal law. It was held that the provision for accumulation of the income and postponement of enjoyment during the lifetime of the settlor did not deprive the beneficiaries of their rights in the income and as the trust deed in that case definitely fixed the shares of the beneficiaries, the provisions of Section 21(4) of the Wealth-tax Act were not applicable. The provisions of Section 21 of the Wealth-tax Act are in pari materia with the provisions of the Act under consideration in the case before us. If we were considering the nature of interest of the beneficiaries named in Sub-clauses (ii) and (iii), the decision would have been quite relevant, but is of no help to the assessee in considering the nature of interest of the beneficiaries named in Sub-clause (i). P. Jaganmohan Reddy C.J. (as he then was) in his judgment emphasised :

"It is not necessary to refer to any cases because the question is one which depends on the terms of the trust deed."

Mr. Jagdish Sahay relied on the following decisions: PANCHANAN DAS Vs. COMMISSIONERS OF Income Tax, WEST BENGAL., ., Commissioner of Income Tax, Kerala and Coimbatore Vs. Puthiya Ponmanichintakam Wakf Manager P.P. Ayesha Bi Bi, . and Commissioner of Wealth-tax, Bihar and Orissa Vs. Kripashankar Dayashanker Worah, .. The decision in Panchanan Das''s case was also given by Chief Justice Harries. There by an arpannama the settlor created a trust in which three deities--Sri Sri Durga Mata, Sri Srilakshmi Mata and God, Sri Sri Krishna Param Pravu, were made beneficiaries. The settlor contemplated an annual income of Rs. 2,000 from the trust properties and provided that out of the income, Rs. 1,200 should be spent on the Durga Puja, Rs. 200 on the Lakshmi puja and Rs. 600 on the Dolo lila festival which was the only festival in connection with Sri Sri Krishna Param Pravu performed by the dedicator. It was contended on behalf of the assessee that the provisions as to the precise amounts which had to be spent on the various festivals showed that each of the deities was given a determinate share in the income. Reliance was also placed on a provision in the deed that if the income was greater or less than Rs. 2,000 these shares were to be increased or decreased proportionately. But there was also a provision in the deed permitting the shebait to alter these amounts at his discretion and, relying on that, the learned Chief Justice held that the taxing authorities were right in holding that the shares of the deities were indeterminate.

In Commissioner of Income Tax v. Puthiya Ponmanichintakam Wakf, it was held by the Supreme Court that as according to the wakf deed distribution of family income and family expenses was left to the discretion of mutawalli and the mutawalli was to save sufficient amount for purchasing properties it was a case of indeterminate shares of beneficiaries within the meaning of proviso (i) to Section 41(1) of the Act. On the interpretation of the deed it was found that no specified share of the income was given to any of the beneficiaries and their right was nothing more than to be maintained having regard to their reasonable requirements which were left to the discretion of the mutawalli.

The trust deed under consideration in Commissioner of Wealth-tax v. Kripashankar Dayashanker Worah in its sub-paragraph 4 provided that in the event of the settlor predeceasing his wife, the shares and securities mentioned in schedule 7 were to be made over to his wife to be enjoyed by her as her absolute property, provided that if the settlor predeceased his wife before the marriages of the two unmarried daughters had been performed, the trustee was to retain out of the shares and securities mentioned in the said schedule sufficient number of shares for the purpose of meeting the marriage expenses of the said two daughters or either of them, as the case may be. Sub-paragraph 5 thereof provided that after the marriage of both the daughters and/or after the death of both of such daughters, whichever happened first and also after the death of the settlor''s wife and the attainment of majority of both the minor sons, the trustee was to hold the trust estate for the absolute use and benefit of the two sons, Harsukhrai and Chandrakant. It was further provided that the intention of the settlor was that subject to the trust thereby created, the said two minor sons would take a vested interest in the trust estate. Under Clause (4) of the said deed provision was made for the residence of the settlor, his wife and the minor children free of rent in the part of the trust properties described in Schedule 8 until the determination of the trust as aforesaid. Before the first valuation date both the daughters had been married and the two sons had attained majority. It was contended before the Supreme Court on behalf of the assessee that the share of the beneficiaries in the trust was not indeterminate. The Supreme Court rejected this contention and allowed the appeal of the department holding that on the relevant date the shares of the beneficiaries were indeterminate and the trustee had to be assessed u/s 21(4) of the Wealth-tax Act as it stood at the relevant date.

True it is that the facts of the cases relied on behalf of the department are not exactly similar to the facts of the case before us, but it is difficult to have two deeds of trust or gift having exactly similar provisions and each deed has to be interpreted according to the language used therein. The two Supreme Court decisions referred to above are, however, cases in which it has been held that where the beneficiaries have got a mere right to be maintained or educated, their shares are indeterminate. In my opinion, on the language used in the trust deed under consideration in the case before us there can also be no doubt that under it one of the sons of Smt. Indu Bala Sen has a mere right to be maintained and educated and the other son and two daughters named in Sub-clause (i) of Clause (1) thereof have a mere right to be maintained out of the income of the trust fund. Their shares in the income of the trust property, in my opinion, cannot be held to be determinate. It has to be held to be indeterminate.

I would, accordingly, answer the two questions referred to this court as follows :

Question 1:

The Tribunal is not right in infusing the idea of tenancy-in-common of the Dayabhaga school of Hindu law in the instant trust deed ; the same has to be interpreted on its own terms and provisions.

Question 2:

The Tribunal has not rightly held that the shares of the beneficiaries were determinate and, therefore, the first proviso to Section 41(1) of the Act was not applicable; the shares of the beneficiaries named in Sub- clause (i) of Clause (1) of the deed were indeterminate and the first proviso to Section 41(1) of the Act was applicable to the case.

In the circumstances of the case, however, there will be no order as to costs.

Lalit Mohan Sharma, J.

I agree.