1. This is a reference made at the instance of the assessee which relates to assessment years 1960-61 and 1961-62, the valuation dates being 31st March 1960, and 31st March 1961. The question that has been referred to us is as follows :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 53,549 and Rs. 53,225 or any part thereof, have been rightly included in the 'net wealth' of the applicant under Section 4(1)(a)(iii) of the Wealth-tax Act ?'
2. The short facts necessary for the purposes of disposing of the reference are that the settlor created two trusts by entrusting certain shares to the trustees, in respect of which the trustees executed two declaration of trust, which are almost in identical terms, and are both dated the 30th March, 1960. Under the said declarations of trust, one of which related to the settlor's minor daughter, Bharati, and the other to the settlor's minor daughter, Arti, the trustees declared that they held the said shares upon trust to utilize the net income of the trust estate and all accumulations of income and profits or the corpus for providing food, clothing, residence, education, medical attendance and treatment and marriage expenses till each of the said minor daughters attained the age of 21 years; and on each of them attaining the age of 21 years, the entire trust estate, along with the accumulations and accretions thereto, were to be handed over to each of the said minor daughters absolutely. Clause (4) of the said declaration of trust, however, laid down that nothing contained therein was to confer upon any of the beneficiaries any vested interest in the trust till the date of distribution mentioned therein.
3. The Wealth-tax Officer, by his order dated 31st December, 1960, took the view that the said settlements were not for adequate consideration, but were in the nature of gifts, and he, accordingly, included the value of the trust shares in the wealth of the assessee under section 4(1)(a)(iii) of the Wealth-tax Act, 1957. It may be stated that the value of the shares transferred to the trustees upon the trusts in favour of the settlor's minor daughter, Bharati, was assessed by him at Rs. 53,549 and the value of the shares transferred to the trustees upon the trusts in favour of the minor daughter, Arti, at Rs. 53,225, and by including the said two sums, he assessed the total wealth of the assessee at Rs. 8,33,526. On appeal by the assessee, the Appellate Assistant Commissioner confirmed the view taken by the Wealth-tax Officer, and the Tribunal, on further appeal by the assessee, also upheld the same on the grounds that the trustees were only carrying out the obligations of the assessee, and could, therefore, be taken to be discharging the assessee's liability as his agents, and there was no transfer to the beneficiaries in present. The Tribunal was of the opinion that if the assessee had retained those shares with himself and maintained his daughters, he would have been accountable to the wealth-tax authorities for paying tax in respect of them, and he could not by the device of transferring the shares to trustees, evade his liability for payments of wealth-tax thereon. It is from that order of the Tribunal that the present reference arises.
4. Section 4(1)(a)(iii) of the Wealth-tax Act, 1957, was, at the materials time in the following terms :
'4. (1) In computing the net wealth of an individual, there shall be included, as belonging to that individual -
(a) the value of assets which on the valuation date are held - ...
(iii) by a person or association of persons to whom such assets have been transferred by the individuals otherwise than for adequate consideration for the benefit of the individual, his or her spouse or minor child (not being a married daughter) or both,...'
5. It is clear that the said provisions does not state from whom the consideration must move. It was contended, in the first instance, by Mr. S. P. Mehta on behalf of the assessee that the consideration for the transfer of the shares by the assessee to the trustees in the present case was the obligations which the trustees undertook, in return, to carry out the objects of the trust. In my opinion, however, that submission of Mr. Mehta is clearly unsustainable in law. A references to Halsburry's Laws of England (3rd edition, volume 38, page 837 to 839, paras. 1405 to 1407) show that where a trust has been completely constituted, consideration is not necessary at all, but where a trust is not completely constituted,that is to say, where something remains to be done to perfect it, a court of equity complex its completion and execution if it has been created for valuable consideration, but not in it is purely voluntary and without considerations. It is further stated that there incomplete trusts which as regards some of the casuist que trust are for valuable consideration and as regards others are voluntary, will not be enforced in favour of the volunteers, and that where an incomplete trust in favour of a third persons is declared between a disposing party and another for valuable consideration, performance of the trust can be enforced at the suit of the other party to the declaration, but not at the suit of the third person. Similar observations are to be found in Keeton on the Law of Trusts, 9th edition, pages 84, 85 and 87, where it is clarified that a trust is completely constituted, (1) if the property is conveyed to trustees, or (2) if the settlor declares himself a trustee of it in which case no transfer of the trust property by the settlor would be necessary. These statements of the law in Halsbury as well as in Keeton shows that the question of consideration which may arise in respect of an incomplete trust is only qua the casuist que trust and not qua the trustees. If the contention of Mr. Mehta that the undertaking of the obligations to carry out of the trust is the consideration for the transfer of the trust property by the settlor to the trustees was to be accepted, the result would be that there would be consideration in the case of every trust, a position wholly inconsistent with statements of the law in Halsbury as well as in Keeton referred to above. What is more, it is difficult to understand how such an obligations can be said to be valuable consideration or consideration in money or money's worth within the terms of section 4(1)(a)(iii) of the Wealth-tax Act. Mr. Mehta's contention that the obligations which the trustees have undertaken to carry out the trust in the present case constitutes 'adequate consideration' within section 4(1)(a)(iii) of the Wealth-tax Act must, therefore, be rejected.
6. It was then sought to be contended by Mr. Mehta on behalf of the assessee that the giving up by the minors daughters of their right to maintenance as a result of which the assessee was relieved of his obligations to maintain his minor daughters was the considerations for the same. I, however, fail to see how the assessee could be said to have been relieved of his obligations to maintain his minor daughters by reason of the creation of the said two trusts. That obligation is a personal obligation which the law governing the parties imposes upon the assessee as the father of his minor daughters, and he cannot, by any voluntary and unilateral act of his own, get rid of that legal obligation. Nor, in my opinion, can the minors, who are in law incompetent to contract, give up any such right so as to relieve that father of that legal obligation. Reliance was sought to be as to be placed by Mr. Mehta in support of his contention on this point on the decision of the Kerala High Court in the case of S. Viswasom v. Commissioner of Income-tax : 50ITR503(Ker) in which the parties were Christians, and a settlement of properties was made by a father in favour of minor children in order to fulfill his legal duty to maintain and educate them, and it was held (at page 507) that such a transaction had to be considered to be one supported by adequate consideration. It must, however, be noted that in the said case the department did not contend that the documents was devoid of consideration, but the dispute seemed to have centered only round the adequacy of consideration, in regard to which the Kerala High Court held in favour of the assessee on the facts and figures before it. This case was disapproved by the Kerala High Court itself in its later Full Bench decision in the case of Commissioner of Income-tax v. P. M. Paily Pillai : 86ITR516(Ker) in which it was pointed out that the court had in Viswasom's case : 50ITR503(Ker) proceeded on the erroneous assumption that there was a legal obligation on the part of a Christian father to support his minor son. On the facts before it, the Full Bench held (also at page 519) that the transfer by way of a trust executed by the father in favour of his minor son in the case before them 'can only be in the nature of a gift, for the son has not conferred any benefit on the father in return, and what is more important, has not suffered any detriment'. Both these decision of the Kerala High Court were considered by a Division Bench of Madras High Court in the case of M. S. M. Ratnaswami Nadar v. Commissioner of Income-tax : 100ITR669(Mad) in which the facts were very similar to the facts of the present case, in so far as a Hindu father maintained separate accounts of the income from the trust properties and debited the educational expenses of his minor children in those separate accounts, and a similar question arose in regard to Section 16(3)(a)(iv) of the Indian Income-tax Act, 1922. The Madras High Court proceeded to decide the question which was referred to it on the basis that the documents was executed for the purposes of providing the educational expenses and maintenance of the minor children (at page 674). After referring to the two Kerala High Court cases discussed above, the Madras High Court held (at pages 677) that they were unable to hold that the by executing the trust documents, the assessee was relieved of his obligation to maintain his minor children which was a statutory obligations under the Hindu Adoptions and Maintenance Act. It proceeded to observe that it the trust property was lost, or did not yield any income, the assessee could not plead that he was not liable to maintain the son any longer; nor could the minor relieve himself of his right to be maintained by any contract with the father, as such a contract would not be binding on him. The court further pointed out that, at best, the settlement amounted only to a provision for maintenance, that even without such settlement, the assessee could have appropriate the income from the properties settled for the maintenance and educational expenses of the minor sons, and that by adopting the device of making those settlements, though the assessee derived the enter income, and spent it for his own legal obligations, he wanted to escape the liability to tax on that income. The Madras High Court was, therefore, of opinion that the income derived from the properties settled was liable to be included in the total income of the assessee under Section 16(3)(a)(iv) of the Indian Income-tax Act, 1922. I agree with the view taken by the Madras High Court in M. S. M. Ratnaswami Nadar's case : 100ITR669(Mad) and hold that be creating the trusts in the present case, the assessee has not been relieved of his obligations to maintain his minor daughters until they are married, and to provide for their marriage expenses, an obligation which the law imposes upon him. I am also in agreement with the view taken by the Madras high Court in the said case that, at best, the settlement amounts only to a provision made by the settlor for the maintenance of his minor children.
7. It was lastly contended by Mr. Mehta that, at any rate, in view of the provisions of section 23(2)(d) of the Hindu Adoptions and maintenance Act, 1956, the right of each of the minor daughters to claim maintenance from the settlor stood reduced to the extent of the benefit to which each of them was entitled under their respective trust deeds. I am afraid, that contention ignores the basis concept of consideration, in so far as the effect or the result of the creation of the trust by reason of the operation of law, viz., the reduction in the quantum of maintenance that the minor daughters would be entitled to get by reason of section 23(2)(d) of the Hindu Adoptions and Maintenance Act, 1956, cannot be called the consideration for the creation of the trust. Consideration must be something by way of a return or detriment moving voluntarily from a party in whose favour or for whose benefit something has been done by the other party to the transactions. There is absolutely nothing which the minor daughters in the present case have been done in return for creation of the said trusts by the assessee, nor have they suffered any detriment in return for the same. There is, therefore, in my opinion, no consideration, leave alone adequate consideration moving from the minor's in return for the creation of the two trusts by the assessee in the present case.
8. In the result, I hold that the trusts created and declared in the present case were not transfers for adequate considerations within the terms of section 4(1)(a)(iii) of the Wealth-tax Act, 1957, and that the property which is the subject-matter of those trusts is liable to be included in the net wealth of the assessee, as on the respective valuation dates, and the question referred to us must be answered accordingly.
S.K. Desai, J.
9. I agree and have nothing to add.
10. BY THE COURT. - Question answered in the affirmative and in favour of the commissioner. The assessee to pay the Commissioner costs of the reference.