1. This is a reference under section section 66(1) of the Indian Income-tax Act, 1922, and the following question has been referred to us by the Income-tax Appellate Tribunal :
'Whether, on the Tribunal's finding that the Ferreira Mansion was actually constructed and owned by Dr. Ferreira, the assessee could be assessed in respect of the income thereof for the relevant accounting years in view of the consent decree dated 11th April, 1960 ?'
2. Although the statement of case refers to four assessment years, we are really concerned with the two years 1956-57 to 1957-58 only, the corresponding accounting period being the years ended on 31st March, 1956, and 31st March, 1957, respectively.
3. The assessee is one Mrs. Maltida Ferreira (nee Fonseca). On 21st March, 1923, the assessee's father settled certain properties in trust. The trustees were directed to collect all the rents and profits and to pay therefrom all the costs incidental to the collection thereof and to pay the net income to the settlor for and during his lifetime and up to his death. Clauses 5 and 6 of the deed of settlement in fact made provision for the two daughters - the assessee and her sister, Cecilia. The Tribunal has in the statement of case set out fully clause 8 of the said deed of trust inasmuch as it gave rise subsequently to various proceedings in the High Court; but it is unnecessary in our opinion to set out the same in this judgment. It may only be mentioned that it was contended that the said provisions was in contravention of the rule against perpetuity and hence void. The settlor died on 12th February, 1927. After his death, by a deed, dated 23rd January. 1928, the assessee's husband was appointed as trustee of the trust. The assessee's husband, Dr. John Ferreira, purchased a property from one Narayan Pai by a deed dated 10th April, 1931. By another document dated 19th April, 1933, the said Dr. Ferreira took on assignment a piece of land from the Bombay Municipal Corporation which was adjacent to the property purchased by him from Narayan Pai. Dr. Ferreira had also purchased a property from the trustees some time in the year 1932, but the conveyance was not immediately executed and it was executed only on 15th December, 1949, by the then trustees of the trust. By the time this conveyance was executed, Dr. Ferreira had already put up a building on the plot taken on assignment from the Municipal Corporation as also on that taken on assignment from the trustees. The cost of the building had been substantially met by Dr. Ferreira by borrowing a sum of Rs. 2,50,000 from the trust. On 15th December, 1949, Dr. Ferreira executed a deed of mortgage in favour of one Kilachand and one of the securities given under the said deed of mortgage was the Ferreira mansion. Additional loans were also subsequently taken. Ultimately, on 18th July, 1953, the mortgagee released Ferreira mansion from the mortgage in consideration of Dr. Ferreira giving other properties in substitution as security. On 19th July, 1953. Dr. Ferreira conveyed the said building to his two sons. It may be mentioned in passing that in respect of the loans taken, Dr. Ferreira had signed several promissory notes and similarly he had also executed various agreements with various parties for the purpose of having the said building constructed.
4. The income from this property, Ferreira mansion, was, without being assessed, in the hands of the assessee (i.e., Dr. Ferreira's wife) up to the assessment year 1949-50. It was contended that this was on account of a misunderstanding on the part of Dr. Ferreira that only one assessment was to be made on the income of the husband and wife and there was also a mistake on the part of the Income-tax Officer and the assessee. Affidavits were filed before the revenue authorities and the case of Dr. Ferreira was accepted, and from 1950-51, the income from the property was being assessed as that of Dr. Ferreira. The order of assessment, a portion of which has been extracted by the Tribunal, clearly indicates that after verification the claim of Dr. Ferreira that there had been a misunderstanding and a mistake has been accepted and found to be correct.
5. In 1954 a suit was filed by the married daughter of the assessee, being Suit No. 419 of 1954, on the Original Side of the Bombay High Court. At some stage there was an agreement between the parties that the scope of the suit should be restricted to one issue, viz., whether clause 8 of the trust deed offended the rule against perpetuity. This point was agreed to be decided by the court on an originating summons to be taken out by the parties. An originating summons was accordingly taken out subsequently. The trial court accepted the contention of the assessee that clause 8 was invalid. In appeal, however, by a judgment dated 10th April, 1958, it was held by a Division Bench that the trust comprising the deed of settlement was not invalid and that clause 8 did not offend the rule against perpetuity and was accordingly valid. As the proceeding by way of originating summons came to be concluded by the decision of the court of appeal, a consent decree was taken in Suit No. 419 of 1954, which was a decree dated 11th April, 1960. A copy of the said consent decree has been annexed as annexure 'M' to the statement of case submitted by the Tribunal.
6. Thereafter, the Income-tax Officer concerned took the view that this consent decree had made it clear that the transfer of the properties including Ferreira Mansion was void and inoperative and the same had been cancelled and the breaches committed by the trustees had been condoned. Accordingly, he concluded that the property always belonged to the assessee and the income from the same was liable to be assessed in the hands of the assessee. He considered this income as having escaped assessment and for the two years in question (with which we are not concerned) he invoked the provisions of section 34(1)(a) and for the two years in question (with which we are concerned) he invoked the provisions of section 34(1)(b) and held that the income as disclosed in the original assessment was liable to be enhanced by the income from this immovable property. We are not concerned with the amount added.
7. Being aggrieved by the decision of the Income-tax Officer the assessee preferred appeals to the Appellate Assistant Commissioner. Various contentions were advanced before the Appellate Assistant Commissioner, who, however, considered the action under section 34(1)(a) as well as under section 34(1)(b) to be justified. Accordingly, the appeals were rejected. The matter was thereafter carried to the Tribunal. Three contentions were advanced on behalf of the assessee before the Tribunal : (i) that action under section 34(1)(a) for the first two years and under section 34(1)(b) for the other two years was unjustified and unsustainable; (ii) that the doctor was the owner of the property all along, and (iii) that the settlement could not in any event have the effect of altering the past.
8. As far as the second contention was concerned, the Tribunal has dealt with the various aspects relevant and pertaining to the case in paragraph 34 of its order. After marshalling various pieces of evidence, mainly documentary, the Tribunal has observed : 'Therefore, the entire evidence would lead only to one conclusion, viz., that the doctor was the owner of the property till it was declared as trust property by the consent decree dated 11th April, 1960'. It went on to state that there was not a title of evidence to show that the trust was the owner of the property. According to the Tribunal, there was also nothing to indicate that Dr. Ferreira was a benamidar of the trust and that the findings of the departmental officers on this aspect of the matter were based on mere conjectures and on wrong premises based upon no materials.
9. As far as the first contention of the assessee was concerned, the Tribunal opined that action under section 34(1)(a) was clearly unjustified and illegal. However, so far as the latter two years (with which we are concerned), the Tribunal upheld the applicability of section 34(1)(b).
10. On the merits, however, the Tribunal accepted the third and the last contention which had been advanced before it by counsel for the assessee. The question considered by it was whether by reason of the settlement which resulted in the consent decree dated 11th April, 1960, the position as regards ownership got altered, and, if so, whether with retrospective effect. In paragraphs 39 and 40 of the impugned order the Tribunal has dealt with this aspect of the matter. In paragraph 39 it has considered the consent terms and the scope of the particular clause of the consent decree. In paragraph 40 it has emphasised that this was a settlement - a declaration obtained by the court as a result of agreement between the parties. It has expressed the view that all these declarations were by reason of act of parties and could, therefore, take effect only from the date of the consent decree and cannot have the effect of altering the past.
11. In view of the clear finding given by the Tribunal as to ownership of the property which has been categorically and unequivocally declared to have belonged to Dr. Ferreira till the date of the settlement, it is impossible to hold that the view taken by the Tribunal of the effect of the consent terms is erroneous or improper or illegal. Bearing in mind the several clauses of the consent terms, which need not be gone into in detail, the background of the litigation, the relationship of the contesting parties in the suit and the opinion expressed by the Tribunal in paragraph 38 of its order that all these proceedings were bona fide, it appears to us that there was a compromise and not a declaration of a clear, patent and obvious legal position. In view of this compromise Dr. Ferreira agreed with his daughter and wife that what was his would thenceforth belong to and be deemed to be the property of the trust. Once that position is realised, it will have to be agreed that the effect of the settlement would be only prospective and not retrospective.
12. In the result, the question referred to us is answered in the negative and in favour of the assessee. The Commissioner will pay to the assessee the costs of this reference.