CHAGLA, C.J. - The four assessees purported to settle certain properties on charitable objects by a trust deed dated 10th January, 1936, by a supplementary deed dated 10th March, 1937, and by a third deed dated 12th March, 1936. The trustees are given the power to utilise the net income on all or any of the charities which are enumerated in the trust deed and it is clear that some of the objects on which the trustees can spend the trust income are clearly non-charitable. Some of the objects are merely for the benefit and advancement of the family of the settlers and as it is open to the trustees to apply the whole of the trust income to an non-charitable object, it is clear that the trust is not a good and valid charitable trust. In view of this the Income-tax department sought to assess the income of this trust as the income of the settlers and Sir Jamshedjis contention before us is that although the trust deeds may be bad a charitable trusts, they are valid for other purposes and the income which the trustees received does not become the income of the settlers.
It is well established that when the objects of a trust wholly fail, a resulting trust comes into existence in favour of the settler and in this case, as the trust is bad as offending against the rule of perpetuity and also bad for uncertainty, the trustees hold these properties by reason of a resulting trust in favour of the settlers. The scheme of the Income-tax Act is that it is always open to the Income-tax authorities to assess a beneficiary direct. It is only under Section 41 in the cases enumerated in that section that it is competent to the taxing authority, instead of taxing the beneficiary, to tax the trustees. Section 4 itself makes it clear that the total income of any person includes all income, profits and gains from whatever source derived which are received or are deemed to be received in British India in such year by or on behalf of such person. Therefore, whether the income is received direct by the assessee or is received on his behalf, he is liable to be taxed under Section 4 of the Act, and in my opinion there can be no doubt that if there is a resulting trust in favour of the settler the income which the trustee receives is an income received on behalf of his beneficiary, viz., the settler.
It is contended by Sir Jamshedji that although some of the objects ma be bad as non-charitable objects, still they would be good as a private family settlement and would not offend against the rule of perpetuity so on as the beneficiaries to be benefited were those who were in existence at the date of the settlement and sir Jamshedji for this purpose relies on Section 15 of the Transfer of Property Act. Section 15, which is a provision radically different from the one to be found in English law, provides that if an interest is created for the benefit of a class of persons with regard to some of whom such interest fails because it offends against the rule of perpetuity, such interest fails in regard to those persons only and not in regard to the whole class. Therefore it is only when a whole class is sought to be benefited, then some of the members of that class may be incapacitated by reason of the rule of property. But in this case we have not any provision with regard to the benefit of a class. The trust deed attempts to benefit charitable and non-charitable objects and inasmuch as the court cannot compel the trustees to spend the whole of the trust income on charitable objects and the court becomes incapable of administering the trust the Court says that the trust is void on the ground uncertainty.
Sir Jamshedji has relied on a decision of this Court reported in Arur v. Commissioner of Income-tax. In that case two questions were raised, whether the income of a certain trust was held under trust or other legal obligation wholly for charitable purposes within the meaning of Section 4 (3) (i) and the other question was whether the income of the trust was taxable at the maximum rate under the first proviso to section 41 (1) of the Act, and the Court held that the trust was not a good charitable trust and that the income was taxable at the maximum rate under the first proviso to Section 41 (1). In delivering his judgment Mr. Justice Kania, at page 480, said that Section 14 of the Transfer of Property Act does not invalidate the settlement as a private settlement for the life of the beneficiaries in existence at the date of the transfer and he went on to say that those beneficiaries were determined, but having regard to the words used in clause (12) of the scheme it could not be said that the beneficiaries had any specified interest. In that case it was no ones contention that the trust having become void the settler should be assessed in respect of the income of the trust estate. Nor was it contended by either side that the trust was wholly void. The only contention was whether it was a charitable trust or not and the second question that arose was whether, if it was not a charitable trust, the income should be charged at the highest rate or whether sub-clause (1) of Section 41 did not apply. Therefore the whole argument proceeded on the assumption that notwithstanding the failure of the charitable trust the trustees continued in possession to administer the trust as a private family settlement and therefore, with very great respect, any observation made by Mr. Justice Kania cannot be binding on us when we consider the question from an entirely different aspect and an entirely different angle of view. In my opinion, therefore, the trust is bad as charitable trust. There is a resulting trust in favour of the settlers and the income which is received by the trustees is received on behalf of the settlers and the taxing authorities were right in assessing that income as part of the income of the settlers.
Question No. 1 has not been pressed by Sir Jamshedji and the answer to question No. 1 would be in the negative and question No. 2 in the affirmative. The assessees must pay the costs.
Reference answered accordingly.