STONE, C.J. - This reference, which is made under Section 66(1) of the Income-tax Act, raises a short point involving the construction which is to be put upon a settlement dated 18th September, 1940, and the application to it of Section 41 of the Act. The settlement is a voluntary settlement made by a father for the benefit of his wife, his four sons and three daughters. It is a settlement of real estate with a power to convert it and invest the proceeds of sale. Clause 3, which contains a definition of the trust premises, is in these terms :-
'In consideration of the premises the trustees hereby covenant with the settlor that they the trustees shall stand possessed of the said land hereditaments and premises described in the Schedule hereunder written and hereinbefore expressed to be hereby granted conveyed transferred and assure and the net sale proceeds thereof if and when sold and the investments for the time being representing the same (all which said premises the net sale proceeds and the investments are hereinafter for brevitys sake called the trust premises) and the income thereof.....'
Then the paragraph goes on to set out the different trusts. Clause 5 is the clause which deals with the income and after providing that the trustees shall collect the income and pay out of the gross income certain expenses, it continues as follows :-
'.....and shall subject to the payments aforesaid pay every month out of the said net income profits or dividends a sum equivalent to 60 per cent. of the net income but not exceeding Rs. 400 to the said Yakub Versey Laljee to be utilised and spent by him for the maintenance of his wife and for the maintenance, education and other comforts of his said children (whom he mentions by name) and to accumulate and invest the surplus until the youngest of the said sons Ramzanally who is at present of age 5 years shall attain the age of 21 years.....'
Clause 6 provides for the daughters marriage portions and the next clause provides for the ultimate distribution and is as follows :-
'It is hereby further agreed and declared that on the said youngest son of the settlor attaining the age of 21 years the trustees shall realise the trust premises and pay thereout Rs. 7,000.......(to the wife of the settlor) and subject to the provision of clause 6 (i.e., daughters portions) set apart such sum or sums as may be necessary to yield as income at least Rs. 25 for the maintenance education and other comforts of such of the said (daughters) who may then be unmarried and shall then divide and distribute the rest and the remainder of the trust premises amongst his said sons.....(who are named in the clause) as tenants in common absolutely in equal shares.'
What is to be divided is the trust premises and nothing is stated about any distribution or the destination of the accumulations already directed to be made of the surplus income under clause 5. The only other clause which it is necessary to refer is clause 8 :
'Provided always and it is hereby agreed and declared that in the event of all the sons of the settlor dying without leaving any widow them or him surviving before the said youngest son of the settlor attains the age of 21 years the trustees shall give and divide the trust premises and the accrued income thereof among such person or persons and in such manner or proportions as the settlor shall be will or deed appoint and in default of such appointment and to the extent that any such appointment fails among the heirs of the settlor as on intestacy.'
In the ultimate contingency of all the four sons dying without leaving widows or heirs what is to be dealt with is the trust premises and the accrued income thereof. Now it is suggested by Mr. Joshi that the 'accrued income' is included in the accumulations, and, therefore, is undisposed of. In my opinion that is not so. Although in my judgment, the accumulations are undisposed of and go to the settlor under a resulting trust, the income does not become 'accumulations' until the trustees have dealt with it by investing it pursuant to clause 5, and uninvested income remains 'accrued income.' If that is so, it cannot be predicted who is so entitled to the accrued income unless and until the settlor has executed an irrevocable deed appointing himself or somebody else to whom the accrued income is to go if the contingency of the four sons dying before the youngest son attained 21 years of age should happen. It has not seriously suggested that the income with which we are dealing, viz., Rs. 2,071 is not 'accrued income' but is an accumulation under clause 5 because this Rs. 2,071 is in fact uninvested income of the current year. Now that being the position and the construction which in my opinion should be put upon the document it is now necessary to look at Section 41.
The object of the section is to provide for the taxation of income which arises under trusts. Sub-section (1) directs that tax shall be levied up on and recoverable from Courts of Wards, Administrators-General, Official Trustees, or any receiver or manager or any trustee or trustees, in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable and all the provisions of the Act shall apply accordingly. That is a benefit to the tax-payers because except for it tax would have been leviable on the income in the hands of the trustees at the maximum rate but you have to ascertain the beneficiary, and the tax leviable is at the rate payable by the beneficiary as if this trust income was added to his other income. But to that section there is this proviso, viz.,
'Provided that where any such income, profits or gains or any part there of are not specifically receivable on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate.'
In the first place in spite of the use of the word 'or' in that proviso it is my opinion that 'or' in this context must be read conjunctively. There can be no point in having the two alternatives unless read as conjunctive ancillary to income, profits or gains not being specifically receivable on behalf of any one person. But the difficulty in this case is caused by the second limb of this proviso. What is it which it is postulated may be indeterminable or unknown The answer must be, the individual shares of the persons on whose behalf the income is receivable. If the word 'individual' did not appear before the word 'shares' I thing there would be little doubt that it would be quantum of the shares and not the identity of the beneficiary to which reference was being made. But the words of the statute are 'individual shares' and in my judgment that imposes a consideration of the subject-matter as well as the quantum. So that it has to be determined not only what is the quantum of the share but also who is the beneficiary who is entitled to it, and the test must in my opinion be whether both the shares and the beneficiaries who are to take the same are not indenfinite or unknown. Now applying that test in this case to the sum of Rs. 2,071 the answer must be that as there has been no irrevocable appointment under clause 8 it cannot be predicted what the ultimate destination of this accrued income might be because in the unlikely event of all the sons being killed in some common accident the accrued income which for the present purpose is the sum of Rs. 2,071 might have gone either as income undisposed of by the father or as it might be appointed by him. In any event the matter is uncertain. That being so in my opinion it comes within the proviso and tax is recoverable at the maximum rate.
KANIA, J. - I agree. We are concerned in this reference with the accounting year 1940-41. In the income in question, the 40 per cent. directed to be accumulated under the trust deed, the material provisions of which have been summarised in the judgment of the learned Chief Justice, is included. Having regard to the definition of the 'trust premises' in clause 3 a perusal of clauses 5, 6 and 7 shows that the settlor, while directing the 40 per cent. of the income and the surplus of 60 percent. over the amount of Rs. 400 to be accumulated, has not directed how that accumulation is to be disposed of when the youngest son attains the age of 21 years. Clause 8 contains a proviso in which the words 'accrued income' are used along with the words 'trust premises.' Reading that clause as a whole, it appears therefore that on the happening of the contingency therein mentioned the trust premises and the accrued income are to be dealt with and disposed of by the trustees in accordance with the directions which may be contained in any will or deed executed in exercise of the power of appointment retained by the settlor or in default of such appointment, or to the extent the appointment fails, among the heirs of the settlor as on intestacy. According to the wording of that clause on the happening of the contingency therein contemplated the heirs of the settlor also get the accumulated income only by virtue of that clause in the trust deed. The power of appointment reserved by the settlor does not inure for the benefit of any heir, if the settlor chooses to make the appointment in his favour, till the appointment is made. Therefore, it is clear that whilst under clauses 5,6 and 7 the accumulated income is not disposed of, the same does not become the property of the settlor until the contingency contemplated in clause 8 occurs.
On the statement of the case it is clear that in the accounting year the income remained in the hands of the trustees without acquiring the character of accumulated income. it is equally clear that on the facts, so far no steps have been taken to make the contingency contemplated in clause 8 occur, in respect of the income which has accrued in the accounting year. The question before the Court is necessarily in respect of the accounting year only and does not affect the rights of the parties in respect of the income which may accrue in a later year. Having regard to the facts found on the construction of the clause it is clear that within the meaning of Section 41 proviso (1), in the accounting year the income cannot be predicted to belong to a particular individual, or if more than one with their determinate specific individual shares. Under the circumstances the proviso applies and the maximum rate is correctly charged. I agree that in the proviso the word 'or' has the meaning of 'and', otherwise the two parts would be meaningless. In my opinion, therefore, the question submitted for the Courts opinion should be answered in the affirmative. I have already stated that the answer is limited to the income of Rs. 2,071 in the accounting year 1940-41.
P.C. - The assessees to pay the costs of the reference.
Reference answered in the affirmative.