1. The question of law referred is :
'Whether, on the facts and in the circumstances of the case, the first proviso to section 41 (1) of the Act was rightly applied ?'
2. The learned judge set out the statement of case which ran as follows :
3. One C. R. Thiruvengadam Chetty executed a deed of trust on September 30, 1954, whereby he conveyed his self-acquired properties to be administered by three trustees, the first trustee being his son, G. T. Rajamannar alias Raju. According to that deed, the present trustees were to utilise the income of the trust properties towards the maintenance of the first referred son and his grandchildren. The marriage expenses of his grandchildren, whether male or female, have to be met from the income of the properties included in the trust deed. After the said Thiruvengadam Chetty's death, his male grandchildren were to become the absolute owners sharing equally the properties mentioned in the schedule to the deed in question, subject to the maintenance and marriage expenses of the donor's female grandchildren. The trust was to cease after the death of the said Rajamannar and on the male grandchildren completing the age of 21 years. The question that arose was at what rate and what status the income from the trust properties was to be taxed.
4. For the assessment year 1955-56, a return under section 22 (1) of the 'Act' was submitted on December 15, 1955, by the aforementioned Rajamannar Chetty in his individual capacity declaring a total income of Rs. 4,491. Since the Income-tax Officer felt at the time of hearing that the properties in question did not belong to the said Rajamannar Chetty in his individual capacity but belonged to the trustees mentioned in the aforementioned deed of trust, the said Rajamannar Chetty filed a revised return on March 1, 1957, as the managing trustee in the status of an 'association of persons'. For the assessment year 1956-57, similar was the case, the total income declared being Rs. 19,209. The Income-tax Officer, holding that the shares were indeterminate, applied the maximum rate and completed the assessments. When the appeals in respect of these assessments came up before the Appellate Assistant Commissioner, by a common order dated August 22, 1957, he dismissed the same and confirmed the assessment made by the Income-tax Officer. The appeal to the Tribunal by the assessee was also not successful.
5. The relevant clauses in the trust deed, which is marked as annexure 'A' in the proceedings, read thus :
'1. In consideration of natural love and affection to my son, grandson and would be grandsons, I, the author of the trust, hereby transfer, assign and give possession of my self-acquired properties, which are more specifically and fully described in the schedule hereunder, together with the title deeds pertaining to these properties.
2. The three trustees above named shall constitute a broad of trustees. They are otherwise called trustees. The trustees shall apply the income of the trust properties hereby transferred, towards the maintenance of my son, and my grandchildren, and towards the marriage expenses of my grand-children, whether male and/or female. The surplus income, if any, which is not required for the immediate expenditure of the trust, may be invested in sound good securities.
3. My son, G. T. Rajamannar, shall be the managing trustee of the board of trustees. He may manage the trust properties by himself or through agent or agents employed by the trust board. He is authorised to collect rents, grant receipts, pay kandayam and effect repairs and improvements under the guidance of the board of trustees. He is to maintain accounts of receipts and expenditure and submit balance-sheets now and then to the board of trustees.
4. My son, G. T. Rajamannar, may apply the whole or part of the income for the maintenance of himself, his family and children. He has no power of absolute ownership nor power of alienation over the schedule properties. He has only the right of maintenance, that too, out of the income only. Further, he has no right of alienation of his right for maintenance. If he does so, he will forfeit his right for maintenance out of the income of the schedule properties. He can only enjoy the fruits of income of the schedule properties for his life only. And after the death of my son, my male grandchildren shall be the absolute owners in equal share of the schedule properties, subject to the maintenance and marriage expenses of my female grand-children.
5. The trustees shall have no power to sell, mortgage or otherwise transfer the immovable properties hereby given in trust or any part thereof. But, they shall be at liberty to grant lease for terms not exceeding three years.
6. In case of any vacancy in the board of trustees, caused by death, resignation or otherwise, the same shall be filled up by nomination by the remaining trustees. Pending the nomination of the new trustee or trustees, the remaining trustee or trustees shall continue to administer the property.
7. The trustees shall hold the schedule properties in trust for the benefit and maintenance of my son and my grandchildren. After the death of my son, and after my male grandchildren completing the age of 21 years, this trust shall cease and the trust properties shall immediately and absolutely vest in my male grandchildren. Then, my male grandchildren are full and absolute owners of the schedule properties. If necessary, the board of trustees shall effect transfer of the schedule properties to my male grandchildren after each of them has completed hid 21st year...'
6. After setting out the statement of case as above, HEGDE J. continued :
7. From the facts noticed above, it is clear that the income which is subject to tax was realised from trust properties. It is equally clear that the persons mentioned in the deed of trust are the trustees. Further, during the relevant assessment year, the beneficiaries under the trust deed are indeterminate. Hence, the question is whether the trustees are liable to be taxed under the first proviso to section 41 (1) of the 'Act'.
8. The material portion of section 41 (1) reads as follows :
'In the case of income, profits or gains chargeable under this Act... any trustees or trustees appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise... are entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from... 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 this Act shall apply accordingly.'
9. According to the assessee, the present case is governed by section 3 of the 'Act' and computing the assessment income, the income of several beneficiaries must be treated separately, whereas according to the department, the facts of this case fall within the scope of the first proviso to section 41 (1). The Tribunals below have accepted the view contended for on behalf of the department.
10. The relevant portion of the first proviso to section 41 (1) says :
'Provided that where any such income, profits or gains or any part thereof 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...'
11. The deed of trust specifically says that the properties in question are conveyed in trust and the persons to whom they are conveyed are called 'trustees'. There is hardly any doubt that the deed in question is a trust deed and the properties included therein are trust properties. It is also clear that the beneficiaries under that deed are indeterminate. The trust will come to an end on the date specified in the trust deed. The possibility of Rajamannar Chetty getting more male children subsequent to the assessment years could not be ruled out.
12. But, it is contended on behalf of the assessee that a trustee is the owner of the properties conveyed to him under the trust; he does not hold those properties on behalf of others; he only holds them for the benefit of others; section 41 (1) and the first proviso thereto contemplates persons who hold the properties 'on behalf of others' and therefore provisions are inapplicable to cases of trustees as such, as in the present case. In this connection strong reliance was placed on the decision of the Supreme Court in W. O. Holdsworth v. State of Uttar Pradesh. In that case, their Lordships were called upon to pronounce on the scope of section 11(1) of the U. P. Agricultural Income-tax Act, 1948, which reads :
'Where any person holds land, from which agricultural income is derived, as a common manager appointed under any law for the time being in force or under any agreement or as receiver, administrator or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom, the aggregate of the sums payable as agricultural income-tax by each person on the agricultural income derived from such land and received by him, shall be assessed on such common manager, receiver, administrator or the like, and he shall be deemed to be the assessee in respect of the agricultural income-tax so payable by each such person and shall be liable to pay the same.'
13. The question for consideration by their Lordships was whether the trust properties also fell within the scope of that section 11 (1). Their Lordships observed that in order that section 11 (1) might apply, two conditions are to be satisfied : (1) that a person should hold the agricultural land as a common manager 'on behalf of' other persons and (ii) such other persons should be 'jointly interested' in such land or the income derived therefrom; the trustees in this case being legal owners did not hold the land as common manager, receiver, administrator or the like 'on behalf of' the annuitants and as each of the annuitants was separately or individually interested in the income derived from the land comprised in the trust to the extent of the annuity payable to him, the beneficiaries could not be said to be jointly interested in such land; and, therefore, section 11 (1) of the Act did not apply. There is no doubt that this decision is an authority for the proposition that a trustee does not hold the property in trust 'on behalf of others'. Under the Indian Trusts Act, he is the legal owner. Beneficiaries have no legal title to the trust properties. They have only a claim against the trustee. But, we have to now consider, in what sense the Legislature used the expression 'receive on behalf of any person' in section 41 (1) and the first proviso thereto.
14. The contention of the learned counsel for the department is that that expression was loosely used; when the Legislature used that expression, it merely intended to say 'for the benefit of any person'. Those this interpretation is opposed to the rule of grammatical construction, it appears to me that it is the only reasonably interpretation possible. The rule harmonious construction requires us to reconcile seemingly conflicting words and take the provision as an integrated whole. Both section 41 (1) as well as the first proviso to the same specially deal with 'trusts' and 'trustees'. The expression 'trust' is well known in law, though not defined in the 'Act'. For finding out the meaning of the word 'trust' we have to fall back on the Trust Act. On an examination of the deed in question, we are left in no doubt that it is a trust deed and there was a validity constituted trust. If section 41 (1) as well as the first proviso thereto applies to trusts, in our mind, there is no doubt about that, merely because the Legislature used the expressions 'are entitled to receive on behalf of any person' and 'on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable are indeterminate or unknown', there is no justification to say that income from trust properties does not fall within the scope of section 41 (1) or the first proviso thereto. Therefore, it is reasonable to construe the expressions mentioned above as being equivalent to 'for the benefit of other person or persons'. I am aware that it is a hard thing to say that the Legislature intended something different from what it said and it is a wrong thing to do so except on compelling grounds. But in the present case if we do not read those expressions in the manner I have indicated, then a good portion of section 41 (1) and the first proviso thereto becomes otiose. It is not proper to construe that any portion of a provision in a statute is superfluous. Such a construction should be avoided except in extreme cases. Though as a normal rule the court should give to the words used in the statute its normal meaning, occasions do arise when it becomes necessary to give a special meaning to a word.
15. For the reasons mentioned above, I interpret the words 'on behalf of' found in section 41 (1) and the first proviso thereto as equivalent to 'for the benefit of'.
16. Courts have uniformly applied section 41(1) and the first proviso thereto to cases similar to the instant case. As an illustration I may refer to B. P. Mahalaxmiwala v. Commissioner of Income-tax. Therein the scope of section 41 (1) and the first proviso thereto was exhaustively considered. No case taking a contrary view was brought to our notice.
17. The contention that when an assessment is made in respect of an income arising from trust property the same is done either under section 3 or under section 10 of the 'Act' and that section 40 is merely a machinery section is irrelevant for our present purpose, and, therefore, I do not think that the decision in Hotz Trust of Simla v. Commissioner of Income-tax is of any assistance.
18. It was next contended by the learned counsel for the assessee that in the instant case the income which is the subject-matter of tax is 'an income from property', and, therefore, under section 9 only the owner of that income as distinguished from the owner of the property yielding that income should be taxed. That contention is not germane for our present purpose. On the terms of the trust deed, there can be no doubt that the trustees appointed are not only the owners of the house properties detailed in the schedule thereto, but also are the owners of the income of those properties.
19. For the reasons mentioned above, our answer to the questions referred to us is that, on the facts and in the circumstances of the case, the first proviso to section 41 (1) of the 'Act' had been rightly applied.
20. The assessee shall pay the costs of the department. Advocate's fee Rs. 250.