H.N. Seth, J.
1. This is a reference under Section 26 of the Gift-tax Act at the instance of the Commissioner of Gift-tax.
2. The assessee in the case was Maharaja Pateshwari Prasad Singh of Balrampur. On the 9th of June, 1957, he executed an instrument purporting to be a trust deed. This instrument was drawn up as an indenture between the assessee, Sri Pateshwari Prasad Singh, referred to as the settlor of the first part, and Sri Pateshwari Prasad Singh, Maharani Raj Lakshmi Kumari Devi and Jagdish Kanhia Lal Munshi, referred to as. trustees of the other part. Towards the end of the document and before the schedule of properties it was stated as follows :
'In witness whereof the parties hereunto set and subscribe their respective hand and seal....'
3. However, the document was ultimately signed by the settlor alone. By this document the assessee purported to settle upon trust certain properties, movable and immovable, including his right and title and interest to receive zamindari compensation bonds of the face value of Rs. 25,00,000. In the preamble of the document it was mentioned that the settlor was entitled to obtain from the Government of U.P. compensation in respect of his zamindari and talluqedari. The compensation was to be in the form of bonds which was to be delivered to and received by the settlor under the provisions of the U.P. Zamindari Abolition and Land Reforms Act, 1950. Thereafter, the settlor went on to state that he was desirous of settling the said right and title to receive the compensation bonds from the Government of Uttar Pradesh to the extent of the bonds of the face value of Rs. 25,00,000 for the benefit of his wife. Under Clause 4 of the deed, he purported to assign and transfer unto the trustees all his right, title and interest in the said compensation bonds under the Uttar Pradesh Zamindari Abolition Act, 1958, and other allied laws together with all his interest and other right to instalment or otherwise and the right to acquire the said compensation bond from the Government of U.P.
4. For the assessment year 1958-59, the asseesee filed a return showing his taxable gift as Rs. 39,916. According to him, the total of gift made by him during the relevant year amounted to Rs. 3,84,851 out of which he was entitled to an exemption for sums amounting to Rs. 3,34,835 and Rs. 10,000 under Sections 5(1) and 5(2) of the Gift-tax Act. After examining the case, the Gift-tax Officer by his order dated January 31, 1961, determined the total taxable gift said to have been made by the assessee during the year in question as Rs. 22,42,553. This amount included a sum of Rs. 12,50,000 representing the value of the claim in respect of the zamindari compensation bonds to the extent of Rs. 25,00,000, mentioned in the indenture dated 9th of June, 1957. Before the Gift-tax Officer the assessee claimed that in respect of the zamindari abolition bonds on valid trust ever came into existence and as such the value of compensation bonds could not be taken into consideration for determining the total gift made by the assessee during the year in question. The Gift-tax Officer, however, after considering the provisions of the indenture, came to the conclusion that under that instrument the assessee in effect transferred his claim to receive the zamindari abolition and compensation bonds to the extent of Rs. 25,00,000. The only way in which the assessee could transfer his claim to receive the bonds to the trustees was by making a clear and unequivocal declaration of trust, which had been made in this case. He, therefore, held that a valid trust in respect of the claim to the zamindariabolition bonds came into existence. He computed the total value involved in this gift at 50% of the face value of the compensation bonds.
5. The assessee went up in appeal before the Appellate Assistant Commisioner of Income-tax, and amongst other items questioned the inclusion of the value of the zamindari compensation bonds in the value of total taxable gift for the year in question. The Appellate Assistant Commissioner upheld the order of the Gift-tax Officer. He held that according to the trust deed what the assessee had transferred to the trustees was his interest in the zamindari abolition compensation bonds and not the bonds themselves, which could be transferred by him. The trust so created was not invalid on account of uncertainty. It was further held that, since at the material time no zamindari bonds were in existence, the only way in which the assessee's interest in the zamindari land could be transferred to the trustees was by making an unequivocal declaration in the trust deed. Since this had been done, the assessee's interest in the bonds to the extent of Rs. 25,00,000 was rightly assessed to gift-tax for the assessment year 1958-59 and the computation of its value at 50% of the face value was also correct.
6. In second appeal, the Income-tax Appellate Tribunal came to the conclusion that, so far as the claim to receive the zamindari abolition bonds was concerned, the gift in this respect had not been acted upon as even after creating the aforesaid trust, the assessee did not divest himself of the right to obtain those bonds, as evidenced by the fact that he treated them as his own and pledged them with his bankers in his own name and on his personal account as if they belonged to him. Since the gift in regard to the zamindari bonds had not been acted upon, no property was ever conveyed by way of trust to the trustees. Moreover, even subsequently, the assessee did not take any steps to transfer the bonds to the trustees. The Tribunal also appeared to be of the view that the trust in respect of the zamindari abolition bonds would also be hit by the provisions of the Public Debt Act, 1944, and the Indian Securities Act, 1920. In the result it came to the conclusion that no valid trust in respect of zamindari abolition and compensation bonds ever came into existence and, therefore, the valuation of the claim to receive the bonds could not be included in the taxable gift of the assessee and directed its deletion.
7. At the instance of the revenue, the Tribunal has submitted a statement of case and has referred the following question for the opinion of this court :
'Whether, in the facts and circumstances of the case, the assessee is liable to gift-tax on Rs. 12,50,000, representing the value of his interest in the zamindari abolition compensation bonds?'
8. Learned counsel for the revenue contended that by means of an indenture dated 9th of June, 1957, which was duly registered, the assessee made a solemn, clear and unequivocal declaration creating a trust in respect of his claim to receive the zamindari abolition and compensation bonds from the U. P. Government to the extent of Rs. 25,00,000. The recitals in the indenture further showed that the assessee had conveyed all his right, title and interest in respect of his claim to receive compensation to the trustees. In the circumstances, the only method by which the claim to receive compensation could be conveyed to the trustees was adopted and the interest of the assessee with respect to that claim stood transferred to the trustees. He, therefore, contends that a taxable gift under the Gift-tax Act came into existence. Merely because, subsequently, the assessee, who was one of the trustees, started committing breach of trust, it does not mean that the gift made under toe indenture dated 8th of June, 1967, was not valid. Learned counsel, therefore, urged that, in the circumstances, the Tribunal was not justified in excluding the value of the claim to recover compensation as determined by the Gift-tax Officer from the assessee's total taxable gift for the year in question.
9. According to Section 2(xii), gift means transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth. The expression 'transfer' has been defined in Section 2(xxiv) of the Act as meaning any disposition, conveyance, assignment, delivery, payment or other alienation of property which includes creation of a trust in property. In this case we are only concerned with finding out whether any trust came into existence in respect of claim to receive compensation bonds which trust amounts to a 'gift' within the meaning of the Gift-tax Act. It is not disputed that the question whether a trust in respect of claim to receive zamindari abolition bond came into existence or not, will have to be determined on the basis of the provisions of the Indian Trusts Act.
10. According to Section 3 of the Indian Trusts Act, 'trust' is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another and or of the owner. Acceptance of the obligation, therefore, is a necessary condition before a valid trust can come into existence. According to Section 6 of the Act a trust is created when the author of trust indicates with reasonable certainty by words or acts--(a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary and (d) the trust property and (unless the trust is declared by a will or the author of the trust is himself to be the trustee) transfers the trust property to the trustee. It is, therefore, clear that in a case where the author of the trust appoints some one else as a trustee, it is necessary that, apart from making a clear declaration about his intention to create a trust, beneficiary and the trust property, he should also transfer the trust property to the trustee before a trust in respect of that property can come into existence. In the case before us, the author of the trust is Maharaja Pateshwari Prasad Singh and the proposed trustees are Pateshwari Prasad Singh, Maharani Raj Lakshmi Kumari Devi and Jagdish Kanhia Lal Munshi. Author of the trust and the trustees are not one and the same person. In the circumstances, before a valid trust in respect of the claim to receive the zamindari abolition bonds can be said to come into existence, it is necessary to find whether apart from the declaration of the intention of the author to create the trust, there was also the transfer of property in respect of the claim to receive the bonds from the author to the trustees and its vesting in the trustees. It is elementary that no transfer of property inter vivos can take place unilaterally at the instance of the transferor alone without there being acceptance by or agreement with the transferee.
11. Learned counsel for the revenue urged that the registered indenture dated 9th June, 1957, executed by Sri Pateshwari. Prasad Singh, by itself, operates as transfer of the claim to recover zamindari abolition compensation bonds from the Government of U.P. It is not possible to accept this argument. As stated earlier the document was drawn up in a form which indicated that it had to be executed both by the settlor and the trustees. If the document had been signed by both the parties it might have operated as transfer of property mentioned in it. Signatures of the trustees on this document would have indicated not only their intention to accept the obligation created by the author but also their acceptance of the property which was being conveyed to them. However, the document was not signed by the trustees. In the absence of the signatures of the trustees this document by itself does not have the effect of conveying any property to the trustees. Considering the recitals made in the document, absence of signatures of the trustees made its execution incomplete. This document could, therefore, be used only for showing that Sri Prateshwari Prasad Singh made an unequivocal declaration that he wanted to convey unto the proposed trustees his interest to receive zamindari abolition compensation bonds of the face value of Rs. 25,00,000 for the benefit of his wife, but it failed to indicate either that the trustees accepted the obligation or that the property mentioned in it actually stood transferred to the trustees. The question whether in pursuance of the declaration made in this indenture whether the trustees accepted the obligation contained therein and whether the property mentioned in it was transferred to the trustees or not has to be determined on the basis of other material in the record. The Appellate Tribunal has recorded a clear finding that the subsequent conduct of the settlor indicated that he never transferred his claim to receive the compensation bonds to the trustees. In this connection it made the following observation :
'The gift was not acted upon because even after creating the aforesaid trust the assessee did not divest himself of his right to obtain these bonds as evidenced by the fact that he treated them as his own and pledged them with bankers in his own name and on his personal account as if it belonged to him.'
12. On the finding that subsequent to the execution of the indenture dated 9th June, 1957, the settlor did not transfer the claim to receive the compensation bonds to the trustees it is obvious that no valid trust in respect of this right ever came into existence. In the circumstances, the Tribunal was right in holding that no valid gift in respect of the claim to receive the compensation bonds of the face value of Rs. 25,00,000 came into existence.
13. In view of the aforesaid discussion we answer the question referred to us for opinion in the negative and in favour of the assessee.
14. The Commissioner of Income-tax shall pay to the assessee costs of this reference which we assess at Rs. 200. Counsel's fee is also assessed at the same figure.
Question answered in the negative.