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Princess Usha Trust Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 75 of 1982
Judge
Reported in(1983)35CTR(MP)31; [1983]144ITR808(MP)
ActsIndian Trusts Act, 1882 - Sections 6, 8, 9, 58 and 77; Hindu Minority and Guardianship Act, 1956 - Sections 8; Transfer of Property Act - Sections 6
AppellantPrincess Usha Trust
RespondentCommissioner of Income-tax
Appellant AdvocateNani Palkhivala, ;A.K. Chitale and ;J.W. Mahajan, Advs.
Respondent AdvocateR.C. Mukati, Adv.
Cases ReferredMa Yait v. Official Assignee
Excerpt:
.....and heavily on him to prove his innocence. conviction of appellant is liable to be set aside. - usha devi, the sole beneficiary, enjoyed the trust property in accordance with the pro visions of the trust deed. (viii) aggrieved by the order passed by the cit (appeals), the assessee as well as the department preferred appeals before the tribunal, the tribunal held that under section 58 of the indian trusts act, 1882, when property was transferred or bequeathed for the benefit of a married woman, she had no power to deprive herself of her beneficial interest. the tribunal further observed that the provisions of section 9 of the indian trusts act did not permit a beneficiary to renounce her interest after having enjoyed the same for a decade. 5 :it is well settled that a remainderman has..........in relying upon the provisions of section 9 of the indian trusts act, 1882, and holding that smt. usha devi could not transfer her interest in princess usha trust ?(4) whether, on the facts and circumstances of the case, the appellate tribunal was justified in holding that the provisions of sections 8 and9 of the indian trusts act, 1882, were applicable in the case of the asses-see-trust (5) whether, on the facts and in the circumstances of the case, the appellate tribunal was justified in confirming the finding of the cit(a) that the minors, ranjit and dalip, had no legal title vested in them on the date of transfer, viz., 30th march, 1974, and what they held could not be transferred in terms of section 6(a) of the transfer of property act ?(6) whether, on the facts and circumstances.....
Judgment:

Sohani, J.

1. By this reference under Section 256(1) of the I.T. Act, 1961, (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred, the following questions of law to this court for its opinion :

'(1) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that in terms of the provisions of Section 58 of the Indian Trusts Act, a married woman is not authorised to transfer her beneficial interest in the trust during her marriage ?

(2) Whether, on a true and proper construction of the instrument of settlement made on December 18, 1973, and 30th March, 1974, the Appellate Tribunal was justified in holding that the assessee-trust was not extinguished within the meaning of Section 77 of the Indian Trusts Act, 1882?

(3) Whether, on 'the facts and circumstances of the case, the Appellate Tribunal was justified in relying upon the provisions of Section 9 of the Indian Trusts Act, 1882, and holding that Smt. Usha Devi could not transfer her interest in Princess Usha Trust ?

(4) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the provisions of Sections 8 and9 of the Indian Trusts Act, 1882, were applicable in the case of the asses-see-trust

(5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in confirming the finding of the CIT(A) that the minors, Ranjit and Dalip, had no legal title vested in them on the date of transfer, viz., 30th March, 1974, and what they held could not be transferred in terms of Section 6(a) of the Transfer of Property Act ?

(6) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in confirming the finding of the CIT(A), that the 1st A.D.J., Indore, while passing his order under Section 8 of the Hindu minority & Guardianship Act, 1956, did not go into the question whether the minors could be identified as remaindermen in terms of the trust deed dated April 10, 1950, and they had any interest in the property transferred on 30th March, 1974?'

2. The material facts giving rise to this reference, briefly, are as follows :

(i) The assessee, Princess Usha Trust, is a private trust created by late Maharaja Yeshwantrao Holkar on 10th April 1950. By the deed of trust, the trustees were required to pay the net residue of the rents, profits, interest and other income of the trust properties to the settlor during the term of his natural life and after the death of the settlor, to pay the net residue of the rents, profits, interest and other income of the trust properties to Princess Usha Devi, daughter of the settlor, during the term of her natural life and on the death of Princess Usha Devi to transfer and hand over portions of the trust properties to and divide the same amongst her children, as specified in the deed of trust. The trustees were also required to spend out of the corpus of the trust, such sums as were specified in the trust deed at the time of marriage of Princess Usha Devi. After the death of late Maharaja Yeshwantrao Holkar, Smt. Usha Devi, the sole beneficiary, enjoyed the trust property in accordance with the pro visions of the trust deed. She is married to Satischandra Malhotra and has two children, Ranjit and Dalip, who were aged about 16 years and 9 years, respectively, in the year 1973.

(ii) In the year 1973, an application was made by Smt. Usha Devi and her husband, before the First Additional District Judge, Indore, under Section 8 of the Hindu Minority & Guardianship Act, 1956. It was averred in that application that since Ranjit and Dalip, sons of Smt. Usha Devi, were minors, that the applicants were the natural guardians of the minors, that the minors had an interest in the subject-matter of the private trust called 'Princess Usha Trust', that the interest of the minors in the said private trust was that of a remainderman after Smt. Usha Devi, the sole beneficiary under the trust, and that it would be for the benefit of the minors that the remainderman's interest of the minors as ultimate beneficiaries of the trust be permitted to be transferred by creating an educational trust. It was also averred in the petition that the ownership of the interest of the minors under the indenture of trust would result in enormous recurring annual additional burden of taxation on the minors under the W.T. Act and the IT. Act because by virtue of the other assets and income of the minors, the aggregation of their beneficial interest in the trust would result in only burdens and no benefits. Permission was, therefore, sought by the applicant-guardians of the minors to transfer to an educational trust, by gift or otherwise, the remainderman's beneficial interest of the minors in the private trust constituted by Late Maharaja Yeshwantrao Holkar.

(iii) The learned First Additional District Judge, Indore, passed an order on March 6, 1974, that after taking into consideration the facts brought on record, the transfer of the remainderman's interest of the two minors to the educational trust was not only reasonable and proper but was also necessary for the benefit and protection of the minors and their assets. The learned Additional District Judge, therefore, granted permission to Smt. Usha Devi and her husband to transfer the remainderman's interest of the minors in the said private trust to an educational trust.

(iv) In the meanwhile, by a deed of trust dated December IS, 1973, Smt. Usha Devi created Devi Ahilyabai Holkar Educational Trust, hereinafter referred to as 'the educational trust', by transferring her beneficiary's interest in the trust created by the deed of trust executed by Late Maharaja Yeshwantrao Holkar. The objects of the trust are providing fixed or recurring monetary grants to any educational institution, providing scholarships to students, establishing chairs in any university or college, rendering any property vesting in the trust available to any educational institution and any other educational object, which the trustees may deem fit.

(v) After obtaining permission from the learned Additional District Judge, as aforesaid, Smt. Usha Devi and her husband, acting as guardians of their minor sons, Ranjit and Dalip, executed a deed of declaration on 30th March, 1974, settling upon trust, in favour of the trustees of the educational trust, the totality of benefits, rights, title and interest of the minor settlors in the private trust created by late Maharaja Yeshwantrao Holkar.

(vi) Thereafter, for the assessment years 1975-76 and 1976-77, the assessee filed its returns of income declaring income as nil. When asked to explain the reasons for returning nil income even though the assessee was till then being assessed for the income derived from the house property and business, it was stated on behalf of the assessee that on 18th December, 1973, a new trust in the name and style of Devi Ahilyabai Holkar Educational Trust was created by transferring the interest of all the beneficiaries in the private trust created by late Maharaja Yeshwantrao Holkar. It was contended before the ITO that since a new trust had come into existence and as the assessee had no other asset in the year under consideration, no income had accrued or arose to the assessee. The ITO rejected the contentions urged on behalf of the assessee, holding that the transfer of property by the beneficiaries was void.

(vii) Aggrieved by the order passed by the ITO, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) held that Smt. Usha Devi had validly transferred on December 18, 1973, her right and interest in the private trust created by late Maharaja Yeshwantrao Holkar and as such the assessee was not assessable in respect of the income from the property so transferred. The CIT (Appeals) further held that as the two minor sons of Smt. Usha Devi had no title vested in. them on the date of transfer of their interest to the Educational Trust, the transfer was void, by virtue of the provisions of Section 6(a) of the Transfer of Property Act. The CIT (Appeals), therefore, held that the corpus of the trust property continued to vest in the assessee and consequently, the assessee was assessable only in respect of capital gains.

(viii) Aggrieved by the order passed by the CIT (Appeals), the assessee as well as the Department preferred appeals before the Tribunal, The Tribunal held that under Section 58 of the Indian Trusts Act, 1882, when property was transferred or bequeathed for the benefit of a married woman, she had no power to deprive herself of her beneficial interest. The Tribunal further held that the provisions of Section 8 of the Indian Thrusts Act were also attracted which debarred Smt. Usha Devi from transferring her interest. The Tribunal further observed that the provisions of Section 9 of the Indian Trusts Act did not permit a beneficiary to renounce her interest after having enjoyed the same for a decade. The Tribunal thus held that the CIT (Appeals) was not justified in holding that the rights and interest of Smt. Usha Devi in the assessee-trust were validly transferred on 18th December, 1973, to the educational trust. The Tribunal, therefore, reversed the finding of the CIT (Appeals) that the assessee trust was not assessable in respect of the income from the trust properties. The Tribunal, however, upheld the finding of the CIT (Appeals) that as the two minor sons of Smt. Usha Devi had no title vested in them on the date of the transfer, the transfer was void by virtue of the provisions of Section 6(a) of the Transfer of Property Act. The Tribunal thus affirmed the finding of the CIT (Appeals) that the corpus of the trust property continued to vest in the assessee-trust and that the transfer thereof to the educational trust was void ub initio. Aggrieved by the order passed by the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid questions of law have been referred to this court for its opinion.

3. Shri Palkhivala, the learned counsel for the assessee, contended that the provisions of Section 8 of the Indian Trusts Act were not attracted as the Indian Trusts Act was not applicable to an educational trust and that the proviso to Section 58 of the Indian Trusts Act was also not attracted as property was not transferred in the instant case, for the benefit of a married woman. Relying upon the decision of the Supreme Court in CIT v. Nawab Mir Barkat Ali Khan Bahadur : [1974]97ITR246(SC) , it was urged that a beneficiary if competent to contract, could transfer his or her interest. The learned counsel further urged, relying upon the decision of the Privy Council in Ma Yait v. Official Assignee , that a remainderman's interest could be validly transferred and as in the instant case, the remaindermen were minors, their interest was transferred to the educational trust after obtaining permission of the court for that transfer, 'under Section 8 of the Hindu Minority & Guardianship Act, 1956. It was urged that in these circumstances, the assessee-trust was extinguished by virtue of the provisions of Section 77 of the Indian Trusts Act. It was contended in the alternative that there was also revocation of the assessee trust under Section 78 of the Indian Trusts Act. It was submitted that in these circumstances, the Tribunal erred in holding that the assessee was assessable in the relevant assessment years in respect of the income from the property transferred by Srnt. Usha Devi and her two sons in favour of the educational trust.

4. In reply, Shri Mukati, the learned counsel for the Department, contended that the provisions of Sections 8 and 9 and the proviso to Section 58 of the Indian Trusts Act were attracted, that there was no valid transfer, either of the income or of the corpus of the trust property and hence the Tribunal was justified in the view it took, on the facts and circumstances of the case.

5. Having given our anxious consideration to the contentions advancedon behalf of the parties, we now proceed to answer the question referredby the Tribunal to this court.

Question No. (1):

6. Section 58 of the Indian Trusts Act reads as under :

'58. The beneficiary, if competent to contract, may transfer his interest, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest :

Provided that when property is transferred or bequeathed for the benefit of a married woman, so that she shall not have power to deprive herself of her beneficial interest, nothing in this section shall authorise her to transfer such interest during her marriage.'

7. From a perusal of the aforesaid provision, it is clear that the proviso is attracted when property is transferred or bequeathed for the benefit of a married woman. In that case, she has no power to deprive herself of her beneficial interest during the subsistence of the marriage. However, in the instant case, the beneficiary's interest in the trust property was created in favour of Usha Devi by the settlor, Maharaja Yeshwantrao Holkar, when Usha Devi was not married. Thus, the property was not transferred or bequeathed for the benefit of a married woman and the proviso to Section 58 of the Indian Trusts Act is not attracted. Therefore, our answer to question No. (1) referred to this court by the Tribunal is that though under the provisions of Section 58 of the Indian Trusts Act, when property was transferred or bequeathed for the benefit of a married woman, she was not competent to transfer her interest during the subsistence of the marriage, yet the bar created by Section 58 of the Indian Trusts Act was not attracted in the instant case and Smt. Usha Devi could transfer her beneficial interest in the property of the assessee-trust.

Question (2) :

8. The answer to this question turns on the construction of Section 77 of the Indian Trusts Act. That provision reads as under :

'77. A trust is extinguished--

(a) when its purpose is completely fulfilled ; or

(b) when its purpose becomes unlawful; or

(c) when the fulfilment of its purpose becomes impossible by destruction of the trust property or otherwise; or

(d) when the trust being revocable is expressly revoked.'

9. Now, in the instant case, Smt. Usha Devi had transferred her beneficial interest in the trust property to the educational trust on December 18, 1973. Such transfer, as we have observed, is not hit by the proviso to Section 58 of the Indian Trusts Act. Section 8 of the Indian Trusts Act, which provides that the subject-matter of a trust must not be, merely beneficial interest under a subsisting trust, is attracted only when the trust, which is created, is a private trust. That proviso is not attracted in the case of an educational trust as the provisions of the Indian Trusts Act are not applicable to an educational trust. No provision of law was brought to our notice, which invalidated the transfer of Smt. Usha Devi's interest in the trust property in favour of the educational trust. As regards transfer of an interest by a remainderman, it is not hit by Section 6(a) of the Transfer of Property Act, as that provision is attracted only in the case of a bare or, naked possibility and not in the case of a possibility coupled with an interest such as that of a remainderman. The interest of remainderman in the instant case could, however, be validly transferred only after obtaining permission from the court under Section 8 of the Hindu Minority & Guardianship Act, 1956, as the remaindermen were minors at the material time. The requisite permission was accordingly obtained by the guardians of the minor remaindermen from the District Court, Indore. The ITO had no jurisdiction to decide as to whether the District Judge should or should not have granted such permission. The remaindermen's interest in the trust property was thus validly transferred by the deed dated 30th March, 1974. In view of these two deeds dated December 18, 1973, and 30th March, 1974, it must be held that the beneficial interest in the trust property of the assessee-trust was validly transferred to the educational trust and in these circumstances, the fulfilment of the purpose of the assessee-trust, which was to pay the net residue of the rents, profits, interest and other income of the trust property to Smt. Usha Devi during her lifetime and on her death to transfer and hand over the trust property in the manner specified, to her children, became impossible. Section 77 of the Indian Trusts Act provides that a trust is extinguished when the fulfilment of its purpose became impossible by destruction of the trust property or otherwise. The expression 'otherwise' would cover a case where the trust property is not available for fulfilment of its purpose because all the beneficiaries under a trust have validly transferred their interest. In these circumstances, the assessee-trust must be held to have been extinguished and the Tribunal was not justified in holding that the assessee-trust was not extinguished within the meaning of Section 77 of the Indian Trusts Act. Our answer to question No. 2 is in the negative and against the Revenue.

10. Question No. 3 : Section 9 of the Indian Trusts Act is not attracted in the instant case as it was not the case of any party that Smt. Usha Devi had renounced her interest in the trust property by disclaimer. The Tribunal was, therefore, not justified in relying upon the provisions of Section 9 of the Indian Trusts Act for holding that Smt. Usha Devi could not transfer her interest in the assessee-trust. Our answer to this question is in the negative and against the Revenue.

11. Question No. 4: In view of our aforesaid answers, it must be held that the Tribunal was not justified in holding that the provisions of Sections 8 and 9 of the Indian Trusts Act were attracted in the instant case. Our answer to this question is in the negative and against the Revenue.

12. Question No. 5 : It is well settled that a remainderman has a legaltitle to a property and that the same could be assigned. We have already observed that the provisions of Section 6(a) of the Transfer of PropertyAct are not attracted in such a case. In our opinion, therefore; the Tribunal was not justified in holding that the minors, Ranjit and Dalip, hadno legal title vested in them on the date of transfer and that what theyheld could not be transferred by virtue of Section 6(a) of the Transfer of Property Act. Our answer to this question is in the negative and against theRevenue.

13. Question No. 6: The questions as to whether the minors could be identified as remaindermen in terms of the trust deed dated April 10, 1950, and as to whether the minors had any interest in the property transferred on 30th March, 1974, did not and could not arise for consideration before the learned First Additional District Judge, because the only question for consideration before him was whether, assuming that the minors had any interest in the trust property as claimed by the guardians of the minors, the guardians should/be permitted to transfer that interest of the minors on the ground that such transfer would be for an evident advantage to the minors. Therefore, the question as framed does not set out any point of law and cannot, therefore, he held to be a question of law arising out of the order of the Tribunal. Therefore, we decline to answer question No. 6.

14. Reference answered accordingly.

15. We are grateful to the learned counsel for the assessee and the Department for the valuable assistance rendered to us.

16. In the circumstances of the case, parties shall bear their own costs ofthis reference.


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