1. These are the appeals filed against the order passed by the Commissioner, under Section 263 of the Income-tax Act, 1961 ('the Act'), by which he held that this was a case where the provisions of Section 61 read with Section 63(a)(ii) of the Act were attracted and that the income of the trusts should have been assessed in the hands of the settlor.
2. The assessee, an individual, derived income from property, business in the shape of share income from a firm called M.K. Krishna Chetty, as well as income from other sources.
3. On 1-10-1969, by a deed of settlement, the assessee settled upon trust for the benefit of his prospective son-in-law and prospective daughter-in-law, a sum of Rs. 15,000 each with a direction that the amount has to be invested in the discretion of the trustees so as to produce good income and that the income so earned should be accumulated till such time as the daughter and son got married. It is relevant to note that at the time of making the settlement, the daughter was a minor, aged about six years. By Clause 19 of the trust deed, it was provided that the trust is 'irrevocable'. Clause 22 of the trust deed provided that if the said intended marriage is not solemnised for any unforeseen reason within a period of twenty years from the date of the trust deed, the deed of trust would become void and the trust fund shall become re-invested in the settlor as a beneficial owner thereof, subject as aforesaid, the settlor shall have no manner of right, title or interest in the said money or its accumulations or accretions thereof.
4. Subsequently, by a supplementary deed executed on 26-10-1979, the said Clause 22 has been amended to read : If the said intended marriage were not to be solemnised for any unforeseen reason or reasons within a period of 25 (twenty five) years from the date of this deed, this deed of trust shall become invested with 'UNIVERSITY OF MADRAS' which is an Educational Institution. The SETTLOR or his legal heirs shall have no right, title or interest whatsoever in the said trust property or its accumulations or accretions thereof.
It has again been reaffirmed in the supplementary deed of trust that the deed of trust executed on 6-12-1971 shall be an irrevocable trust in every sense of the word from the very inception of its creation with no part of the income or assets being capable of transfer to the benefit of the settlor or his heirs at any time either directly or indirectly.
5. For the assessment year 1977-78, which is the year under appeal, the assessee filed a return admitting total income of Rs. 1,52,580 and the assessment had been completed by the ITO by almost accepting the return except varying the share income by adopting the share income as determined in the case of the firm. The income accruing under the trust had, however, not been included in the return of income nor in the assessment.
6. The Commissioner, under Section 263, held that since Clause 22 of the trust deed indicated that the settlor would become entitled to the trust property along with the accumulated income in the event of the intended marriage not coming of, the trust had conferred a benefit on the settlor and, therefore, the income arising to the trust should have been assessed in the hands of the assessee under the provisions of Section 61 read with Section 63(a)(ii). He was of the opinion that the ITO's action in not including the income of the trust had caused prejudice to the interest of the revenue. Ft was contended before him that the trust deed was meant to be irrevocable and what Clause 22 provided was only for a contingency which never occurred and in any case it was invalid since having divested himself of the property, the settlor could not again reach it by providing both for irrevocability as well as revocability of the trust. A trust which has been declared to be irrevocable cannot again become revocable. So the provision making it revocable is repugnant to the provisions making it irrevocable, and, therefore, void in law. It should have been, therefore, ignored. It was this argument that the Commissioner rejected and held that since the deed gave a right to the assessee to the title of the property settled in the event of the marriage not being solemnised, he had derived a benefit and, consequently, the provisions of Section 61 read with Section 63(a)(ii) were attracted. He, therefore, directed the ITO to include in the assessment of the assessee the income from the trusts, viz., M.C. Shymala Marriage Benefit Trust and M.S. Sowmiyaram Marriage Benefit Trust and modify the assessments.
7. The assessee filed appeals against the orders of the Commissioner and contended that the view taken by the Commissioner is erroneous. The irrevocability of the trust had not been affected or eroded in any manner by the provisions made in Clause 22 of the trust deed. The provisions of Clause 22 should have been totally ignored or held invalid and inoperative. The purpose of Clause 22 is never to re-invest the settlor with the corpus or income of the property but to provide for a contingency which should not in any manner be misunderstood as an indirect power reserved in the settled property by making a provision in the settlement deed to gain access to the property. That it is so is made clear by the supplementary deed though drawn up sometime in 1979 but making the intention paramount that it was never the intention of the settlor to create a revocable trust and that was the manifest intention right from the inception of the settlement.
8. The departmental representative very vehemently contended that when a clause had been inserted in the document, it was meant to be given effect to and it is not born by any rule of construction of a document to understand the meaning of a document by ignoring certain clauses therein. The combined effect of all the clauses in a document has to be gathered and understood and implemented. So read, which it ought to be, according to the rules of construction, that in case the trust fails after a period of twenty or twenty-five years, as the case may be, [if] marriages not taking place, the property should go back to the settlor.
This is clearly hit by the provisions of Sections 61 and 63.
9. We have already earlier extracted the relevant provisions of the trust deed. It is not a point subject to any quarrel that but for Clause 22 of the settlement deed, the trusts created are irrevocable trusts. So is the unequivocal declaration made by Clause 19 of the trust deed. What is the effect of Clause 22 and its irrevocability and how far has it been mitigated by making inroads into it. Section 77 of the Indian Trusts Act, 1882, provides for the circumstances under which 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. The section thus mentions the various modes in which a trust may become extinct. A trust ceases when the purpose for which it is created has been fulfilled or when its purpose has become unlawful or more importantly and relevant for our present purpose, when the fulfilment of its purpose becomes impossible by destruction of the trust property or otherwise. A trust is thus extinguished when the object is achieved or fails for some reason or the other. Therefore, in case the marriage for the performance of which this trust has been created, does not take place within a period of twenty years, the trust under Section 77 of the Indian Trusts Act, is extinguished, as a matter of legal consequence and operation of law. The question would then arise as to what would happen to the trust property. What should the trustees do in such a case, because the important consequence of extinguishment of a trust is that the trustees have been discharged by operation of the provisions of Section 71 (a) of the Trusts Act. If there is no provision in the trust deed as to the manner in which the trust property is to be disposed of, then the general law as embodied in the Trusts Act will step in to provide for this situation, as to what will happen in case the trust is extinguished by reason of the marriage not taking place, i.e., the object for which the trust has been created not being fulfilled, under Section 83 of the Trusts Act the author of the trust may in certain cases get the property back to him. This is not to say that the trust is a revocable trust. What Clause 22 has in effect provided for is a situation on the extinguishment of the trust. There are certain obligations in the nature of trust which also come into being which require to be dealt with in the manner provided for in the Trusts Act. Section 80 and onwards of the Trusts Act provide for those obligations which are in the nature of trusts. There are a number of relationships which more or less closely resemble trusts, but not actually trusts created by any author. These obligations in the nature of trusts are also called constructive and or resulting trusts. The obligation in the nature of trusts created in several circumstances are enumerated and dealt with in Sections 81 to 96 of the Indian Trusts Act, of which Section 83 is relevant for our purpose which says : Where a trust is incapable of being executed, or where the trust is completely executed without exhausting the trust property, the trustee, in the absence of a direction to the contrary, must hold the trust property, or so much thereof as is unexhausted, for the benefit of the author of the trust or his legal representative.
By this section, there is a resulting trust in favour of the author of the trust or his legal representative when the trust is incapable of being executed or when the trust is executed, a surplus remains. Thus the author of the trust will get back his property or the surplus., as the case may be. This doctrine, however, does not apply to charitable trusts where the doctrine of Cypres would apply. Thus it will be seen that a resulting trust will be created in case the contemplated marriages do not take place within the stipulated period. Even if no provision had been made in the trust deed, the provisions of Section 83 of the Indian Trusts Act would, as a matter of operation of law, apply, bringing into existence a resulting trust, the effect of which is the properties would be held by the trustees for the benefit of the author of the trust. What was achieved by Clause 22 by making a specific provision is nothing but introducing in the deed of settlement what is provided in law by Section 83 of the Indian Trusts Act. It is of course true that the resulting trust does not arise unless the author of the trust does not. indicate the disposal of the property in some way or the other. In the absence of a direction to the contrary, the trustees must hold the trust property or so much thereof for the benefit of the author of the trust. Here, by Clause 22, the author of the trust did not give any direction. On the contrary, it only stated what is to happen otherwise even by operation of Section 83 of the Indian Trusts Act. Therefore, to repeat Clause 22 is nothing but writing into the settlement deed the provisions of Section 83 in its entirety. How can a resulting trust created under Section 83 of the Indian Trusts Act, be considered as revocation of trust. It is, in our opinion, going against the very content of the Indian Trusts Act. While we cannot agree with the argument advanced on behalf of the assessee that Clause 22 should be ignored, we would read Clause 22 in such a way as it embodied the provisions of Section 83 of the Indian Trusts Act providing for a situation of resulting trust and that situation is certainly not a situation which would impinge upon the irrevocability of the trust which was so declared Clause 19 of the settlement deed. By settlement deed of 1979, the author of the trust gave a direction to the contrary.
Pursuant to those directions, the trust property in case the trust failed, instead of coming back to the author of the trust, would go to the University of Madras direct. That does not mean that by amending the trust deed by providing for diversion of the property to the University of Madras, an otherwise revocable trust had been made into an irrevocable trust. The trust in both the circumstances remained irrevocable. The trust deed before it was supplemented provided for the resulting trust spoken of in Section 83 of the Indian Trusts Act, while after the supplement it again is a resulting trust subject to a direction as to how the property should be dealt with. We are, therefore, of the opinion that the assessee has not created a revocable trust reserving to the assessee benefit of any kind. Thus, when the trustees were to hold the moneys in the event of the failure of the trust for the benefit of the assessee as a consequence of the operation of Section 83 of the Indian Trusts Act and when the same was written into the trust deed, it does not mean that a revocable trust had been created.
10. In this context, we may also refer to Section 63 which defined 'revocable transfer' for the purposes of Sections 60, 61 and 62 of the Act. Section 63 lays down that a transfer shall be deemed to be revocable if it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets. For the transfer to be deemed revocable, the trust deed must, therefore, contain a provision for re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor. Clause 22 has been interpreted by the department as making a provision providing for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor. As we have explained above, the purpose of Clause 22 is to write into the settlement deed what is provided for in Section 83 of the Indian Trusts Act. Even without this provision, if the trust had failed, the same situation would have happened, namely, the trustees holding the property for the benefit of the author. It cannot be said that that was a provision made for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor. That provision did not make any inroad on the irrevocability of the settlement. Nor can it be said that the transferor gave to the transferee a right to re-assume power directly or indirectly over the whole or any part of the income or assets by the provisions of Clause 22 of the settlement deed. The provisions of Clause 22 would operate only on the failure of operation of the settlement and not till then.
During the operation of the settlement that clause will not come into force and during the operation of the settlement the properties stand completely in the hands of the trustees and during' that period the settlor, the assessee, cannot either directly or indirectly enjoy either the whole or any part of the income or exercise any right of re-assumption of power over the income or assets. Since even without Clause 22, Section 83 of the Indian Trusts Act would operate and the result of the operation would be the same, namely, trustees holding the property for the benefit of the settlor, i.e., the assessee before us, we are unable to see that such a situation is brought about when a clause to the same effect had been introduced in the settlement deed by calling it a transfer made within the meaning of Section 63. We are, therefore, unable to agree with the view canvassed on behalf of the department that the assessee in this case had created a revocable trust so as to attract the provisions of Section 63(a)(ii). The Commissioner, in our opinion, is not justified in directing the ITO to include in the assessments of the assessee the income arising to the trusts of M.C.Shymala Marriage Benefit Trust and M.S. Sowmiyaram Marriage Benefit Trust. We vacate his direction and accept the assessee's appeals.