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Commissioner of Wealth-tax, Gujarat I Vs. Anarkali Sarabhai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 3 of 1968
Judge
Reported in[1971]81ITR375(Guj)
ActsWealth Tax Act, 1957 - Sections 2; ;Transfer of Property Act, 1882 - Sections 19 and 21
AppellantCommissioner of Wealth-tax, Gujarat I
RespondentAnarkali Sarabhai
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Advocate-General and; M.G. Doshit, Adv.
Cases ReferredEdwards v. Hammond
Excerpt:
.....2 (e) (iv) - payment to assessee under trust deed not 'annuity' as assessee had life interest in trust funds. (ii) construction - whether assesee had interest in corpus of two trusts on relevant valuation dates - when words used by settlor clear and unambiguous there can be no scope for invoking rule - effect should be given to intention of settlor despite rule - words clearly indicated intention of settlor that interest in corpus of trust fund to vest in assessee on expiration of period of distribution and not before - held, assessee had no interest in corpus of two trusts on relevant valuation dates. - - the rule is and it is a well-established rule for the guidance of the courts in construing a settlement or will, that the interest must ordinarily be held to be vested unless a..........of the said anarkali the trustees shall be at liberty either to utilise the net income of the trust funds for her support, benefit, education and advancement in life of the said anarkali or to pay the net income of the trust funds to bharatidevi sarabhai, mother of the said anarkali as the guardian of the said anarkali for the said purpose and the receipt of the said bharatidevi sarabhai as the guardian of the said anarkali for the net income shall be a valid and effectual discharge to the trustees who shall not be liable to see to the application thereof. (b) from and after the expiration of the said period but not otherwise, the trustees shall hold the trust funds in trust for the said anarkali absolutely. (c) if the said anarkali shall die before the expiration of the said.....
Judgment:

P.N. Bhagwati, C.J.

1. This reference arises out of assessment to wealth-tax made on the assessee for the assessment year 1959-60, the relevant valuation date being 31st March, 1956. The assessee is the daughter of one Bharatidevi Sarabhai. She is the beneficiary under two trust deeds, one dated 3rd November, 1956, made by Gautam Sarabhai, another maternal uncle of the assessee. Both the trust deeds are in identical terms barring only the difference in the name of the settlor and the period of distribution and it would, therefore be sufficient to made a reference only to the terms of one of the trust deeds, namely, that made by Gautam Sarabhai and whatever we say in regard to the terms of that trust deed it must apply equally in regard to the terms of the trust deed made by Vikram Sarabhai. By the trust deed Gautam Sarabhai settled certain shares and investments more particularly described in the schedule on the trusts set out in clause 2 of the trust deed.

'2. (a) The trustees shall pay the net income of the trust founds to the said Anarkali, daughter of the settlor's sister, Bharatidevi Sarabhai, for a period of 18 years from the date of this deed (hereinafter referred to as 'the said period') Provided however that during the minority of the said Anarkali the trustees shall be at liberty either to utilise the net income of the trust funds for her support, benefit, education and advancement in life of the said Anarkali or to pay the net income of the trust funds to Bharatidevi Sarabhai, mother of the said Anarkali as the guardian of the said Anarkali for the said purpose and the receipt of the said Bharatidevi Sarabhai as the guardian of the said Anarkali for the net income shall be a valid and effectual discharge to the trustees who shall not be liable to see to the application thereof.

(b) From and after the expiration of the said period but not otherwise, the trustees shall hold the trust funds in trust for the said Anarkali absolutely.

(c) If the said Anarkali shall die before the expiration of the said period leaving a child or children her surviving, the trustees shall hold the trust funds in trust for such child or children of the said Anarkali, if more than one in equal shares absolutely, provided however that if the said Anarkali shall die before the expiration of the said period without leaving child or children her surviving the trustees shall hold the trust funds for her mother, Bharatidevi Sarabhai, absolutely and if the said Bharatidevi Sarabhai shall not be then living, then in trust for such of the other children of child of the said Bharatidevi Sarabhai as may be living at the death of the said Anarkali, and if more than one in equal shares absolutely.

(d) Notwithstanding anything to the contrary herein contained, the trustees shall have absolute power and discretion at any time or times until the expiration of the said period to have recourse to and utilise from time to time any portion or portions of the corpus of the trust funds for the support, education benefit and advancement in life of the said Anarkali or on the occasion of any serious illness or emergency as the trustees may in their absolute discretion consider proper and necessary and the decision of the trustees to utilise any portion or portions of the corpus of the trust funds under this clause for the benefit of the said Anarkali shall be final and binding on all persons and shall not be liable to be questioned or challenged by any person whatsoever.'

2. The Wealth-tax Officer assessing the assessee to wealth-tax for the assessment year 1959-60 did not include her interest in the corpus of the trust funds in computing her total wealth assessable to wealth-tax. There were, however, certain other determinations made by the Wealth-tax Officer in the process of assessment with which the assessee was aggrieved and she, therefore, preferred an appeal to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioners the Wealth-tax Officer submitted that while making the assessment he had forgotten to include in the net wealth of the assessee the value of her interest in the corpus of the trust funds and the assessment was, therefore, required to be enhanced. This argument was resisted by the assessee who contended that the interest in the corpus of the trust funds possessed by her was merely a spes successionis - a mere chance or possibility of acquiring the corpus contingent on her surviving the period of distribution - and such an interest being inalienable, its value was nil. The Appellate Assistant Commissioners was impressed by this contention of the assessee and he, therefore, refused to add any amount to the net wealth of the assessee in respect of her interest in the corpus of the trust funds. The Wealth-tax Officer carried the matter in appeal to the Tribunal but the Tribunal also took the same view and held :

'Only after the assessee attained a certain specified age under the former two trust deeds the assessee would acquire an interest in the corpus... The living of the assessee up to the period specified in the former two trust deeds and the exercise of discretion of the trustees to utilise the trust corpus for the benefit of the minor are both uncertain events... Under such circumstances we agree with the Appellate Assistant Commissioner that the interest in the corpus possessed by the assessee was only a spes successionis. There was a mere possibility or chance of acquisition of such an interest on a further date on the happening of an event. Such an interest in the trust corpus on the relevant valuation date was neither transferable not had any market value.'

3. And the Appellate Assistant Commissioner was, therefore, right in valuing it at nil. This led to a reference application by the Commissioner and on the application, the following two questions of law were referred for the opinion of this court :

'(1) Whether, on the facts and in the circumstances of the case, and on a proper construction of the provisions of the trust deed dated November 3, 1956, executed by Shri Gautam Sarabhai and dated April 24, 1957, executed by Dr. Vikram A. Sarabhai, was the Tribunal right in holding that assessee had no interest in then corpus of the said two trusts on the relevant valuation dates

(2) Whether, on the facts and in the circumstances of the case, the value of the assessee's interest in the corpus of the trusts executed by her maternal uncles, Shri Gautam Sarabhai and Dr. Vikram Sarabhai, could be any other figure except 'nil' ?'

4. The reference also raises one more question and that arises out of a third trust deed made for the benefit of the assessee. That is a third trust deed dated 31st March, 1959, made by Sarladevi Sarabhai, the grandmother of the deceased. Sarladevi Sarabhai, by this trust deed settled certain shares more particularly described in the schedule on the trusts set out in clauses (1) and (2) of the trust deed. Clause (1), which is the material clause for the purpose of the present reference, reads as follows :

'(1) During the lifetime of the said Anarkali the trustees shall utilise the net income of the trust funds for the maintains, support, education and benefit of the said Anarkali provided however that during the minority of the said Anarkali the trustees shall be at liberty either to utilise the net income of the trust funds for her maintenance, support, education and benefit of the said Anarkali or to pay the net income of the trust funds to Bharatidevi Sarabhai the mother or other guardian of the said Anarkali as the guardian of the said Anarkali for the said purpose and the receipt of the said Bharatidevi Sarabhai as the guardian or of other guardian of the said Anarkali for the net income shall be valid and effectual discharge to the trustees.'

5. The Wealth-tax Officer took the view that this clause conferred life interest in the corpus on the assessee and he accordingly valued such life interest and included it in the net wealth of the assessee. The assessee did not dispute that the valuation of the life interest was liable to be included in computing her net wealth but she was aggrieved by the manner in which the valuation was made and she, therefore, appealed against the valuation to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner partly accepted the connection of the assessee in regard to the valuation and directed the Wealth-tax Officer to recompute the value of the life interest. The assessee and the Wealth-tax Officer were both dissatisfied with his order and hence both of them preferred appeals to the Tribunal. Before the Tribunal a new contention was advanced on behalf of the assessee, namely, that the interest which the assessee had under the trust deed constituted an 'annuity' and was, therefore, exempt form wealth-tax under section 2(e)(iv) of the Wealth-tax Act, 1957. This contention found favour with the Tribunal and the Tribunal held that the interest of the assessee under the trust deed being an 'annuity' exempt form wealth-tax, was not includible in the net wealth of the assessee. Hence the third question at the instance of the Commissioner which is in the following terms :

'(3) Whether, on the facts and in the circumstances of the case, the right of the assessee to receive income for her life under the trust deed executed by her grandmother, Smt. Sarladevi Sarabhai, amounted to an annuity within the meaning of section 2(e)(iv) of the Wealth-tax Act, 1957, and exempt from payment of wealth-tax ?'

6. We may first dispose of the third question which is covered by a recent decision of the Supreme Court in Commissioners of Wealth-tax v. Arundhati Balkrishna. The trust deed in that case also gave life interest in the corpus to Arundhati Balakrishna and the question was whether it constituted an 'annuity' so as to be exempt from wealth-tax under section 2(e)(iv). The Supreme Court pointed out that the payment to the assessee under the trust deed was not an 'annuity' within the meaning of section 2(e)(iv); the assessee had a life interest in the trust funds and, therefore, she was not entitled to exemption from payment of wealth-tax in relation to her interest. This decision is indistinguishable; it directly applies in the present case and, consistently with it, we must answer the third question in favour of the revenue.

7. That takes us to the first two questions. Now it is no doubt true, as contended by the learned Advocate-General on behalf of the revenue, that the first question is restricted in its scope and ambit. It raises only a limited point whether the assessee had an interest in the corpus of the trust funds on the relevant valuation date or she had merely a spes successionis and it might, therefore, seem at first sight that consideration of the nature and quality of the interest, if the assessee is found to have any, would be outside the scope of the reference. But we do not see how we can answer the question referred to us without pronouncing upon the nature and quality of the interest, if any, possessed by the assessee. The process of determining whether the assessee had any interest in the corpus would necessarily involve examination of the terms of the trust deeds and, incidentally, consideration of the nature and quality of the interest. Moreover, in order to answer the second question, it would be necessary not only to determine whether the assessee had any interest in the corpus on the relevant valuation date but also what sort of interest it was - whether it was vested or contingent.

8. Now one thing is clear that even it the construction placed by the tribunal on the relevant provisions of the two trust deeds is right and the gift of the corps to the assessee is to take effect 'on a future date on the happening of an uncertain event', namely, the assessee being alive at the date of expiration of the period of distribution, namely, eighteen years under the first deed and seventeen years under the second trust deed, the assessee would undoubtedly have an interest in the corpus of the trust funds and it would not be spes successionis : vide Commissioner of Wealth-tax v. Ashokkumar Ramanlal and Commissioner of Wealth-tax v. Bhogilal Maganala Shah. But the real question is : What is the nature and quality of the interest of the assessee in th corpus Is it a vested interest or a contingent interest The decision of his question depends on a true interpretation of the provisions of the trust deeds. Now in cases of this kind where the question is whether an interest granted under a settlement or will is vested or contingent, there is one rule which has always to be borne in mind and the learned Advocate-General on behalf of the revenue strongly urged upon us not to ignore it. The rule is and it is a well-established rule for the guidance of the courts in construing a settlement or will, that the interest must ordinarily be held to be vested unless a condition precedent to the vesting is expressed with reasonable clearness : see Bickersteth v. Shanu, which was a case relating to devise of real estate but the rule applies equally to disposition of what is known in the English law personalty. But like all rules of construction this rule has only presumptive value and, as pointed out by the Supreme Court in Rajes Kanta Roy v. Smt. Santi Debi, this 'bias in favour of a vested interest' must give way where 'the intention to the contrary is definite and clear'. The question therefore, ultimately is one of ascertaining the true intention of the author of the settlement. Has the author made his intention clear and definite by using appropriate language that the interest granted under the settlement should be a contingent interest : if not, if must ordinarily be held to be vested. And this intention must be gathered not from one part of the document or the other, but from a comprehensive view of all the terms of the document. It is well-settled that the intention of the author is to be collected from the settlement as a whole and no one clause should be considered isolation : the intention is to be found not one clause should be settlement or in the other but in the entire settlement and that intention can best be gathered by viewing a particular part of the settlement not detached from its context in the settlement, but in connection with its whole context; vide Commissioner of Wealth-tax v. Ashokkumar Ramanlal.

9. Bearing in mind this primary rule of construction, we may now turn to the provisions of the two trust deeds. The material provision of both the trust deeds are identical and we would, therefore, for the sake of convenience, refer only to the material clause of the first trust deed. The provision of the deed which effects gift of the corpus to the assessee is sub-clause (b) of clause 2. This provision says that from and after the expiration of (the period of eighteen years in the case of the other trust deed) but not otherwise, the trustees shall hold the trust funds in trust for the assessee absolutely. Now, on the plain terms of this provision, it is clear that the interest in the corpus of the trust funds is to vest in the assessee only at the date of expiration of the period of distribution and not before such date. The trustees are required to hold the corpus of the trust funds in trust absolutely for the assessee only form the expiration of the period in trust absolutely for the assessee only from the expiration of the period of distribution and it is only then the interest in the corpus of the trust funds would vest in the assessee. But if the assessee dies before the expiration of the period of distribution, what is to happen to the corpus of the trust funds To whom is it to go The answer is provided by clause 2, sub-clause (c). That sub-clause says that if the assessee shall die before the expiration of the period of distribution leaving a child or children her surviving, the trustees shall hold the trust funds in trust for such child or children of the assessee, if more than one in equal shares absolutely, but if she shall die before the expiration of the period of distribution without leaving a child or children her surviving, the trustees shall hold the trust funds for her mother, Bharatidevi Sarabhai, absolutely and if Bharatidevi Sarabhai is not then alive, then in trust for such of the other child or children of Bharatidevi Sarabhai as may be living at the death of the assessee, and if more than one, in equal shares absolutely. This provision also emphasizes that the interest in the corpus of the trust funds is not intended to vest in the assessee until the expiration of the period of distribution. If the assessee is alive at the date of expiration of the period of distribution, the interest in the corpus of the trust funds would vest in such child or children at the death of the assessee : if she has died without leaving any child or children her surviving, the interest in the alive : but if she too is dead, the interest in the corpus of the trust funds would vest in the child or children of Bharatidevi Sarabhai who may be living at the death of the assessee. Throughout, the contingency of the beneficiary of the corpus being alive at the relevant date is emphasised in sub-clause (c) of clause 2 and that reinforced the view that under clause 2, sub-clause (b), the interest granted to the assessee is not a vested interest arising immediately to the assessee but is a contingent interest which becomes vested only if the assessee is alive at the date of expiration of the period of distribution.

10. But, contended the learned Advocate-General on behalf of the revenue, whatever might have been the position if clause 2, sub-clauses (b) and (c), stood alone, a vital difference was made by clause 2, sub-clause (a), which gave the net income of the trust funds to the assessee during the entire period up to the date of expiration of the period of distribution. The argument of the learned Advocate-General was that this provision brought the case within the exception to section 21 of the Transfer of Property Act, which provides as follows :

'21. Where, under a transfer of property, a person becomes entitled to an interest therein upon attaining a particular age, and the transferor also gives to him absolutely the income to arise from such interest before he reaches that age, or directs the income or so much thereof as may be necessary to be applied for his benefit, such interest is not contingent.'

11. The learned Advocate-General contended, relying on the exception to section 21, that the interest in the corpus of the trust funds coming to the assessee under clause 2, sub-clause (b), though apparently contingent, on her being alive at the date of expiration of the period of distribution, was really vested since the settlor also gave to her absolutely the income to arise from such interest before the expiration of the period of distribution. Now, it is no doubt true, as contended by the learned Advocate-General, that the net income of the trust funds is given by the settlor to the assessee absolutely during the entire period up to the expiration of the period of distribution by sun-clause (a) and it might, therefore, appear at first sight that the case falls within plain terms of the exception to section in the corpus under clause 2, sub-clause (b), can be regarded as a vested interest. The exception to section 21 does not enact a rule of law which must prevail over the expressed intention of the settlor. It is merely a rule enacted by the legislature to serve as an aid to ascertain the intention of the settlor where the intention may be doubtful. It is nothing more than a rule of construction founded on the principle of the assumed intention of the settlor and is must yield where the intention of the settlor is manifest from the words used in the settlement. Like all rules of construction, the operation, of this rule is presumptive and not peremptory and, therefore, where the words used by the settlor are clear and unambiguous, there can be no scope for invoking the rule. The language and the context of the provision to be construed must never be lost sight of; to ignore the language and the context would be to made the intention of the settlor the language and the rule. Being merely an aid to ascertain the intention of the settlor and the ultimate object being really to ascertain such intention, the rule should not be regarded as one of compulsory application and if the intention of the settlor is otherwise clear and manifest, effect should be give to such intention despite the rule.

12. Theobald points out in his well-known book on wills, fourteenth edition at page 469 :

'Where there is an express direction as to the time of vesting nothing can vest before the appointed time.'

And so also says Jarman in his classical work on wills, eighth edition, volume 2, at page 1368 :

'The rule of construction under consideration is also excluded by a declaration that the devisee shall take a vested interest at the future period, as such a declaration obviously carries with it an implied negation of an period of vesting.'

13. Of course, this observation is made by Jarman in regard to the rule in Edwards v. Hammond, but the rule enacted in the exception to section 21 being as much a rule of construction as the rule in Edwards v. Hammond, this observation must equally apply here and if there is a declaration expressing clear and definite intention of the settlor that the assessee shall take a vested interest on the expiration of the period of distribution and not earlier, it would exclude the rule enacted in the exception to section 21.

14. This position is also statutorily recognised by the legislature. Section 19 deals with vested interest. Both these sections are complementary to each other and they have to be read together. Now section 19 points out when an interest created in favour of a person can be said to be 'vested', It says :

'Where, on a transfer of property, an interest therein is created in favour of a person without specifying the time when it is to take effect, or in terms specifying that it is to take effect forthwith or on th happening of an even which must happen, such interest is vested,.....'

15. But this statement is in express terms made subject to a very important qualification denoted by the words 'unless a contrary intention appears from the terms of the transfer.' These qualifying words made it abundantly clear that the rule embodied in section 19 it merely a rule of construction intended as an aid in ascertaining the true intention of the settlor and it must give way where the intention of the settlor is manifest from the language used by him. Even if the conditions specified in section 19 are satisfied, the interest created on a transfer would not be vested if it appears clearly from the terms of the transfer that the interest was not intended to that must prevail over any artificial rules of construction such as those set out in section 19. It is no doubt true that the qualifying words which occur at the end of section 19 are not to be found in section 21, but that makes no difference because, as pointed out above, section 21 is complementary to section 19 and if a contrary intention appearing from the terms of the transfer is to prevail in determining whether an interest is vested or not for the purpose of section 19, it must equally prevail in determining whether the interest is contingent or not for the purpose of section 21. Moreover, the exception to section 21, by necessary implication, suggests vested. Therefore, though placed as an exception to section 21, it is projected into section 19 and must be read as part of it and if the rule enacted in section 19 is subject to a contrary intention appearing from the terms of the transfer, equally must the rule enacted in the exception to section 21 be read subject to such contrary intention.

16. Turning once again to clause 2, sub-clause (b), of the trust deeds, it is clear form the language of that sub-clause that the interest in the corpus of the trust funds is given to the assessee only from the date of expiration of the period of distribution and it is only from the date of expiration of the period of distribution and it is only then, and not before, that such interest is intended to vest in the assessee. The settlor has expressed this intention in clear and unequivocal words which do not admit of any doubt or debate. It may be noticed that the settlor has not been content with merely providing that from and after the expiration of the period of distribution the trustees shall hold the trust funds in trust absolute for the assessee but has added the words 'but not otherwise'. These words are emphatic words and they clearly indicate the intention of the settlor that the interest in the corpus of the trust funds is to vest in the assessee on the expiration of the period of distribution and not before. The words 'from and after the expiration of the said period' standing by themselves might not have been sufficient to repel the applicability of the exception to section 21 but the addition of the words 'but not otherwise' make a vital cannot treat them as mere surplusage adding nothing to the words before them as clearly conveying the intention of the settlor that the vesting of interest in the corpus of the trust funds in the assessee should not take place at any time prior to the expiration of the period of distribution. This paramount intention of the settlor must prevail over the rule of construction enacted in the exception to section 21. We are, therefore, of the view that the interest. It is contingent on the assessee being alive at the expiration of the period of distribution. It is, therefore, liable to be valued as a contingent interest and, on that basis, it must be held to have some value other than nil.

17. We, accordingly, answer question No. 1 In the negative, question No. 2 in the affirmative and question No. 3 in the negative. The assessee will pay the costs of the reference to the Commissioner.


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