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Commissioner of Wealth-tax, Gujarat State, Ahmedabad Vs. Ashokkumar Ramanlal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 2 of 1964
Judge
Reported in[1967]63ITR133(Guj)
ActsWealth Tax Act, 1957 - Sections 4; Transfer of Property Act, 1882 - Sections 21
AppellantCommissioner of Wealth-tax, Gujarat State, Ahmedabad
RespondentAshokkumar Ramanlal
Appellant Advocate J.M. Thakore, Adv.-General
Respondent Advocate D.D. Shah and; A.M. Joshi, Advs.
Cases ReferredKanai Lal v. Kumar Purnendu Nath
Excerpt:
direct taxation - trust - section 4 of wealth tax act, 1957 and section 21 of transfer of property act, 1882 - whether decision of tribunal that value of assessee's interest in corpus of trust properties is nil as it is spes successionis and contingent on assessee being alive is right - no discretionary power on trustee to apply or not to apply income - exception to section 21 not applicable which requires that there must be direction to apply income or so much part thereof as necessary for benefit of donee - assessee intended to have vested interest in corpus - held, interest of assessee in corpus neither spes successionis nor contingent interest dependent on assessee being alive as it was vested interest and capable of valuation. - - a spes successionis is a bare or naked.....bhagwati, j.1. this reference arises out of an assessment to wealth-tax made on the assessee for the assessment years 1958-59 and 1959-60, the relevant valuation dates being 31st march, 1958, and 31st march, 1959. the reference involves a question of construction of two trust deeds dated 29th march, 1957, one made by the assessee's father, ramanlal, and the other made by the assessee's mother, taramati. both the trust deeds are in identical terms barring only the difference in the names of the settlors and it would therefore be sufficient to make a reference only to the terms of the trust deed made by ramanlal and whatever we say in regard to the terms of that trust deed must apply equally in regard to the terms of the trust deed made by taramati. by the trust deed, ramanlal settled a sum.....
Judgment:

Bhagwati, J.

1. This reference arises out of an assessment to wealth-tax made on the assessee for the assessment years 1958-59 and 1959-60, the relevant valuation dates being 31st March, 1958, and 31st March, 1959. The reference involves a question of construction of two trust deeds dated 29th March, 1957, one made by the assessee's father, Ramanlal, and the other made by the assessee's mother, Taramati. Both the trust deeds are in identical terms barring only the difference in the names of the settlors and it would therefore be sufficient to make a reference only to the terms of the trust deed made by Ramanlal and whatever we say in regard to the terms of that trust deed must apply equally in regard to the terms of the trust deed made by Taramati. By the trust deed, Ramanlal settled a sum of Rs. 60,000 on the trusts set out in clause 3 of the trust deed which runs as follows :

'3. The trustees shall hold and stand possessed of the said sum of Rs. 60,000 (rupees sixty thousand)

UPON TRUST :

(a) to recover the interest, dividends and income of the trust fund and to pay out of the same the charges for collection and all other outgoings, if any;

(b) to apply the balance of such interest, dividends and income hereinafter called 'the net income' or such portion thereof as the trustees in their absolute discretion deem fit for the maintenance, education and advancement and otherwise for the benefit of the settlor's son the said Ashok and of his wife provided such wife is born before the date of the presents and in case of any surplus income to accumulate the same for a period of not more than 18 years PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED THAT the trustees shall not be liable or accountable to any one for any act bona fide done by them or for any payment bona fide made by them in pursuance of the provisions of this clause and in particular the trustees shall not be accountable or responsible for any amount expended or applied by them or the manner in which or the purpose for which the same shall be applied by the trustees in their absolute discretion as aforesaid shall not be questioned in any court of law or otherwise howsoever by any party whomsoever.

(c) If the settlor's son the said Ashok shall be alive on the 31st day of March, 1987, the trustees shall transfer and hand over the corpus of the trust fund including accumulations of income if any to the settlor's son the said Ashok absolutely and as the absolute owner thereof.

(d) In the event of the death of the settlor's son the said Ashok before the 31st day of March, 1987, and in the event of any child or children being born to the said Ashok the trustees shall transfer and hand over the corpus of the trust fund to such child or children if more than one in equal shares absolutely.

(e) If no child is born to the said Ashok then in the event of the death of the said Ashok before the 31st day of March, 1987, the trustees shall transfer and hand over the corpus of the trust fund, amongst such person or persons, on such terms and conditions and in such manner in all respects as the said Ashok may by any deed or deeds revocable or irrevocable inter vivos or by his last will or any codicil thereto appoint AND in default of any such appointment or in so far as any such appointment shall not extend, amongst the heirs of the said Ashok, according to the law of intestate succession amongst Hindus in force at the time as if the said Ashok had died possessed of assets sufficient to pay his debts, if any.'

2. In the course of the assessment of the assessee to wealth-tax for the assessment years 1958-59 and 1959-60, a question arose whether the assessee was taxable on his interest under the trust deeds. The Wealth-tax Officer took the view on a construction of clause 3 of the trust deed that, under the trust deed, the assessee had an interest both in the income and in the corpus of the trust fund and he therefore proceeded to value the interest of the assessee in the income as also in the corpus. The assessee was not married on the relevant valuation dates and his interest in the income was therefore valued by the Wealth-tax Officer on the basis of the average marriageable age being 25. There is no dispute about this valuation and we will therefore say no more about it. So far as the interest of the assessee in the corpus was concerned, the Wealth-tax Officer was of the view that the interest was a vested interest and he, accordingly, determined the value of the interest on the relevant valuation dates on the basis of its being a vested interest. We are not concerned in this reference with the quantum of the valuation arrived at by the revenue authorities and it is, therefore, not necessary to mention the actual figures of valuation arrived at by them. The assessee being aggrieved by the orders made by the Wealth-tax Officer preferred appeals to the Appellate Assistant Commissioner, there being a separate appeal in respect of each assessment year. The Appellate Assistant Commissioner took the view that the assessee did not have any vested interest in the income of the trust fund and it could not therefore be said that he had an interest in the income which could be valued for the purpose of Wealth-tax. So far as the interest in the corpus was concerned, the Appellate Assistant Commissioner held that the assessee had a vested interest in the corpus and merely his possession or enjoyment of the corpus was postponed to 31st March, 1987, and his interest in the corpus was, therefore, liable to be taken into account in the computation of his net wealth. The Appellate Assistant Commissioner accordingly confirmed the valuation of the assessee's interest in the corpus. The revenue did not prefer any appeal against the decision of the Appellate Assistant Commissioner in so far as it went against it but the assessee preferred appeals against the decision in so far as it decided the question of interest in the corpus against the assessee. The Tribunal examined the provisions of the trust deed and came to the conclusion that the interest of the assessee in the corpus was not a vested interest and that the gift of the corpus to the assessee was contingent on his being alive on 31st March, 1987. The Tribunal then proceeded to hold that, since the gift to the assessee was based on the contingency of the survival of the assessee, it was merely a spes successionis - a chance of obtaining the property which was in the nature of a mere possibility of getting something on a future date - and was, therefore, incapable of alienation as provided in section 6(a) of the Transfer of Property Act. This being in the opinion of the Tribunal the true nature or character of the interest of the assessee in regard to the corpus, the Tribunal held that the interest was such as could not be sold and no price could be realised for it and the value of the interest was accordingly nil. The revenue thereupon applied for a reference and, on the application, the Tribunal drew up a statement of the case and referred the following question for the opinion of the court :

'Whether, on a proper construction of annexure 'A', the Tribunal's decision that the value of the assessee's interest in the corpus of the trust properties is nil, as it is a spes successionis and contingent on the assessee being alive on March 31, 1987, is right ?'

3. The question unfortunately is not happily worded but, as we shall presently point out, its compass is fairly clear. The learned Advocate-General contended that the question must be answered in favour of the revenue and he urged two grounds in support of his plea. The first ground was that what the assessee had under the trust deed was neither a spes successionis nor a contingent interest in the corpus but it was a vested interest which was capable of valuation and the Tribunal was, therefore, in error in taking the view that its value was nil. The second ground which he urged in the alternative was that, in any event, even if the interest of the assessee in the corpus was not a vested interest, it was, in any event, a contingent interest and contingent interest being a form of property assignable and transferable, it could be valued by the revenue authorities and the view taken by the Tribunal was, therefore, incorrect. Mr. D.D. Shah, however, contended that having regard to the frame of the question it was not open to the revenue to contend that the assessee had an interest in the corpus and that such interest was a vested interest.He pointed out that the finding of the Tribunal was that the assessee's interest in the corpus was a spes successionis and the question as framed assumed the correctness of this finding and merely brought into issue the point whether the assessee's interest being spes successionis could be valued at nil. He further argued that, even if the finding of the Tribunal were construed to mean that the assessee's interest in the corpus was a spes successionis and also a contingent interest, that would not make any difference, for that being the assumption on which the question was based, it was not permissible to the revenue within the framework of the question to contend that the interest of the assessee in the corpus was not a spes successionis or a contingent interest but a vested interest.He thus sought to narrow down the scope and ambit of the question by confining it only to the validity of 'nil' valuation on the assumption that the assessee's interest in the corpus was a spes successionis or at the highest a contingent interest. On the merits he contended that the assumption on which the question was based was correct and that the assessee's interest in the corpus was a spes successionis or in any event a contingent interest but it was certainly not a vested interest as contended on behalf of the revenue.

4. The first point which arises on these arguments is as to what is the true scope and ambit of the controversy which may properly be raised under the question submitted for our opinion. In order to determine this point, it is necessary to see what are the findings arrived at by the Tribunal in reaching the conclusion that the valuation of the assessee's interest in the corpus is nil. The Tribunal held on a construction of the relevant provisions of the deeds that the interest of the assessee in the corpus was not a vested interest. The Tribunal found that the gift of the corpus to the assessee was contingent on his survival up to 31st March, 1987, and, on the basis of this finding, the Tribunal held that the assessee's interest in the corpus was a spes successionis and since spes successionis is not transferable by virtue of section 6(a) of the Transfer of Property Act, the assessee's interest in the corpus should be valued at nil. The decision of the Tribunal thus was that the assessee's interest in the corpus was a spes successionis by reason of the gift to the assessee being contingent on his being alive on 31st March, 1987, and the value of the interest was, therefore, nil. This decision was challenged in the question referred to us for our opinion and in the question the impugned decision was stated as follow : 'That the value of the assessee's interest in the corpus of the trust properties is nil as it is a spes successionis and contingent on the assessee being alive on 31st March, 1987'. The decision obviously comprises two findings : (1) the assessee's interest in the corpus is a spes successionis and, (2) consequently its value is nil and it is, therefore, axiomatic that the challenge to the decision would necessarily carry with it the challenge to both the findings which constitute the decision and not only the final conclusion that the value of the assessee's interest in the corpus is nil but also the premise on which it is based, namely, that the assessee's interest is a spes successionis, would be liable to be challenged under the question as framed. The question is a rolled up one which takes in the challenge to both the findings of the Tribunal and submits both the findings to the court for testing their correctness. This would becomes still clearer if we consider how the question may be answered if it is to be decided in favour of the revenue. It may be answered in one of two way : either it may be held that the value of the assessee's interest in the corpus is not nil, though it might be a spes successionis or it may be held that the value of the assessee's interest in the corpus is not nil but it has some value because it is not a spes successionis but is a vested interest or at any rate a contingent interest. The finding of the Tribunal that the assessee's interest in the corpus is a spes successionis being based on the view that the assessee's interest is not a vested interest but is contingent on the assessee being alive on 31st March, 1987, it would be open to the revenue to contend for the purpose of demolishing the finding of the Tribunal that the assessee's interest is a vested interest and is not contingent on the assessee being alive on 31st March, 1987, and that the finding of the Tribunal is, therefore, incorrect. What is the nature and quality of the interest of the assessee in the corpus must, therefore, directly arise for consideration under the question formulated for our opinion.

5. Now, before we proceed to examine the nature and quality of the interest of the assessee in the corpus, it is necessary first to clear the ground by pointing out that in any event it cannot be regarded as a spes successionis. Even if the construction placed by the Tribunal on the relevant provisions of the trust deed is right and the gift to the assessee is held to be contingent on his surviving up to 31st March, 1987, the interest of the assessee in the corpus would be a contingent interest and not a spes successionis. A spes successionis is a bare or naked possibility such as the chance of a relation obtaining a legacy on the death of a kinsman or any other possibility of a like nature which must be distinguished from a possibility coupled with interest. Where interest in corpus is given to a donee under a settlement and such interest is contingent on the happening of an uncertain event, the donee acquires a contingent interest in the corpus which becomes vested on the happening of the uncertain event and such contingent interest, though dependent on a possibility for its vesting, is very much different from a spes successionis. It is a form of property which is assignable or transferable and on which money can be raised unlike spes successionis which is non-transferable by reason of section 6(a) of the Transfer of Property Act. This distinction between the two legal concepts is clear and well defined and does not need any authority to support it. But if any authority were needed, it is to be found in the decision of the Privy Council in Ma Yait v. Official Assignee. In that case too the gift to the children was contingent on the youngest attaining the age of 20 and the argument was that the interest of the children being in the nature of spes successionis was not transferable and the assignment of such interest was therefore invalid. The Privy Council repelled this argument holding that the interest which the children took in the corpus was contingent interest which 'was something quite different from a mere possibility of a like nature of an heir apparent succeeding to the estate, or the chance of a relation obtaining a legacy....' The Privy Council observed that a contingent interest is '.... a well ascertained form of property - it certainly has been transferred in this country for generations - in respect of which it is quite possible to raise money and to dispose of it in any way that the beneficiary chooses'. It is, therefore, clear that even if the gift to the assessee be held to be contingent on his surviving up to 31st March, 1987, the interest of the assessee in the corpus cannot be held to be spes successionis and hence, not transferable under section 6(a) of the Transfer of Property Act.

6. The question then arises whether the gift to the assessee is contingent on his being alive on 31st March, 1987, as held by the Tribunal or is it vested in interest in the assessee, possession or enjoyment alone being postponed. What is the nature and quality of the interest of the assessee in the corpu : is it a vested interest or a contingent interes The decision of this question depends on the true interpretation of the provisions of the trust deed. Now in cases of this kind where the question is as to whether an interest granted under a settlement or a will is vested or contingent, it is a well established rule for the guidance of the courts in construing the settlement or will that the interest is to be held to be vested unless a condition precedent to the vesting is expressed with reasonable clearnes : 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 as personalty. The rule is that the court must always lean in favour of vesting. As observed by the Supreme Court in Rajes Kanta Roy v.Smt. Shanti Debi, '.... a court has to approach the task of construction in such cases with a bias in favour of a vested interest unless the intention to the contrary is definite and clear'. Another rule of equal cogency which must be borne in mind is that in all these cases the question is really 'one of intention to the gathered from a comprehensive view of all the terms of the document'. With these preliminary observations we will not proceed to examine the relevant clauses of the trust deed.

7. If we look at the trust deed, it is clear that the provision which effects the gift of the corpus to the assessee is sub-clause (c) of clause 3. This provision says that if the assessee shall be alive on 31st March, 1987, the trustees shall transfer and hand over the corpus of the trust fund including accumulation of income, if any, to the assessee absolutely and as an absolute owner of the same. Now, if this provision stood alone, there can be no doubt that it would have to be construed as creating a contingent interest in the corpus in the assessee. Such a consequence would follow clearly from the application of the rule enacted in section 21 of the Transfer of Property Act. But, as pointed out by the Supreme Court, the intention of the settlor is to be collected from the settlement as a whole and no one clause should be construed in isolation, for the intention of author of the settlement is to be found not in one part of the 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. We must, therefore, see whether there is anything in the other parts of the trust deed which shows that the gift of the corpus though apparently contingent was really intended to create a vested interest.

8. Now several provisions contained in the trust deed were relied upon by the learned Advocate-General on behalf of the revenue as indicative of the settlor's intention to create a vested interest. Of these, the main provision on which he relied was that contained in clause 3, sub-clause (b), which imposes an obligation on the trustees to apply the net income or such portion thereof as the trustees in their absolute discretion deem fit for 'maintenance, education and advancement and otherwise for the benefit' of the assessee and his wife (provided of course she is born before the date of the trust deed) and in case of any surplus income directs them to accumulate the same for a period of not more than 18 years. 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 :

'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.'

9. The learned Advocate-General urged that in this provision there was a direction to the trustees that the income or such portion thereof as the trustees in their absolute discretion might deem fit should be applied for the benefit of the assessee until 31st March, 1987, and therefore by reason of the Exception to section 21 the interest of the assessee in the corpus was not contingent but vested. Two answers were sought to be given to this argument by Mr. D. D. Shah on behalf of the assessee. The first answer was that there was no direction in this provision that the income or any part thereof must be applied for the benefit of the assessee; what was conferred was merely a discretionary power in the trustees to apply or not to apply the income or any part thereof for the benefit of the assessee and the Exception to section 21 was therefore not applicable. The second answer suggested on behalf of the assessee was that, on a true construction, the Exception to section 21 does not apply where there is a direction or power to the trustees to apply a part of the income otherwise than for the benefit of the assessee and since, in the present case, there was power in the trustees to apply the income or such portion thereof as the trustees in their absolute discretion might deem fit for the maintenance, education and advancement and otherwise for the benefit of the assessee's wife, the case could not come within the Exception to section 21. Both answers are, in our opinion, unsustainable and our reasons for saying so are as follows :

10. It is undoubtedly true that what the Exception to section 21 requires is that there must be a direction to apply the income or so much part thereof as may be necessary for the benefit of the donee, if the gift to the donee apparently contingent is to be held to be vested. If there is a mere discretionary power to apply the income for the benefit of the donee, that would not be sufficient to vest the gift. This principle is well-settled in England (vide Halsbury's Laws of England (3rd edition),vol. 39, page 1136, paragraph 1676) and it obviously applied in India since the Exception to section 21 specifically requires a direction to apply the income or so much thereof as maybe necessary for the benefit of the donee and that cannot include a case where a mere discretionary power as distinguished from a direction is conferred on the trustees. This was not in dispute between the parties but the point of controversy was as to whether clause 3, sub-clause (b), conferred only a discretionary power on the trustees or contained a direction to them to apply the income for the benefit of the assessee. Now, when we turn to clause 3, sub-clause (b), we find it impossible to take the view that the provision made in that sub-clause confers discretionary power on the trustees to apply the income for the benefit of the assessee. The sub-clause says in terms clear and explicit that the trustees shall hold and stand possessed of the sum of Rs. 60,000 upon trust to apply the net income or such portion thereof as the trustees in their absolute discretion deem fit for the benefit of the assessee and his wife. There is thus an obligation on the trustees to apply the net income in the manner set out in the sub-clause and the discretion that is given to the trustees is with regard to the quantum of the amount which they may apply for such purpose. The trustees may apply the whole of the net income for the benefit of the assessee and his wife or they may apply a lesser amount if they in their absolute discretion deem fit. But they cannot say that they will not apply any part of the net income for the benefit of the assessee and his wife. The argument on behalf of the assessee was that the word 'such portion thereof' would include even no portion of the net income and it was, therefore, left to the discretion of the trustees to refuse to apply any part of the income if they so thought fit. We cannot accede to this contention. The words 'so much portion thereof' following as they do the words 'the net income' coupled with the obligation imposed by the opening part of the sub-clause clearly show that what the settlor intended was that the trustees should be bound to apply the net income for the benefit of the assessee and his wife but, in their absolute discretion, they may deem fit to apply a lesser amount. This construction receives some support from the latter part of the sub-clause which provides immunity to the trustees. That part of the sub-clause clearly contemplates application of the net income or a part thereof by the trustees and provides that the trustees shall not be accountable or responsible for any amount applied by them or the manner in which the same shall be applied nor shall the amount so applied be questioned in any court of law or otherwise howsoever. It is also important to note that a provision of the type to be found in this sub-clause is of common use in dispositions made in England and it has been judicially interpreted in several English cases. We may in this connection refer to the leading case of Fox v. Fox. We shall have occasion to refer to this case again later in another connection and it would therefore be convenient to set out briefly the facts of that case. In that case a testator directed his trustees to raise a sum of Pounds 15,000, and after the determination of certain prior life interests given to T and his widow, to divide and transfer one-fifth of the fund to and amongst the children of T equally as and when they should respectively attain the age of twenty-five years, apply in from time to time the income of the presumptive share of each child, or so much thereof as the trustees for the time being might think fit, for his and her maintenance and education until such share should become payable as aforesaid. Jessel M. R. held that the children took vested interest at the testator's death and the vesting was not postponed until each respective child attained the age of twenty-five. The provision in the will which we have set out above was interpreted by the learned Master of the Rolls as follow : 'There still remains the difficulty that the gift here is not a gift of the whole income absolutely for maintenanc : there is a discretionary power to apply the whole income, or so much as the trustees may think proper, and the question is, whether that is a gift of the whole interest within the rule as laid down in Watson v. Hayes and the other cases I have referred to. On that point Harrison v. Grimwood is a distinct authority. There the legacy was given to a class, followed by a direction, during the minority of the members of the class, to apply the interest, 'or a competent portion thereof', for maintenance; and the court held the legacy was vested. Lord Langdale does not appear to have considered the indication of intention derived from the direction to pay the whole income as affected by the words enabling the trustees to apply a competent portion for maintenance; he treated it as a gift of the whole income followed by a discretion to apply less than the whole income; and that appears to me to be a rational view. Being opposed to the frittering away of general rules, and thinking that such rules, so long as they remain rules, ought to be followed, I hold that a gift contained in a direction to pay and divide amongst a class at a specific age, followed by a direction to apply the whole income for maintenance in the meantime, is vested...' This, of course, is clearly a view in accordance with a long line of decisions but the learned Master of the Rolls adde : 'and not the less so because there is a discretion conferred on the trustees to apply less than the whole income for that purpose.' The learned Master of the Rolls thus interpreted the provision as containing a direction to apply the whole income for maintenance until the attainment of the specified age and not the less so because there was super-added a discretion conferred on the trustees to apply less than the whole income for that purpose and on that basis held the gift to be vested in interest though it was apparently contingent in terms. This decision clearly shows that the interpretation which we are inclined to put upon clause 3, sub-clause (b), is correct and that sub-clause does not confer any discretionary power on the trustees to apply or not to apply the income according to their discretion but imposes an obligation on them to apply the net income or such portion thereof as they in their absolute discretion think fit for the benefit of the assessee and his wife.

11. The next question which arises for consideration is whether the direction contained in clause 3, sub-clause (b), is sufficient to bring the case within the Exception to section 21, The learned Advocate-General contended that, on a true construction of the Exception to section 21, it was not necessary that the direction should extend to the whole of the income but that it was sufficient if the direction required a part of the income to be applied for the benefit of the donee. He argued that, in the present case, a part of the net income was in any event directed to be applied of the benefit of the assessee and, therefore, even if some part of the income was directed to be applied for the benefit of the assessee's wife, it did not make any difference to the applicability of the Exception to section 21.He also urged in the alternative that in any event the application of the income for the benefit of the assessee's wife was application of income for the benefit of the assessee and, consequently, clause 3, sub-clause (b), did not direct or authorise the application of any part of the income for a purpose other than for the benefit of the assessee and the case was, therefore, still within the Exception to section 21. Now, in order to arrive at a true interpretation of the Exception to section 21, it is necessary to notice briefly the position in England in regard to this question. We may at once point out that, so for as the law of transfer and succession is concerned, the rules evolved by English courts are very often based on technical rules peculiar to the development of the English law of property and inheritance and they should not therefore be allowed to control the plain and grammatical meaning of the provisions of the Transfer of Property Act or the Indian Succession Act, which is the statutory law applicable in India, but we cannot overlook the fact that many of the rules codified in the Transfer of Property Act and the Indian Succession Act are based upon the rules of English law and the rules of English law, where they are not based on any technicality but are based on general principles, can be referred to profitably for the purpose of understanding the true meaning and effect of the relevant provisions of the Transfer of Property Act and the Indian Succession Act. Now, in England the rule is well established by several decisions of which we may mention only Hanson v. Graham and Watson v. Hayes, that a gift apparently contingent must be held to be vested in interest where it is accompanied by a gift of the intermediate income or a direction for application of the intermediated income for the benefit of the donee. The principle on which the rule rests is that, ordinarily, a person is not entitled to the income of property unless the property itself is vested in him, so that the giving of the income is presumptive proof of the intention to give a vested estate. This being the rationale of the rule, it is apparent that in order to attract the applicability of the rule, the whole of the intermediate income should be made available to the donee in whose favour the interest in the corpus is created. Where there is a gift of the whole intermediate income to the donee or there is a direction to apply the whole of the intermediate income for the benefit of the donee, there is no difficulty and the rule would clearly apply. But what would be the position where there is a direction that the whole of the intermediate income or a competent portion thereof or the whole of the intermediate income or so much thereof, as the trustees for the time being might think fit, should be applied for the benefit of the donee. A case containing the former provision arose in Harrison v.Grimwood, while a case containing the latter provision arose in Fox v. Fox, to which we have already referred. In the first case Lord Langdale treated the direction as a direction to apply the whole of the income followed by a discretion to apply less than the whole income and since there was no gift of the unapplied portion of the income for the benefit of any person other than the donee, the learned Lord held that the legacy was vested. In the second case also, as pointed out above, Jessel M. R. took the same view and observed :

'The gift must be read as a direction to apply the whole income for maintenance, with a discretionary power reposed in the trustees to apply less than the whole income for the purpose if they thought fit. A gift of the intermediate income to be applied for the benefit of the parties contingently entitled would, according to Hanson v. Graham, vest the fund, and he should regard the fund as not the less vested if to that direction a discretion was appended not to apply the whole income in that manner, provided there was no gift over of the unapplied portion.'

12. It will be seen from the last part of the observation that the learned Master of the Rolls emphasised that even where the direction gives a discretion to the trustees to apply the whole of the income or such part thereof as they think fit for the benefit of the donee, there should be no gift over of the unapplied portion of the income and the unapplied portion of the income should not be given for a purpose which is not for the benefit of the donee. Where the whole of the income is not made available for the benefit of the donee and a part of the income is directed to be applied for a purpose other than the benefit of the donee, the whole of the income cannot be said to have been intended for the benefit of the donee and the inference that the donee was intended to have the corpus in any event cannot be raised.

13. Now when we turn to the Exception to section 21 of the Transfer of Property Act and the corresponding Exception to section 21 of the Indian Succession Act, which enacts an identical provision in regard to testamentary dispositions as section 21 does in regard to transfers inter vivos, we find that the position of the law in India is no different. The Exception to section 21 of the Transfer of Property Act which also finds a place as an Exception to section 120 of the Indian Succession Act is based on the case of Fox v. Fox and illustration (xii) to section 120 of the Indian Succession Act is based on the case of Harrison v.Grimwood. It is therefore clear that the same rule which prevails in England and which we have discussed above is embodied in the Exception to section 21 of the Transfer of Property Act and when the Exception provides that a gift of the corpus apparently contingent must be regarded as vested where it is accompanied by a direction that the income or so much thereof as is necessary should in the meantime be applied for the benefit of the donee, it is a necessary requirement of the Exception that the unapplied portion of the income should not be given for a purpose other than the benefit of the donee. The whole of the income should be made available for the benefit of the donee and if any part of the income is given for the benefit of any one other than the donee, the Exception would not apply. This would appear to be the position on principle but the learned Advocate-General relied on a decision of a Division Bench of the Bombay High Court in Ratanbai v. Cawasji in support of his contention that the law in India was different and it was sufficient to bring the case within the Exception to section 21 if a part of the intermediate income was directed to be applied for the benefit of the donee regardless of the application of the rest of the intermediate income. This decision undoubtedly supports the contention of the learned Advocate-General, for both the learned judges who decided this case held that the rule laid down in the English decisions does not apply because the Exception to section 21 in terms refers not only to the whole income but to a part of the income as well and it is therefore sufficient if there is a direction in the will to spend a part of the income for the benefit of the legatee; such a direction would bring the case within the Exception to section 21. This decision was taken in appeal to the Privy Council and was reversed but the decision of the Privy Council did not touch this point and, therefore, the decision of the Bombay High Court on this point would stand and we would be bound to follow it whatever might be our own view in regard to the question. But we find that there is a decision of the Supreme Court in Rajes Kanta Roy v. Smt. Shanti Debi where it is laid down in clear and unambiguous terms that it is undoubtedly the rule that where the enjoyment of the property is postponed but the present income whereof is to be applied for the benefit of the donee, the gift is vested and not contingent but this rule operates normally in those cases only where the entire income is applied for the benefit of the donee. Having regard to this decision of the Supreme Court, we are not bound by the view taken by the Division Bench of the Bombay High Court and we must hold that, in order to attract the applicability of the Exception to section 21, the direction must require application of the whole of the intermediate income for the benefit of the donee and, though the trustees may be given a discretion to apply less than the whole intermediate income, no part of the unapplied portion of the intermediate income should be directed to be applied for a purpose other than the benefit of the donee. We may point out as a matter of interest that this identical view was taken by that eminent lawyer, Sir Jamshedji Kanga, when, sitting as an additional judge on the original side of the Bombay High Court, he decided Ratanbai's case in the court of first instance.

14. But even if this be the true construction, it is clear that the direction contained in clause 3, sub-clause (b), satisfied the requirement of the Exception to section 21. Clause 3, sub-clause (b), provides that the trustees shall be under an obligation to apply the net income or such portion thereof as they in their absolute discretion think fit for the benefit of the assessee and his wife. Now the assessee would certainly be bound to provide for his wife and a provision for the benefit of the assessee's wife must therefore be regarded as a provision for the benefit of the assessee. It is not as if any part of the income is directed to be applied for the benefit of a third person. The provision is for the benefit of the assessee and his wife, who together constitute a family or a unit, and a provision which requires that the net income shall be applied for the benefit of the assessee and his wife would certainly be a provision of the benefit of the assessee. Then again, it is worthy of note that if there is any surplus income, it is to be accumulated for a period of not more than 18 years and on the assessee being alive on 31st March, 1987, the accumulation of the income is to be transferred and handed over to him along with the corpus. Even if the assessee dies before 31st March, 1987, and sub-clause (d) or (e) of clause 3 becomes applicable, the accumulation of the income is not to be paid over to the persons specified in such sub-clause but it would go to the heirs of the assessee as property belonging to the assessee, if the assessee dies intestate or according to the terms of the will, if he dies after having made a will. The whole of the intermediate income is thus given to or for the benefit of the assessee. It is, therefore, clear that the Exception to section 21 applied and the gift made to the assessee in clause 3, sub-clause (c), though apparently contingent, must be held to be vested.

15. There are also certain other circumstances which clearly indicate the intention of the settlor that the assessee should receive a vested interest in the corpus and that the period of distribution alone should be postponed to 31st March 1987. The trust deed recites that the trust is being made for the benefit of the assessee. Then there is the gift of the corpus to the assessee in clause 3, sub-clause (c), under which the corpus is to be handed over to the assessee on the 31st March, 1987, if he is then alive and in the meantime the whole of the intermediate income is given to or for the benefit of the assessee. If the assessee dies before 31st March, 1987, leaving a child or children, the corpus is to go to such child or children and if the assessee dies before 31st March, 1987, without leaving any child, the corpus is to be disposed of in accordance with the terms of any appointment which may be made by the assessee in exercise of the general power of appointment conferred upon him under clause 3, sub-clause (e), and failing such appointment, the corpus is given to the heirs of the assessee. The conferment of a general power of appointment on the assessee is a very important factor showing that the assessee was intended to have a vested interest. It is rather difficult to conceive that the settlor should have conferred a general power of appointment on a donee who was merely entitled to a contingent interest in the corpus. The fact that on the death of the assessee, without exercising the power of appointment, the corpus would go to his heirs according to the law of intestate succession is also a circumstance strongly indicative of the intention that the assessee should have a vested interest. The intention underlying the disposition clearly seems to be that the assessee should have a vested interest in the corpus but his possession or enjoyment should be postponed until 31st March, 1987, and if he dies in the meantime leaving a child or children, his interest should be divested and the corpus should be vested in such child or children and, if he dies without any child, the corpus should vest in accordance with the terms of any appointment which may be made by him and failing such appointment, in the heirs. But quite apart from these circumstances, there is one further circumstance which to our minds is extremely significant and that is that the accumulation of the income is not disposed of along with the corpus under clause 3, sub-clauses (d) and (e). If the interest of the assessee were not vested but contingent, what would happen to the accumulation of the income in case of the death of the assessee prior to 31st March, 198 There would be no disposition of the accumulation of the income which certainly could not have been intended by the settlor. We should be slow to accept a construction which creates a chasm or void in regard to the accumulation of the income and leaves it undisposed of. If, on the other hand, the interest of the assessee is vested, he would be entitled to the accumulation of the income, for there being no other disposition of the accumulation of the income, it would belong to the owner of the corpus and though on the death of the assessee prior to the 31st March, 1987, his interest in the corpus would be divested, a similar conclusion would not follow in regard to the accumulation of the income since, unlike sub-clause (c), sub-clauses (d) and (e) of clause 3 do not refer to the accumulation of the income and the gift over contained in these sub-clauses does not comprise such accumulation of income. These circumstances, in our opinion, clearly indicate that the assessee was intended to have a vested interest in the corpus despite the words of contingency used in clause 3, sub-clause (c).

16. That leaves only one last point raised by the learned Advocate-General on behalf of the revenue.He contended that, in addition to these circumstances which we discussed above, there was one other circumstance which also pointed in the direction of vesting and that circumstance was to be found in the provision of gift over made in clause 3, sub-clauses (d) and (e).He relied on the rule which is well-established in English Law and which is commonly referred to as the rule in Phipps v.Ackers, that where there is a gift 'to A 'if' or 'when' he shall attain a given age with a gift over in the event of his dying under that age, the attainment of the given age is held to be a condition subsequent and not precedent and A takes an immediate vested estate, subject to be divested upon his death under the specified age.' This rule according to him was a rule of construction and there was, therefore, no reason why it should not be imported in the construction of settlements or wills in India and, in order to establish that it was a rule of construction, he relied on the decision of the Chancery Court in In re Heat : Public Trustee v. Heath. Mr. D.D. Shah on behalf of the assessee however urged that this rule, though admittedly a rule of construction, should not be imported in India, since it was established in England with a view to preventing a gift in remainder being liable to destruction as contingent remainder by reason of not being supported by a prior legal estate before it fell into possession. He pointed out that the rule of English law that a contingent remainder must be supported by a prior legal estate was not imported in India and, therefore, the rule of construction which was evolved in England in order to remedy the mischief arising out of that rule of English law was not necessary to be imported in this country. In this connection he relied on the decision of the Calcutta High Court in Kanai Lal v. Kumar Purnendu Nath, where S. R. Das J., as he then was, refused to import this rule of construction in the construction of Indian settlements and wills. These contentions raise an interesting question but it is not necessary for us to decide it, since] we are of the view that, apart altogether from this rule of construction, there are several other circumstances to which we have adverted which clearly indicate the intention of the settlor to give a vested interest to the assessee in the corpus.

17. In this view of the matter, our answer to the question referred to us is that the interest of the assessee in the corpus is neither a spes successionis nor a contingent interest dependent on the assessee being alive on 31st March, 1987, but is a vested interest and, therefore, capable of valuation and should be valued as such. The assessee will pay the costs of the reference to the Commissioner.


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