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Commissioner of Wealth Tax, Gujarat, Ahmedabad Vs. Ashok Kumar Ramanlal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth Tax Reference No. 2 of 1964
Judge
Reported inAIR1967Guj161
ActsWealth Tax Act, 1957 - Sections 27; Income-tax Act, 1961 - Sections 256(1); Transfer of Property Act, 1882 - Sections 6 and 21; Succession Act, 1925 - Sections 82, 87, 99 and 120
AppellantCommissioner of Wealth Tax, Gujarat, Ahmedabad
RespondentAshok Kumar Ramanlal
Appellant Advocate J.M. Thakore, Adv. General, i/b.; M.M. Thakore,; M.G. Do
Respondent Advocate D.D. Shah and; A.M. Joshi, Advs.
Cases ReferredKanal Lal v. Kumar Purunendu Nath
Excerpt:
direct taxation - assessment - section 27 of wealth tax act, 1957, section 256 (1) of income-tax act, 1961 and sections 6 and 21 of transfer of property act, 1882 - ordinarily person not entitled to income of property unless property itself vested in him - giving of income is presumptive proof of intention to give vested estate - in order to attract applicability of such rule whole of intermediate income should be made available to donee in whose favour interest in corpus created - in case whole of income not available for benefit of donee then whole of income cannot said to have been intended for benefit of donee - inference that donee was intended to have corpus in any event cannot be raised. - - what is the nature and quality of the interest of the assessee in the corpus must.....bhagwati, j.(1) this reference arise 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 31 state government march 1958 and 31 state government 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 an identical terms barring only the difference in the names of the settler 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,.....
Judgment:

Bhagwati, J.

(1) This reference arise 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 31 State Government March 1958 and 31 State Government 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 an identical terms barring only the difference in the names of the settler 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 outgoing 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 settler son the said Ashok and of his wife provided such wife is born before the date of these 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 bona fide act 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 settler son the same Ashok shall be alive on the 31St day of March 1987 the trustees shall transfer and hand over corpus of the trust fund including accumulations of income if any to the settler son the said Ashok absolutely and as the absolute owner thereof.

(d) In the event of the death of the settler son the said Ashok before the 31 State Government day of march 1987 and in the event of 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 31 State Government 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 respect 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 look the view on a construction of C1 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 found and he therefore proceeded to value the interest of the assessee in the income as also in the corpus. The assessee as 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 31 State Government march 1987 and his interest in the corpus and merely his possession or enjoyment of the corpus was postponed to 31 State Government 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 decisions 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 an that the gift of the corpus to the assessee was contingent on his being alive on 31 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 successions - 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 S. 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 successions and contingent on the assessee being alive on 31-3-1987 is right?'

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 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 successions no a contingent interest in the corpus but it was a vested interest which was capable off 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 f 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 an the vie 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 being spes successions 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 successions 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 frame work of the question to contend that the interest of the assessee in the corpus was not a spes successions 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 successions or at the highest a contingent interest. On the merits the contended that the assumption on which the question was based was correct and that the assessee's interest in the corpus was a spes successions or in any event a certainly not a vested interest a contended on behalf of the Revenue.

(3) 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 trust 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 upto 31st March 1987 and on the basis of this finding. The Tribunal held that the assessee 's interest in the corpus was a spes successions and since spes successions 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 follows: 'that the value of the assessee's interest in the corpus of the trust properties in nil as it is a spes successions and contingent on the assessee being alive on 31 March 1987' The decision obviously comprises two findings: (1) the assessee 's interest in the corpus is a spes successions 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 corpus is nil but also the premise on which it is based namely that the assessee's interest is a spes successions would be liable to be challenged under the question as framed. The question is rolled up one which takes in the challenge to both the finding of the Tribunal and submits both the findings to the Court for testing their correctness. This would become 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 ways; either 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 successions but is a vested interest or at any rate of contingent interest. The finding of the Tribunal that the assessee's interest in the corpus is a spes successions being based on the view that the assessee's interest is not a vested interest but in contingent on the assessee being alive on 31 March 1987,. And that the finding of the Tribunal is therefor 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 .

(4) 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 successions . 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 upto 31st March 1987, the interest of the assessee in the corpus would be a contingent interest and not a spes successions . A spes successions is a bare o naked possibility such as the chance of an heir apparent succeeding to an estate, 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 copied 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 happening of the uncertain event and such contingent interest though dependent on a possibility for its vesting is very much different from a spes successions . It is a form of property which is assignable or transferable and on which money can be raised unlike spes successions which is assignable or transferable and on which money can be raised unlike spes successions which is non-transferable by reason of S. 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. The 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 successions 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 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 bee held to be contingent on his surviving upto 31st March 1987, the interest of the assessee in the corpus cannot be held to be spes successions and hence not transferable under S. 6(a) of the transfer of Property Act.

(5) 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 corpus; is it a vested interest or a contingent interest? 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 clearness. See Bickerstecch v Shanu, 1936 AC 290 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 personality. The rule is that the Court must always lean in favour of vesting. As observed by the Supreme Court in Rajesh, Kanta v Smt. Shanti Debi. : [1957]1SCR77 '.......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 those cases the question is really 'one of intention to be gathered from a comprehensive view of all the terms of the document'. With these preliminary observations we will now proceed to examine the relevant clauses of the trust deed

(5-A) 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 C1.3. 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 enact in section 21 of the transfer of Property Act, But as pointed out by the Supreme Court, the intention of the settler 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

(6) Now several provision contained in the trust deed were relied upon by the learned Advocate General on behalf of the revenue as indicative of the settler 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 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 case within 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 transfer also given 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'.

The learned Advocate General urged that in this provisions there was a direction to the trustees that the income or such portion thereof as trustees in their absolute discretion might deem fit should be applied for the benefit f the assessee until 31st March 1987 and therefore by reason of the Exception to S. 21 the interest f 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 there of for the benefit 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 S. 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:

(7) 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 applies in India since the Exception to Section 21 specifically requires a direction to apply the income or so much thereof as may be necessary for the benefit of the donee and that cannot include a case where a mere discretionary power as distinguished from a direction s 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 clauses 3, Sub-clauses (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 Trustee may apply the net income of 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 pat of the net income for the benefit of the assessee and his wife. The argument on behalf of the assessee was that the words '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 settler 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 act 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 however. 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, (1875) 19 Eq 286. 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 of 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 an amongst the chidden of T. Equally as and when they should respectively attain the age of twenty-five years applying 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 interests 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 above was interpreted by the learned Master of the Rolls as follows: 'there still remains the difficulty that the gift here is not a gift of the whole income absolutely for maintenance; 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 a laid down in Waston v Hayes (1839) 5 My. and Cr, 125 and the other cases, I have referred to. On that point Harrison v. Grinwood, (1849) 12 Beav 192 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 less than the whole income; and that appears to me to be 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 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 added: '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.

(8) 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 extent 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 for 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 purpose other than 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 far 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 decision of which we may mention only Hanson v. Graham, (1801) 6 Ves. 239 and (1839) 5 My and Cr. 125 (supra) 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 intermediate 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 (1849) 12 Beav 192 (supra) while a case containing the latter provision arose in (1875) 19 Eq. 286 (supra) 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 (1801) 6 Ves. 239, vest the fund and he should regard the fund as not the less vested if to that direction a direction was appended not to apply the whole income in that manner, provided there was no gift over of the unapplied portion.'

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 should not be given for 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.

(9) 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 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 (1875) 19 Eq. 286 (supra) and Illustration (xii) is based on the case of 1849 12 Beav. 192 (supra). 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 applied for the benefit of this 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 a given for the benefit of any one other than 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. Vasasji AIR 1923 Bom 96 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 a to 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 for the benefit off 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 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 : [1957]1SCR77 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 thereof is to be 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 Ratnabai's case AIR 1923 Bom 96 (supra) in the Court of first instance.

(10) But even if this be the true construction, it is clear that the direction contained in clause 3, sub-clause (b) satisfies the requirement of the Exception to Section 21, Clause 3 sub-clause (b)) provides that the trustees should 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 income shall be applied for the benefit of the assessee and his wife would certainly be a provision for 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 of Section 21 applies and the gift made to the assessee in clause 3, sub-clause (c) though apparently contingent must be held to be vested.

(11) There are also certain other circumstances which clearly indicate the intention of the settler 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 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 C. 3 sub-clause (e) and falling 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 further difficult to conceive that the settler 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, his 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 mind 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 death of the assessee prior to 31st March 1987. There would be no disposition of the accumulation of the income which certainly could not have been intended by the settler. 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) clauses 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).

(12) 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 (1842) 9 Cl., and F. 563 where there is a gift 'to A `if', x 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 as 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 Re Heath: Public Trustee v. Heath (1936) 1 Ch 259. 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 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 contention he relied on the decision of the Calcutta High Court in Kanal Lal v. Kumar Purunendu Nath (1947) 51 Cal W.N. 227 where S.r. Das J., as he then was, refused to import this rule of construction in the construction of Indian settlement and wills. These contentions raise an interesting question but it is not necessary for us to decide it since this rule of construction, there are several other circumstances to which we have adverted which clearly indicate the intention of the settler to give a vested interest to the assessee in the corpus.

(13) In the view of the matter, our answer to the question referred to us that the interest of the assessee in the corpus is neither a spes successions 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.

(14) Reference answered accordingly.


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