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Commissioner of Income-tax, Gujarat-i Vs. Gunvatlal Jivanlal Family Trust. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 78 of 1977
Reported in(1982)26CTR(Guj)428; [1982]133ITR162(Guj)
AppellantCommissioner of Income-tax, Gujarat-i
RespondentGunvatlal Jivanlal Family Trust.
Excerpt:
- - or (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of march, 1970, by a non-testamentary instrument and the income-tax officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created, bona fide, exclusively for the benefit of the relatives of the settlor, or where the settlor is a hindu undivided family, exclusively or the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; it provides that tax should be levied upon the representatives in like manner and to the same extent as it would be leviable upon the beneficiary. section 164 of the act mentions two..........was under a legal obligation to maintain and support such relatives.the assessee is a family trust created by gunvantlal jivanlal and his wife, bai jasud, under a deed dated january 27, 1951. the beneficiaries under the said deed of trust were gunvantlal jivanlal and his wife, bai jasud, the settlors of the trust, their three minor sons, namely, ravindra, aged 14, bipin, aged 13 and yogesh, aged 10, and their daughter, kusum, who was a major and married. in the course of the assessment proceedings for the assessment year 1971-72, the assessee claimed before the ito that the trust having been created before march 1, 1970, bona fide exclusively for the benefit of the relatives of the settlors who were dependent upon them for their support and maintenance, fell within the purview of.....
Judgment:

MANKAD, J. - The main controversy which we are called upon to resolve in this reference is whether a trust which is created before March 1, 1970, for the benefit of the relatives of the settlor who were not dependent on the settlor for their support and maintenance at the time of the creation of the trust, would be covered by cl. (iii) of the proviso to s. 164 (1) of the I. T. Act, 1961 (hereinafter referred to as 'the Act'), solely on the ground that the settlor was under a legal obligation to maintain and support such relatives.

The assessee is a family trust created by Gunvantlal Jivanlal and his wife, Bai Jasud, under a deed dated January 27, 1951. The beneficiaries under the said deed of trust were Gunvantlal Jivanlal and his wife, Bai Jasud, the settlors of the trust, their three minor sons, namely, Ravindra, aged 14, Bipin, aged 13 and Yogesh, aged 10, and their daughter, Kusum, who was a major and married. In the course of the assessment proceedings for the assessment year 1971-72, the assessee claimed before the ITO that the trust having been created before March 1, 1970, bona fide exclusively for the benefit of the relatives of the settlors who were dependent upon them for their support and maintenance, fell within the purview of cl. (iii) of the proviso to s. 164 (1) of the Act. The ITO rejected this claim, computed the total income of the assessee at Rs. 14,749 and determined the tax at 65% under s. 164 (1) of the Act. In the appeal preferred by the assessee, the AAC upheld the view taken by the ITO and confirmed the assessment framed by him.

The assessee, thereafter, went in further appeal before the Income-tax Appellate Tribunal, Ahmedabad Bench 'A' (hereinafter referred to as 'the Tribunal'). It was not disputed before the Tribunal that the trust under which the income was receivable was created before March 1, 1970. It was also not disputed that it was a non-testamentary trust. The controversy before the Tribunal centered round the question whether the trust was created by the settlors bona fide exclusively of the benefit of their relatives in the circumstances where such relatives were mainly dependent upon the settlors for their support and maintenance. It was an admitted position that at the time when the trust was created the minor children of the settlors owned property and had an independent income from which they could have maintained themselves. The Tribunal, however, was of the view that having regard to the provision of s. 20 of the Hindu Adoptions and Maintenance Act, 1956, the settlors were under a legal obligation to support and maintain their minor children. According to the Tribunal, such obligation is absolute and it springs from the mere existence of the relationship and does not depend upon any other factor. The Tribunal, therefore, held that in view of this legal obligation, the three minor children of the settlor must be held to be 'mainly dependent on the settlors for their support and maintenance' within the meaning of cl. (iii) of the proviso to s. 164 (1) of the Act. It was irrelevant, observed the Tribunal, whether the minor children had income of their own from which they could support themselves. In the result, the Tribunal upheld the claim made by the assessee for the determination of the rate of tax in accordance with cl. (iii) of the proviso to s. 164 (1) of the Act. The revenue has challenged this view taken by the Tribunal and at its instance the following question has been referred to us for our opinion under s. 256 (1) of the Act :

'Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the minor sons of the settlors having their separate income were mainly dependent upon the settlors for their support and maintenance within the meaning of clause (iii) of the proviso to section 164 (1) of the Act and, therefore, the assessee trust was liable to tax at the rate applicable to the association of persons and not at the rate of 65% ?'

Section 164 (1) of the Act reads as under :

'164. (1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as relevant income,`part of relevant income and beneficiaries, respectively), tax shall be charged -

(i) as if the relevant income or part of relevant income were the total income of an association o persons, or

(ii) at the rate of sixty-five per cent.,

Whichever course would be more beneficial to the revenue :

Provided that in a case where -

(i) none of the beneficiaries has any other income chargeable under this Act; or

(ii) the relevant income or part of relevant income is receivable under a trust declared by will; or

(iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of MArch, 1970, by a non-testamentary instrument and the Income-tax Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created, bona fide, exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively or the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or

(iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created, bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession,

tax shall be charged as if the relevant income or part of relevant income were the total income of an association of persons...'

Section 161 (1) lays down the basis of assessment of a representative assessee. It provides that tax should be levied upon the representatives in like manner and to the same extent as it would be leviable upon the beneficiary. Section 164 of the Act mentions two exceptional cases where the above basis of assessment does not prevail. In cases in which -

(a) any income is not specifically receivable on behalf or for the benefit, of any one person, or

(b) the individual shares of the beneficiaries are indeterminate or unknown,

the tax is leviable on and recoverable from the representative assessee as if the income were the total income of an association of persons, or at the rate of 65%, whichever course is more beneficial to the revenue. However, the minimum rate of 65% does not apply and the income is chargeable as if it were the total income of an association of persons in cases covered by cls. (i), (ii), (iii) of the proviso to section 164 (1) of the Act. It is not necessary for us to deal with the cases falling under cls. (i) and (ii) of the proviso since the assessees contention is that its case falls under cl. (iii) of the proviso to s. 164 (1) of the Act. The case would be covered by cl. (iii) where the trust is anon-testamentary trust created before March 1, 1970, for the exclusive benefit of the settlors relatives mainly dependent on him for their support and maintenance or, where the settlor is an HUF, for the exclusive benefit of its members so dependent on it. This is not a case of an HUF. In order to attach cl. (iii) of the proviso to s. 164 (1) of the Act, three conditions will have to be satisfied :

(1) The trust should be a non-testamentary trust created before March 1, 1970 :

(2) It should have been created for the exclusive benefit of the settlors relatives; and

(3) The relatives for whose benefit the trust is created should be mainly dependent on the settlor for their support and maintenance.

Unless all the three conditions are satisfied, the assessees case would not fall under cl. (iii) of the proviso to s. 164 (1) of the Act.

As pointed out above, it is not in dispute that the trust is a non-testamentary trust created before March 1, 1970. The trust was created on January 27, 1951, by Gunvantlal Jivanlal and his wife, Bai Jasud. The first condition is, therefore, satisfied. So far as the second condition is concerned, it appears that the settlors, namely, Gunvantlal Jivanlal and his wife, Bai Jasud, their minor sons and major married daughter, are the beneficiaries. It, therefore, prima facie appears that the trust is not exclusively for the benefit of the settlors relatives. Minor sons and daughter would fall within the definition of 'relative' as defined in s. 2 (41) of the Act. Section 2 (41) of the Act, which defines 'relative', reads as under :-

'2. (41) relative, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.'

It was sought to be argued by learned counsel for the assessee that the word 'relative' used in cl. (iii) has a wide connotation and if the trust is created for persons who are related to one another such trust will be covered by cl. (iii) of the provision to s. 164 (1) of the Act. Prima facie we are not inclined to agree with learned counsel for the assessee. The definition of the term 'relative' in s. 2 (41) of the Act makes it clear that the term 'relative : is used with reference to an individual meaning thereby that the relative. i.e. husband, wife, brother or sister or any lineal ascendant or descendant, must be of an individual. The term is not used in the abstract but with reference to an individual. So far as cl. (iii) of the proviso to s. 164 (1) is concerned the word 'relatives' would obviously mean 'relatives' of the settlor of a trust and it cannot include the settlor himself. In other words 'relatives' does not mean settlor and other persons who are related to one another as urged on behalf of the assessee. The settlors themselves being beneficiaries under the trust, prima facie the trust cannot be said exclusively for the benefit of the relatives of the settlor. It, therefore, appears to us that the trust is not one covered by cl. (iii) of the proviso to s. 164 (1) to the Act. We are, however, not expressing any final opinion on this question since it has not been argued before the revenue authorities and the Tribunal. We have only incidentally referred to it as the learned counsel for the revenue and the assessee have made their submission on this question.

In order to attract the application of cl. (iii) of the proviso to s. 164 (1) of the Act the attention of both the assessee and the revenue was focused on the meaning to be attributed to the words 'mainly dependent on the settlor for their support and maintenance' before the revenue authorities and the Tribunal. what we have to decide in this reference is a narrow question as to what meaning should be given to the above words used in cl. (iii) of the proviso to s. 164 (1) of the Act. Both the learned counsel have reiterated the contentions which were raised before the Tribunal. The contention which is raised on behalf of the assessee is that since the settlors were under a legal obligation to support and maintain their minor sons, it must be held that the trust was created for the relatives of the settlors who were mainly dependent on them for their support and maintenance irrespective of the fact that the minor sons had independent income of their own from which they could have maintained themselves. The argument was that if the trust was created for the benefit of relatives whom the settlor, under the personal law applicable to him, was under a legal obligation to maintain and support, such trust would be covered by cl. (iii) of the proviso to s, 164 (1) of the Act without anything more. We are unable to see any force in this argument. This argument shuts its eyes to the essential precondition embodied in cl. (iii), namely, that the trust is created for the benefit of relatives who were on the date of the creation of the trust is created for the benefit of relatives who were on the date of the creation of the trust 'mainly dependent' on the settlor for their support. Clause (iii) in terms provides that the ITO has to form his satisfaction with reference 'to all the circumstances existing at the relevant time'. The relevant time must of necessity mean the time of the creation of the trust. The circumstances which he has to take into account are the circumstances as obtaining on that day. And in taking into account these circumstances as obtaining on that day. And in taking into account these circumstances he has to be satisfied that 'the trust was created for the benefit of relatives (or members of the HUF) ' in circumstances where such relatives or members 'were mainly dependent on the settlor for support and maintenance'. Mark the words 'mainly dependent'. Not merely dependent - mainly dependent, for support and maintenance. And that must be judged having regard to the circumstances of such relatives or members. It is not the mere relationship which matters. It is not a mere liability in law which matters. If these were the matters on which anything turned what was the ITO required to from his satisfaction about And where was the question of taking into consideration the circumstances of the beneficiaries And, circumstances at the relevant time of creation of trust If the contention of the assessee is correct, all that the ITO has to do is to find out who in law were entitled to be maintained or supported on the date of creation of the trust. Where is the question of considering other circumstances or finding out whether they were 'mainly' dependen Either they were dependent in law or they were not. What meaning does one give to the expression 'mainly dependent' deliberately and designedly, employed by the Legislature The expression 'mainly dependent' cannot be given any meaning unless it is referable to the financial circumstances of the beneficiary. He may have some resources. He may be able to maintain himself to some extent'mainly' he must be dependent on the settlor if not 'wholly'. And that satisfaction has to be recorded in the context of the financial circumstances pertaining to the beneficiary at the point of time of the creation of the trust. Thus, the following propositions emerge :

The ITO must be satisfied,

(i) that the beneficiary is a relative or a member of the HUF;

(ii) that on the date of the creation of the trust he must be wholly or mainly dependent on the settlor;

(iii) the question regarding his being mainly dependent must be adjudged in the context of the financial circumstances of the beneficiary as on the date of the creation of the creation of the trust.

It is only when he is so satisfied that the satisfaction can be recorded. In the instant case, admittedly, the minor sons were not mainly dependent on the settlors for their support and maintenance at the time when the trust was created. They had their own income from which they could have maintained themselves. The major daughter, who was one of the beneficiaries, was also a married daughter who was not dependent on the settlors for her support and maintenance. In our opinion, therefore, the trust in question does not fall within the purview of c. (iii) of the proviso to s. 164 (1) of the Act. The Tribunal has, therefore, fallen into an error of law in holding that the assessee-trust was liable to be taxed at the rate applicable to the association of persons and not at the rate of 65%.

In the result, the question which is referred to us is answered in the negative and against the assessee. There will be no order as to costs.


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