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Jai Narayan Jai Govind Vs. Controller of Estate Duty, Madras. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberCase Referred No. 88 of 1957
Reported in[1963]49ITR105(Mad)
AppellantJai Narayan Jai Govind
RespondentController of Estate Duty, Madras.
Cases ReferredDalooram Jayanarayan v. Commissioner of Income
Excerpt:
- s. ramachandra iyer, offg. c.j. - this reference arises under section 64(1) of the estate duty act (34 of 1953) and raises the following questions :'1. whether, on the facts and circumstances of the case, the sum of rs. 1,33,277 was joint family property ?2. whether, on the facts and circumstances of the case, the manbhari bai charity trust did not come into effect on the 2nd november, 1948, or only in 1951 ?'the facts giving rise to the reference are these : dalooram jai narayan, a successful businessman in madras, was the karta of a hindu undivided family consisting of himself and his son, jai narayan jai govind, daloorams wife, by name, manbhari bai, died on 19th may, 1945. at the time of her death there existed in the business accounts of the family a credit entry of rs. 75,000 in her.....
Judgment:

S. RAMACHANDRA IYER, OFFG. C.J. - This reference arises under section 64(1) of the Estate Duty Act (34 of 1953) and raises the following questions :

'1. Whether, on the facts and circumstances of the case, the sum of Rs. 1,33,277 was joint family property ?

2. Whether, on the facts and circumstances of the case, the Manbhari Bai Charity Trust did not come into effect on the 2nd November, 1948, or only in 1951 ?'

The facts giving rise to the reference are these : Dalooram Jai Narayan, a successful businessman in Madras, was the karta of a Hindu undivided family consisting of himself and his son, Jai Narayan Jai Govind, Daloorams wife, by name, Manbhari Bai, died on 19th May, 1945. At the time of her death there existed in the business accounts of the family a credit entry of Rs. 75,000 in her favour. Some time prior to her death, she appears to have given a direction to her husband that a sum of Rs. 31,000 out of the amount standing to her credit in the family business accounts should be set apart for the creation of a permanent trust for establishing and conducting a Sanskrit Patasala in her name; she also directed her husband to take necessary steps in that regard. Nothing, however, appears to have been done towards the starting of the patasala for about three years after the death of Manbhari Bai. The amount standing to her credit was not even transferred to the name of her son, Jai Narayan, her sole heir. But that circumstance cannot make any difference as regards the ownership of the moneis. On November 2, 1948, an entry was made in the account books of the business by which a sum of Rs. 31,000 was taken out of the account standing in the name of Manbhari Bai and put under a new ledger head with the title 'Dalooram Jai Narayan Trust account.' The balance of the amount continued to remain in the name of Manbhari Bai as before. On April 5, 1951, Dalooram executed a registered trust deed; his son, Jai Narayan, signified his assent thereto by attesting the deed. There is no dispute that the trust is a genuine one. Indeed in R. C. No. 46 of 1956, a question arose as to whether the trust was effective even during the lifetime of Dalooram. It was held that Dalooram was competent to execute the document and from such executing a sum of Rs. 31,000 vested in him in his capacity as trustee. Dalooram died on December 19, 1953, leaving surviving him his son, Jai Narayan Jai Govind. In respect of assessment to estate duty on the property belonging to Dalooram a question arose whether the credit balance in favour of Manbhari Bhai was part of the estate on which duty was leviable. The sum of Rs. 75,000 which originally stood in the name of Manbhari Bai augmented periodically with interest thereon so that even after the appropriation of a sum of Rs. 31,000 in 1948 therefrom, for the purpose of the trust, there remained a sum of Rs, 1,33,277 as a credit. The Assistant Controller of Estate Duty was not satisfied that the sum represented by the credit entry really belonged to Manbhari Bai but he held that even assuming that it represented here stridhana property, Jai Narayan Jai Govind who inherited it on her death should be held to have blended that amount along with the rest of the joint family properties with the result that Dalooram became entitled to a half interest in that sum which on his death should be deemed to pass to his successor and thus subject to estate duty under the Act. As regards the trust the officer held that section 22 of the Estate Duty Act, 1953, would apply to the case as the trust deed by Dalooram was executed within five years before his death and that therefore the property should be deemed to pass on the death of Dalooram to his son. Those conclusion were affirmed on appeal by the Central Board of Revenue who held that the sum standing to the credit of Manbhari Bai, though inherited by Jai Narayan as his separate property, was subsequently thrown into the common stock and blended with the joint family properties. It was also held that the trust should be deemed to have come into effect on the date of the trust deed, namely 5th April, 1951, and not of 2nd November, 1948, when there was a transfer of the funds in the books of account in favour of the trust. The appellant authority namely, the Central Board of Revenue did not, however consider the question whether the credit entry in favour of Manbhari Bai was a sham one, the amount represented by it belonging only to the family. The questions that have been referred to us proceed on the footing that the monies represented by the credit entry in the books belonged to Manbhari Bai.

Mr. Ranganthan appearing for the Controller of Estate Duty, however, contended that the questions are wide enough to include a case that the monies at no time belonged to Manbhari Bai. We cannot accept the contention. It is obvious from the from of the questions referred to us, that they proceed on the footing that the funds belonged to Manbhari Bai as her stridhana property. Even otherwise, there is ample material to support the view that the monies standing to the credit of Manbhari Bai in the family accounts were her stridhana property. As early as 24th of January, 1940, both Dalooram and his son, Jai Narayan, had executed a promissory note in favour of Manbhari Bai for a sum of Rs. 75,000 which represented the amount then due and was standing to here credit in the accounts of the family. There was further a registered agreement which evidenced deposit of title deeds as security for the loan. Interest was regularly credited to her account. Deduction in respect of interest was allowed by the income-tax department up to the assessment year 1936-37. It was, however, disallowed in the next year. The assessee himself, subsequently, acquiesced in such disallowance by voluntarily adding back the interest credited to his income. But the disallowance of interest or the assessees conduct cannot be of much significance in the case. As early as 1951, there is a rectial in the trust deed where there is reference to Manbhari Bai owning the amounts represented by the credit entry. There was then no motive for Dalooram to make any false rectial. No advantage was secured by him by keeping the account in the name of Manbhari Bai as the income-tax department had refused to make allowance for the interest deed, as the only coparcener, Jai Narayan had assented. Under the circumstances it must be held that the monies represented by the credit entry in favour of Manbhari Bai belonged to her solely.

The sum of money that originally stood to her credit ultimately come to :

(1) a sum of Rs. 31,000 which was transferred from the account in her name on 2nd November, 1948, as the account of 'Dalooram Jai Narayan Trust'; and

(2) the balance which together with subsequent interest came to Rs. 1,33,277 as on the date of Daloorams death.

The first relates to the trust amount and the second relates to the balance in the account and they respectively form the subject of questions Nos. 2 and 1.

Question No. 1 : On the death of Manbhari Bai the amount standing to her credit after deducting the amount to be allocated to Manbhari Bais trust was inherited by Jai Narayan as her heir. The estate duty authorities have held that this amount should be deemed to have been blended along with the other joint family properties of Jai Narayan and his father.

Under the the Hindu law, property belonging to a member of a joint family though originally his own, may become joint family property if it is voluntarily thrown by such person into the joint family stock with intention to abandon his separate claim over it. As stated by Mayne in his Hindu Law, at page 348 (11th edition) the question whether he has done so or not is entirely one of fact to be decided in the light of circumstances of a case; but a clear intention of waiver of his separate rights must be established. That cannot be inferred from acts which may have been done merely through kindness or affection. In Mallesappa v. Mallappa the Supreme Court has pointed out that before separate property belonging to an individual member of the joint family can be taken to have been put into the common stock, it should be established that the owner had put the property deliberately and voluntarily into the common stock with the clear intention of abandoing all his claim in respect of the property and with the intention of assimilating it to the joint family properties. That is to say, the separate property would lose its character as such only by reason of the owners intention which intention can be ascertained from his conduct. Such conduct must clearly and unequivocally point out that the intention of the owner was to convert his separate property into joint family property. Therefore, equivocal circumstances or ambiguous conduct would not be sufficient to prove the clear intention necessary to constitute a waiver of rights of a member of the family in regard to his separate property.

Apart from the circumstances that Jai Narayan attested the trust deed executed by his father there is no evidence regarding his conduct. The Central Board of Revenue has relied on the following to support their finding as to blendings :

(1) that there was no withdrawal whatever from Manbhari Bais account even during her lifetime;

(2) that the family acquiesced in the disallowance of interest on amounts due to Manbhari Bai during her lifetime and even afterwards :

(3) that the account continued in Manbhari Bais name even after her death; and

(4) that the trust deed was executed by Dalooram and not by Manbhari Bais heir Jai Narayan.

We cannot see how the first circumstance can have any relevance on the question of blending. As we have pointed out earlier there is no controversy now that the monies belonged to Manbhari Bai; at any rate there is no doubt on the evidence that the monies belonged to her. The circumstances that she augmented her monies during her life and never withdrew them would be of no significance whatever in deciding the question whether the property after being inherited by her son was thrown into the joint family property by him. That the income-tax department disallowed interest paid for the amount standing to the account of Manbhari Bai is equally irrelevant to prove any intention on the part of Jai Narayan. But it must be noticed that the income-tax department did allow interest for some time; it is only later on that they refused to do so. The family did not perhaps think it worthwhile to join issue with the department on the question of disallowance and was willing to add back for the purpose of assessment the interest which they regularly credited in Manbhari Bais account. Such conduct as existed on the part of the family was there even during the lifetime of Manbhari Bai and it cannot obviously be relied on to prove anything significant in the conduct of Jai Narayan after he inherited his mothers property. The continuance of the credit in the name of Manbhari Bai even after her death far from indicating any blending of monies with the joint family properties would indicate its separate character and that the family properties was still a debtor to her heir. It really there was a blending of that money with family property there was no object in keeping a separate account in the name of Manbhari Bai at all. No advantage was secured by keeping the money separate if it was really family property as the income-tax department had refused to allow any deduction in respect of the interest credited thereunder. The continuance of Manbhari Bais name in the accounts was perhaps due to sentiment, indifference or it was allowed with a view to keep that fund distinct. But whatever that may be, we are unable to see how that would at all show that the entire amount standing to the credit of Manbhari Bai was thrown into the joint stock of the debtor family. What then remains is the fact that it was Dalooram and not Manbhari Bais heir that executed the trust deed. Jai Narayan has only attested it. Assuming that Jai Narayan had knowledge of the contents of the trust deed, that would only imply that Dalooram had the right to execute the document and that the former acknowledged that right. But does the acknowledgment of Daloorams right to execute the trust deed necessarily mean that Jai Narayan has thrown the rest of the money into the common stock The answer can only be in the negative. But even in regard to the sum of Rs. 31,000 covered by the trust deed, it cannot be said that Jain Narayan put the money into the family to enable his father to execute the document.

Learned counsel appearing for the department relies on the decision of Walsh J. in Viswasundara Rao v. Pallamaraju, where a question arose whether a property was thrown by a son who had separate title thereto into common stock of the family. In a mortgage deed concerning the property the son stated that he was in possession and enjoyment of the property along with this father. It was held that the onus of proving that the property was not thrown into the common stock was on the son. That was a case where the owner of the property had made a categorical admission that he had thrown that item into the joint stock; it would then undoubtedly be for him to show that he did not do so. But there is no such statement or admission in the present case. The circumstances under and the right by which the trust deed came to be executed is best ascertained from the following recitals therein :

'Whereas my wife, Manbhari Bai, who died on or about the 19th May, 1945, had some time prior to her death declared to me her desire that a sum of Rs. 31,000 out of the amount belonging to her and invested by her to in my business and standing utilised by me for the creation of a permanent trust for the carrying on of a Sanskrit patasala in her name and enjoined me to take the necessary steps for starting of the said patasala during my lifetime and the ensure its being carried on successfully after my lifetime on a permanent basis and whereas in pursuance of the said directions, I have caused the necessary adjustments to be made on 2nd November, 1948, in my books of account transferring the said sum of Rs. 31,000 to the account of Dalooram Jai Narainji Trust account pending the execution of a formal deed of trust and whereas I am desirous of giving effect to the wishes of my wife, Manbhari Bai and provide for the starting of the patasala....'

From the foregoing recitals it is clear that Daloorams authority is clearly that of a mandatory of Manbhari Bai who even during her lifetime had directed the utilisation of the sum of Rs. 31,000 for the trust. That amount or at any rate the beneficial interest therein having been so disposed of would not form part of Jai Narayans inheritance. Therefore, the attestation of the trust deed cannot be taken as implying (1) that the sum of Rs. 31,000 was part of the inheritance; (2) that Jai Narayan knew not merely that fact but had put the entire inheritance into the common stock. Even assuming that the execution of the trust deed evidences a right in Dalooram as owner, it can only show that Jai Narayan out of respect to his mothers wishes was willing to put it into the family to enable his father to execute the document. It cannot follow from this that the rest of Manbhari Bais monies were also mixed up with family property. The conduct of the parties in continuing in the account the name of Manbhari Bai, adding interest to the amounts due thereon and continuing its distinctiveness would seem to indicate that there was no intention on the part of Jai Narayan to blend it with the family property. If any such blending was ever intended, the credit entries should have been wiped out, as the joint family, the erstwhile debtor, would have become the owner of the debt which would thereby be extinguished. In our opinion, there are no materials to show that Jai Narayan threw the sum of Rs. 1,33,277 into the joint family to make it part of its property. We answer the first question in the negative and in favour of the accounting party.

The second question concerns the problem whether the value of the trust could be aggregated with the rest of the estate of Dalooram for the purpose of levy of estate duty. The Controller proceeded to include the trust fund as part of the estate on the footing that the trust in respect of which Dalooram was the sole trustee was established on April 6, 1951, within five years of his death. This was affirmed on appeal. In R. C. No. 46 of 1956, a question arose whether the trust deed which is the subject-matter of the present proceedings was sufficient to create a valid trust so that all debits of interest made by Dalooram during his lifetime could be claimed as permissible deductions in the profits of his business. That question was answered in the affirmative. The judgment of the case to which one of us (Srinivasan J.) was a party rested on the conclusion that the document dated April 5, 1951, was sufficient to constitute a valid gift under section 123 of the Transfer of Property Act. In the course of the judgment it was observed 'Rs. 31,000, which constituted the corpus of the trust fund, was money that the assessee originally owed to his wife, Manbhari Bai, and which was due from the assessee after her death to the contemplated trust. The entry made in the books of the assessee on November 2, 1948, did not bring into existence any valid trust by itself. Had that been the claim, the principle laid down in Muthappa Chettiar v. Commissioner of Income-tax, would have applied. The validity of the trust, however, has to be decided with reference not to the entry in the account books dated November 2, 1948, but with reference to the declaration of trust in the registered deed of trust dated April 5, 1951, executed by Dalooram Jai Narayan. The first question as framed, it should be noted, itself refers in specific terms to the trust deed.'

As the case was concerned with the assessment for the years 1952-53 and 1953-54 it was really not necessary for the court to consider whether the trust can be said to be created by Dalooram and even so whether it could not be said to have come into existence on November 2, 1948. The only question before the court was whether the trust deed dated April 5, 1951, was valid to create any trust.

Estate duty is charged on all properties passing on the death of the owner subject to certain exceptions. Liability to duty exists regardless of the dispositions made by the deceased and the destination of the properties. Section 5 of the charging section authorities levy of estate duty on the principle value of all property settled or unsettled which passes on the death of the erstwhile owner. Section 6 states that the property which was within the disposing power of the deceased at the time of his death should be deemed to be property that passed. Section 7 provides that certain properties in which the interest of the deceased ceased on his death should also be deemed on pass to his death; for example limited interest for life, right of a member of joint Hindu family, etc. Broadly stated estate duty is leviable in respect of property which passed on the death of the deceased, those in respect of which he had a disposing power during his lifetime and those in which his interest ceased on death. Section 8 to 17 deal with cases where the property could be deemed to pass on the death of the deceased. None of these sections cover a case where the deceased had no beneficial interest in the property during his lifetime. Section 22 states :

'Property passing on the death of the deceased shall not be deemed to include property held by the deceased as trustee for another person under a disposition not made by the deceased or under a disposition made by the deceased where (whether by virtue of the original disposition or of a subsequent surrender of any benefit originally reserved to the deceased or otherwise) possession and enjoyment of the property was bona fide assumed by the beneficiary at least two years before the death and thenceforward retained by him to the entire exclusion of the deceased or of any benefit to the deceased by contract or otherwise :

Provided that in the case of property held by the deceased as sole trustees for another person under a disposition made by himself, the period shall be five years.'

The first part of the section emphasises the rule that properties in which the deceased did not have any beneficial interest in his lifetime could not be brought to duty. Therefore, where the deceased was a trustee under a disposition not made by him, the trusteeship not involving any beneficial interest in the property, the trust property could not be deemed to be part of the estate liable to duty. But where the deceased became a trustee under a disposition made by himself the trust property would be liable to duty on the basis that the control and beneficial enjoyment was left with him. The first question to be considered in this case is whether in the instant case it could be said that the trust was the result of a disposition made by Dalooram himself. If that question is answered in the affirmative a further question will arise as to what is the date of the trust. The recitals in the trust deed which we have extracted earlier show that Manbhari Bai directed an immediate appropriation of Rs. 31,000 for the creation of a permanent trust for the founding of a Sanskrit patasala. It is undoubted law that it is the owner that is competent to declare a trust. Now what was the position of Dalooram during the lifetime of the owner so far as the amount of Rs. 31,000 was concerned He was only a debtor to his wife to the extent of about Rs. 75,000; he was not the owner of that money. The direction of Manbhari Bai was, therefore a mandate to her debtor to transfer a sum of Rs. 31,000 for the benefit of a Sanskrit patasala. That involves the discharge of the liability of Dalooram to the extent of Rs. 31,000 and the allocation of that amount in his hands for the purposes of the trust. Dalooram thereafter occupied the position of a debtor in regard to the balance of the money due from him and was also in fiduciary capacity in regard to the sum of Rs. 31,000. In other words he was charged with the duty of establishing the trust with that money. From the terms of the trust it is clear that it was not a mere precatory direction that was given by Manbhari Bai amounting to nothing more than a mere expression of a desire, wish, recommendation or hope that Dalooram will use it in the ways specified. So far as Manbhari Bai was concerned, there was a clear intention on her part to endow Rs. 31,000 for the starting of a Sanskrit patasala; the amount specified was certain; the beneficiary was also indicated with certainly. As all the elements to constitute a valid trust are present it was not open to Manbhari Bai herself to recall the direction as Dalooram was constituted the trustee as it were for effectuating the purpose; he would be in the position of an agent or fiduciary with an interest. Mr. Ranganathan contends that no valid trust could be held to have been created by Manbhari Bai as property that she possessed was only an actionable claim and before any portion of it could be transferred to the trust there should be a writing. We cannot, however, accept this contention. What Manbhari Bai was not to transfer the debt; she split up to debt into two portions, in regard to one portion she discharged the liability of Dalooram and vested that amount in him for the specific purpose of establishing a Sanskrit patasala. Further, there is no necessity for any writing in the case of a dedication for a public religious purpose. What all is necessary is that the owner should divest herself of her rights completely in a specific property and dedicate it for the purpose. Even in the case of a private trust what is essential to constitute a trust is, in the words of Jessel M. R. in Richards v. Delbridge :

'The one thing necessary to give validity to a declaration of trust - the indispensable thing - I take to be, that the donor, or grantor, or whatever he may be called, should have absolutely parted with that interest which had been his up to the time of the declaration, should have effectually changed his right in that respect and put the property out of his power, at least in the way of interest.'

In Ida Chambers v. Kelland Huxford Chambers, reference was made to Milroy v. Lord, to establish the proposition that an imperfectly or incompletely constituted trust would not be valid as a trust. It was held that in order to render a voluntary settlement, valid and effectual the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and to render the settlement binding on him. That decision was considered recently by the Court of Appeal in England in Rose, In re, where Lord Evershed M. R. observed at page 510 :

'I agree that if a man purporting to transfer property executes documents which are not apt to effect that purpose, the court cannot then extract from those documents some quite different transaction and say that they were intended merely to operate as a declaration or trust, which ex facie they were not, but if a document is apt and proper to transfer the property - is in truth the appropriate way in which the property must be transferred - then it does not seem to me to follow from the statement of Turner L. J. that, as a result, either during some limited period or otherwise a trust may not arise for the purpose of giving effect to the transfer.'

In the that case the deceased transferred certain shares owned by him to the trustees to be held in respect of a trust under a settlement made by him. The article of the company in respect of whose shares the settlement was made contained a power in the directors to refuse registration of the transfer. The settlor had signed the necessary documents for transfer, duly stamped them, and before the company could recognise the transfer he died. A question arose whether the shares in question remained as the property of the deceased so as to be liable to estate duty or they were possessed by him in a fiduciary capacity on behalf of the beneficiaries under the settlement. The Court of Appeal held that as the deceased had done everything in his power by executing the transfer, the transferee had become the beneficial owners and that the transferor was the trustee till the transfers were duly registered by the company. This conclusion was reached as there was no further step that the transferor could take for completing the divestment of the transferors title. In the present case the position is almost similar. So far as Manbhari Bai was concerned, she had done everything to effectuate the trust. It only remained for Dalooram to complete it. During her lifetime itself there was a segregation of a particular amount and the entrustment of it for a specific purpose. Dalooram was a mere mandatory or instrument for the creation of the trust on behalf of the owner of the property, namely, Manbhari Bai. As the subject-matter of the trust was not the property of Dalooram, it cannot be held in the circumstances of the case that any disposition was made by him within the meaning of section 22 of the Estate Duty Act. It is unnecessary, however, to rest our conclusion on this view as we are of the opinion that even assuming that the sum of Rs. 31,000 became the property of Dalooram, the dedication of the amount to the trust should be held to have taken place on 2nd November, 1948, when appropriate entries were made in the books of account transferring the sum specified to the account of the trust and not on 5th April, 1951, when a formal document was executed by Dalooram. The Central Board of Revenue had held that as on the 2nd November, 1948, there was nothing more than a mere credit entry in favour of the trust in the books of the family it would not amount to anything more than a promise to give a particular sum to the trust and that, therefore, there could be no trust on that date, and such a trust could have come into existence only on the execution of a document. Underlying this view is the assumption (an assumption which is not correct) that the only evidence to prove the creation of the trust in 1948 is the credit entry in the family books in the name of the trust. Mr. Ranganathan who appears for the assessing authority places considerable reliance on the decision of the Privy Council in Chambers v. Chambers, where it was held that a credit entry in the name of a certain person was insufficient to constitute a trust in her favour. Before considering that decision it is necessary to refer to certain principles. In order to constitute a valid private trust, (1) there should exist an intention to create a trust; (2) the subject-matter of the trust should be certain and specified and (3) the beneficiary should be ascertained. As we pointed out earlier, in the case of a dedication to a public trust, what is essential is that there should be an unambiguous expression of intention to divest and an actual divestment of the interest of the donor for the benefit of the charity. Such divestiture can be proved by a written document or by other evidence as it is not necessary that there should be a writing to constitute a valid dedication. In a recent case, State of Madras v. Subramaniaswami Mahimai Paripalanasangam, to which one of us was a party, dealing with the question how far a credit entry in the donors account books would constitute dedication to the charitable purpose mentioned therein, it was observed :

'It is not an uncommon practice for the commercial community in this part of the country to make credit entries in the books in the names of various charities or for religious objects.

Sometimes these allotments in accounts are made more as a matter of convenience of the individual person setting apart the money without any intention to vest the fund or charity straightway in any charity or temple. A mere credit entry in an account book of the donor will not be sufficient to create a trust. But the case will be different where the amounts are actually set apart and appropriated towards a specific objects.'

Where there is no evidence other than a mere credit entry in the books of account, it has been held that such an entry standing by itself would be insufficient evidence to indicate any intention on the part of a donor to part with his interest in the property or to transfer the same in favour of the trust. A credit entry in an account in favour of another (for example, in favour of a trust) can be made for one of several reasons : (1) it might be a sham or a benami entry; (2) it might be made for the convenience of the donor to indicate a particular fund out which he should incur expenses; (3) it may be a case of debtor and creditor relationship; (4) it might evidence a trust. In the absence of other evidence therefore, the mere circumstance that there is a credit entry in the books of the alleged donor cannot be accepted as sufficient to show that there has been an intention to create any trust. But it does not follow from this that a credit entry can under no circumstances evidence the creation of a trust. In Ashabai v. Haji Tyeb Haji Rahimtulla, it was held that from the single circumstance that an account has been opened by a father in his books in the name of his son in which money was credited to the son no presumption could be raised in India that the father intends to create a trust in favour of his son of the sums appearing in the account. That decision proceeds on the theory of a not unusual habit of persons in this country to create benami transactions. In Hariram Serowgee v. Madan Gopal Bagla, a question arose as to whether there was a valid gift in respect of a sum of money by the grandmother in favour of her granddaughter. Beyond entries in the accounts there was no evidence; no cash was received at the time of the entry and the control of the funds was entirely with the grandmother. The grand-daughter did not even know about any of these things done by her grand-mother. It was held that an entry was insufficient to prove the gift and it was further held that there was no trust. Muthappa Chettiar v. Commissioner of Income-tax, was a case where there was a credit entry in the books in the books of the assessee in favour of two persons. It was admitted that no assets or funds corresponding to the credit entires were actually set apart or allocated at any time for the purpose of benefiting the individuals in whose favour the entries were made. The entire assets of the firm were utilised in the business. It was held that mere credit entries in books of account without allocation of specific assets or funds corresponding to such entries did not operate as valid gifts or trusts of the sums credited. In Ramanathan v. Palaniappa, there were credit entries in the account books on the basis of which it was claimed that there was a valid dedication to a public trust. There was no evidence apart from the book entries to show that any particular sum was separated from the general funds of the defendants family or business and placed on a footing incompatible with the exercise of beneficial ownership by the defendants family itself. It was held that a mere credit entry by itself in favour of charity cannot amount to holding the sums in trust, or amount to allocation of the sums and appropriation of the sum for the benefit of the trust.

Nemathanpatti M. M. P. L. Annadhana Chatram v. Raman Chettiar was also a case where there was no setting apart of any amount represented by the credit entry in the books of account. The learned judges who decided the case referred to the common practice among the Nattukottai Chettiars to make the credit entries in their books of account in the names of various charities they were conducting and debit the expenses in the same accounts and held that such credit entries would not be sufficient to create a trust unless the corresponding sums were actually set apart and appropriated to the charities. In all these cases the ownership of monies had not been parted with. They were on the other hand utilised by the alleged donor as if it was his own property. A trust or dedication implies parting with the property. When evidence established that there was no such parting with of property it was held that a mere credit in the books of account showing certain sums of money as belonging to the trust would not be sufficient to constitute the same. In Chambers. v. Chambers, Mr. Chambers the sole proprietor of a company, made certain entries in the companys books crediting his first wife with certain sums of money. There were corresponding debits in the capital account of the business. At that time the capital of the company consisted mainly of immovable properties. There was no cash available for being transferred in the name of the wife.

In the balance-sheets of the company the sums standing to the credit of the wife were shown at first as deposits and subsequently as unsecured loans. In a letter written on one occasion by the company this sum was referred to as the personal gift by Mr. Chambers to his wife. That wife died Mr. Chambers subsequently re-transferred to his capital account the sums standing to the credit of his first wife. It was held that there was no valid gift of the monies by the husband in favour of his wife. The judgment of the High Court is reported in Ida Chambers v. Kelland Huxford Chambers, where it was held that there was no declaration of trust as such by the husband in favour of his wife and there was nothing in the evidence as disclosed by the testators subsequent conduct which could be regarded as showing an intention to create a trust or to constitute himself as trustees. The matter was taken up in appeal to the Privy Council whose judgment is reported in Chambers v. Chambers. Their Lordships of the Privy Council held that there was no ascertainment of the subject-matter of the trust, as the sum represented by the credit entry was never set apart. What was done was merely an attempt to give an interest to the wife in the capital of the business to be measured on the basis of her having contributed two lakhs of rupees but the entire business remained throughout under the unfettered control of Mr. Chambers. Mr. Chambers did not declare in regard to the credit entry himself or any other person as the trustee. There being, therefore, no ascertainment and appropriation of trust funds it was held that there was no valid constitution of any trust. It cannot however follow from this that a credit in the account books except in cases where it is claimed to be sham or benami, is meaningless. The only principle is that standing by itself it would be insufficient to prove a trust or any other legal relationship between the parties. In Seoni Ram Ramniranjan Das v. Alagu Nachiar Koil a chettiar firm of money-lenders made a credit entry in its books in favour of a temple by way of charity and was periodically augmenting such credit by adding thereto certain interest. The firms assets were, however, not allocated and it continued to use all its funds in its business. The Privy Council observed :

'The prima facie meaning of the entries in the insolvents books discloses an intention on the part of the firm to treat itself as debtors to the temple in a sum which should increase as time went on. To hold that they are the trustees because they have consented to be debtors would not only be unjustified, but would be inconsistent with their intentions as manifested by their conduct in making no allocation of any assets, in using their whole funds in their business as before and in computing interest at a rate and in a manner applicable to an ordinary customer. If the respondents witnesses be right, the entries only make the insolvent debtors submodo and on special terms less onerous than their obligations to an ordinary customer - terms which may or may not render their obligation to the temple unenforceable against them. This makes it all the more unreasonable that they should be held to have intended to assume the obligation of trustees. There is no evidence that at any time a particular sum of money was paid to the insolvent firm by themselves on behalf of the temple.'

In the present case there is evidence to show that there was an allocation by Manbhari Bai of the monies standing to her credit and appropriation of the same by her by giving a direction to her debtor as trustee; at any rate on 2nd November, 1948, there was been an allocation by the debtor in pursuance of the mandate of the creditor. On that date Rs. 31,000 which stood still them as liability to Manbhari Bai was specifically transferred to the credit of the trust. That would amount to an appropriation in favour of the trust. Dalooram, who was till then only a debtor, became a trustee thereafter in respect of that amount. The fund no longer represented the funds of the family but it became that of the trust, Dalooram being in the position of a trustee. The cases to which we have made reference were all cases where the alleged donor did nothing more than make a credit entry in his books of account. The circumstances of those cases revealed that the ownership of the monies was never parted with or intended to be parted with. There was nothing to indicate that the donor assumed the character and undertook obligations as a trustee. It was held that in such cases mere credit entries in the account books would not by themselves show an intention to create a trust or the actual appropriation of the funds for the objects of the trust. But here the position is different. The credit entry is made not in the books of a donor but in the books of his debtor in favour of the trustee and that would amount to a specific appropriation for the trust. The learned judges who decided Ramanathan v. Pataniappa were alive to this distinction. That case was concerned with a credit entry in the books of account styled pooja paditharam of Elamaikkakkara temple kattalai account. Certain entries were made in the books of the firm giving credit to the kattalai amounts. They included also certain contributions made by third parties for various subsidiary kattalais. It was observed at page 509 thus :

'It is admitted that some of the credits represented contributions made by third parties for various subsidiary kattalais brought under this head and there can be no doubt that the respondents would be liable to account for such amounts if the latter still remained unexpended in their hands.'

Where a person entrusts a sum of money to another for a specific purpose there would be a valid trust and the latter would be a trustee; an entry in the trustees account showing that the monies belong to the trust cannot be regarded as a mere entry for his convenience. On the other hand, it would evidence a completed trust by the author of the trust, the fund remaining in the hands of the other in his capacity as trustees. There is no scope in such a case for the application of the rule that a mere credit entry in the books of account would not be sufficient to constitute a valid trust, for when such an entry is made in the accounts of the trustees it presupposes a transfer of the property by the author of the trusts to the trustee with the intention of creating a trust. In the instant case the money represented by the credit entry belonged to Manbhari Bai. She had directed devoting a part of the sum standing to her credit to a well defined object and there was also a direction to the debtor (Dalooram) to take steps for effectuating the purpose which she had in view. When the debtor in pursuance of such a direction made a credit entry in his books of account transferring Rs. 31,000 to the account of 'Dalooram Jai Narayan Trust' there was a complete appropriation of the fund for the objects of the trust. The property being movable, no question of any formal document being executed arises. The trust was complete on the date when the appropriation was made.

On answer to the second question, therefore, is that the trust did come into effect on the 2nd of November, 1948. The accounting party will be entitled to his costs. Advocates fee Rs. 250.

SRINIVASAN J. - I have read the judgment of my Lord the Chief Justice and an in entire agreement with the conclusion reached.

However, as I was a party to the decision of this court in Dalooram Jayanarayan v. Commissioner of Income-tax, to which reference has been made, I would like to add a few words. In Dalooram Jayanarayan v. Commissioner of Income-tax, the question arose as to the character of this amount of Rs. 31,000 after the execution of the deed of trust on April 5, 1951, in so far as it was relevant to the allowance of interest on this sum in the computation of the profits of the business of the assessee, Dalooram. The conclusion reached was that a valid trust was certainly created by the execution of the instrument of trust on April 5, 1951. It was not necessary for the purpose of that reference to examine whether the trust could have come into existence at any earlier point of time. Reference was no doubt made in the judgment to the decisions which laid down the principle that mere credit in the books of account by themselves would not create a trust; but whether prior to April 5, 1951, there were other indicia of the creation of a valid trust besides the credit entries did not fall to be considered in the context of that reference. The conclusion that we have now reached in the present case in thus in no way inconsistent with the decision in Dalooram Jayanarayan v. Commissioner of Income-tax which was far limited in its scope.

Order accordingly.


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