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Commissioner of Income-tax, West Bengal Vs. Sardar Bahadur Sardar Indra Singh Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Ref. No. 29 of 1954
Judge
Reported inAIR1956Cal164,[1956]29ITR781(Cal)
ActsTrusts Act, 1882 - Section 6; ;Charitable and Religious Trusts Act, 1920 - Section 3; ;Income Tax Act, 1922 - Section 4 and 4(3); ;Transfer of Property Act, 1882 - Section 8
AppellantCommissioner of Income-tax, West Bengal
RespondentSardar Bahadur Sardar Indra Singh Trust
Appellant AdvocateE.R. Meyer and ;B.L. Pal, Advs.
Respondent AdvocateS. Mitra and ;A.K. Murty, Advs.
Cases ReferredDick v. Audsley
Excerpt:
- .....as they might in their discretion determine.i am only paraphrasing the relevant clause of the trust deed which will have to be set out in extenso. after the creation of the trust, the trustees received payments of dividend on the shares which constituted the trust fund, but the companies which paid the dividend did so after making the usual deductions of income-tax.thereafter the assessee claimed from the department refund of the tax so deducted on the ground that the property held by it was held wholly for charitable purposes and, accordingly, the income derived therefrom was exempt from taxation under section 4(3) (i), income-tax act. the objects of the trust and the directions for its administration are embodied in clause 2 of the trust deed which reads thus:--'the trustees shall.....
Judgment:

Chakravartti, C.J.

1. This Reference involves but a short point and to answer even that point has become comparatively easy by reason of a concession properly and readily made by Mr. Meyer.

2. The assessee is a Trust represented by its trustees. It was created by a private limited company on 19-1^-1944, when certain shares of certain public limited companies of the value of RS. 7,79,045/- were settled with three named trustees with directions to hold them upon trust to pay and app}y the income for the advancement of such charitable purpose or purposes as the trustees might deem to be the most deserving of support and at such times and in such manner as they might in their discretion determine.

I am only paraphrasing the relevant clause of the Trust Deed which will have to be set out in extenso. After the creation of the Trust, the trustees received payments of dividend on the shares which constituted the Trust Fund, but the companies which paid the dividend did so after making the usual deductions of income-tax.

Thereafter the assessee claimed from the Department refund of the tax so deducted on the ground that the property held by it was held wholly for charitable purposes and, accordingly, the income derived therefrom was exempt from taxation under Section 4(3) (i), Income-tax Act. The objects of the Trust and the directions for its administration are embodied in Clause 2 of the Trust Deed which reads thus:--

'The Trustees shall henceforth hold the said property and all capital moneys and investments arising or resulting from any sale or conversion of the same (all which original property and resulting or substituted moneys and investments are hereafter included in the term 'the Trust Fund' that term being intended to mean from time to time the constituents for the time being of that fund) and the income therefrom respectively UPON TRUST to pay and apply the said income from time to time and at such times in such manner and in accordance with such scheme or arrangement as the Trustees may in their absolute discretion from time to time determine in and towards the attainment assistance or support of such charitable purpose or purposes as the Trustees may in their unfettered judgment deem to be the most deserving of support'.

3. The Income-tax Officer rejected the assessee's claim on the ground that the Trust was inoperative for vagueness. He referred to the words by which the objects of the Trust had been described, namely, 'such charitable purpose or purposes as the Trustees may in their unfettered judgment deem to be the most deserving of support' and observed that in view of the manner in which the objects had been referred to, 'the Trustees could not be compelled In law to spend anything for charitable purposes' during the time the Trust Deed was in force.

On appeal by the assessee, the rejection of its claim to refund was upheld by the Appellate Assistant Commissioner who virtually repeated in his order the words of the Income-tax Officer. He also held that the objects of the Trust, as set out in the deed, were 'very vague' and that it was not clear for what specific purpose the Trust had been created.

On a further appeal by the assessee, the Tribunal held that the Trust could not be said to be bad for the reason that no specific charitable object had been mentioned. It was pointed out that the Trust was not for such purpose or purposes as the trustees might deem charitable, but lor such charitable purpose or purposes as they might choose. A Trust expressed in such language, it was held, could not fail for want of definiteness and the Court would be able to undertake the control of the Trust and to administer it effectively, if it was found necessary to do so.

In accordance with that view, the Tribunal directed the Income-tax Officer to deal with the refund applications in accordance with law. They followed the decision of the Bombay High Court in the case of 'Chaturbhuj Vallabhdas v. Commissioner of Income-tax' AIR 1946 Bom 337 (A) and did not follow the decision of the East Punjab High Court in the case of 'Shadiram v. Ramkis-son' AIR 1948 EP 49 (B).

4. The same question was raised by the assessee in its assessment for five successive assessment years and the question was decided by the several authorities in the same way. After the decision of the Tribunal, the Commissioner of Income-tax asked for a Reference of the disputed question to this Court, and a question has been referred in the following terms:--

'Whether on a true construction of Clause 2 of the Trust Deed, dated 19-12-1944 executed by In-ara Singh and Sons., Ltd., a valid Trust had been created wholly for charitable purposes and whether the income of the Trust from the shares thereby settled was exempt from Income-tax?'

5. The Reference concerns five assessment years, namely 1946-47, 1947-48, 1948-49, 1949-50 and 1950-51, but, as I have said, the question referred is common to all those years.

6. Mr. Meyer, who appears for the Commissioner of Income-tax, informed us at the beginning of his argument that in view of the uniform current of authorities, he found himself unable to contend that the Trust in the present case was invalid for the reason that the choice of the charitable objects, for the benefit of which the income was to be applied, had been left to the trustees.

That concession practically disposes of the point actually raised before the authorities below, but Mr, Meyer invited us to consider certain other provisions of the Trust Deed which, in his submission, made the Trust an illusory one.

7. I would, however, say a few words about the point conceded by Mr. Meyer, because it is not possible to decide a question of law on admissions. It is now well settled that to the rule that there is no valid Trust unless the objects thereof are specified, Charitable Trusts are an exception. With regard to those Trusts, a great deal of latitude is permitted and the rule is that provided there is a clear intention to make a gift for charity, the Trust is not allowed to fail for uncertainty.

The theory upon which the rule rests is that in the case of Charitable Trusts, charity in the abstract is to be taken to be the object and the specific purposes to which the fund or the income of the fund may be applied, constitute only the mode of administering the trust.

Indefiniteness as regards the specification of the objects is, therefore, regarded only as an in-definiteness in regard to the manner in which the Trust will be administered and so, if a clear intention to create a Trust in favour of charity is discernible, defects in the mode prescribed or absence of any such prescription does not invalidate the Trust. The defect is taken as attaching to a matter which is not essential.

It has, therefore, been held that a Trust Deed, barely creating a Trust for charities without specifying any charities at all, is valid. The Court in such cases can always intervene and choose appropriate charities which it considers proper to benefit, although it will always pay regard to the wishes of the trustor in so far as they are as certainable from the language of the deed.

I do not consider it necessary to cite decisions in support of these propositions which will be found referred to in any of the standard treatises on the Law of Trusts. So far as the actual point involved in the present Reference is concerned, it will be sufficient if I refer to the statement of the law as contained in Halsbury's Laws of England:

'A direction to trustees to divide a fund at their discretion among such charitable institutions or objects as thev think expedient is valid'. (See Halsbury's Laws of England. Third Edition, Vo] 4, p. '91 and the cases cited under Note (i).

1 would only add that one of the standard forms for deeds of Charitable Trusts in the Encyclopaedia of Forms and Precedents is Form No. 35 which concerns 'Assurance of Land to Trustees on such Charitable Trusts as they shall Determine'. Clause 2 of the Form which deals with the objects of the Trust reads thus:

'The trustee shall stand possessed of the said premises hereby assured and use and apply the same and the rents and profits thereof and the proceeds of any lease mortgage charge or sale hereby authorised thereof upon such charitable trusts and for such charitable purposes as the trustees shall in their uncontrolled discretion from time to time determine'.

(See The Encyclopaedia of Forms and Precedents, Second Edition. Vol III. p. 178 at p. 179. See also the decisions referred to at p. 178 under Note (cc) in support of the proposition that property may well be assured to trustees to be held on such charitable trusts as they shall determine).

The reason lying behind these propositions obviously is that, under such language, application of the fund for charitable purposes is obligatory, the trustees being given a discretion only to choose, from amongst charitable objects such objects as they might consider it proper to benefit, but no discretion to choose any object which is not charitable.

The intention to benefit charities and charities alone is thus clear and if that be so, there is a valid Trust & the Courts will not allow it to fail in spite of the fact that the choice of the particular charity or charities is left to the discretion of the trustees.

8. As I have already stated, Mr. Meyer did not wish to contend that the Trust in the present case was invalid for the reason that the trustees had been given the discretion to choose any charitable purposes which they might consider to be the most deserving of support.

What he contended was that there were other words in Clause 2 which rendered the provision for the creation of a Trust wholly unreal and he contended that no valid Trust could be found in this case, not for the reason that the trustees had been left tree to choose any charitable object they might please, but for the reason that it had been made possible for the trustees not to spend any part of the income of the fund at all. It was pointed our, that the Trust was

'to pay and apply the said income from time to time and at such times, in such manner and in accordance with such scheme or arrangement as the Trustees may in their absolute discretion from time to time determine.'

In view of that direction, it was said that If the trustees were free as in fact they were, to apply the income at any time they might choose, they might not choose to apply the income at any time at all. This liberty which, according to Mr. Meyer, had been left to the trustees to postpone the application of the fund to any purpose at all indefinitely, had to be viewed in the light of another clause in the Trust Deed which was significant. The clause referred to was Clause 6 which reads thus:

'The Settlor may at any time or times after the First day of April one thousand nine hundred and fifty one by deed vary or revoke all or any part of the trusts and powers hereinbefore declared & may declare such other trust or the Trust Fund and of the subsequent income therefrom as the Settlor may think fit'.

It was said that under the powers reserved by Clause 6 the Settlor would be free to revoke the Trust after the date mentioned and if the trustees chose not to determine any time for the application of any part of the income during those six years, the fund with its accumulated income would come back to the settlor wholly undiminished and no charity in the world would benefit by a pice.

A point was sought to be given to this argument by reference to the fact that the creator of the Trust was a private limited company, composed of one Sardar Indra Singh and his relatives and that the trustees under the Trust Deed were the same Sardar Indra Singh and two of his sons. Mr. Meyer contended further that the 'object of creating a Trust in that form was perfectly clear.

Clause 6 was inserted with the third proviso to Section 6(1) (c) of the Act in view, so that the Trust could not be condemned as a revocable trust and, at the same time, liberty had been given to the trustees to postpone the expenditure of the income up to any length of time. The clear scheme was that, for the space of six years, the shares constituting the so-called Trust Fund would be held by a Trust which would not be a revocable trust for the purposes of the Income-tax Act and the income from which would thus escape taxation, while, on the other hand, no part of the Income, would here to be spent and, at the end of the period of six years, the settlor would reap the benefit of his scheme in the shape of getting back the corpus of the Trust Fund, together with its income undiminished by tax payments.

9. The main basis of this branch of Mr. Meyer's argument is the provision in the Trust Deed I have already quoted. He would read it as conferring an unlimited liberty on the trustees to spend the income at any time they liked and, therefore, not to spend it so long as they pleased.

In view of such effect of the Trust Deed, as Mr. Meyer would construe it, he contended that no Court could possibly enforce the application of the income of the Trust Fund to any charity at any time, because there being a liberty in the trustees to apply the income at any time they chose, it could not be said at any point of time that by not applying the income to any charitable purpose, they had committed a breach of the trust,

Indeed, by not making any payment to any charity and even by not making expenditure at all, the trustees would really be carrying out the provisions of the Trust, however, paradoxical that position might seem. I am afraid, I cannot accept that construction of the provision in the Trust Deed on which Mr. Meyer based his argument.

As I read the clause, the governing direction is that the income from the Trust Fund should be Paid and applied for the benefit of charitable purpose or purposes, although what the purpose or purposes will be, it is left to the trustees to select, There are no words in Clause 2 which postpones the operation of that direction.

Having enjoined the trustees to pay and apply the income for such charitable purposes as they might choose, the Trust undoubtedly gives them some discretion with regard to the time and the manner in which the actual payments are to be made. The two parts of the clause by which such liberty is given are:

(1) 'apply the * * income from time to time and at such times and in such manner' and (2) 'in accordance with such scheme or arrangement as the Trustees may in their absolute discretion from time to time determine'.

Those two parts are connected by the conjunction 'and'. The total effect, therefore, is that the trustees are to frame a scheme or arrangement, but the form of such scheme or arrangement shall be as they may in their absolute discretion determine from time to time. The application of the income shall have to be in accordance with such scheme or arrangement and from time to time and such times and in such manner as may be laid down in the scheme.

The true purport of the whole direction therefore seems to me to be that, in the first place, the trustees are directed to apply the income for the benefit of charities selected by themselves. In the second place, they are directed to frame a scheme or arrangement for the actual application of the income, although they may vary the form of the scheme or arrangement from time to time at their discretion, and, in the third place, they are enjoined to pay the income at such times and in such manner as may be laid down in the scheme framed by themselves.

I am, therefore, unable to read the clause as giving an unfettered discretion to the trustees not to make any payment at all to any charity so long as they may wish. In my view, although the direction is couched in language of a general character and no specific limits of time are laid down the trustees are nevertheless required to carry out the directions in a reasonable manner.

Should they fail to choose any charity or frame any scheme or make any payment for an unreasonable length of time and thereby fail to administer the Trust at all, the Court, in my view, will be quite entitled to intervene and compel them to administer the Trust by itself framing a scheme or it may be, should it be necessary, by taking over the administration of the Trust in its own hands.

If I may again refer to Halsbury, 'schemes may be directed even where there Is an unlimited discretion as to distribution left to the trustees' -- see Halsbury's Laws of England, Third Edition, Vol. 4, p. 311 and the cases cited under foot-note (i)..

10. It is true that if the trustees be really the same as the settlor, if they deliberately retrain from administering the Trust and making any payment of the income for a period of six years and if the vigilance of the Court is not attracted the result apprehended by Mr. Meyer may follow.

It is, however, not open to us to take such possibilities into consideration in construing the Deed of Trust as it stands. A deed must be presumed to intend what it says and its provisions must be so construed, whenever possible, as to give effect to that intention and so must the directions contained in the deed be held to be workable and intended to be worked, if such a construction is open on the words used.

As I have stated, as a matter of construction, neither the words relied on before the authorities below, nor the words relied on before us can warrant the view that there is no valid trust or that there is only pretence of a trust and what the deed purports to have created is illusory,

11. It appears that there is a decision by the House of Lords which Mr. Meyer very fairly cited against himself and which covers both the points raised in the case. The case is 'Dick v. Audsley' (1908) AC 347 (C).

Although there was only a single speech by the Lord Chancellor of the day and it was a short and cryptic one, the case has been extensively relied on for various propositions in every authoritative work on the English Law of Trusts. The Trust in that case was created by a Will and the first clause by which provision was made for certain legacies was expressed as follows:--

'I do, therefore, leave and bequeath the following legacies, payable at such times as my trustees may find it convenient'.

Then the Will proceeded to say that after paying the legacies, the trustees would have to realise and convert into money the whole residue of the testator's means and estate, but 'that always at such time or times and from time to time, as they may think proper'.

The Will next said that the trustees would have to dispose of the testator's investments, shares, stock and other assets in such manner as he might direct by the Will or any codicil to it or by any separate writing executed thereafter, but falling such directions, the trustees would have to apply the residue in a matter which was thus expressed: 'and I direct them, at any time or times, or from time to time, as and when the said residue or any part thereof becomes available, as they may deem proper, to pay over or divide the said residue, or any part or parts thereof, to or amongst such local or Scottish charitable institution and schemes already constituted, or which may hereafter be constituted (and which may Include these hereinbefore named), as they may select, or any one or more of such institutions & schemes, and that at such time, in such manner, or in such proportions, all as they, In their absolute discretion, may deem proper'.

The last clause in the Will which is here material provided that the trustees would be free to retain the investment of which the testator's estate might consist at the time of his death 'for such time or times as they may think fit or Indefinitely'.

12. It was contended before the House of Lords that the Trust was bad, because when it said that the trustees would have to apply any part or parts of the Trust estate for the benefit of charity, it left them free to apply other part or parts for non-charitable purposes.

That contention was repelled and in spite of the absolute discretion given to the trustees to choose the charitable objects for the benefit of which they would spend the residue of the estate, the Trust was upheld as valid.

It was next contended before the House, as in the case before us, that since the trustees had been given the liberty to retain the estate for such time or times as they might think fit or indefinitely, they might retain them for all time, never paying any legacy, nor paying anything to any charity and thereby frustrating the Trust altogether.

That contention was also negatived and it washeld that the liberty given to the trustees didnot make the Trust bad and the Court would be entitled to intervene in the case of mal-administration. Mr. Meyer said that he found some difficulty in appreciating why their Lordships said that the word 'indefinitely' was redundant, but the meaning of their Lordships appears to me to be clear.

The words preceding the word 'Indefinitely' had already given the trustees liberty to retain the investment 'for such time ortimes as they may think fit' and surely that language meant that the trustees would be entitled, if they thought fit, to retain the investments indefinitely. The word 'indefinitely' next used, therefore, added nothing to what had been conveyed by the words 'for such time or times as they may think fit'.

Be that as it may, the case is clear authority for the proposition that a trust for charitable purposes does not become invalid, if the choice of the specific charitable objects to be benefited is left to the trustees, nor is it to be condemned as invalid or illusory if, by the language of the deed, the trustees are given an absolute discretion to apply the fund at such time as they may think fit or retain it so long as they choose. Both the points raised in the present case are, therefore, concluded by the decision which Mr. Meyer himself cited.

13. The real substance in Mr. Meyer's submission that the Trust was illusory was that it was not a bona fide Trust at all. According to him, father and sons had combined to put on cloaks of a so-called trusteeship and had put away a part of their assets in the hands of themselves in, their character as trustees and under those cloaks, to remain there safely for six years and to earn income, which the arms of the taxing authorities Would not be long enough to reach.

If, however the Department wanted to impugn the Trust on the ground that it was not a 'bona fide' Trust at all it should have taken that point in a straightforward manner. The attack through the construction of the Trust Deed itself must, in my judgment, fail.

14. For the reasons given above, the answer o the Question referred must, in my opinion, be in the affirmative.

15. The respondent will be entitled to its costs of this Reference.

Sarkar J.

16. I agree.


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