Skip to content


Nirmala Bala Sarkar Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 169 of 1963
Judge
Reported in[1969]74ITR268(Cal)
ActsIncome Tax Act, 1922 - Section 41(1)
AppellantNirmala Bala Sarkar
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal, ;R. Murarka and ;J.B. Pal, Advs.
Respondent AdvocateB.L. Pal and ;N.L. Pal, Advs.
Cases ReferredTrustees of Putlibai R. F. Mulla Trust v. Commissioner of Wealth
Excerpt:
- .....trustees were directed to sell the aforesaid land, either in one plot or in different plots. the trust fund was directed to constitute of all the rents and profits of the said land and sale price thereof. by term no. 3 the trustees were directed to spend a sum not exceeding rs. 10,000 only for the marriage expense of kumari dipali. the trustees were also directed to set apart a sum of rs. 15,000 for the construction of a building on the land settled for her benefit by the deed dated july 17, 1941. by term no. 4 the trustees were directed to construct a building on a part of the plot of land settled for the benefit of kumari sefali at a cost of about rs. 20,000, and by term no. 5, the trustees were further directed to spend a sum not exceeding rs. 10,000 for the marriage expense of.....
Judgment:

Chatterjee, J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act. The reference is at the instance of the assessee. The assessment relates to the assessment years 1950-51, 1951-52, 1952-53, 1954-55 and 1955-56 respectively. The assessee is an association of persons being the trustees of a trust known as ' general trust '. A deed of trust was executed by Hirendra Lal Sarkar wherein the assessee was appointed the trustees. The settlor created certain other trusts on July 17, 1941, in favour if his four daughters. The trust deed in question is at page 20 of the paper-book.

2. It is not necessary to reiterate all the terms of the said deed. It is sufficient if we refer to the following facts :

The settlor transferred about eight bighas of land to the trustees by the said deed of trust dated December 9, 1944. The trustees were directed to sell the aforesaid land, either in one plot or in different plots. The trust fund was directed to constitute of all the rents and profits of the said land and sale price thereof. By term No. 3 the trustees were directed to spend a sum not exceeding Rs. 10,000 only for the marriage expense of Kumari Dipali. The trustees were also directed to set apart a sum of Rs. 15,000 for the construction of a building on the land settled for her benefit by the deed dated July 17, 1941. By term No. 4 the trustees were directed to construct a building on a part of the plot of land settled for the benefit of Kumari Sefali at a cost of about Rs. 20,000, and by term No. 5, the trustees were further directed to spend a sum not exceeding Rs. 10,000 for the marriage expense of Sefali. By term No. 6 the trustees were directed to spend a similar amount of Rs. 10,000 for marrige and Rs. 20,000 for construction of house for Kumari Juthika. By term No. 7 the trustees were directed to provide for the marriage expense and maintenance of Kumari Asoka. By term No. 8 it was directed if the total sale proceeds exceeded or fell below the sum of Rs. 80,000, the trustees would reduce or enhance the amounts for marriage or for construction of house as the case may be. By term No. 8, the fund in the hands of trustees were directed to be invested.

3. Terms Nos. 10 and 11 are material and we refer to these terms which are as follows :

Term No. 10 :

' Should any fund be left with the trustees after providing for all the daughters of the settlor and meeting their marriage expenditure, such fund shall be equally divided by the trustees between all the daughters of the settlor then living. ' Term No. 11 : ' God forbid should any of the daughters of the settlor for whom provisions have been made by the trustees in terms of this deed or in termsof the aforesaid deeds dated the 17th July, 1941, die unmarried or childless her properties or funds shall devolve upon the sons and the male heirs of the settlor absolutely according to law.'

4. In such circumstances the department assessed the trustee. The question is whether the trustee could be taxed at maximum rate or the trustee would be taxed for the income receivable by each of the beneficiaries.

5. The Income-tax Officer held that the maximum rate in terms of the first proviso to Section 41 of the Income-tax Act, 1922, would apply. It was perfectly clear to him that the shares of individual beneficiaries for the trust fund were indeterminate and unknown during the relevant years of the assessment. Appeals were filed against the order. The Appellate Assistant Commissioner was inclined to agree with the Income-tax Officer that the shares of the beneficiaries were not determinate but found that two of the beneficiaries were then minors, so two-thirds of the income would be assessed under Section 16(3)(b) of the Income-tax Act, 1922, and therefore only one-third of the income should be assessed in the hands of the trustee. The Appellate Assistant Commissioner held that the first proviso to Section 41 was not applicable. Against that order the Income-tax Officer preferred an appeal to the Tribunal. The Tribunal found that during the years 1945-46 the land referred to in the deed of trust was sold for Rs. 1,50,000 ; out of that money Rs. 10,000 was given to Kumari Dipali Sarkar for her marriage expenditure and Rs. 15,000 was given to her for completing the construction of her house, and some further amount was spent for putting up the structures on the land of Kumari Juthika and the remaining sum was about Rs. 1,00,000, which was invested by the trustee at an interest of 6 per cent., and tax was sought to be assessed with respect to the aforesaid income. The Appellate Tribunal held that it could not be said that any or all the three daughters who were then living would be entitled to receive or enjoy any specific part of the income. Hence, it was found that the shares being indeterminate, the maximum rates should have been applied. The appeals were allowed.

6. Against that decision, the assessee applied for reference and the following question has been referred to this court :

' Whether, on the facts and in the circumstances of the case and on a proper construction of the deed of settlement dated 9th December, 1944, the Tribunal was right in holding that the first proviso to Section 41(1) of the Indian Income-tax Act, 1922, was applicable to the income of the trust ?'

7. Dr. Debi Pal, for the assessee, refers to Clause 10 and says that there is a provision that the 'fund' shall be equally divided by the trustees between all the daughters of the settlor. During the years in question the number of daughters living was determined. Therefore, their shares were determined and, as such, the maximum rate could nothave been applied. It is also the argument of Dr. Debi Pal that it does not matter whether all the daughters would survive at the date of the distribution of the balance of the funds nor does it matter whether it is actually received during the years in question by the trustees on behalf of the beneficiary; it is sufficient if shares are defined and if a sum is receivable by each of them during the assessment years in question. Dr. Pal refers to certain decisions on this point and we shall refer to them later on. Mr. Pal, on behalf of the department, says that, on a construction of Clause 10 together with Clause 11, it cannot be said that the daughters had defined shares during the years in question. If a daughter be alive on the date of the accrual of the income, but she does not survive when the fund becomes distributable, she or her heirs gets nothing. Therefore, the shares of a daughter could not be determined during the years in question. Mr. Pal further refers to a decision of the Supreme Court in Commissioner of Income-tax v. Manilal Dhanji, : [1962]44ITR876(SC) and urged that none of the daughters derived any benefit in the years in question under the terms of the trust. According to Mr. Pal therefore, the question must be answered in the affirmative.

8. Let us refer to terms Nos. 10 and 11. There is a provision in term No. 9 that the fund shall be invested. The word ' fund ' in term No. 9 refers to the trust fund in paragraph 3 and that means rents, profits and sale proceeds of the land. Therefore, there is a specific provision for investing the said fund but there is no specific provision as to what would happen to the income of that fund. Dr. Debi Pal says under Section 55 of the Indian Trusts Act, the beneficiary is entitled to the rents and profits of the trust property but such provision under Section 55 is subject to the provision of instrument of trust. According to Dr. Debi Pal, there is nothing in the trust deed which contradicts the said provisions of Section 55 of the Indian Trusts Act. The relevant provision in the trust deed is that if any fund be left after ' providing for all the daughters of the settlor and meeting their marriage expenditure that fund should be equally divided between all daughters of the settlor then living '. Hence there is a provision as to what is to happen to the residue. The daughters, namely, Kumari Dipali, Sefali or Asoka, would be entitled to certain sums for their marriage expenses or for the construction of their houses. They have not been given the right to take interest on those sums but after meeting those expenditures the balance would be divided equally among all the surviving daughters of the settlor. This balance of fund includes interest because interest is not provided for anywhere else. Hence Clause 10 is a specific provision whereby the interest would not go to the daughters to whom ' funds ' have been given. Clause 11 is also relevant for that purpose : if any of the daughters die unmarried or childless her properties and funds (but not interest thereon) would devolveupon the sons or male heirs of the settlor. Hence, if any of the daughters dies before her marriage or dies childless before the house is constructed ior her, the sums allotted to her for the purposes or any of the purposes would not go to the heirs of the said daughter but to the male heirs of the settlor. Hence, this is also a provision that the interest would not accrue to the daughters or their heirs to whom special funds have been allotted. In other words, the interest was not intended to be vested in the daughters. Hence, from a reading of Clause 10 and Clause 11, I am of opinion that there was no intention that the daughters would be entitled to the interest as soon as the same accrues in any manner but that the balance of the fund which naturally includes interest would be divided amongst the daughters after the houses are built for, and marriage celebrated of, all the daughters in terms of the trust deed.

9. It is urged that there is some conflict between paragraphs 10 and 11. Paragraph 10 means the balance of the fund after meeting the charges as in paragraphs 3 to 7 would go to the surviving daughters. Paragraph 11 means that in case a daughter dies unmarried or childless, the fund reserved for her marriage or for her house would devolve upon the male heirs of the settlor absolutely. I find, therefore, no conflict between term No. 10 and term No. 11. Term No. 10 refers to the balance of the fund after meeting the expenses referred to in the deed of trust. Term No. 11 refers to specific amounts reserved for the benefit of the daughters. The nature of interest in the fund for marriage or house given to each of the daughters therefore is a vested interest defeasible on death before marriage or on death leaving no child. In any case, paragraph 11 does not create any vested right of the daughter or her heir with respect to the income of the fund.

10. Even if any daughter who was living during the years in question had a vested interest in the fund in terms of Clauses 3 to 7, she would not be entitled to receive any part of the interest. She would be entitled to receive the balance of the fund including interest on the happening of a contingency, namely, on the happening or on the impossibility of happening all the directions referred to in paragraphs 3 to 7. Hence, until that contingency happened, namely, until the terms 3 to 7 are complied with or any one or more of the terms become impossible of compliance, in that case, only the sum would be divided. Hence this grant in term No. 10 is clearly; a contingent grant and during the years in question, it could not be stated who would satisfy the terms of the contingency and who would get a share in the balance of the fund; because any of the daughters who was alive during the years in question might have died before the balance of the fund became distributable. I am of opinion therefore that it could not be said that any of the daughters of the settlor living during the years ofassessment had a vested right to get the income in any defined share. Dr. Debi Pal has referred to certain decisions to contend that whether the interest is vested or contingent the share of a daughter was determinable and the maximum rate would not apply. It is stated that during the year in question the position was that three daughters were living and therefore each of them was entitled to the income equally. Hence, their shares were known but their shares were not known because if any of the daughters living during the assessment years would die at the time whenthe balance of the fund became distributable, she and her heirs would looseher right to get any share in the balance of the fund then existing. In the case of contingent interest accumulations are not the monies of the recipient until the contingency arises. It is different, however, in the case of a vested interest. Dr. Debi Pal referred to certain decisions which show that a person having contingent interest in any property is liable to wealth-tax before the contingency arises. We shall, therefore, consider the decisions referred to by Dr. Pal.

11. As the interest here is contingent, the accumulations do not become the monies of the daughters until the contingency arises but when the contingency arises the interest of the daughters becomes vested. Contingent and vested interests are defined in Sections 19 and 21 of the Transfer of Property Act. Section 19 provides that a vested interest is not defeated by the death of the transferee before he obtains possession. The interest granted in term No. 10 is defeated by the death of a beneficiary if unmarried or childless at that date. Hence this interest is not vested. The interest of the daughters will take effect on the happening of a specified event, that the daughters be alive at the date when terms Nos. 2 to 7 of the deed are satisfied or become impossible of satisfaction. Hence, under Section 21 at the date when the interest accrued during the years in question the specified events not having happened, the said interest could be nothing more than a contingent interest.

12. Dr. Debi Pal has referred to a judgment reported in Suhashini Karuri v. Wealth-tax Officer, [1962] 46 I.T.R. 953. In that case the question was whether the shares of the beneficiaries were known or not. It was said that the share of a beneficiary would bo reduced by birth of other grandsons. It was also said that there were certain deities which were also beneficiaries and, thirdly, there was a provision to settle a part of the reserve fund according to the discretion of the trustees. It was urged from these that shares were indeterminate but that was overruled. With great respect we agree because each grandson had a vested interest in the property and their shares might be reduced by the birth of another grandson but during the year in question their number being known, their shares in the wealth were also known. The provisionfor other beneficiaries or provision for reserve fund would not in any way affect the vested nature of the interest of a grandson. Hence, with respect, we agree with the view aforesaid. Dr. Pal said there was a provision that, if any of his son or grandson renounced the Hindu religion, he would not get the aforesaid shares or the income. In the circumstances of that case, there was a vested interest and the shares were known but it was defeasible if anybody renounced the Hindu religion. Hence it could not be said that the shares were indeterminate on the date the wealth-tax was intended to be calculated. There was nothing in this case to show that every contingent interest stands on the same footing as vested interest does for the purpose of Wealth-tax Act. Dr. Debi Pal next refers to the case of Padmavati Jaykrishna Trust v Commissioner of Wealth-tax, [1966] 61 I.T.R. 66 and the trust deed referred to is at page 70. In that case a beneficiary was stated to have 'vested and transmissible interest'. The aforesaid decision is no decision for holding that even contingent interest is to be taken into account for the purpose of the Wealth-tax Act. Dr. Debi Pal referred to a decision, of the Bombay High Court in the case of Trustees of Putlibai R. F. Mulla Trust v. Commissioner of Wealth-tax, [1967] 66 I.T.R. 653, 662. In that case, however, their Lordships were pleased to hold as follows :

' Therefore the word 'shares' must be understood in the context of the assets held and we can see no reason why the word ' shares ' should be limited only to a vested interest and not to include a contingent interest. '

13. Their Lordships did not add that the word 'share' should includecontingent interest whether the contingency arose or not. We have no doubtthat the word 'share' will include a contingent share after the contingencyarises. It is not, however, necessary for us to consider whether for the purpose of wealth-tax a person having a contingent interest would be consideredto have held a snare in the property concerned before the contingencyarises. But we find no reason to extend the meaning of the word ' share 'in the Income-tax Act to include contingent interest before the contingencyarises. A person having contingent interest in the accumulation does nothold the said interest until the contingency arises and no question of hisshare thus arises. A person may have a vested interest which may bedefeasible under certain circumstances or, in other words, the daughters inthis case had a vested interest in the fund which might have been annulledby death before marriage or before a child was born to her, but that condition would not make the vested interest a contingent one. A vested interestin such circumstances would be defeasible either in whole or in part. Incase of death, vested interest of daughters might have been annulled but inthe case of birth of another daughter, vested interest would still be there andit would be defeasible in part to reduce the share. Hence, so far as theincome in question is concerned, we cannot say that a beneficiary having acontingent interest of the property has any defined share before the contingency arises. She has then a chance to have a share in the balance of the fund but that share is indeterminate and unknown until the contingency arises. There is no case that the contingency arose during any of the assessment years in question and, as it did not, shares of the daughters in the income were not determinate. If the shares had been determinate and the money was not received by the daughters during the year in question, we would still have held that money was ' receivable ' by the trustee on behalf of the daughters in defined shares. But no share can possibly be determined until the contingency happens and, therefore, the shares must be considered to be indeterminate and hence the question must be answered in the affirmative. The Commissioner of Income-tax will get his costs.

Sankar Prasad Mitra, J.

14. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //