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Commissioner of Income-tax Vs. Trustees to the Trust Estate of Tarun Kumar Roy - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 20 of 1967
Judge
Reported in[1974]94ITR361(Cal)
ActsIncome Tax Act, 1922 - Section 41
AppellantCommissioner of Income-tax
RespondentTrustees to the Trust Estate of Tarun Kumar Roy
Appellant AdvocateDilip Sen and ;Ajit Kumar Sengupta, Advs.
Respondent AdvocateS.N. Deb and ;K.N. Laha, Advs.
Cases ReferredBankim Chandra Datta v. Commissioner of Income
Excerpt:
- .....whether, on the facts and in the circumstances of the case, and on a correct construction of the trust deed, dated the 19th july, 1957, the tribunal was right in holding that the maximum rate of tax could not be applied in this case under the 1st proviso to section 41(1) of the indian income-tax act, 1922 ?'2. the assessee in this case are the trustees to the estate of late tarun kumar roy. the assessment years involved are 1959-60, 1960-61 and 1961-62. for the first assessment year the previous year is the broken period starting from the date following the death of the creator of the trust, that is, 21st of pous, 1365 b.s. (7-1-59) to 31st of chaitra (13-4-59) and for the subsequent two years the previous years are the bengali years 1366 and 1367. by a deed dated 19th of july, 1957,.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred to this court:

' Whether, on the facts and in the circumstances of the case, and on a correct construction of the trust deed, dated the 19th July, 1957, the Tribunal was right in holding that the maximum rate of tax could not be applied in this case under the 1st proviso to Section 41(1) of the Indian Income-tax Act, 1922 ?'

2. The assessee in this case are the trustees to the estate of late Tarun Kumar Roy. The assessment years involved are 1959-60, 1960-61 and 1961-62. For the first assessment year the previous year is the broken period starting from the date following the death of the creator of the trust, that is, 21st of Pous, 1365 B.S. (7-1-59) to 31st of Chaitra (13-4-59) and for the subsequent two years the previous years are the Bengali years 1366 and 1367. By a deed dated 19th of July, 1957, Tarun Kumar Roy transferred several house properties, bustees, landed properties in Calcutta and settled them on trust for the future benefit of his wife and children. It would be relevant in view of the question referred to mention the relevant clauses of the said trust deed. The settlor after appointing himself as the first trustee and making the subsequent appointment of trustees after his death provided, inter alia, as follows :

' (1) The sum of Rs. 500 (rupees five hundred) per month to the settlor's said wife, Smt. Surama Sundari Roy, during her life without anyabatement, deduction or diminution, for and towards the maintenance of herself and that of Smt. Sabita Rani Roy alias Lakshmi until the marriage of the said daughter PROVIDED HOWEVER that if the said Srimati Surama Sundari Roy dies before the marriage of Sabita Rani Roy, then and in that event the succeeding trustees shall pay Rs. 200 (rupees two hundred) only for and towards the maintenance, education and other expenses of the said Sabita Rani Roy alias Lakshmi until her marriage,

(2) That the succeeding trustees shall hold and set apart the balance of all such net rents, issues and profits with liberty to them to invest the same or portion thereof in approved securities and/or in immovable properties including lease-hold properties and shall apply the same or portion thereof together with all monies which may become available at the time and represent accretions and accumulation of the trust estate, towards the expenses of the marriage of each of the settlor's two sons and beneficiaries, viz., the said Barun Kumar Roy and Basudev Kumar Roy. respectively, a sum of Rs. 8,000 (rupees eight thousand only) on each marriage and shall similarly apply and spend for and towards the expenses of marriage of the said Smt. Sabita Rani Roy alias Lakshmi, the minor daughter of the settlor, and also a beneficiary the sum of Rs. 15,000 (rupees fifteen thousand only), if for any reason such marriages do not or, any of them does not take place during the lifetime of the first trustee and sole beneficiary for life.

(3) The succeeding trustees shall set apart for the use of and allow the said Srimati Surama Sundari Roy from and after the death of her husband, the settlor, for and during the term of her natural life, to reside with her said daughter, Smt. Sabita Rani Roy, until her marriage in the entire first floor of and in the messuage tenament, dwelling house and premises No. 43B, Bonamali Sarkar Street, Calcutta, and pay all municipal rates and taxes as also all other taxes and outgoings whatsoever in respect of the said specified portion of and in the said dwelling house and premises No. 43B, Bonamali Sarkar Street, so allotted for their residence as aforesaid and shall from time to time cause necessary repairs to be made thereto as long as the said Smt. Surama Sundari Roy and/or her said daughter, Sabita Rani Roy, alias Lakshmi, shall live and enjoy the said portion in the said house and premises.

(4) That after the death of Smt. Surama Sundari Roy and after the marriage of the said Smt. Sabita Rani Roy, alias Lakshmi, the said portion of and in the premises No. 43B, Bonamali Sarkar Street, shall be held and managed by the succeeding trustees in the same manner as other properties comprised in the trust estate, and as hereinafter expressed.

(5) That if at any time hereafter, during the subsistence of the trust, created by these presents, any male child or male children is or are bornto the settlor by his said wife, then and in that event the succeeding trustees shall transfer and convey the properties comprised in the trust estate for the time being in their hands amongst all the sons of the settlor including the son or sons hereafter born, in equal shares at the time of the distribution hereinafter expressly mentioned and declared.'

3. During his lifetime, however, the settlor appointed himself as the sole beneficiary. After his death on the 6th of January, 1959, the question arose how the assessment should be made on the trustees. In the trust deed referred to hereinbefore it was provided that after the demise of the settlor his wife, Smt. Surama Sundafi Roy, and his three sons, Sri Arun Kumar Roy, Sri Barun Kumar Roy and Sri Basudev Roy, would become the joint trustees in respect of the properties settled. The Income-tax Officer found that the trust deed did not provide for any definite share of the beneficiaries and, as such, he taxed the net income of the trust estate at the maximum rate under Section 23(3) read with Section 41 of the Indian Income-tax Act, 1922.

4. Being aggrieved by the said order of the Income-tax Officer, the assessee filed appeals before the Appellate Assistant Commissioner who by a consolidated order dated 17th August, 1962, construed the trust deed in question to mean that in this case there were no beneficiaries at all on whose behalf the assessable income was receivable. He further found that the income being received by the trustees 'in their own right' and being directed to be accumulated as per terms of the deed, the proviso to Section 41 which was taken resort to by the Income-tax Officer to impose the maximum rate of tax on the trust income was not applicable to the facts of this case. He, therefore, came to the conclusion that Section 41 of the Indian Income-tax Act, 1922, had no application in the instant case.

5. There was a further appeal to the Income-tax Appellate Tribunal. The Tribunal held that there was a mistake in treating the trust income as the income of the trustees. The Tribunal relied on a decision of the Calcutta High Court in the case of Birendra Kumar Datta v. Commissioner of Income-tax, [1961] 42 I.T.R. 661 (Cal.) and came to the conclusion that in the present case the trustees received the income as in the case of all trustees on behalf of the beneficiaries mentioned in the trust deed and no question arose of assessing the trustees under any other section but Section 41. After considering the relevant provisions in the trust deed the Tribunal was of the opinion that in this case two essential conditions which were necessary to escape the rigours of the proviso to Section 41(1) were fulfilled, viz., that in the first instance the income, profits and gains of the trust estate were receivable on behalf of specific persons, and, secondly, that the individual shares of such persons or beneficiaries on whose behalf the income was receivable were determinate and known. After elucidating these points with reference to the facts of this case and distinguishing these from several other cases, the Tribunal held that in the instant case there was certainty about the ultimate beneficiaries to the trust. Accordingly, the Tribunal was of the opinion that the first proviso to Section 41 could not be applied. Upon this the aforesaid question has been referred to this court.

6. In respect of the assessment years 1959-60, 1960-61, 1961-62 and 1962-63, the Tribunal had referred to this court in I.T. Ref. No. 86 of 1966 the question whether on the construction of the deed of settlement Ihe Tribunal was right in holding that the monthly allowance which was payable to the settlor's wife should be separately assessed in the hands of the trustees as an amount specifically receivable by her under Section 41 of the Indian Income-tax Act, 1922, and should, therefore, be deducted from the total income receivable by the trustees from the trust estate. This aforesaid reference came up for hearing before this court and by a judgment delivered on 5th October, 1972, we expressed the opinion that the Tribunal was right in its conclusion in the aforesaid case and that the monthly allowance which was payable to the settlor's wife was an amount specifically receivable by her under Section 41(1) of the Indian Income-tax Act, 1922. In the instant case, we are concerned mainly with the amounts other than the amount mentioned before, that is to say, the monthly allowance payable to the settlor's wife. We have referred to the trust deed from wherein it would appear that after payment of the sum of Rs. 500 as monthly allowance under Clause (1) the trust deed in succeeding clauses provided for the expenses for marriage of each of the settlor's two sons and beneficiaries, namely, Barun Kumar Roy and Basudev Roy, respectively, a sum of Rs. 8,000 each and also for the marriage expenses of Smt. Sabita Rani Roy, the daughter of the settlor, a sum of Rs. 15,000. Thereafter, it provided for the ultimate distribution of the accumulated income of the trust after payment of the aforesaid dues and after payment of the rents, issues and profits of the said trust to the sons in the shares indicated in the said trust deed. The question is whether the proviso should apply to the income other than the monthly income payable to the settlor's wife in the hands of the trustees and whether the aforesaid income should be assessed at the maximum rate.

7. Section 41(1) of the Indian Income-tax Act was in the following terms :

' 41. (1) In the case of income, profits or gains chargeable under this Act which. .... .any trustee or trustees appointed under a trust declaredby a duly executed instrument in writing whether testamentary or otherwise. ...... are entitled to receive on behalf of any person, the tax shallbe levied upon and recoverable from such. .... .trustee or trustees, in thelike manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this Act shall apply accordingly : Provided that where any such income, profits or gains or any part thereof are not specifically receivable on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate, but, where such persons have no other personal income chargeable under this Act and none of them is an artificial juridical person, as if such income, profits or gains or such part thereof were the total income of an association of persons......'

8. It was not disputed before us that the assessment in this case should be on the trustees in their representative capacity and Section 41 would apply. The only dispute or controversy which was urged before us was whether the proviso to the said section would be applicable or not in the facts of this case so far as the income of the amounts to which the sons were entitled. The proviso would be applicable in two different contingencies. In the first contingency, if the income is received on behalf of any one specific person and his share is determinate then the proviso would apply but if the income is received on behalf of a plurality of persons or more than one beneficiary then this contingency does not happen. Even then the proviso might apply if the individual shares of the persons on whose behalf the income is received by the trustees are determinate and known. This is the second contingency. This position has been clearly explained in a judgment of this court in the case of Official Trustee of West Bengal v. Commissioner of Income-tax, [1954] 26 I.T.R. 410 (Cal.).

9. Counsel for the revenue, however, contended that in this case the first contingency did not arise because neither the sum of Rs, 500 nor the other sums directed to ba paid to the sons and other beneficiaries were received on behalf of any one person and these were directed to be paid to a plurality of persons or beneficiaries. It has to be borne in mind that in order to satisfy the first contingency it is required that the income, profits or gains or any part thereof should be specifically receivable by the trustees on behalf of any one person. In this case, we find that the income in the hands of the trustees to the extent of Rs. 500 was receivable by the trustees on behalf of the settlor's wife, Smt. Surama Sundari Roy. Counsel for the revenue contended that Clause (1) indicated that the said sum was receivable on account ol the maintenance of both Smt. Surama Sundari Roy as well as the daughter, Smt. Sabita Rani Roy. It is true that the said clause provided for the maintenance of Smt. Sabita Rani Roy out of the sum of Rs. 500 by the mother but the clause is specific in the sense that it directs the trustees to pay Smt. Surama Sundari Roy Rs. 500 during her life without any abatement, deduction or diminution. That payment may be to Srnt. Surama Sundari Roy for certain purposes of the beneficiaries other than Smt. Surama Sundari Roy but the trust directs the trustees only for the payment of Rs. 500 to Smt. Surama Sundari Roy. Therefore, this sum of Rs. 500 was receivable by the trustees on behalf of Smt. Surama Sundari Roy, one particular person. Counsel for the revenue further contended that the clause in question could be read as confined to one particular income. According to him, as out of the income there were several beneficiaries, namely, Smt. Surama Sundari Roy, the marriage expenses of the sons as well as the ultimate payments to the sons, it could not be said that the income, profits or gains were received on behalf of any one person. It is true that the entire income in the hands of the trustees was not received on behalf of Smt. Surama Sundari Roy but the proviso provides not only for a case where the entire income is received on behalf of any one person but it also contemplates a case where any part of the income is received on behalf of any one person. In the instant case, undoubtedly Rs. 500 is part of the income in the hands of the trustees and is received on behalf of Smt. Surama Sundari Roy. Therefore, it appears to us that so far as the said sum of Rs. 500 is concerned this sum was specifically receivable by the trustees on behalf of Smt. Surama Sundari Roy and this sum should be deducted from the total income of the trustees. This conclusion of ours is also in consonance with the decision reached by us in I.T. Ref. No. 86 of 1966.

10. The aspect, however, which requires consideration is whether in respect of other income it is possible to apply the proviso. In respect of these other income it is also undisputed that the first contingency contemplated by the proviso does not apply. That is to say, it could not be said that this income was received on behalf of any one person. These undoubtedly were received on behalf of a plurality of persons. Therefore, the facts of this case do not cover the first contingency contemplated. But the second contingency that requires consideration is whether the individual shares of persons on whose behalf the income was received for the year in question was indeterminate or unknown. It is true that these incomes were received on behalf of persons more than one. The question only is whether individual shares are determinate or known. It has to be further reiterated that we are concerned with the facts as in the relevant assessment years. The question, therefore, is, can it foe said in these assessment years that the individual shares of the persons on whose behalf the income had been received were determinate or known. In this case, we have to bear in mind that the section uses the word ' share '. The word ' share ' inthe expression definite share in Section 41(1) of the Indian Income-tax Act, 1922, means and includes not only a definite fraction or proportion of income but a definite portion or part of the income. In this connection, reference may be made to the decision of this court in the case of Bankim Chandra Datta v. Commissioner of Income-tax, [1966] 62 I.T.R. 239 (Cal.). Counsel for the assessee in this case contended that the right of the sons in the accumulation and ultimate surplus to be distributed was definite in view of the terms of the deed. We have to remember that Clause 2 of the trust deed provides that the trustees should hold and set apart the balance of all such net rents, tissues and profits after payment of the sum of Rs. 500 to the settlor's wife with liberty to invest the same or portion thereof in approved securities or immovable properties and to apply the same or portion thereof together with all moneys which may become available at the time towards the expenses of the marriage of each of the settlor's two sons of Rs. 8,000 as well as the settlor's daughter of the sum of Rs. 15,000. This clause has to be read with Clause 5 which provides for the shares of the ultimate beneficiaries in equal shares ' at the time of distribution ' and the trust deed also provides that the corpus which will be distributed will be the surplus ' then available ', that is to say, available at the time of distribution, Therefore, the sons who are the ultimate beneficiaries have equal shares in the surplus to be left at the time of distribution and the time of distribution would be after the performance of all the contingencies mentioned ir, the trust deed, that is to say, the payment of the sum of Rs. 500 to the wife until her death, marriages, if any, of the sons and daughter after meeting all the expenses of the trust estate. Until that contingency happens it cannot be said that the sons or the beneficiaries on whose behalf the income in the years in question was received by the trustees had definite shares. The shares in the income cannot be predicated until the contingencies mentioned in the trust deed take place. Though the sons have a vested interest in the corpus or the surplus of the estate in respect of which the vested interest is created, but that is not determinate of definite until the happening of the contingencies or the exhaustion of the trust or until the time of distribution comes. Therefore, in the years (SIC) question the shares that were received by the trustees in question or behalf of the sons or other beneficiaries could not be said to be determination or known. In the aforesaid view of the matter, we are of the opinion than so far as the income other than the monthly allowance of the settlor's wife is concerned it could not be said that in these assessment years with which we are concerned the trustees received these amounts on behalf of persons whose ' individual shares ' were determinate or known.

11. We, therefore, answer the question referred to us by stating that on the correct construction of the trust deed dated July 19, 1957, and on the facts and circumstances of the case as prevailing in the years of assessment the maximum rate could not be applied under the 1st proviso to Section 41 of the Indian Income-tax Act, 1922, so far as the monthly payment of Rs. 500 to Smt. Surama Sundari Roy is concerned. But the maximum rate would be applicable under Section 41(1) of the Indian Income-tax Act, 1922, so far as the rest of the income in the hands of the trustees is concerned. The Tribunal was not right, on the facts and circumstances of this case, and on the correct construction of the trust deed dated 19th July, 1957, in holding that the maximum rate of tax could not be applied in this case on the 1st proviso to Section 41(1), Indian Income-tax Act, 1922. We must, however, observe that whatever we have said in this judgment are confined to the facts as prevailing in the relevant assessment years.

12. Each party will pay and bear its own costs.

Sankar Prasad Mitra, C.J.

13. I agree.


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