1. At the instance of the Commissioner of Income-tax, West Bengal-I, Calcutta, (sic) the Tribunal in this case has referred the following question to this court under Section 256(1) of the Income-tax Act, 1961 :
'Whether, on the facts and in the circumstances of the case and on a proper construction of the deed of trust dated 3rd January, 1942, the Tribunal was correct in holding that the individual shares of the beneficiaries were indeterminate or unknown and hence the provisions of Section 164 of the Income-tax Act, 1961, were attracted to the entire income of the trust ?'
2. The facts found and/or admitted in these proceedings are as follows :
3. The assessee is Khimji Keshavji Trust Estate, Calcutta. The assessment years involved are 1965-66 and 1966-67, the relevant previous years being 2020 and 2021 Gujrati Dewali years.
4. By an indenture dated 3rd January, 1942, one Khimji Keshavji transferred certain properties to a trust, inter alia, for the benefit of his relations. By the indenture the trustees were, inter alia, directed to carry out the trust as follows :
'6. To pay Government revenue, rent, cesses, rates, taxes, charges and other impositions from time to time payable in respect of the said trust properties and the costs and expenses for maintaining necessary establishment for the management of the trust properties and for the repairs of the said trust properties......
8. To hold the net rents, issues and profits of the said trust funds and premises after meeting the expenses hereinbefore mentioned upon trust following, that is to say :
(a) to pay the interest on any principal sums of money due and owing by the settlor for the time being charged on the properties hereby conveyed.
(b) to pay Rs. 20 per month to each grandson of the settlor (being the sons of five sons of the settlor) from the date when he attaint the age of 6 years until he attains the age of 24 years.
(c) to pay to each grand-daughter of the settlor (being daughters of the five sons of the settlor) the sum of Rs. 20 per month from the date when she attains the age of 6 years up to 2 years after her marriage.
(d) to spend on the occasion of the marriage of each grand-child of the settlor the sum of Rs. 2,500 which will include the dowry.
(e) to apply the balance, if any, of such rents, issues and profits in the liquidation of the debts on the properties hereby conveyed on the trust funds,
(f) after payment and liquidation and payment of the debts as aforesaid to accumulate the balance (if any) until the 3rd day of January, 1952, and invest the same either in the purchase of real properties either in the town of Calcutta and its suburbs or Rajkot or in the construction of buildings on trust properties and the improvement thereof.
(g) thereafter the trustees shall in their discretion distribute the whole or such part of the net rents, issues and profits after meeting the payments hereinbefore mentioned as they shall think fit in equal shares amongst the following persons ;1. Dubhibai Khimji ... My wife2. Karsandas Khimji ... My eldest son3. Ratilal Khimji ... My second son4. Kantilal Khimji ... My third son5. Amratlal Khimji ... My fourth son6. Chimanlal Khimji ... My fifth son. '
5. Up to the assessment year 1964-65, income of the trust estate was assessed directly in the hands of the beneficiaries but during the relevant assessment years the Income-tax Officer assessed the income in the hands of the trust estate on the ground that the deed did not clearly determine the shares of the beneficiaries as the trustees had the discretion to alter the ratio of distribution as between them. The Income-tax Officer applied Section 164 of the Act and completed the assessments accordingly.
6. On appeal, the assessee succeeded before the Appellate Assistant Commissioner who held that the trust deed did not give any discretion to the trustees to alter the share ratio of the beneficiaries. The contentions of the assessee were upheld.
7. The revenue preferred an appeal to the Tribunal from the order of the Appellate Assistant Commissioner. It was contended before the Tribunal that the shares of the beneficiaries were indeterminate and the income which they were to get according to the trust deed, i.e., income receivable by the beneficiaries was not known as under the trust the trustees had the sole discretion either to distribute the whole or any part of the income left after meeting the expenses. The Tribunal accepted the contentions of the revenue and held that under the trust deed in question the income which the beneficiaries were to receive at a particular time was not known and, therefore, their shares were also indeterminate. The order of the Appellate Assistant Commissioner was reversed.
8. To appreciate the dispute involved in this reference it is necessary to consider Section 164(1) of the Income-tax Act, 1961. The material part of the said section is as follows :
'(1) Subject to the provisions of Sub-sections (2) and (3), where any income in respect of which the persons mentioned in Clauses (iii) and (iv) of Sub-section (1) of Section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as ' relevant income ', ' part of relevant income ', and ' beneficiaries ', respectively), tax shall be charged--(i) as if the relevant income or part of relevant income were the total income of an association of persons, or
(ii) at the rate of sixty-five per cent., whichever course would be more beneficial to the revenue :...... '
9. The above section of the present Act is similar to Section 41 of the earlier Act, i.e., the Indian Income-tax Act, 1922, the material part whereof is as follows :
'41. Courts of Wards, etc.--In the case of income, profits of gains chargeable under this Act which..... .any trustee or trustees apppointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise,......are entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from such......trustee or trustees in the like 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 partthereof are not specifically receivable on behalf of any one person, or wherethe individual shares 6f the persons on whose behalf they are receivable areindeterminate or unknown, the tax shall be levied and recoverable at themaximum rate, but, where such persons have no other personal incomechargeable 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 totalincome of an association of persons:.........'
10. Mr. B. L. Pal, learned counsel for the revenue has contended that in the instant case the income arising to the trust estate clearly falls within the mischief of the first part of Section 164 because reading the trust deed it could not be said that any part of such income 'is specifically receivable on behalf of or for the benefit of any one person' and, therefore, the income had to be assessed in the hands of the trust estate. In support of his contention Mr. Pal relied on and cited several decisions which are considered hereafter in their chronological order.
11. First cited was a decision of this court in the case of Estate of Harendra Kumar Roy v. Commissioner of Income-tax : 12ITR68(Cal) . The facts in that case were that under a trust deed the trustees were directed to disburse the income for the following purposes : (a) worship of family deities in the same way as the settlor ; (b) maintenance of some specified educational institutions and a hostel on the same scale as done by the settlor ; (c) payment to charities up to the amounts stated ; (d) payment of expenses of pilgrimages of members of the family of the settlor on such scale and at such times as the trustee may determine in his discretion ; and, lastly (e) payment of the cost of maintenance and medical attendance and treatment of the settlor, his sons, his grandsons and great grandsons and members of their respective families including their mothers, wives and children including the cost of customary social ceremonies in the scale of expenditure as the trustee may consider proper in his discretion. Specific payments of Rs. 25 each were directed to be given to a daughter and a daughter-in-law, and the son was awarded a monthly payment of Rs. 100 for acting as the trustee.
12. On behalf of the revenue it was contended that under this deed no income, profit or gain was specifically receivable on behalf of any one person and the first part of the proviso to Section 41 of the earlier Act would apply. But the court held that individual shares of the persons on whose behalf the income was receivable was indeterminate and, therefore, the second part of the proviso did apply.
13. This case does not appear to advance the case of the revenue to any great extent inasmuch as the provisions of the trust deed in that case were materially different from the provisions in the deed with which we are concerned.
14. Next decision cited was of the Andhra Pradesh High Court in Trustees of Sahebzadas of Sarf-E-Khas Trust v. Commissioner of Income-tax : 44ITR332(AP) . The trust in this case had been created by the Nizam of Hyderabad and the deed provided for specific monthly-allowances and pensions to specified beneficiaries including an educational scholarship to them. The trustees further had an absolute discretion to spend a sum not exceeding Rs. 25,000 a year towards payment of increased monthly allowances to any of the beneficiaries or their issue who might be in straitened circumstances.
15. It was held by the High Court that in respect of the direction of payment of Rs. 25,000 the first part of the proviso to Section 41 of the Indian Income-tax Act, 1922, applied as the amounts were not specifically receivable on behalf of any specified person. It was further held that, in any event, their individual shares were indeterminate and, therefore, the second part of the proviso also applied.
16. Again, the provisions of the trust deed which were construed by the Andhra Pradesh High Court are materially different from the provisions of the trust deed in the instant case.
17. The last case cited was one of the Gujarat High Court in Commissioner of Income-tax v. Arvind Narottam : 73ITR490(Guj) . The trust deed in that case, executed in 1955, provided that until the expiry of 30 years the trustees should out of the net income pay to the assessee, or, if the assessee got married, to his wife and children such amount as they thought proper subject to a minimum of Rs. 250 per year, and the balance of the income should be added to the trust fund as capital and on the expiry of 30 years the fund together with the undistributed income should be distributed between the assessee and his family members. There were two other trust deeds, one executed in the same year and the other in 1961 in identical terms. It was held that under the provisions of the deed in question the minimum provided should be chargeable to tax as part of the total income of the assessee and the balance should be assessed under Section 164 in the hands of the trustees.
18. Dr. D. Pal, learned counsel for the assessee, cited only one decision of this court, viz. Official Trustee of West Bengal v. Commissioner of Income-tax : 26ITR410(Cal) . The facts were that by a deed of trust the settlor had transferred certain shares and securities to the official trustees for the benefit of his step-mother and directed the trustee to pay her an allowance of Rs. 12,000 per month and to hold any surplus that might be left as part of the trust fund. On a construction of this deed it was held that the amount of Rs. 1,44,000 was rightly assessed as income received specifically on behalf of the beneficiary but the surplus income could not be said to be receivable on behalf of any one person nor could it be said to be receivable on behalf of a number of persons whose shares were determinate or known and, therefore, was to be assessed at the maximum rate under the proviso to Section 41 of the Indian Income-tax Act, 1922.
19. In his judgment Chakravartti C.J. analysed Section 41 of the Act as follows (page 416) :
'Complications are provided for in the first proviso or rather some ofthe complications are provided for there......
It will be seen that the proviso provides for the application of the maximum rate in two cases, both expressed negatively. The first case is where the income is not specifically received on behalf of any one person, and the second case is where the individual shares of the persons on whose behalf they are receivable are indeterminate or unknown. Although the proviso is expressed in these negative forms, they are, if I may borrow an expression used by Lord Macmillan in one of the decisions of the Judicial Committee, 'pregnant negatives '. In other words, while the proviso says that the maximum rate shall be applicable if income is not specifically receivable on behalf of any one person, it says by implication that if it is received specifically on behalf of any one person, the maximum rate shall not be applicable. Similarly, while the proviso says that the maximum rate shall be applicable if the individual shares of the persons on whose behalf the income is received are indeterminate or unknown, it says by implication that where the shares are determinate or known, the maximum rate shall not be applicable.
Bat what exactly is the scope of the two alternative cases mentioned in the proviso The words of the first are : ' Where any such income, profits or gains or any part thereof are not specifically receivable on behalf of any one person.' It will be noticed that the case contemplated here is not necessarily and always a case of the whole amount of the income receivable by the receiver or manager or trustee. If the words ' or any part thereof ' had not been there, the first case contemplated by the proviso would mean that the maximum rate would be applicable to the entirety of the amount receivable by the representative, if it was received on behalf of a plurality of persons, and although separate portions of it might be receivable specifically on behalf of different persons, the maximum rate would still apply, because such a case would not be a case where income is ' specifically receivable on behalf of any one person '. All cases where the income was received on behalf of a plurality of persons being thus covered by the first part of the proviso, the second part separated by the word ' or ' and providing for a case where the individual shares of the person, on whose behalf the income is received, are indeterminate or unknown, would be redundant and even meaningless, because the maximum rate would be applicable on the ground of income not being receivable specifically on behalf of any one person irrespective of whether their individual shares were determinate or indeterminate or known or unknown......The proviso, therefore, isolates and demarcates such portion out of the entirety of the income received by the representative as is not specifically receivable on behalf of any one person and to which alone, therefore, an uncertainty attaches. If, for example, an amount of income is received by a representative in specific shares or amounts on behalf of two persons, the share or amount being specific in the case of each one of them, but a further amount is also received on behalf of no person or persons in particular, then under the first part of the proviso, it is to such further amount alone that the maximum rate will apply. '
20. Reading the sections, 164 of the Income-tax Act, 1961, and 41 of the earlier Act, and in view of their interpretation by the authorities it appears to us that the law is well-settled on the point. Under the provisions of the deed in the instant case, no part of the income of the trust has been directed to be left in the hands of the trustees without distribution. The entire income would be receivable on behalf of or for the beneficiaries. The individual shares of the persons on whose behalf or for whose benefit such income is receivable also cannot be said to be indeterminate or unknown. The beneficiaries have been named in the deed and their shares clearly defined.
21. The contention of the revenue throughout has been that the shares of the beneficiaries are indeterminate inasmuch as the amount which they will receive from the trustees was not determinate. This argument appears to us to be founded on a confusion between the concepts of ' income ' and the ' share of an income '. Once the trustees have decided to distribute any part of the income they have no alternative but to follow the deed and distribute in accordance with the deed, i.e., in equal share.
22. The other aspect which was sought to be raised before us had at no time been canvassed before the authorities below, i.e., the quantum of distribution being dependent on the discretion of the trustees, i.e., no part of the income of the trust estate can be said to be specifically receivable by any person or persons. This question was never agitated earlier and in any event reading the trust deed it appears to us that the income of the estate is receivable by the trustees on behalf of the beneficiaries mentioned in the trust. No doubt, the distribution may be withheld in a particular year in the discretion of the trustees, but the second proviso clearly applies in the instance case, and the individual shares in which the beneficiaries will receive such income are clear and not left to be determined.
23. For the reasons given above we answer the question referred to us in the negative and in favour of the assessee. There will be no order as to costs.
24. I agree.