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Official Trustee of Bengal Vs. G.A. Arratoon - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtKolkata
Decided On
Reported inAIR1931Cal518
AppellantOfficial Trustee of Bengal
RespondentG.A. Arratoon
Cases ReferredSaillard Pratt v. Gamble
Excerpt:
- .....of rowlett, j., in purdie v. rex [1914] 3 k.b. 112 showed that the company and not the shareholder paid income-tax. that learned judge certainly says so. but he was considering the position from the point of view of the government, and was not concerned with the construction of a deed providing for payment by dividend. the principle is clearly established that it requires a clear indication of the intention on the part of a testator or a settlor to establish that the beneficiary's income-tax is to be paid for him : see in re saillard pratt v. gamble [1917] 2 ch. 401.12. in the settlement under consideration, in my opinion, the expression actually realized by way of dividends means that rs. 14,000 in the year has been paid as dividends in respect of the securities. if the companies paid.....
Judgment:

Remfry, J.

1. In this originating summons, the Official Trustee of Bengal applies to this Court to ascertain the construction to be placed on certain portions of a marriage settlement.

2. The father of the bridegroom made a settlement on the marriage wherein it is recited that it is the intention of the settlor that the beneficiaries thereunder should receive a yearly income of Rupees 14,000 being equivalent to 7 per cent per annum on the nominal value of the securities settled thereunder and that in the event of such securities failing to yield the aforesaid income, to supplement and make up the deficiency.

3. The covenant is as follows:. if in any year the said securities... shall not yield an annual income of Rs. 14,000, then the settlor... shall on demand... pay any deficiency between the sum actually realized by way of dividends or income on the said securities and the sum of Rs. 14,000.

4. The securities consisted of 7 per cent preference shares, additional preference shares and second debentures in limited companies.

5. The Official Trustee contends that deficiency ought to be calculated by deduction from Rs. 14,000 the net amount of the dividends actually recovered by him after deduction of income-tax by the companies at the source. The executors of the testator contend that they are entitled to deduct from the Rs. 14,000 the gross amount of dividends declared including the amount of income-tax de-ducted by the company at the source.

6. It appears from the correspondence between the parties that the companies paid 7 per cent less 18 pies income-tax. It does not appear whether any part of that deduction has been or is recoverable. The Official Trustee does not claim that the amount paid for any deficiency should be sufficient to pay the income-tax in itself, and so result in the receipt of Rs. 14,000 a year free of income-tax by the trust.

7. As the settlement is in terms which are capable of meaning either of the results contended for, that is, is ambiguous, in my opinion, the document must be read in the light of the surrounding circumstances.

8. The recital seems by itself to be clear-- a settlement of an income of Rs. 14,000 without any indication that it should be free of income-tax. The circumstance that the securities could only yield an income of Rs. 14,000 less income-tax confirms what is after all the meaning of the words used.

9. The covenant of course is the operative part and, if clear, must be construed without reference to the recital. 'The sum actually realized by way of dividends or income' are the words used. It is contended that 'actually realized' means the sum paid to the trustee, after deduction of income-tax. But 'actually realized' is qualified by the words 'by way of dividends or income.'

10. In my opinion, the holder of these securities is entitled to the dividend declared; and, when paid that dividend less income-tax, has received 'by way of dividend' the full dividend declared. He can only demand that sum from the company, for he is entitled to the whole dividend, but payment of the whole dividend less income-tax is under the Income-tax Act a discharge of the company's liability. The company in fact has paid the shareholder's income-tax : that is plain, for in certain cases the shareholder can claim a refund of a portion or, may be, the whole of the income-tax deducted at the source, for the rate of income-tax on the dividend is determined by the shareholder's entire income and not by the company's income at all.

11. It was argued that the decision of Rowlett, J., in Purdie v. Rex [1914] 3 K.B. 112 showed that the company and not the shareholder paid income-tax. That learned Judge certainly says so. But he was considering the position from the point of view of the Government, and was not concerned with the construction of a deed providing for payment by dividend. The principle is clearly established that it requires a clear indication of the intention on the part of a testator or a settlor to establish that the beneficiary's income-tax is to be paid for him : see In re Saillard Pratt v. Gamble [1917] 2 Ch. 401.

12. In the settlement under consideration, in my opinion, the expression actually realized by way of dividends means that Rs. 14,000 in the year has been paid as dividends in respect of the securities. If the companies paid nothing in any year, there is no indication whatsoever that the settlor covenanted to pay more than Rs. 14,000. That makes it clear that the settlor was not minded to provide Rupees 14,000 a year free of income-tax, but the question is what is the meaning of the covenant. As I construe it, it means Rs. 14,000 by way of dividends, i.e. that the beneficiaries are to receive dividends to the extent of Rs. 14,000, or, failing that, an additional sum, and that the receipt of dividends for Rs. 14,000 although income-tax be deducted at the source, is all that the covenant contemplates. The fact that the securities could not produce in any year a larger income is a circumstance which confirms my view. It is also to be observed that the settlor reserved to himself the option of taking back the securities on payment of Rs. 2,00,000 to the trustees, in which case he was to be released from the covenant in question. If he had availed himself of the option, it is clear that the beneficiaries could not have claimed from him the refund of any income-tax pay-able in respect of any dividends resulting from the investment of that Rupees 2,00,000.

13. In my opinion therefore the true construction of the covenant is that any deficiency is to be calculated by deducting the full amount of dividends received in respect of the securities including any income-tax deducted at the source from Rs. 14,000.


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