The Judgment of the Court was delivered by
CHAKRAVARTTI, J. - This is a reference under Section 66(1) of the Indian Income-tax Act by which the Calcutta Bench of the Appellate Tribunal has asked for the opinion of this Court on the following question of law :-
'Whether in the facts and circumstances of this case, the Income-tax Appellate Tribunal was right in disallowing Rs. 2,00,000 as a deduction under Section 10(2)(xv) of the Indian Income-tax Act.'
I shall have to say something presently about the scope of the question but before doing so, I should like to state the facts in outline and the course which the proceedings have taken.
The assessee is a Banking Company carrying on business at, among other places, Calcutta and Allahabad. On March 15, 1946, it executed a deed by which it purported to create a trust for the payment of pensions to members of its staff. The deed declared that a pension fund had been constituted and established. It then recited that a sum of Rs. 2,00,000 had already been made over to three persons who were referred to as the 'present trustees' and proceeded to state that the fund would consist in the first instance of the said sum of Rs. 2,00,000 and that there would be added to it such further contributions as the Bank might make from time to time though it would not be bound to make such contributions. In the course of the accounting year 1946-47, the Bank made a further payment of Rs. 2,00,000 to this fund, and in its assessment for the assessment year 1947-48, it claimed deduction of that amount under section 10(2)(xv) of the Income-tax Act on the ground that it was an item of expenditure laid out or expended wholly and exclusively for the purposes of its business. We were informed that no similar claim had been made in the earlier assessment in respect of the initial payment. The claim, when it was made in the assessment for 1947-48, was put forward in the form that the money had been paid to a fund constituted under an irrevocable trust and the contention apparently was that by the provisions of the deed, the Bank had bound itself irrevocably to provide for pensions for members of its staff and since the payment had been made under those provisions, it was allowable as an expenditure and a business expenditure. On the claim being made in that form, the Income-tax Officer examined the provisions of the trust deed and came to the conclusion that by it the Bank had not bound itself to pay any pensions or to make any payment at all. He held further that the payment was 'entirely voluntary and ex gratia and more in the nature of a capital payment to the fund,' and so could not be regarded as an allowable deduction in the Banks assessment. The assessee then appealed to the Appellate Assistant Commissioner and before that officer its representative took the somewhat strange course of relying entirely on certain instructions contained in the Income-tax Manual. The Appellate Assistant Commissioner held that those instructions were of no avail to the assessee company, inasmuch as it has retained an effective control over the fund in respect of the management and payment of the pensions. He held further that, in any event, the deduction could not be allowed by reason of the prohibition contained Section 10(4)(c) of the Act inasmuch as no arrangement had been made for the deduction at source of tax from payments that might be made out of the fund. The assessee thereafter appealed to the Tribunal and once again relied upon the irrevocable trust. On behalf of the Department it was contended that the trust was void, because the beneficiary had not been indicated with reasonable certainty and, further, that the deduction could no be claimed inasmuch as the Bank had retained the control of the fund in its own hands by reserving the right to nominate all the trustees. It was also urged that section 10(4)(c) of the Act was a bar to the claim. The Tribunal upheld the first two objections but said nothing about the third. Thereafter the assessee made an application for a reference to this Court of three questions of law, one of which asked in a broad form whether deduction of the amount concerned was allowable under Section 10(2)(xv), another put in issue the true construction of the trust deed and the third questioned the view taken by the Appellate Assistant Commissioner of Section 10(4)(c) of the Act. The Commissioner objected to the inclusion of the third question on the ground that it did not arise out of the Tribunals order, inasmuch as the Tribunal had not dealt with it at all. In the ultimate event, the Tribunal referred the question in the form I have already read.
On those facts the first question that arises is, what is the scope of this reference In view of the wide terms in which the question has been framed, one possible view is that all considerations relevant to Section 10(2)(xv) which arise out of the facts of the case can and ought to be gone into by this Court. The other view is that the question does not ask whether the deduction claimed is allowable or disallowable in any circumstances under Section 10(2)(xv), but only whether the Tribunal was right in rejecting the claim on the grounds it did.
Although at the end of the hearing the learning Counsel for both parties agreed that we should limit ourselves to the questions dealt with by the Tribunal, there was some discussion at the Bar as to the scope of the High Courts jurisdiction in such cases. Both sides referred to the wide language in which the question had been expressed. Mr. Mitter, on behalf of the assessee, while he did not ask us to consider any question other than the validity of the trust, suggested at one state of his argument that we should at least add a rider to our answer to the effect that, whether affirmative or negative, it would not conclude the question of the assessability of the amount concerned in either way. That course, he contended, we should adopt in the interests of justice. In my opinion, it is not proper to overlook the fact that the jurisdiction of the High Court upon a reference under Section 66(1) of the Income-tax Act is purely advisory, that the sole task of the Court is to answer the question actually referred on the case stated and that it is no part of its duty or right to give further advice or to set about raising other questions and proceeding to decide them. Oftener than not, questions are framed in such a way as to ask whether a particular order is warranted by a particular section of the Income-tax Act. As is well-known, questions which may conceivably arise under any section of the Act are legion and it would be intolerable if the High Court, in dealing with a reference, was called upon, and took it upon itself, to consider and decide all such questions. In my view, the proper course for the High Court to adopt is to limit itself severely to the questions arising out of the order of the Tribunal and to proceed on the view that only those questions arise out of the order which have been dealt with by it and that of such questions again, those only should be considered and answered by the High Court which have been actually referred. It must certainly be conceded that the High Court may re-frame a question referred in order to clarify its meaning or to bring the real controversy to the surface; but it cannot and ought not to re-settle the issues, as it were, and add some questions to those referred whether on the ground that they were dealt with by the Tribunal or on the ground that though not so dealt with, they arise out of the facts of the case. If the Tribunal fails to make a proper reference or refers a question in an imperfect or partial form, the Act provides a remedy to the party affected and he can, on making out a proper case, compel the Tribunal to refer the question he desires to be referred. When such remedy has not been availed of, the High Court, in my view, ought to take the question referred as it stands and give its opinion only on that question on which its opinion had been sought. In dealing with a reference, it is not revising the assessment itself but only answering a particular question or questions. Accordingly, no question of doing justice between there parties in a general sense arises, although the question or questions referred will be justly, fully and properly answered.
I am aware that because of a difference in language between Section 66(1) which speaks of question of law 'arising out of such order' and and Section 66(5) which speaks of question 'raised by the case' and because of some uncertainty as to whether the word 'case' means the whole assessment case or the case stated, two opposite trends of judicial opinion have grown up, one favouring the view that all questions of law arising out of the facts of the case can and ought to be gone into in a reference, irrespective of whether they were dealt with by the Tribunal or not, and the other insisting that the jurisdiction of the High Court is limited the questions actually referred. The recent decision of the Bombay High Court Madanlal Dharnidharka v. Commissioner of Income-tax, Bombay, is an example of the former view, while the latter view is reflected in the decision of the Madras High Court in the case of Messrs. Abboy Chetty & Co. v. Commissioner of Income-tax, Madras. The Privy Council has had occasion more than once to deprecate the practice of departing from the strict terms of the question referred. (See for example, Commissioner of Income-tax, Bihar and Orissa v. Maharajadhiraj Kameshwar Singh and National Mutual life Association of Australasia v. Commissioner of Income-tax, Bombay Presidency). In a third case, Sir Rajendra Narayan Bhanja Deo v. Commissioner of Income-tax, Bihar & Orissa Lord Justice Luxmoore, delivering the judgment of the Board, observed that although the question actually referred did not arise, but some other question might emerge with regard to the assessees liability to income-tax in respect of the same income, it would be clearly contrary to their Lordships practice to attempt to formulate any such question even if they had before them the materials for so doing. These cases may perhaps be distinguished on the fact, and the case last cited, it is true, had reference only to the practice of the Privy Council. But it so happens that the question came to be considered recently by a Division Bench of this Court, constituted of the learned Chief Justice and Mr. Justice Banerjee in the case of Commissioner of Excess Profits Tax, West Bengal v. Jeewanlal, and their Lordships pronounced decisively in favour of the view which may be called the stricter view of Section 66(1). In matters of this kind, it is eminently desirable that there should be consistency in the practice of the Court and even if the other view, which I may call the liberal view, was a possible one, I should have greatly hesitated to differ from what another Division Bench of this Court has held, unless I felt bound by some compelling reason to do so. But, as I have already indicated, the view taken by this Court accords completely with what I conceive to be the true character of the jurisdiction of the High Court upon a reference under Section 66(1) of th Income-tax Act. In my opinion, we ought to limit ourselves to those out of the questions dealt with by the Tribunal which have actually been referred.
Turning now to the fats of the present case, I may point out that, broadly speaking, they give rise to four questions :-
(1) whether the money was expended; (2) if expended, whether it was expended solely for the purpose of the business; (3) even if expended solely for the purpose of the business, whether it was a capital or revenue expenditure; (4) whether even if a revenue expenditure, laid out solely for the purpose of the business, the deduction could still not be allowed in view of the provisions of Section 10(4)(c).
Of these four questions, the first two were dealt with by the Tribunal as I shall endeavour to show, and those have been referred. The third and the fourth were not dealt with by the Tribunal and, in my view, they have not been referred. If it be held that there was no valid trust, Mr. Mitter conceded that the assessee had no further case, so far as the present Reference was concerned. But if the decision on the first two question be in favour of the assessee, the department, if still desirous of resisting the deduction, might urge that, in any event, the payment was a capital payment, since in fact and in substance it was only a lump sum payment, since in fact and in substance it was only a lump sum payment under an irrevocable trust to serve as a nucleus of a pension fund for its employees. Even if the department failed on that ground, it mights still urge that, in any event, Section 10(4)(c) stood in the way of deduction being allowed. Those two question arise out of the facts of the case and were actually dealt with by the Tribunal with whose order only we have concern and I cannot hold them to be comprised within the question referred, although it asks broadly whether the Tribunal was right in disallowing the deduction under section 10(2)(xv) of the Act. In my opinion, the question should be read as asking only whether the Tribunal was right in acting as it did, that is to say, in disallowing the deduction on the grounds given. Mr. Meyer, in the end, agreed that nothing more was covered by the question and that other matters which the Department might, on the question and that other matters which the Department might, on the facts of the case, urge to its advantage, could not properly be introduced in the present Reference.
I may now take up the points involved in the Reference, as defined and interpreted above, and try to see what it is that the Tribunal has actually found. It seems fairly clear that although the Tribunal was considering a question under Section 10(2)(xv) it was really thinking in terms of Section 16(1)(c), and it is possible that its approach to the question was given that direction by the representative of the assessee who had invoked the Income-tax Manual before the Appellate Assistant Commissioner. I do not however say that the Tribunal did not deal with the proper question, not did either of the parities contend that it had not done so. In my view, the effect of what the Tribunal has held is that the trust being void, the ownership of the money did not pass under its provisions to the so-called trustees and, accordingly, the money was not expended; also, that since no clear and binding provision had been made for the actual application of the money to the payment of pensions, to ascertainable employees or any employees at all, the money had not been expended for the purpose of the business. It might remain with the trustees without there ever being any pension to pay. The question to be considered by us is whether this view taken by the Tribunal is right. It has to be decided entirely on the terms of the deed, because, besides the fact that there was a physical transfer of the sum of Rs. 2,00,000 to the alleged trustees, there is no other fact.
Before dealing with the terms of the deed, I might read at this stage the relevant provisions of the Indian Trusts Act. Section 3 of the Act defines a trust as 'an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner.' The section goes on to define 'beneficiary' as 'the person for whose benefit the confidence is accepted'. Section 5, to quote only the material portion, provides that no trust in relation to movable property is valid unless declared by a non-testamentary instrument or unless the ownership of the property is transferred to the trustee. Section 6, to quote again only the material portion, provides that 'subject to the provisions of Section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts... (c) the beneficiary..... and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust property to the trustee.' The validity or otherwise of the deed in the present case will have to be judged by reference to these provisions of the Trusts Act.
I may say at this stage that of the two grounds given by the Tribunal in support of its decision, Mr. Meyer made no attempt to support the first. That ground was that the Bank had retained control over the funds of the trust, because all the trustees of the fund were to be nominees of the Bank. It is quite clear that the fact that the trustees of the fund were to be the Banks nominees, did not mean that the Bank was retaining the control of the fund illegally or in fact. The Bank itself might well have been the trustee and it can by no means be said that by retaining the right to nominate the trustees, the Bank was in any way affecting the validity of the trust,
The real ground upon which the decision of the present question turns concerns the manner in which the deed indicates the beneficiaries under it. Clause (5) of the deed provides that the income of the fund if sufficient and if the income of the fund shall not be sufficient, then the capital of the fund, shall be applied in paying or if insufficient, (sic.) in contributing towards the payment of, such pensions and in such manner as the Bank or such officers thereof as shall be duly authorised by the Bank in that behalf, shall direct to be paid out of the fund. While this clause directs the fund to be applied to the payment of pensions, it does not bring any pension into existence, nor casts any obligation on the Bank to grant any pensions, merely provides that the trust money shall be utilised in paying such pensions as the Bank may direct to be paid. The crucial clause as to granting pensions is clause 8. All that is provided there is that any officer on the European Staff of the Bank who has been in the service of the Bank for at least twenty-five years and any officer or other employee of the Indian Staff of the Bank who has been in the service of the Bank for at least thirty years 'may apply to the Bank for a pension.' There is a further provisions in the clause to the effect that in special circumstances the Bank may grant pension to employees who have not completed the respective periods of service previously mentioned. As to the persons who will be granted a pension or the right of any employee to receive a pension, clause 8 is the only provision to be found in the deed. It will be noticed that the deed does not state that all the employees of the Bank or such of its employees as may possess some defined qualifications will be entitled to receive a pension. On the other hand, the deed leaves it entirely to the will and the pleasure of the Bank to grant or not to grant a pension, there being no means of knowing in whose favour the will or pleasure will be exercised and nothing to require the Bank to exercise it at all. The utmost that clause 8 can be said to do is to indicate the genus of persons who will be eligible candidates for pension, but as to the species or identity of persons who may actually get a pension, it is left solely to the unknown and unknowable will of the Bank to choose the persons who will be granted a pension and that again without any obligation to make any choice at all. In actual fact, nobody may be granted a pension at any time. In my view, a clause of that character cannot be said to indicate the beneficiary with reasonable certainty. The case is even worse than that contemplated by I llustration (c) to Section 6 of the Indian Trusts Act with runs as follows :-
'A bequeaths certain property to B, requesting him to distribute it amongst such members of Cs family as B should think most deserving. This does not create a trust, for the beneficiaries are not ind icated with reasonable certainty.'
In the case envisaged by this illustration, it seems at least to be required that the trustee should choose someone among the members of Cs family, but in the deed before us, the trustees have no power to choose any one at all and so far as the trustor is concerned, he also is under no obligation to give effect to the provisions of the deed and make an actual choice of a grantee, and, again, even if he is minded to confer the benefit of a pension on some employees, he is at complete liberty to make random choices. In view of such utter indefiniteness of the provisions, I am of opinion that no one can ever know who the beneficiaries were whom the trustor intended to benefit at the time the trust was created or who the beneficiaries will be or whether there will be any beneficiaries at all at any time. In my view, a trust, so expressed, is bad for the reason that it does not indicate the beneficiary with reasonable certainty.
Mr. Mitter contended that illustration (c) dealt with a case where the choice was left to the trustee, but the position was entirely different when the trustor himself retained the choice, although it was to be exercised on a future occasion. In such a case, so the argument proceeded, the trustor had indicated the beneficiary with reasonable certainty. I confess I am unable to see any distinction between a case where the choice is left to the trustee and a case where the choice is left to the trustor. The reason given in illustration (c) for the failure of the trust is not that the choice of the beneficiaries is left to someone other than the trustor, but that the beneficiaries are not indicated with reasonable certainty. They are no more indicated with reasonable certainty if the choice is lift to the trustor than they are when the choice is left to the trustee.
I was further contended by Mr. Mitter that the deed had in fact indicated the beneficiaries with reasonable certainty and he referred to the provisions of clause 16 of the deed. That clause provides that a register shall be kept by the trustees in which shall be entered the names and addresses and other relevant particulars of the persons, for the time being and from time to time, in receipt of pensions under the deed. Mr. Mitter contended that the test was whether at any given point of time one could ascertain who the actual beneficiaries were and he submitted that in view of the provisions of clause 16, there was not the slightest difficulty in the present case in finding out who the persons were who were beneficiaries at a given point of time under the provisions of the trust. In my view, Section 6 of the Trusts Act has reference to the stage at which the trust is being created and the beneficiary, defined by Section 3 and contemplated by Section 6, is not the person who may come to be in actual receipt of the benefit at some future point of time, but the person who is intended by the trustee to be benefited, at the creation of the trust, and to whom the benefit goes under the provisions of the trust itself, whether immediately or in a certain contingency, but without the aid of a further choice at someones discretion. If that be the correct view of the section, as I think it is, the provision for the maintenance of a register does not suffice to validate the trust, for it does not cure the initial defect of uncertainty as to whether any pension will be granted at all or to whom it will be granted.
It was also contended by Mr. Mitter that Section 6 of the Trusts Act was subject to the provisions of Section 5 and that under section 5, ownership of movable trust property could be passed to the trustee without any deed. The argument, if I understood it aright, was that quite apart from the deed a sum of Rs. 2,00,000 had in this case been handed over to the trustees, and that that was sufficient to constitute a transfer and so an 'expenditure' under Section 10(2)(xv) of the Income-tax Act. In my view, this argument misses the real difficulty in the way of Mr. Mitters client. It is quite true that when the subject matter of a trust is movable property, the property can be transferred to the trustee by the physical act of handing it over. But in order that a valid trust may be created even in such a case, the provisions of Section 6 must further be satisfied. It is again true that the various matters which are required by Section 6 to be indicated with reasonable certainty, may be so indicated either by words or by acts; but in this case there is nothing on the record, apart from the deed, to prove any act done by the Bank form which the requisite particulars about various matters mentioned in Section 6 could be collected. Indeed, as I have stated in an earlier part of the judgment, the assessee, throughout the proceeding, relied on the deed and deed alone. I may add that even if the money passed from the Bank to the so-called trustees, Mr. Mitter cannot yet bring it under Section 10(2)(xv) of the Act unless he can prove its application or liability to application to the payment of pensions either actually required to be paid by the Bank at present or bound to be required to be paid in future and so constituting a liability of the business. If that part of the disposition which relates to the payment of pensions fails for lack of certainty, both certainty of pensions being granted and certainty of persons who will receive them if grants are made, it is of no benefit too Mr. Mitters client to prove the passage of the money from the Bank to the so-called trustees, because if the money travels no further and does not effectively become payable as pensions, it does not become applicable to a business purpose and does not come under Section 10(2)(xv).
It may be useful at this stage to set out some further provisions of the trust deed in order to indicate its real character. They do not bear upon the uncertainty about the beneficiaries, but they do bear upon the uncertainty of the pension itself and do indicate what the true position under the deed is. There is first clause 3 which recites the initial contribution of Rs. 2,00,000 already made, but adds that though the Bank might make further contributions, it would not be bound to decided on so. There is no mention anywhere of any pension scheme or of any contribution to be made by the employees themselves. Next there is clause 9 under which the bank may modify or determine any pension payable under the deed when, in its opinion, the conduct of the recipient or the circumstances of the case shall justify it in so doing and the trustees shall be bound to act upon any direction of the Bank. Another provision is clause 24 which provides that if the Bank should be wound up or when the longest liver of the now existing issue of his late Majesty King Emperor George V shall die, the fund shall be realised and shall be redistributed among such of the employees of the Bank in such proportions as the Bank shall determine. It is thus quite clear that not only is the grant of a pension to any particular employee or to any employee at all entirely problematic and may or may not take place, but also the enjoyment of a pension, even if it has been granted, is extremely precarious and may be terminated by the Bank at any time. What seems to me to be of even greater importance is that if the fund should come to be closed down in either of the two events mentioned in clause 24, the fund shall be distributed at the direction of the Bank among such employees as the Bank shall determine, which implies that the Bank will re-assume control of the entire fund and in the new distribution may keep out altogether persons previously in receipt of a pension. An even more drastic provision is contained in clause 18 which empowers the Bank, with the consent in writing of the trustees, to alter all or any of the regulations contained in the deed and make new regulations. The clause goes on to provide that 'for the purpose hereof, all the provisions herein contained shall be deemed to be regulations in relation to the fund.' The clear effect of that clause is that the Bank, if it should choose, might close down the fund altogether, except perhaps to a nominal extent, for if all the provisions contained in the trust deed are to be treated as regulations the Bank may, at its will, though with the concurrence of the trustees, withdraw practically the whole of the contributions made to the fund or at least repeal the provisions as to its distribution by way of pensions. It may be that clause 18 contemplates that some kind of fund shall be maintained even if the regulations be altered, although that is not clear but, in any event, the clause gives power to the Bank to withdraw practically all the moneys from the Bank or at least to stop its distribution as pension. I am of opinion that in view of these provisions of the trust deed coupled with the uncertainty as regards the beneficiaries and the absence of any obligation to grant any pension, no legal and effective trust was created and the so-called trust must be held to be void.
If the trust be held to be void in the sense that no valid trust has been created, it is clear that its provisions are ineffectual to pass the ownership of the moneys contributed by the Bank to the fund and vest it in the trustees. If the money has remained in law the property of the Bank, it has not been expended within the meaning of Section 10(2)(xv) of the Income-tax Act. Even if the ownership of the money has passed to the trustees, still the further provisions regarding the application of the money to the payment of pensions being entirely ineffective and void, the money cannot be said to have been expended for the purpose of the business. What has in effect happened is that the Bank has merely put by the money, which remains its money, in another chest and in the custody of the so-called trustees or that there is a resulting trust in favour of the Bank, so that the beneficial interest remains with the Bank itself. The only way in which the amount paid to the fund can, in the facts of the case, be connected with the Banks business and made out to be a business expenditure is by establishing its payability as pensions, whether immediately or at some time or other but a probability which must occur. But all that the Bank has said in the deed is : 'We are putting this money into a fund, out of which pensions will be paid to our employees if and when we grant any pensions and to such employees as we may in our discretion choose, if we make any choice at all.' Such a provision, besides being invalid in a trust deed, does not make the payment an expenditure or an expenditure for the purposes of the business.
It must be borne in mind, however, that this is not a case where a deduction is being claimed in respect of sums actually spent on the payment of pensions to employees, whether or not the trust, under which the payments purported to have been made, was valid or created an obligation to grant pensions. If the claim had been of the nature indicated above, quite different considerations might apply. No actual grants or payments were proved or relied on.
In the result, I hold that the view taken by the Tribunal as regards the effect and validity of the trust is correct and the Tribunal was right in rejecting the claim of the assessee to deduction of the sum of Rs. 2,00,000 on the basis of the trust deed under the provisions of Section 10(2)(xv) of the Income-tax Act.
The answer to the question referred must therefore be in the affirmative.
The Commissioner of Income-tax, West Bengal, is entitled to costs of this Reference.
DAS GUPTA J. - I agree.
Reference answered in the affirmative.