Sardar Bahadur S. Indra Singh Trust Vs.
Commissioner of Income Tax, Bengal [1971] INSC 217 (25 August 1971)
HEGDE, K.S.
HEGDE, K.S.
GROVER, A.N.
CITATION: 1972 AIR 34 1972 SCR (1) 392 1971
SCC (3) 364
CITATOR INFO:
R 1973 SC1252 (2) R 1981 SC 968 (2)
ACT:
Gift made to charitable trust-If valid.
Income-tax Act, s. 4(3)(i)-If the income of
charitable trust arising from a gift will augment the assessee trust.
HEADNOTE:
The assessee is a charitable trust created
under two trusts deeds. One of the trustees, gifted certain fully paid up
equity shares to the trust. On the said shares dividend accrued on which tax
was deducted at source. The trustees claimed that the said income of the
assessee was exempt from payment of income-tax in view of s. 4 (3) (i) of the
Act and hence they claimed refund of the tax deducted at source.
The Income-tax Officer refused to grant the
refund on the ground that the trust deed did not contain any provision for
receipts of gifts from outsiders and so the gift in question was not a valid
gift.
The Appellate Assistant Commissioner and the
Tribunal held the gift valid and decided against the revenue. On reference,
High Court held that the gift was a valid gift, but it did not have the effect
of augmenting the assessee trust and the assessee was not entitled to get the
refund of -the tax.
HELD : (i)That the gift was a valid gift. The
trustees had accepted the gift. The trust deed does not prohibit the trustees
from accepting a new gift. The trustees can accept gift from third parties for
the purpose of furthering the objectives of the trust. So long as the trust
deed did not prohibit from receiving such gifts and so long as the gift made
did not in any manner impinge on the objects intended to be achieved by the
Trust. In the present case, the shares gifted are vested in the appellant trust
and therefore, the trust is entitled to the dividends received in respect of
the gifted shares. Since the dividend is exempt from tax under s. 4(3) (i) the
appellant is -entitled to the refund claimed. [397 A-D]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1885 of 1968 and 1084 of 1971.
Appeals from the judgment and order dated
November 7, 1967 of the Calcutta High Court in Income-tax Reference No. 21 of
1964.
S.R. Banerjee, P. C. Bhartari, for the
appellant (in both the appeals) V.S. Desai, P. L. Juneja, R. N. Sachthey and B.
D. Sharma, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
Hegde, J. Both these appeals arise from the decision of the ,Calcutta High Court
in a Reference under s. 66(1) of the Indian Income-tax Act, 1922 (to be
hereinafter referred to as 'the Act.
3 93 The first of these two appeals was
brought by the appellant Trust on the strength of a certificate granted by the
High Court under s. 66(A) (2) of the Act. In that certificate all that we find
is a bald statement by the High Court that the case is a fit one for appeal to
this Court. This Court has ruled that such a certificate is an invalid one and
an appeal brought on the strength of such a certificate is not maintainable. It
is for that reason, the appellant filed the Special Leave application No. 2214
of 1971 seeking special leave from this Court to appeal against the very
judgment which was the subject matter of the appeal in Civil Appeal No. 1885 of
1968. After hearing the parties, we came to the conclusion that the leave asked
for -should be granted. That Petition is now numbered as Civil Appeal No.
1084 of 197 1.
The two questions referred to the High Court
are "(1) Whether on facts and in the circumstances of the case, the
Tribunal was right in holding that the gift made by Sardar Ajaib Singh was
valid and complete in law ? (2)If the answer to the first question is in the
affirmative then whether on the facts and in the circumstances of the case, the
assessee was entitled to the refund of tax deducted at source on the dividends
accruing on the shares gifted by Sardar Ajaib Singh ?" The High Court
answered these questions as follows "1. The gift made by Sardar Ajaib
Singh was a valid and complete gift but did not have the effect of augmenting
the assessee trust, and 2.The assessee was not entitled to the refund of the
tax deducted at source on dividends accrued on the shares gifted by Sardar
Ajaib Singh ?" Now let us turn to the facts a set out in the Statement of
case. The assessment years with which we are concerned in these appeals is
1960-61 for which the relevant previous year ended on March 31, 1960 The
assessee is a charitable Trust constituted under a Trust Deed dated December
19, 1944. A-- Supplementary Trust Deed was executed on January 10, 1951. In the
first Trust Deed, the objects of the trust are mentioned as those that
"Trustees may in their absolute discretion from time to time determine in
and :towards the attainment assistance or support of such charitable purpose or
purposes as the Trustees may in their unfettered judgment deem to be the most
deserving of support." The objects mentioned in the first deed were
further elaborated in the second Deed which requires the Trustees to spend the
income " amongst others for the advancement of learning and education 3 94
and/or ameliorations of the sufferings of all citizens of the Indian Union,
irrespective of caste, colour or creed for maintaining library or libraries for
the free use of the public in general who are residents of the Indian Union for
fostering encouraging and providing the means of healthy recreation including
teaching or singing classes or choruses for the residents of the Indian Union
and for the purpose of providing music and instruments for the town and in the
premises hereinbefore mentioned for meeting the expenses wholly or in part of
the Khalsa High School and A. V. Middle Schools to the extent and for and
during such times as long as the trust continues and/or to apply such income in
simi- lar such objects as the ,trustees may in their absolute discretion from
time to time determine in and towards the attainment assistance and support of
such charitable purpose or purposes as the Trustees may in their unfettered judgment
deem to be the most deserving of support." Sardar Ajaib Singh one of the
Trustees of the appellant Trust by his letter dated January 23, 1959
transferred 640 fully paid up enquity shares of the face value of Rs. 6,40,000/-
to the assessee reserving to himself the right to revoke and recall the
transfer or either the entire 640 shares or any portion thereto but not until
the expiry of clear full seven years from the date of the delivery of the
shares to the Trust. The Trustees by their letter dated February 1, 1959
accepted the offer and also the terms and conditions upon which the offer had
been made and ratified the same by the resolutions of the Trustees dated
February 5, 1959 and March 4. 1959. The shares were transferred and given
delivery of to the Trustees. On the said shares dividend amounting to Rs.
1,28,000/- accrued on which tax was deducted at the source. The Trustees
claimed that the said income of the assessee was exempt from payment of
income-tax in view of s. 4(3) (i) of the Act. Hence they claimed refund of the tax
deducted at the source, The Income-tax Officer refused to grant the refund
asked for on the ground that the Trust Deed under which, the Trust was formed
did not contain any provision for receipts of donations or gifts from outsiders
and therefore the gift made by Sardar Ajaib Singh of the 640 shares was not a
valid gift. He also observed that the transfer of the shares was revocable
after seven years and accordingly was a conditional transfer; hence the
assessee was precluded from claiming the refund of the tax deducted at the
source.
The assessee appealed against that order to,
the Appellate Assistant Commissioner. That Officer upheld the assessee's right
to the refund of tax on the ground that during the relevant year the shares did
belong to the assessee and the dividend income accruing thereon was the income
of the assessee and therefore refund of the tax deducted at the source was
allowable.
395 The Department went up in appeal to the
Income-tax Appellate Tribunal as against that order. Before the Tribunal the
Department contended that the Trust was not competent to receive gifts from
outsiders. There being no clause in the Trust Deed empowering the receipt of
such gifts. It was further contended that the gift being conditional and
revocable was invalid in the eye of law. The Tribunal found that the assessee
was a public charitable Trust and it was not limited in its scope of activities
within the four corners of the crust Deed by which it was created. A public
charitable Trust, the Tribunal held, was entitled as of right to receive gifts
and donations from the public and as such the gift of the shares made by Sardar
Ajaib Singh had been validly received by the assessee. The Tribunal accordingly
dismissed the first contention raised on behalf of the Department. It is not
necessary for us to refer to the facts relating to the second contention as
that matter is not in issue before us, now the same having been held against
the Department by the Tribunal.
While dealing with the reference made by the
Tribunal, as mentioned earlier, the High Court upheld the validity of the gift
'made by Ajaib Singh but strangely enough after holding that the gift in
question was a valid one, it came to the conclusion that the, said gift did not
have the effect of augmenting the assessee's Trust and therefore the assessee
was not entitled to the refund of the tax deducted at the source on the
dividend accrued on the shares gifted by Ajaib Singh. To us these findings
appear to be somewhat mutually conflicting. If the gift in question was a valid
one then the Trust became the owner of the shares gifted. That being so it also
became the owner of the dividends received.
Hence those dividends will have to be
considered as the income of the Trust.
The reason which persuaded the learned judges
of the High Court for coming to the above conclusion are set out in their
judgment at pp. 21 and 22 of the printed paper book.
We shall quote that part of the High Court's
judgment :
"The question for our consideration, however,
is whether the gift, as accepted by the trustee, had the effect of augmenting
the assessee trust for taxation purposes, or whether the effect of it was that
it remained a separate trust in the hands of the trustees of the assessee
trust, with liberty to them to apply the income of the subsequent trust for the
benefit of the assessee trust. Mr. Banerjee urged that it was not necessary
expressly to empower the trust as of a public trust to accept gifts, donations
or endowments. That, he submitted, was a power inherently vested in them. We
have our doubts.
396 Trust is a confidence reposed in a person
or persons, with respect to property of which he had or they have legal
possession or over which he or they can exercise power, to the intent that he
or they may hold the property or exercise the power for the benefit of some
other person or object. Now, this confidence may not necessarily include in
itself the liberty that the trustees would go on accepting donations and try to
augment the trust to such dimensions that the purpose for which the original
trust was created may be swamped or modified or qualified. If a settler wants
to invest the trustees with such a power, it is but reasonable to expect that
the power should be conferred by the deed which created trust. The trust
that-,we have to consider does not appearto confer upon the trustees the
further power to acceptdonations gifts or endowments. We therefore, do notthink
that the trustees have the liberty or the right to accept further gifts in the absence
of specific authorisation, augment the original trust and then claim the
benefit of section 4(3) (i) of the Indian Income-tax Act." It is somewhat
difficult to follow the reasoning adpoted by the learned judges of the High
Court. Either the gift made by Ajaib Singh and accepted by the Trustees was a
valid gift or it was not a valid gift. If it was a valid gift, the shares
gifted became the property of the Trust. If it was not a valid gift, the shares
still continued to be the property of Ajaib Singh. It is no body's case that
there was a Trust within a Trust. No such Trust is put forward either by the
Department or pleaded by the assessee. The existence of a Trust is a fact and
not a fiction. We fail to see how the learned judges were able to come to the
con- clusion that Ajaib Singh while gifting the shares created one more Trust
without any writing and without any objective and appointed the Trustees of the
assessee Trust to be the Trustees of the new Trust as well. These assumption
have no basis either in fact or in law.
At this stage we may mention that the very
learned judges who decided this Reference had held in Wealth Tax Reference No.
444 of 1963 on the file of the High Court of Calcutta that the shares gifted by
Ajaib Singh did not continue to be his property. If they are not Ajaib Sing's
property, whose property are they ? The only answer is that they are the
property of the appellant Trust. Those shares cannot float in the -mid air.
They must be owned by someone.' As seen earlier, the appellant is a public
Trust. Its objects are charitable objects Ajaib Singh made over the shares to
that 3 97 Trust for effectuating the very objects of the Trust. He did not
stipulate any other object to be attained. The Trustees had accepted the gift.
The Trust Deed does not prohibit the Trustees from accepting a new gift. We
fail to see what difficulty was there for the Trustees to accept gifts from
third parties for the purpose of furthering the objectives of the Trust, so
long as the Trust Deed did not prohibit them from receiving such gifts and so
long as the gift made did not in any manner impinge on the objects intended to
be achieved by the Trust. We fail to see why the Trustees could not accept that
gift.
In our opinion the assumption of the High
Court that the Trustees were incompetent to receive the gift made by Ajaib
Singh is an erroneous one. On the other hand we agree with the Tribunal that
the gift made by Ajaib Singh was a valid gift, the shares gifted are vested in
the Trust and therefore the Trust is entitled to the dividends received in
respect of those shares. In view of s. 4(3) (i), that dividend is exempt from
tax. Hence the appellant is entitled to the refund claimed.
In the result we allow Civil Appeal No. 1084
of 1971, dis- charge the answers given by the High Court and in their place, we
answer the questions referred to the High Court in the affirmative and in
favour of the assessee. The appellant is entitled to its costs in this appeal.
We revoke the certificate produced in Civil
Appeal No. 1885 of 1968. In view of our decision in Civil Appeal No. 1084 of
1971, there is no need to send that case back to the High Court for giving
reasons in support of the certificate.
That appeal is accordingly dismissed as being
not maintainable-no costs.
S.C.
C.A. 1084 of 71 allowed.
C.A. 1885 of 68 dismissed.
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