Commissioner o Income-Tax, Madhya
Pradesh Vs. Maharaja Bahadur Singh & Ors [1986] INSC 211 (13 October 1986)
PATHAK, R.S. PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION: 1987 AIR 518 1986 SCR (3)1020 1986
SCC (4) 512 JT 1986 648 1986 SCALE (2)591
ACT:
Income Tax Act, 1961-Income derived by
beneficiaries under Trust Deeds-Income derived in individual capacity and not
as representing HUF-Assessment of Income-Determination of.
HEADNOTE:
One Hukum Chand Seth, who constituted a HUF
with the members of his family, owned extensive properties. The properties were
partitioned between him, his wife and their son in equal shares by a Deed of
Partition dated March 31, 1950. On the same date, Hukum Chand Seth and his wife
executed two trust deeds nominating their son and five grandsons as the
beneficiaries in respect of their shares in the aforesaid properties. The trust
deeds which contained identical terms inter alia provided (a) that in the event
of a beneficiary dying before the time of distribution of the properties
between the beneficiaries, the share of the beneficiary so dying would be used
to support and maintain his widow and his male issue in such manner as the
trustees shall "in their absolute and uncontrolled discretion deem
proper" and the surplus, if any, of the share of that beneficiary and the
income therefrom would be accumulated and kept in credit to his account and
preserved in order to be distributed; (b) that upon the youngest of the
beneficiaries attaining the age of 30 years, the trustees would divide and
distribute the trust properties together with the accumulated interest and
income thereon among the beneficiaries according to their respective rights and
shares; and (c) that if at the time of the division and distribution any
beneficiary should have died without leaving any son but leaving only a widow,
the widow would get half of the share of that beneficiary while the other half
would be distributed among the remaining beneficiaries and the heirs of the
beneficiaries entitled to distribution.
With the passage of time the beneficiaries
came into possession of their respective shares of the properties and the
income from those properties was returned by them for the purpose of their
income tax 1021 assessment in their individual status, but subsequently they
began to assert that the properties were received by them as the Karta of their
respective Hindu undivided families and that therefore the income was liable to
be assessed in that status. The Income Tax Officer, during the relevant assessment
years assessed the assessees/beneficiaries in their individual status and these
assessments were confirmed by the Appellate Assistant Commissioner and the
Income Tax Appellate Tribunal. However, in a reference at the instance of the
assessees, the High Court held that the properties had been settled with the
assessees in their representative capacity as Kartas of their respective Hindu
undivided families.
Allowing the appeals by the Revenue to this
Court, ^
HELD 1.1 The High Court has erred in the view
taken by it of the two trust deeds. The question whether the income belongs to
the individuals or Hindu undivided families has to be resolved upon the
contents of the trust deeds, their terms and conditions being free from
ambiguity. [1028D;
1026F]
1.2 Where the document contains no clear
words describing the kind of interest which the donee is to take, the question
is one of construction and the court must collect the intention of the donor
from the language of the document taken along with the surrounding
circumstances.
There is no presumption one way or the other.
Each case must be decided on its own facts and each document calls for its own
particular construction. [1026H; 1027A-B] C.N. Arunachala Mudaliar v. C.A.
Muruganatha Mudaliar and Another, [1954] 5 SCR 243, referred to.
In the instant case, on the plain terms of
the trust deeds, the properties were intended to devolve on the beneficiaries
in their individual capacity. The circustances surrounding the execution of the
two documents indicate that a common intention inspired the minds of the two
settlors.
This has considerable significance when it is
realised that while one trust deed was executed by a male member of the family
the other was executed by a female member of the family. The course of
devolution under the Hindu law would be materially different in the two cases
and, therefore, the principles of the Hindu law governing the devolution of
property in the case of property passing from a father to his son and grandsons
cannot be invoked in these appeals.
[1027B-C] 1022
2. The terms and conditions of the trust
deeds are wholly inconsistent with the property passing into the hands of the
beneficiaries as Kartas of their respective Hindu undivided families. There is
clear indication in the trust deeds which bears this out. In the first place,
had it been intended that the beneficiary should receive the property as Karta
of his Hindu undivided family the document would not have empowered the
trustees, in clause 1 to exercise an absolute and uncontrolled discretion on
the death of a beneficiary to apply his share to the maintenance of his widow
and his male issue and to accumulate the surplus to the account of the said
beneficiary for distribution. On the contrary, the trustees would have been
under an obligation to entrust the income falling to the share of the deceased
beneficiary to the members of his Hindu Undivided family and no discretion
would have been permissible in regard to the disposal or otherwise of any part
thereof. Secondly, the document would not have provided that if before the time
of division and distribution a beneficiay died leaving only a widow, the widow
would get a half of the share belonging to the deceased beneficiary while the
other half would be liable to distribution among the remaining beneficiaries.
These two conditions are sufficient in
themselves to lead to the conclusion that it was never intended that the
properties should pass to the beneficiaries to be held by them for their
respective Hindu undivided families. [1027D- H]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 1681-84 of 1974.
From the Judgment and Order dated 1/6th
February, 1974 of the Madhya Pradesh High Court in Civil Cases Nos. 240, 238
and 239 of 1971.
M.K. Banerjee, Additional Solicitor General,
Ms. A. Subhashini and B.B. Ahuja for the Appellant.
S.T. Desai, A.K. Chitale, Mrs. S. Gambhir and
S.K. Gambhir for the Respondents.
The Judgment of the Court was delivered by
PATHAK, J. These appeals by special leave are directed against the common
judgment of the High Court of Madhya Pradesh disposing of four Income-tax
References and answering the following identical question of law arising in
each Reference in favour of the assessee and against the Revenue:
1023 "Whether on the facts and in the
circumstances of the case, the Tribunal was justified in law in holding that
the income derived by the beneficiaries under the two trust-deeds belonged to
the beneficiary in individual capacity and not in the capacity as representing
the Hindu undivided family?" These appeals involve the construction of two
trust- deeds couched in identical terms. To understand their import it is
necessary to set out a genealogical table:
Sir Hukumachand Seth (Karta) m Lady
Kanchanbai (Wife) Shri Rajkumarsingh (Son) m Smt. Premkumari Devi (Wife)
____________________________________________________________ Raj Bahadur
Maharaj Bahadur Jambukumar Ch. Kumar Yesh Singh(son) Singh (son) Singh (son)
Singh Kumar Singh __________ _______________ ____________ m m m (Minor) (Minor)
Smt.Indrani Smt.Sneha Lata Smt.Urmila Devi (wife) Devi (wife) Devi (wife)
__________ _____________ ___________ Pravin Dhir- Naina Sunaina Pramod Kumar
(son) Kumar rendra Kumari Kumari (son) (son) (Daughter) Sir Hukumchand Seth was
the head of a well known family of Indore. The family carried on various
businesses and owned extensive properties. Prior to March 31, 1950 Sir Hukum
Chand and the members of his family constituted a Hindu Undivided family. By a
deed of partition dated March 31, 1950 various family properties were
partitioned between Sir Hukum Chand, his wife Lady Kanchanbai and their son Raj
Kumar Singh in equal shares. Sir Hukum Chand and Lady Kanchanbai executed two
trust deeds on the same date, March 21, 1952 purporting to constitute a trust of
the properties respectively belonging to them. The trust deeds contained
identical terms and conditions. The trustees in each case were Sir Hukum Chand,
Lady Kanchanbai, their son Raj Kumar Singh and his wife Prem Kumari 1024 Devi
and the eldest grandson Raja Bahadur Singh. The beneficiaries named in the
trust deeds were Rajkumar Singh and his sons Raja Bahadur Singh, Maharaja
Bahadur Singh, Jambukumar Singh, Chandrakumar Singh and Yeshkumar Singh.
With the passage of time and in accordance
with the terms and conditions of the trust deeds the beneficiaries came into
possession of their respective shares of the properties. Originally the income
from those properties was returned by them for the purpose of their income-tax
assessments in their individual status, but subsequently they began to assert
that the properties were received by them as the Karta of their respective
Hindu undivided families and that, therefore, the income was liable to be
assessed in that status.
These appeals arise out of income tax
assessments made in the case of Raja Bahadur Singh for the assessment year
1962-63, Maharaja Bahadur Singh for the assessment year 1961-62 and Jambukumar
Singh for the assessment years 1961- 62 and 1962-63. The Income Tax Officer
assessed all three assessees in their individual status and the assessments
were confirmed in that status by the Appellate Assistant Commissioner on
appeal. On second appeal by the assessees the Income Tax Appellate Tribunal
also took the view that the income from the properties received by the
assessees under the two trust deeds fell to be taxed in their individual
status. At the instance of the assessees the Appellate Tribunal referred the
cases to the High Court of Madhya Pradesh for its opinion in each case on the
question of law set forth earlier. The High Court understood the two trust
deeds differently from the Appellate Tribunal and the taxing authorities and
held that the properties had been settled with the assessees in their
representative(capacity as Kartas of their respective Hindu undivided families.
It may be mentioned at the outset that
neither the assessees nor the Revenue dispute the legality of the trust deeds
and we must proceed on the assumption, as did the High Court, the Appellate
Tribunal and the taxing authorities, that the authors of the trust deeds were
competent to settle the properties in accordance with the terms and conditions
expressed in those documents.
The sole question before us is whether upon
those terms and conditions it was intended by the settlors that the
beneficiaries should receive the properties in their individual capacity or in
a representative capacity as Kartas of the respective Hindu undivided families.
It is not necessary to refer to all the provisions of the trust deeds because
the 1025 parties are in common agreement that the principal provisions calling
for consideration are clauses 1, 3 and 4 of the trust deeds. Clause 1 empowers
the trustees to apply the income from the trust properties to the rent, rates,
taxes and other liabilities in respect of the trust properties, including the
cost of maintenance, and thereafter to divide the balance left over in equal
shares between the beneficiaries, so that each beneficiary received one-sixth
of the balance. In the event of a beneficiary being a minor, his share of the
income was payable to his natural guardian for being applied towards his
education, maintenance and advancement in life, marriage and other expenses. It
was also provided that in the event of a beneficiary dying before the time of
distribution of the properties between the beneficiaries under clause 4, the
share of the beneficiary so dying would be used to support and maintain his
widow and his male issue "in such manner as the trustees shall in their
absolute and uncontrolled discretion deem proper" and the surplus, if any,
of the share of that beneficiary and the income there from would be accumulated
and kept in credit to his account and preserved in order to be distributed in
accordance with clause 4. In the event of a beneficiary dying before the time
of distribution without leaving any widow or male issue his share was to be
divided equally among other beneficiaries then alive or the then widow and male
issue of any other deceased beneficiary, if any, entitled to share in the
distribution, subject, however, to provision being made for the maintenance and
education until marriage and the marriage expenses of the daughter or
daughters, if any of the said beneficiary. Clause 3 declares that if any moneys
were required for meeting extraordinary expenses of or for the benefit of any
beneficiary or his wife or children on special occasions, such as the marriage
of the beneficiary and of his children, the illness of the beneficiary or of
his children, travelling expenses of the beneficiary and of his family for
going abroad, their education in a foreign country or on such other occasions
as the trustees may deem fit for special treatment, the trustees were empowered
to pay to the beneficiary such amounts from time to time as they thought fit in
their absolute discretion. Such amounts could be paid to the beneficiary out of
the trust properties either by way of advance or loan either on interest or out
of his share of the corpus. In the latter event the share of the net income
payable to the beneficiary was liable to proportionate reduction. Clause 4
provides that upon the youngest of the beneficiaries attaining the age of 30
years the trustees would divide and distribute the trust properties together
with the accumulated interest and income thereon among the beneficiaries
according to their respective rights and shares, that is to say equally, 1026
and in making such division the trustees would take into consideration the
amount due by the beneficiary to the trustees by way of loan or advance made to
him. It was further provided that if any beneficiary should have died before
the time of such division or distribution leaving a widow and any son or sons
or only son or sons the widow and/or the sons would take by substitution the
share which the beneficiary would have taken had he been alive, and such share
would be divided equally between the widow and the sons. The proviso declares
that if at the time of the division and distribution any beneficiary should
have died without leaving any son but leaving only a widow, the widow would get
half of the share of that beneficiary while the other half would be distributed
among the remaining beneficiaries and the heirs of the beneficiaries entitled
to distribution. A further provision declares that if at the time of division
and distribution any beneficiary should have died without leaving a widow or a
son his share would, subject to such adequate provision made for the
maintenance and education until marriage and the marriage expenses of the daughter
or daughters of such beneficiary as the trustees may in their discretion think
fit, he distributed among the remaining beneficiaries and the heirs of the
beneficiaries entitled to distribution.
The assesses filed a declaration dated
October 19, 1964 that on and from Diwali 1959 the income accruing to them as
beneficiaries from the two trust deeds should be regarded as income belonging
to their Hindu undivided families. The High Court and the Appellate Tribunal
have rightly held that those subsequent declarations can be of no moment for
deciding whether the income belonged to the individuals or their Hindu
undivided families. It is settled by law that the question has to be resolved
upon the contents of the trust deeds, their terms and conditions being free
from ambiguity. The question whether a gift of self-acquired or separate
property by a father to his son results in the son holding it as ancestral
property was considered by this Court in C.N. Arunachala Mudaliar v. C.A.
Muruganatha Mudaliar and Another, [1954] 5 S.C.R. 243, and it was laid down
that it was perfectly competent for the father, when he makes a gift, to
provide expressly either that the donee would take it exclusively for himself
or that the gift would be for the benefit of the branch of his family, and if
there are express provisions to that effect in the deed of gift or will, the
interest which the son would take in such property would depend upon the terms
of the grant. Where the document contains no clear words describing the kind of
interest which the donee is to take, the question is one of construction and
the Court must collect the intention of the 1027 donor from the language of the
document taken along with the surrounding circumstances. There is no
presumption one way or the other. It is not necessary for us to refer to the
several cases cited before us, because each case must be decided on its own
facts and each document calls for its own particular construction.
The circumstances surrounding the execution
of the two documents indicate that a common intention inspired the minds of the
two settlors. This has considerable significance when it is realised that while
one trust deed was executed by a male member of the family the other was
executed by a female member of the family. The course of devolution under the
Hindu law would be materially different in the two cases and, therefore, the
principles of the Hindu law governing the devolution of property in the case of
property passing from a father to his son and grandsons cannot be invoked in
these appeals.
Even if the matter be looked at in the
context of the Hindu law as it obtained at the relevant time, the terms and
conditions of the trust deeds are wholly inconsistent with the property passing
into the hands of the beneficiaries as Kartas of their respective Hindu
undivided families. There is clear indication in the trust deeds which bears
this out.
In the first place, had it been intended that
the beneficiary should receive the property as Karta of his Hindu undivided
family the document would not have empowered the trustees, in clause 1, to
exercise an absolute and uncontrolled discretion on the death of a beneficiary
to apply his share to the maintenance of his widow and his male issue and to
accumulate the surplus to the account of the said beneficiary for distribution.
On the contrary, the trustees would have been under an obligation to entrust
the income falling to the share of the deceased beneficiary to the members of
his Hindu undivided family and no discretion would have been permissible in
regard to the disposal or otherwise of any part thereof. Secondly, the document
would not have provided that if before the time of division and distribution a
beneficiary died leaving only a widow, the widow would get a half of the share
belonging to the deceased beneficiary while the other half would be liable to
distribution among the remaining beneficiaries and the heirs of other deceased
beneficiaries. These two conditions are sufficient in themselves to lead to the
conclusion that it was never intended that the properties should pass to the
beneficiaries to be held by them for their respective Hindu undivided families.
On the plain terms of the trust deeds, the properties were intended to devolve
on the beneficiaries in their individual capacity.
1028 It is contended by learned counsel for
the assesses that the settlers intended under the two trust deeds to protect
the grandsons, and the scheme incorporated in the trust deeds must be regarded
as akin to a family settlement.
We are unable to agree. The interest of the
grandsons has been sufficiently protected by the terms and conditions of the
trust deeds, and in order to safeguard that interest it is not necessary to
conclude that the properties were intended to go to the beneficiaries as Kartas
of the Hindu undivided families. The grandsons themselves were beneficiaries
and on the division and distribution of the properties they would have full
power to deal with them according to their will and discretion. It is only
where a beneficiary dies before division and distribution of the properties
without leaving a widow or sons that the trustees are empowered to intervene
and direct, subject to providing for the maintenance, education and marriage of
the deceased beneficiary's daughters, that the share of such beneficiary be
divided among the remaining beneficiaries and the heirs of deceased
beneficiaries.
We are of opinion that the High Court has
erred in the view taken by it of the two trust deeds and that the Appellate
Tribunal was right in its conclusions.
Accordingly, we answer the question referred
to the High Court in each case in the affirmative, in favour of the Revenue and
against the assessees. The appeals are allowed with costs.
A.P.J. Appeals allowed.
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