TMI Blog1970 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the trustees of Sreeram Surajmull Charity Trust. This charitable and religious trust is proved by a deed dated October 11, 1939. It is a duly attested and registered deed on the records of this case. According to the assessee, certain steps had already been taken from a period prior to June 24, 1928. The Income-tax Officer came to the conclusion that the trust came into existence only on October 11, 1939, on the execution of the trust deed. This finding was upheld by the Appellate Assistant Commissioner. The Tribunal expressed the view that it was not necessary to discuss whether there was a valid trust prior to October 11, 1939. The trust deed sets out that on March 29, 1939, the corpus of the trust would consist of : (1) the house at Benares, (2) twenty preference shares in the Chitavalsah Jute Mills Co. Ltd. bearing Nos. 4400/4420 of the aggregate face value of Rs. 2,000, and (3) Rs. 47,336-1-0 deposited with the settlor's firm of Surajmull Chhotaylal of Calcutta, carrying interest, at the rate of nine annas per centum per mensem compoundable once a year. The Income-tax Officer found almost on every point against the assessee. He found that on October 11, 1939, the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be misleading. That is a well-settled principle of construction. Now, this trust deed in its recitals make certain facts very plain and beyond doubt. The settlor is one Chhotaylal Kanoria. By this trust deed he is transferring the said properties to three trustees, viz., (1) himself, (2) Dwarkadas Jhunjhunwala, and (3) Radhakissen Almal. There is in the operative clause a transfer of these properties by the settlor to the trustees of " all the right, title, interest, property, claim and demand whatsoever of the settlor .... to have and to hold the same unto the trustees " declared in the trust deed. The operative part, so far as relevant, may be quoted as follows : " NOW THIS INDENTURE WITNESSETH that in consideration of the premises the settlor doth hereby grant, convey, transfer, assign and assure unto the trustee, firstly, the said house at Benares more particularly described in part I of the schedule . . . . secondly, the said 20 preference shares of Rs. 100 each of the said Chitavalsah Jute Mills Co. Ltd.... of the face value of rupees two thousand; and thirdly, the said sum of Rs. forty seven thousand three hundred and thirty-six and anna one ... and all the right, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said firm of Sriram Lachminarain and the income thereof were duly applied to the charities for which they were " set apart " but there was no regular trust deed for any of them. Sixthly, on the 12th March, 1929, the said firm of Sriram Lachminarain was dissolved and some time thereafter the settlor received from the firm of Sriram Lachminarain, (1) 25 debentures of Rs. 1,000 each of the total face value of Rs. 25,000 in the said Chitavalsah Jute Mills Co. Ltd., and the sum of Rs. 352-3-6 in cash being 1/4th share in the debentures and amounts then lying in the firm of Sriram Lachminarain on account of the amount " set apart " by the said firm for charities to be utilised by the settlor for the said charities, and (2) the said 240 preference shares of Rs. 100 each in Chitavalsah Jute Mills Co. Ltd., and the sum of Rs. 1,426-8-0 in cash being the amount then lying with the firm of Sriram Lachminarain on account of " the charity fund set apart by the settlor as aforesaid ". Seventhly, after the dissolution of the firm the settlor started two firms of his own, one under the name and style of Sriram Surajmull at Benares, and the other under the name and style of " Surajmull Chotelal " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the income-tax authorities, for these about 20 years. This will be plain from the finding of the Appellate Assistant Commissioner where he stated in paragraph 15: " It might appear redundant but is certainly not irrelevant to point out that this trust deed was examined in the past by the Income-tax Officer, Central Circle-II, Calcutta, in the course of the assessment of the settlor himself for the assessment year 1940-41, when he came to the following conclusions (vide his assessment order dated April 12, 1943): ' Interest was only disallowed as there was no trust in respect of it and as the ownership of the fund remained vested in the assessee. That drawback has now been set right by the execution of a trust deed which transfers both the corpus as well as the usufruct of the charity account to a body of trustees including the assessee as one of them. ' The question of the exemption from tax of the income of the trust under section 4(3)(i) of the Act of 1922 was also gone into in appeal before the learned Appellate Assistant Commissioner, Range-A, Calcutta, at that time and he held that this income was so exempt. Thereafter, the trust enjoyed this exemption right up to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-15-3. It is impossible to find out what constituted the fund of Rs. 47,336-10-0 in the absence of sufficient cash. Unless the constitution of this fund of Rs. 47,336 is ascertained, it is impossible for the settlor to divest himself of that property. " We have no hesitation in holding that the Income-tax Officer on this point misdirected himself entirely both on facts and in law. The sum of Rs. 11,267-15-3 was only the cash balance left at the end of a particular day. This point of fact is cleared up in the order of the Appellate Assistant Commissioner in paragraph 6 of his order where he rightly points out that this was only a cash book figure and which cash book " showed only a balance of Rs. 11,267-15-3 ". In fact, he finds that even " subsequent to the execution of the trust, the funds of the trust lying in deposit with the firm were at one stage completely withdrawn which affirms the bona fides of the transactions " and comes to the finding that " this was on April 20, 1945, when the account of the firm in the books of the trust showed a credit balance of Rs. 2,881-4-6 as against the previous debit balance of Rs. 23,731-10-6 on April 1, 1944 ". The fact remains that this w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked the essential difference between the two cases, that the trust in this case was evidenced not by the credit entry alone in the account books of the assessee but by the registered deed of trust. " Here, in the instant reference before us, the trust is not merely evidenced by the credit entry alone, but by a solemn formal registered deed of trust reciting a long treatment as trust property and the existence of a trust even before the execution of the trust deed. The Allahabad High Court in Juggilal Kamlapat v. Commissioner of Income-tax lays down the principle that it cannot be said " as a general legal proposition that because a person has not with him read cash he cannot create a trust or that he cannot create one in excess of the amount which he has. . . . " Again, the Bombay High Court in Chimanbhai Lalbhai v. Commissioner of Income-tax decided that : " it was not necessary for the assessee to have drawn the cash amounts from the banker and handed them over to his son and daughter, and the gift was complete by the issue of the directions by the assessee and the firm making the transfers in its account books " and " that there was not enough money to the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown from the recitals and other facts, there was definite setting apart of ascertained property. The divesting is not only by mere book entry or credit entry but by a registered trust deed which was recognised as a valid trust for about 20 years by these very taxing authorities. Again there the fact was that the amount was not set apart or credited to any account in the assessee's books on the date of the declaration but the amount was utilised along with the other family property in carrying on the family business. There was no registered document in that case. We are, therefore, bound to hold that the decision in Hanmantram Ramanath v. Commissioner of Income-tax cannot help the contention of the revenue in any manner. Before we conclude this branch of the case on credit entry and book debts it will be appropriate to refer briefly to the nature of book debt. A book debt can be assigned; it can give a cause of action. That is well-settled law. Mr. Sell at one stage of the argument suggested that, as the settlor was transferring the property from himself to himself, a point which we have already rejected, he could not enforce this credit as there could not be a suit by himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to invite the opprobrium of being described as the persons who rush in where angels fear to tread. We also, therefore, will not make an attempt to precisely define a book debt or a book entry. We are satisfied for the purpose of this case in holding that this is a credit entry and actionable claim and good enough to be subject of a trust and in respect of which we hold that a valid trust was created. Reverting back to the trust deed dated October 11, 1939, we hold that a valid trust is not only created by it but it records the existence of a good and valid trust. It answers the three certainties of a charitable trust. The objects of the trust are to be found in part II, clauses 3, 4, 5, 6, 7, 8, 9, 10 and 11. They relate to the subjects which are as follows : " 3. (a) The spread of education generally and particularly the teaching of Sanskrit at Benares. (b) Stipends, scholarship and help to students generally and specially to Brahmin students learning Sanskrit at Benares. 4. (a) Feeding of poor Brahmins and other members of the community by giving sabarat and other means. 5. Help to the widows and orphans of the Hindu community in general and of the Marwari Agarwal comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. With regard to the Benares property, he has said that there has been no mutation. The Income-tax Officer in paragraph 9 of his order speaking of this Benares property says: " The property at Benares was purchased in the name of the settlor and continues to be held in his name. Merely by stating that the property has been assigned to the trustees the property will not become that of the trustees unless there is a real divestment of the property. Having regard to the fact that there is no real divestment in respect of the other two properties and having regard to the fact that there is no real divestment in respect of the other house property at Benares which continues to be in the name of the settlor and is not yielding any income, it is clear that there has been no divestment of any of the property alleged to have been transferred to the trust. This conclusion is reinforced by the subsequent application of the funds alleged to be held in trust. " The Income-tax Officer misdirected himself again on this print. He failed to realise that in the registered trust deed formally signed and executed there was a clear declaration by the settlor that " the house at Benares though pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the facts in respect of them have already been set out which speak for themselves. The facts stated in the recitals do not stand refuted on the record and, therefore, must be taken as correct. Therefore, even with respect to these two other trust properties, namely, the sum of money and the 20 preference shares, it cannot be said that they still belong to the settlor himself personally and not the subject of the trust property. For these reasons, we answer the first question in the affirmative and in favour of the assessee and hold that, in the facts and circumstances of the case, the Tribunal was right in holding that a valid trust came into existence under the deed of trust dated the 11th October, 1939, as mentioned in the said deed of trust. The next question raises the point of revocability of the trust under section 16(1)(c) of the Income-tax Act. The contention for the revenue is that this is a revocable trust and therefore this income was not exempt from tax under section 4(3)(i) of the Income-tax Act, 1922. In support of this contention Mr. Sen for the revenue has relied on two clauses on the powers of the board of trustees appearing in the schedule to the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustees shall not at any time exceed the maximum number fixed as aforesaid. In making appointment the settlor or the trustees may fix the period for which any trustee or trustees will hold the office. PROVIDED ALWAYS that as long as any adult member of the family of the settlor shall be willing to act as a trustee one of the trustees shall always be such a member. " The main reasons of the Income-tax Officer on this point can be summarised briefly. According to him the settlor has appointed himself as one of the trustees. Clause 12(b) and (c) provided that the corpus of the trust could be spent with the consent of all the trustees but the settlor has appointed himself as the managing trustee under clause 19 and was in effective control over the corpus and that clauses 13 and 15 further indicated that the trust deed was a device to keep the property under the effective control of the settlor. Mr. Sen appearing for the revenue has used these reasons in support of his submissions on this point. The taxing authorities, for about 20 years as indicated above, did not discover that this solemn registered deed of trust was a device but treated it as a valid trust and it was left to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor : Provided that for the purposes of this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to the settlor, disponer or transferor, or in any way gives the settlor, disponer or transferor a right to reassume power directly or indirectly over the income or assets:...." This is the first proviso to section 16(1)(c) on which the answer to the second question of this reference depends. Before we proceed to an interpretation of this section, we shall only quote the third proviso in section 16(1)(c), which reads as follows : " Provided further that this clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person and from which income the settlor or disponer derives no direct or indirect benefit but that the settlor shall be liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such provision. We hold there is none in this case. The second point which we emphasize is about the two words of significant importance: " retransfer " and " reassume ". The prefix " re " plainly indicates that it must be a " transfer " to himself as himself and not in any different capacity or it must have to " reassume ", which means to assume for himself as himself and not in a different capacity. Looking at the relevant clause of the trust deed quoted, on which reliance was placed for the revenue, there is no provision which can be treated or construed even remotely as a case of " retransfer " or giving a right to " reassume ". A refinement of this branch of the argument was made by Mr. Sen for the revenue by saying that, although there is no clause for retransfer or reassuming within the meaning of the first proviso of section 16(1)(c) directly, these clauses may be interpreted as creating a right to " retransfer " or a right to " reassume " indirectly. In other words, he tried to shift the emphasis from the words " retransfer " and " reassume " to the word " indirectly ". But the fact remains that the words " directly or indirectly " appearing in the first proviso to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held there that "until the settlor had appointed trustees other than himself, he had practically retained all the shares in his own hands." It was also a fact in that case that a clause in that deed, dealing with investment, gave power to the settlor to make loans to any person including himself with or without security or howsoever as the settlor determined " as if he were entitled to such monies ". Incidentally, it must be noted here that in the instant reference before us there is no power to the settlor to make loans. On those facts, it was decided that " under the deed, the settlor derived an indirect benefit " within the meaning not of the first proviso of section 16(1)(c) but within the meaning of the third proviso of section 16(1)(c) which we have quoted. At page 212 of that report, the learned judges expressly made it clear: "Then we come to the third proviso with which we are concerned. . . " We are not concerned with the 3rd proviso in the instant reference. Before going further with this authority, a glance at the 1st and 3rd provisos will make it plain that the word " benefit " occurring in the 3rd proviso does not occur in the 1st proviso of section 16(1)(c). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 16(1)(c) read with the first proviso thereto, the income derived from such a settlement would still not be considered to be the income of the settlor if the settlement was not revocable for a period exceeding six years or during the lifetime of the person for whom the income was settled and the settlor derived no direct or indirect benefit from the income. The next in the citation was the decision of the Gujarat High Court in Commissioner of Income-tax v. Jayantilal Amratlal. This was a case on the first proviso under section 16(1)(c) of the Income-tax Act, 1922. The Tribunal in fact relied upon this case. It was pointed out in that case that the right to reassume power over assets contemplated by proviso 1 to section 16(1)(c) was a lawful right which could be lawfully exercised and that such a right to reassume power given to the settlor must be dependent on his own volition alone. A further question of the Bombay Trusts Act also came under consideration by the Gujarat High Court. This decision of the Gujarat High Court came up before the Supreme Court reported as Commissioner of Income-tax v. Jayantilal Amratlal. This case, in our opinion, supports the view that we are takin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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