TMI Blog1992 (9) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... empowered by the settlor to carry on business also. The assessee has definite and determinate share along with other beneficiaries in the income and corpus of the trust which is termed as trust fund. As per cl. 16 of the trust deed the trustees have right to be reimbursed and indemnified in respect, of the expenses incurred by them for the accomplishment of the purposes of the trust. 4. The trustees by virtue of the power given to them under the trust deed carried on business which resulted in a loss for the period ending 31st March, 1983 relevant to asst. yr. 1983-84. This loss was apportioned amongst the beneficiaries by the trustees in the accounts of the trust in proportion to the share of each beneficiary in the trust fund and their respective accounts were debited with the quantum of loss falling to the share of each such beneficiary and the same was shown in the balance sheet of the trust as amount due and payable by them to the trust. A return of loss of the trust was also filed by the trustees before the AO and the loss was accepted and apportioned by him (AO) in the assessment order passed in the case of the trust. 5. The assessee filed his return of income declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and be liable for the losses so incurred by the trustees in carrying on trust s business in accordance with the wishes and direction of the author of the trust. Elaborating his argument further the assessee s counsel submitted that nowhere the settlor has stated in the trust deed that the beneficiaries will not be liable for losses incurred in any business being done and carried by the trustees as per the direction and wishes of the settlor. To support his case Shri Sarangan has drawn our attention to the provisions of s. 32 of the Indian Trust Act, 1882, to emphasise the point that the trustees have right to be reimbursed for the expenses incurred and loss in commercial parlance is nothing but excess of expenditure over income and, therefore, the trustees have rightly divided and apportioned the business loss to the accounts of various beneficiaries including this assessee and debited their accounts in the books of the trust with proportionate share of loss. To justify the claim and deduction of loss in trust s business from other income Shri Sarangan submitted that once the officer assessing the trust has determined the loss of the trust s business and apportioned it amongst t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capacity in the event of loss to the trust incurred through the medium of the trustees. To support the orders of the lower authorities, the junior Departmental Representative has drawn our attention to cls. 9(d) and 10(h) of the trust deed to convince us that in the event of losses the same has to be met from the trust fund or trust income and the beneficiaries cannot be saddled in respect thereof. That being the situation the beneficiaries are not entitled to claim for. allowance of their share of loss in trust s business. It was further contended by Shri Vasantha Kumar that the trust has been created by the settlor to give and confer benefits and advantages on those persons (beneficiaries) chose by him. The settlor did not create the trust to make the beneficiaries liable for losses, detriments and disadvantages owing to the acts of the trustees in carrying on business of the trust or in respect of any loss which may be incurred by the trustees from the other trust fund or investments in their hands. It was finally submitted by Shri Vasantha Kumar that the AO did not commit any error in disallowing the claim of the assessee for deduction of share of loss in trust s business fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an obligation annexed to the ownership of property; (ii) it arises out of confidence reposed in or accepted by the owner, or declared and accepted by the owner; (iii) it is for the benefit of another or of another and the owner. 13. Underhill defines trust in the following terms: "It is an equitable obligation binding a person (who is called a trustee) to deal with property over which he has control which is called the trust property for the benefit of persons (who are called beneficiaries or cestui que trust) of whom he may himself be one and anyone of them may enforce the obligation." 14. In the words of Lords Salmand, a trust is more than an obligation to use one s property for the benefit of another in which it is already concurrently vested." Therefore, the settlor has created the trust reposing confidence in the trustees with the intention and object of giving benefit to the various persons (who are not his relatives) from out of income derived through the utilisation of trust fund. This is manifest from the recital as contained in the trust deed, a copy of which has been filed before us. It is, thus made incumbent by the settlor upon the trustees to give "benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legal owner of the trust property and the property vests in him as such. He no doubt holds the trust property for the benefit of the beneficiaries but he does not hold it on their behalf. The expression for the benefit of and on behalf of are not synonymous with each other. They convey different meanings. The former connotes a benefit which is enjoyed by another thus bringing in a relationship as between a trustee and a beneficiary or cestui que trust, the latter connotes an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another." 20. When we look into the other provisions of the Trust Act we find that as per s. 8, the subject matter of the trust must be property transferable to the beneficiaries and that must not be merely beneficial interest in a subsisting trust. 21. This analysis, therefore, manifestly brings out that the trustee shall hold the trust property or trust fund for the benefit of the beneficiaries and not for and on behalf of the beneficiaries, in accordance with wishes and directions of the settlor as contained in the instrument of trust. 22. In order to find out the wish, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to indemnify such nominee against all losses, damages, expenses and all liabilities such nominee may incur or sustain as a partner in such partnership and such nominee shall have recourse to the Trust Fund for full indemnification." When we read cls. 4 and 5 of the trust deed we noticed that the settlor has directed the trustees to divide the income of the trust fund in the proportion to the various beneficiaries. There is no mention of the manner of division of losses or deficit of the trust s business to various beneficiaries of the trust. So, according to cl. 10(h) of the trust deed the trustees shall indemnify any nominee of the trust against all losses, damages, expenses and all liabilities such nominee may incur or sustain as a partner in such partnership and further such nominee shall have recourse to the trust fund for full indemnification. 24. Famous authors, David. B Parker and Anthony R Mcllows observed at p. 287 in their book "Modem Law of Trust" 4th Edition as under: "Thus, in Benett vs. Wyndham (1862) 4 De. G.F. J 259, a trust of an estate directed Woodcutters employed on the estate to fell some trees. The Woodcutters were negligent and allowed a bough to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to blindly follow the assessment order of the trust and allow set off of the share of loss in the trust s business on the same lines and analogy as is being done in the case of assessment of partners of the firm. The reasons are very obvious. Return under s. 139 of the Act is to be filed by those persons whose income is chargeable to tax under the provisions of the IT Act, 1961. Trust, as said by us earlier, not being a juristic person is not a person as defined in s. 2(31) of the IT Act, 1961 and, therefore, in the event of loss being occasioned to the trustee there is no obligation on him to file any return in a representative capacity under s. 139(1) of the Act. Returns of losses by individuals, firms, companies, AOP and other specified categories of persons as laid down under s. 2(31) of the Act can be filed under s. 139(3) of the Act for the purpose of determination of loss under s. 80 and for set off and carry forward benefit as per the provisions contained in ss. 70 to 79 of the Act. 28. A trustee is to be assessed under s. 161 or under s. 164 (as the case may be) in a representative capacity only in respect of income (positive figure) derived for the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the affirmative then the result will be disastrous and ruinous because the beneficiaries and their estates will ultimately get eaten up and deplete if the liabilities and losses of the trust are to be fastened on them. They (beneficiaries) cannot be made to suffer for being made a beneficiary in a trust without their will and consent. This can neither be the intention or wish of the settlor nor even that of the Legislature in enacting the Trusts Act. 30. Reliance by assessee s counsel on the provisions of s. 32 of the Indian Trust Act is, according to us, is misplaced and as a matter of fact goes against his case in this appeal. It is common knowledge that loss after all is nothing but excess of expenditure over income or gain. And this loss has to be met either from the corpus or capital. And if capital is not sufficient to meet such loss then borrowals or loans have to be obtained. In the instant case, there has been loss and, therefore, the trustees have either to meet this loss (excess of expenditure over income) either from the corpus of the trust or borrow moneys from any source and meet it. If the loss has been met from borrowals then the same shall be liability of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal has been deducted and set off from the business profit of the trust for the asst. yr. 1985-86 and the trust has filed the return for the balance for asst. yr. 1985-86. This conduct of the trustees also goes to demonstrate that the trustees themselves were of the opinion that the loss in trust business cannot be saddled or fastened to the beneficiaries. 34. The sole ground on which the right of the trustees to carry on business as holders of the property upon trust can be controverted rests on the fact that in a business loss is as much an essential incident as profit. When business of the trust incurs losses that cannot be passed on to the beneficiaries because they are only entitled to enjoy the benefits and advantages out of the trust s income or trust s property. Beneficiaries, in our view, cannot be fastened or burdened with detriment. In the event of loss or the continuous losses in a business the entire corpus or the trust fund may be eaten up or wiped off and no trust property will ultimately pass on or be transferable or vest in the beneficiaries. 35. In view of the foregoing discussions we have least doubt to hold that the assessee being a beneficiary of the priva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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