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TMI Blog2014 (5) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... y relate to assessment years 1984-85, 1985-86, 1986-87, 1987-88, 1988-89, 1989-90, 1990-91 and 1991-92. 3. The ex-Ruler of Gondal Shri Vikramsinhji executed three deeds of settlements (trust deeds) in the United States of America on December 19, 1963 and two deeds in the United Kingdom on January 1, 1964. The three settlements executed in U.S. are in identical terms. Similarly, the two settlements executed in U.K. are similar. 4. In the course of arguments, it was conceded by the learned counsel for the Revenue that in view of the decision of this Court in Commissioner of Income Tax, Gujarat, Ahmedabad Vs. Kamalini Khatau (Smt.) 1994 (4) SCC 308, the view taken by the High Court in respect of U.S. trusts cannot be faulted and, to that extent, the Revenue accepts the judgment of the High Court. 5. Thus the dispute in these appeals - Income Tax and so also, Wealth Tax - remains about the deeds of settlements executed in U.K. The copies of the deeds of settlements executed in U.K. are on record. Perusal thereof shows that one Mr. Robert Hampton Robertson McGill was designated as the trustee, referred to in the deeds as 'the Original Trustee'. These trusts were created for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the deed of appointment and executing the same. 4. SUBJECT as aforesaid the Trustees shall stand possessed of the Trust Fund and the income thereof upon the trusts following that is to say:- (1) The income of the Trust Fund accruing during the life of the Settlor shall belong and be paid to the Settlor. (2) Subject as aforesaid the income of the Trust Fund accruing during the life of the Elder Son shall belong and be paid to the Elder Son. (3) Subject as aforesaid the Trust Fund shall be held in Trust for the person who (being a descendant of the Elder Son) first during the specified period (a) becomes the Maharaja or would become the Maharaja if his title had not been abolished and (b) attains the age of eighteen years. (4) Subject as aforesaid the income of the Trust Fund accruing during the life of the Younger Son shall belong and be paid to the Younger Son. (5) Subject as aforesaid the Trust Fund shall be held in trust for the person who (being a descendant of the Younger Son) first during the specified period (a) becomes the Maharaja or would become the Maharaja if his title had not been abolished and (b) attains the age of eighteen years. (6) Subject as aforesaid the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals. This Court, by its judgment dated April 2, 1993, Jyotendrasinhji Vs. S.I. Tripathi & Others 1993 Supp. (3) SCC 389, with regard to U.K. trusts did not consider the arguments advanced on behalf of the assessee on merits. The arguments advanced on behalf of the assessee with regard to these trusts are recorded in para 37 of the report which reads as under:- "37. The first contention urged with respect to U.K. trusts is that the Commission has wrongly construed clause (3) which we have extracted hereinbefore. Shri Desai argues that the trust had already come into existence with the appointment of the sole trustee, Mr. McGill, and that the coming into existence of the trust did not depend upon the appointment of additional trustees. The Commission was wrong in holding that until and unless the additional trustees are appointed, the trust in clause (3) does not come into existence. Properly construed, says Shri Desai, clause (3) creates a discretionary trust. Inasmuch as the sub-clause does not prescribe any time limit within which the trustees must decide to distribute the income among the beneficiaries, says the counsel, clause (4) has not and had never come into operation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated March 3, 1975 written by the appellant to the I.T.O., A-Ward, Rajkot relating to the A.Y. 1972-73, he had stated, "as per statement of U.K. sent herewith, the trustees have arrived at income of 13,027 pounds for the benefit of Shri Jyotendrasinhji. According to our opinion, this income is not taxable as U.K. trust is discretionary. However, as it has been taken last, the income may be included in the hands of Shri Jyotendrasinhji subject to our appeal". It is significant to notice the ground of non-taxability put forward in the said letter. The appellant did not say that he did not receive the income. All he said was, since it is a discretionary trust, its income is not taxable in his hands. If he had not received the income, he would have put forward that fact in the forefront. But he did not. Similarly, in the return relating to the A.Y. 1973-74, a note was appended by the appellant to the following effect: "Late H.H. Maharaja Vikramsinhji of Gondal has created trusts in U.K. The assessee has been informed that income falling in the hands of the assessee is 12,627 pounds. This is, therefore, shown as income in his return." (emphasis supplied). It is true that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive and the U.K. trusts have to be held to be specific trusts. 15. The High court, however, did not agree with the Tribunal's view on consideration of the relevant clauses of the U.K. Trust Deeds and various judgments of this Court as well as some High Courts and held that there were distinguishing features for assessment years under appeal and the previous order of the Settlement Commission and the earlier judgment of this Court. 16. For the assessment years under consideration in these appeals, the High Court noted the following distinguishing features, viz., (i) the assessee has not admitted having received the income, (ii) the assessee has not received the said income and (iii) the assessee has not shown as taxable income in the returns of all the years under appeal. 17. Having observed the above distinguishing features, the High Court was also of the view that on interpretation of the relevant clauses of the deeds of settlement executed in U.K., character of the trusts appears to be discretionary and not specific. 18. A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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