TMI Blog1967 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 1958-59 and 1959-60 in the case of Jayantilal Amratlal Charitable Trust, Ahmedabad. The questions referred are : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of Jayantilal Amratlal Charitable Trust was not assessable in the hands of the settlor, Jayantilal Amratlal, under the first proviso to section 16(1)(c) of the Income-tax Act for the assessment years 1955-56 and 1956-57 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the trust should be considered in the assessment of the trustees and that they were entitled to the benefits of the refunds attached to the dividends from the trust properties for the assessment years 1958-59 and 1959-60 ?" The answer to these questions depends on the true interpretation of section 16(1)(c) of the Indian Income-tax Act, 1922, and the interpretation of the trust deed dated June 19, 1947, and to appreciate the points fully it is necessary to give a few facts which are stated in the statement of the case. Jayantilal Amratlal, individual, hereinafter referred to as "the settlor", executed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so in his capacity of an arbitrator and his decision would be binding on all. The most important point which needs consideration is that all the inherent powers and discretion for the income and corpus of the trust property remain with the settlors in his capacity as settlor and not by way of his capacity of a trustee." The Income-tax Officer accordingly held that the income of the trust would not be computed in the hands of the trustees but would be computed in the hands of the settlor under section 16(1)(c). For the assessment year 1959-60 he passed a similar order on the same date. On the same day he also dealt with the assessments of Jayantilal Amratlal, individual, for the years 1955-56 and 1956-57. Following his reasoning he included the relevant income of the trust in the hands of Jayantilal Amratlal. Four appeals were taken to the Appellate Assistant Commissioner who, by his two orders dated November 8, 1960, dismissed the appeals. Before him the settlor relied on section 35 of the Bombay Public Trusts Act, 1950, but the Appellate Assistant Commissioner held that this did not assist the settlor because the income-tax law did take into consideration income derived d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the Charity Commissioner may or may not grant sanction." Shelat C. J. observed : "Surely, it must be presumed that the Charity Commissioner would not grant his sanction to an investment which is bound to result in a conflict of duty and interest on the part of the settlor who is also a trustee. Therefore, such a right, if it can be called a right, is not one of any substance and cannot, therefore, be construed as a right to reassume power over the trust assets or the income thereof, as contemplated by proviso (i) to section 16(1)(c). A loan, by the very nature of it, cannot be said to amount to an exercise of dominion or control over its subject-matter. It is repayable and is given on conditions as to the time of repayment and interest, if any. By taking a loan, a settlor does not exercise over its subject-matter power or dominion which, but for the trust or the settlement, he would have been able to exercise." Section 16(1)(c) reads as follows : "16. Exemptions and exclusions in determining the total income. --- (1) In computing the total income of an assessee --- . . . (c) all income arising to any person by virtue of a settlement or disposition whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the income or assets of the trust within the first proviso to section 16(1)(c). Let us now examine the trust deed. This indenture was made between Jayantilal Amratlal, hereinafter called "the settlor", and Jayantilal Amratlal, Padmavathi, wife of the said Jayantilal Amratlal, Ramanlal Amratlal, Hariprasad Amratlal, Kasturlal Chandulal Parikh and Bhagubhai Chandulal, hereinafter called "the trustees". Clause 1 vests the shares and the other trust properties and income in the trustees. Clause 2 gives the name of the trust. Clause 3 obliges the trustees to get and collect income of the trust properties and pay expenses, etc. Clause 4 creates the trust for the relief of poor, and for education, medical relief, etc. It further provides : "The trustees shall at the direction of the settlor during his lifetime and after his death at their discretion set aside any portion of the income of the trust premises to provide cash, food and clothes for any temple or temples of the Pushti Marg Sampradaya. In applying the income of the trust premises for all or any of the objects hereinbefore specified the trustees may consider the claims of any needy or poor person belonging to the Visa Porwad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... death of the settlor in accordance with the opinion of the majority of the trustees in the case of their being equally divided the trustee senior most in age shall have casting vote." The learned counsel for the appellant says that these clauses read fairly would enable the settlor to direct the trustees to give a loan to him and he could give directions to the trustees in such a way as to reassume control over the assets. He says that as a matter of fact the Income-tax Officer did find that the settlor has been utilising these powers for his own benefit. There is no doubt that under the trust deed the settlor has very wide powers and the settlor could direct the trustees to grant loan to him. The trustees could even grant loan to a firm in which he was interested. But this would be contrary to the provisions of the Bombay Public Trusts Act. Section 35(1) of the Bombay Public Trusts Act provides : "35. Investment of public trust money. --- (1) Where the trust property consists of money and cannot be applied immediately or at an early date for purposes of the public trusts the trustee shall be bound (notwithstanding any direction contained in the instrument of the trust) to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons why Parliament has inserted this proviso. He draws our attention to the following observations of Lord Macmillan in Chamberlain v. Inland Revenue Commissioners quoted in Tulsidas Kilachand v. Commissioner of Income-tax : "This legislation . . . . (is) designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlements. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income. The legislature's counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly." This court held in that case that these observations applied also to the section under consideration, and the Indian provision is enacted with the same intent and for the same purpose. But even so, Lord Simonds observed while construing a similar provision in Wolfson v. Commissioners of Inland Revenue : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a particular charitable purpose. Similarly under clause 6 he can nominate the charitable object and the fund or investment which should be utilised for that object. This is in no sense a power to reassume control. Clause 8 enables the settlor to delegate the carrying out of a particular charitable object. For instance, he could direct some contributions to be made to a hospital or a school without obliging the trustees to see that the hospital or the school does not misapply the funds. Clauses 10 and 11 which enable the settlor to give directions regarding the investment must be read subject to the provisions of the Bombay Public Trusts Act and the general principles of law relating to trusts. We have already said that he could not legally direct a loan to be made to himself. Further it is difficult to subscribe to the proposition that a loan to a company in which the settlor is interested would give power to the settlor over the assets within the meaning of the first proviso. Clause 21 only shows the wide powers which the settlor has reserved to himself. None of these clauses come within the purview of proviso (i). In the result we agree with the conclusions of the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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