TMI Blog1962 (3) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... his three sons, one being unmarried, and two daughters-in-law, he executed a deed of trust on August 10, 1949, under which he along with his sons became the trustees. The properties described in the schedule to the deed are the trust properties subject to the conditions laid down in clause (5) of the document. The deed recites that the settlor was possessed of the properties mentioned in the schedule to it as also of the benefit of a mortgage executed by Madhu Sudhan Das Burman and others in his favour for a sum of ₹ 4,30,000 with interest and being desirous of settling the properties including all cash and bank balances belonging to him for the benefit of the persons mentioned, he was executing the deed of trust. As the question involved is one of the proper construction of the document it is necessary to quote the exact language of it so far as the relevant portions are concerned. They are as follows: Now this indenture witnesseth that...in consideration of the natural love and affection which the settlor has and bears for his sons...and his daughters-in-law...he, the settlor doth hereby grant, transfer, convey, assign and assure unto the trustees all these messuages, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Mullick in equal shares and if they or any of them are dead, then to the heirs or heir of them or any one of them absolutely after such heirs or heir has or have attained the age of 18 years. Clause 5.--The trustees or trustee for the time being shall out of the trust properties pay to the settlor a sum of ₹ 60,000 either in a lump or by instalments. If the trustees or trustee for the time being pay the said sum of ₹ 60,000 as aforesaid within 12 months from the date hereof, the premises Nos. 15 and 15/1, Harish Chatterjee Street, will revert to the trust, otherwise the settlor may sell the said premises and for the deficit, if any, the trust properties shall be charged. Clause 10.--The trustees or trustee for the time being shall have the power to raise a loan to the extent of ₹ 50,000 only on such terms and rate of interest as the trustees or the trustee for the time being shall consider necessary on the mortgage of any of the properties for the time being belonging to the trust, created by these presents for the purpose of constructing a building on the said premises No. 64/1, Ritchie Road, and/or premises No. 10, Dovar Road, and/or premises No. 7, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,000 with an additional sum of ₹ 60,000 by way of profits will be refunded to the trust estate and the rest and residue shall be taken absolutely by the settlor. As it is necessary to examine the above provisions of the trust deed in the light of section 16(1)(c) of the Indian Income-tax Act, it is necessary to set out the relevant provisions thereof as follows: 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: Provided further that the expression 'settlement or disposition' shall for the purposes of this clause include any disposition, trust, covenant, agreement or arrangement, and the expression 'settlor or disponer' in relation to a settlement or disposition shall include any person by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands. This proviso is aimed at ameliorating that situation by providing that the portion of the income from the trust properties which is settled on a third person is to be assessed in his hands if the settlor does not retain any power to deflect the same for a period exceeding six years or during the lifetime of the donee; provided, however, that if by the settlement such deflection was possible after the period of six years or after the lifetime of the donee the settlor would then become again assessable thereon. The third proviso also goes to show that the settlement as a whole does not come within the mischief of the section if the revocability attaches only to a part of the income. It is further to be noted that the proviso does not touch a provision for retransfer of any part of the assets to the settlor or a right of the assessee to reassume power over the same within the meaning of the first proviso. Consequently, if the settlement enables the settlor to get a retransfer of the assets or to reassume power over the same after the date of the transfer the whole settlement becomes revocable and the settlor becomes assessable in respect of the whole income. The relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property by the assessee, Kania J. said that it was not a retransfer or reassumption of the power contemplated by the first proviso. He observed however that the words 'retransfer or reassume' necessarily involve a second transaction of a latter time. He repelled the argument of the revenue department that the provision for payment of the income to the assessee after the death of his wife amounted to a retransfer directly or indirectly of the said income or in any event reassumption of the power over the income or assets. He stated: ...the question is whether a contingent claim which may arise under a settlement, is covered by the proviso. Speaking for myself, I should very much hesitate before accepting this contention of the Commissioner which imports into the proviso words which are not there. The settlor does not get a retransfer of the income or assets or a reassumption of the power over the income or assets by reason of the proviso alone. He gets it by reason of the proviso, coupled with a contingency, which may or may not happen. It is only on the occurrence of the contingency that he acquires the right, and it appears arguable that this proviso does not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond the lifetime of the person benefited, then also proviso (3) applies. Both the learned judges were of opinion that proviso (3) applied not only to the substantive provisions of sub-clause (c) but also to the first proviso thereto. With respect, I agree with the conclusions of Chagla J. I find myself unable to hold that a contingent claim which may arise under a settlement is not covered by the first proviso to the section as held by Kania J. Again I cannot see why it should be necessary to have a second transaction of a latter time to satisfy the requirements of the said proviso if that is what his Lordship meant by the observations which I have quoted above. The deed of transfer or settlement may itself provide that a person other than the settlor should get the income or assets with direction for transfer of the same in certain events or after a certain date. Such a direction to my mind would be a provision for retransfer within the meaning of the proviso and no independent deed or document of a subsequent date may be necessary to effect a retransfer. In Commissioner of Income-tax v. Kikabhai Premchand [1948] 16 I.T.R. 207, the question which engaged the attention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the trust deed set out above may be summarised as follows: (a) Clause 1 provides that the trustees must pay the settlor ₹ 400 per month out of the balance income which accrues to them after setting apart 33 1/3 per cent. of the annual collection or a sufficient portion thereof to meet the municipal taxes, repair charges, etc., and this is a provision for retransfer of a part of the income within the meaning of the first proviso. (b) Clause 5 contains a provision for ₹ 60,000 being paid to the settlor either out of income of the property or the assets transferred and as such is within the mischief of the first proviso. Even if it be assumed that under the operative part of the deed premises Nos. 15 and 15/1, Harish Chatterjee Street, Calcutta, were transferred subject to the condition of this clause the settlor could sell not only the said two properties in case of default of payment of ₹ 60,000 within 18 months but could proceed against the other trust properties as if they had been charged in his favour for the payment of this sum. According to Mr. Meyer this gave the settlor a right to reassume power over the assets. (c) Under clause 10 it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, the trustees had only the right to receive the income less ₹ 400 per month. He relied on Ramji Keshavji's case [1945] 13 I.T.R. 105 again, where the transfer of the property subject to his right of occupancy was held to be without the mischief of the first proviso and referred to the case of H.R. Munro v. Commissioner of Stamp Duties [1934] A.C. 61; 2 E.D.C. 462 to show that it was possible to transfer a property minus a particular right. In the last-mentioned case a father and his children had entered into an oral agreement to carry on the business of graziers in partnership. The pasture land originally belonged to the father who some years afterwards transferred by way of gift to each of the four sons and his two daughters his right, title and interest in portions of his holding of land. All these transfers were taken subject to an agreement and on the understanding that if any member of the family were desirous of so doing he could withdraw from the agreement as to the running of stock in which the partnership was interested on his holding and work his property with own stock provided a reasonable time was allowed for the removal therefrom of the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties appear to have been transferred subject to that condition. Clause (5), however, appears to show that the settlor's intention was that on payment of ₹ 60,000 by the trustees premises Nos. 15 and 15/1, Harish Chatterjee Street, were to be freed from the condition. But even taking the view most favourably to the settlor, namely, that the entire properties were conveyed to the trustees subject to clause (5), it seems to me that the settlor made a provision for reassumption of power over the assets in case of failure of payment of the sum secured. It is not possible to hold that the properties were transferred to the trustees shorn of the right reserved by clause (5). If properties are settled upon trust, but subject to the payment of a specified sum, which may be realised by sale of some of the properties and with a charge in favour of the settlor for the deficit on such sale the net result seems to me to leave the settlor with the contingent right to follow all the properties and put them up to sale and this, in my view, gives him a right to reassume power directly or indirectly over the assets. Dr. Pal further argued that to treat the whole settlement as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribute the net income from the investment among the trustees including the settlor. This would, however, give him only a right to a part of the income from the said fund making it chargeable in his hands under the third proviso and would not attract the operation of section 16(1)(c) with regard to the entire settlement. By clause (13) the settlor was transferring his liability with regard to the advance of ₹ 5,000 to Rash Behari Banerjee. It should be noted that there was no novation of the agreement with Rash Behari Banerjee. The settlor alone was under an obligation to advance the balance of ₹ 5,000 and in case of successful termination of the litigation to be entitled to the fruits thereof. By clause (13) the settlor had only provided that by the advance of ₹ 5,000 the trust estate should not only benefit by the amount of that advance with interest but reap a substantial profit. If the result of the litigation was unfavourable to Rash Behari the trust estate would certainly lose ₹ 5,000 without any corresponding benefit. I cannot find in this clause any provision for retransfer of the income or assets of the subject-matter of the trust in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
