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TMI Blog1967 (3) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1st October, 1944. They merely declared that they " do and each of them doth hereby relinquish, release, surrender the right, title, and interest, in the income hereafter to arise from the said trust property and to which they are entitled by virtue of the said deed of settlement dated the 1st day of October, 1944. . . ." Nothing further was said with the result that the other terms of the deed of trust dated 1st October, 1944, continued to operate and as a result of the relinquishment of their interest by Pratapsinh and his wife, the interest created in favour of the grandchildren as remaindermen was accelerated. Now the terms of the trust deed relevant for the purposes of deciding the controversy in this reference are as follows : We state them serially and have numbered them for convenience of further reference though in the document they have not been numbered. After declaring the trusts, the settlor made provision for payment of all the usual expenses of management of the trust property, costs, charges and expenses of and incidental to the preservation of the trust property. Then the directions as regards the corpus and the net income from the trust were as follows : " (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only one child, to deliver and hand over the same to him or her alone. " (7) Finally, there was a residuary clause, that if there be no person contemplated in the trust deed alive or no person in existence or capable of taking the corpus of the trust property, then the trustees were given the discretion to apply the corpus for certain stated charitable purposes, with which we are not here concerned. As we have said, after about eleven years that the trust was in operation, the first two beneficiaries, Pratapsinh and his wife, Pushpabai, relinquished all interest under the trust deed by the deed of release executed on 3rd April, 1955. It is not in dispute that, as a result of the relinquishment, two provisions of the trust deed, viz., Nos. 1 and 2 above, ceased to operate and the case must be judged as if the said Pratapsinh and his wife were no longer alive. It is also not in dispute that upon these facts section 41 would apply. The main question is whether the income arising from this trust should, after the coming into operation of the provision marked (3) above, be taxed " in the like manner and to the same amount as it would be leviable upon and recoverable from the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and benefit of one or more of the children to the exclusion of others. The shares of the beneficiaries, viz., the four children of Mr. Pratapsinh, cannot, therefore, be said to be determinate within the meaning of the first proviso to section 41(1). As the beneficiaries have other income besides their beneficial interest in the trust, the income from the trust has to be assessed at the maximum rate." In appeal from this order, the Appellate Assistant Commissioner reversed the decision. He observed : " I do not think that the Income-tax Officer was right in taking this view. The moment the relinquishment deed was executed, the children stepped in with definite shares but the division of the corpus had to be postponed according to the terms of the trust deed until the last child attains majority. No doubt the trustees were given a discretion which is not mandatory for utilising the income of the trust for the education, etc., of the children until the last child attains the age of majority. The trustees did not, however, utilise that discretion and did not spend any part of the income in any of the years since the relinquishment deed for the maintenance, education, etc., of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the shares of the four children are indeterminate and unknown for the purposes of the application of the first proviso to section 41? " Now, after the execution of the deed of release, Pratapsinh and his wife, Pushpabai, having gone out of the picture, the third clause mentioned above would come into operation and the third clause would continue to operate until a specific period of time therein specified namely, " till the period of distribution of the corpus of the trust property ". What " that period of the distribution of the corpus of the trust property is, is indicated by the fifth clause above, viz., " upon the youngest living child of the said Pratapsinh attaining the age of 18 years ". Thus, the document itself contemplates four clear stages during which the trust was to operate upon different terms. The first was during the lifetime of Pratapsinh, the second, during the lifetime of Pushpabai, the third, after the lifetime of both of them, but until the period of distribution arrives, that is to say, until the youngest living child of Pratapsinh attains the age of 18 years. The fourth stage is the one contemplated in clause 5 above when, after the youngest living ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are mentioned in the fifth clause quoted above, that is to say, giving the male child of Pratapsinh two shares and each of the three daughters one share each and they have accomplished this by opening separate accounts in the account books of the trust in their names and crediting their separate accounts with their respective shares as mentioned in the fifth clause quoted above. These are the facts found and it was urged that in the light of these facts the trustees have exercised the discretion in terms of the trust deed itself and, therefore, by operation of the trust deed itself the shares have become determinate and known and the proviso to section 41, therefore, cannot apply. We are concerned in the present case with an assessment to income-tax and not to wealth-tax. We are, therefore, concerned with the assessment of income and not the assessment of the corpus of the trust property. Secondly, it has to be noticed that the words of the proviso to section 41 are " where any such income, profits or gains or any part thereof are not specifically receivable on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period between the going out of Pratapsinh and his wife, Pushpabai, and the date of distribution, the shares of the children can be said to be determinate or known. Some argument was based upon the provisions of the fifth clause which we have quoted above, which is the clause that operates after the date of distribution. Therein, no doubt, a definition of the shares of each of the children has taken place, in so far as the clause provides that the son shall get twice the share of each daughter. It was undoubtedly urged by Mr. Joshi that even then the shares should be held to be indeterminate, because, one cannot predict how many children may be alive on the date of distribution, but it seems to us that that is not a circumstance that has to be taken into account in deciding whether the shares are indeterminate or unknown. The question would be if the fifth clause does come into operation whether on the date on which the assessment is being made the shares are indeterminate or unknown. If the fifth clause were put in operation, it seems to us that the shares would be determinate or known, but, as we have said, that period has not arrived and we are not called upon to pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of vested interest both in the accumulated income and the corpus of the property. It is true that the income, whether accumulated or otherwise, could be applied by the trustees in their discretion for the education and maintenance of the children beneficiaries. But all this did not detract from their vested interest in the accumulation. Likewise, the postponement of the distribution of the corpus did not detract from the essential nature of the vested interest simply by the reason of enjoyment having been postponed. This is very clear from the Explanation of section 19 of the Transfer of Property Act quoted supra. In our view, therefore, the main provision of section 41(1) will apply and not the proviso thereof. The proviso could apply only where any such income profits or any part thereof are not specifically receivable on behalf of any one person or where the individual shares of the persons on whose behalf they are receivable are indeterminate or unknown ... We hold that in the present case such persons are not either indeterminate or unknown. " The error of this reasoning lies in this that the Tribunal failed to appreciate that the question whether the interest of the children ..... X X X X Extracts X X X X X X X X Extracts X X X X
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