TMI Blog1996 (4) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... espectively. The assessee is an individual deriving income from property, business and share income from a firm called M. K. Krishna Chetty. On October 1, 1969, the assessee settled upon trust for the benefit of his prospective son-in-law and prospective daughter-in-law a sum of Rs. 15,000 each. In the deeds of settlement executed for this purpose, there was a direction that the amount has to be invested in the discretion of the trustees so as to produce good income and that the income so earned should be accumulated till such time as the daughter and son got married. At that time the daughter was a minor aged about six years. In clause 19 of the trust deed, it was declared that the trust is "irrevocable". Clause 22 of the trust deed provided that "if the said intended marriage is not solemnised for any unforeseen reason within a period of 20 years from the date of the trust deed, the deed of trust would become void and the trust fund shall become reinvested in the settlor as a beneficial owner thereof, subject as aforesaid, the settlor shall have no manner of right, title or interest in the said money or its accumulations or accretions thereof". By a supplementary deed executed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as learned Departmental representative, ultimately held that the Commissioner of Income-tax was not justified in directing the Income-tax Officer to include in the assessment of the assessee the income arising out of the trusts referred to above. Before us, learned senior standing counsel appearing for the Department submitted that the Tribunal was not correct in holding that both the abovesaid trusts are irrevocable trusts. It was further submitted that clause 19 and clause 22 in the trust deed dated December 6, 1971, are contradictory and in view of clause 22 since there is retransfer of the corpus of the trusts in favour of the donor or transferor, the trusts should be considered as revocable trusts. Learned senior standing counsel further submitted that the second deed executed on October 26, 1979, stating that the corpus is on the interest of the trusts, if the trusts fail, would go to the University of Madras would virtually amount to application of income. Further according to learned senior standing counsel, the second deed executed on October 26, 1979, would not be capable of giving retrospective effect to what is stated in the second deed from the execution of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of law, section 83 of the Indian Trusts Act would come into operation. For these reasons, according to learned counsel for the assessee, inasmuch as no income was transferred to the donor from the trust during the assessment years under consideration, no assessment can be made in his hands inasmuch as the abovesaid trusts are not revocable trusts. We have heard learned senior standing counsel for the Department as well as learned counsel appearing for the assessee. We have already set out the facts in detail. We have also incorporated the relevant clauses in both the trust deeds for the sake of convenience in the foregoing paragraphs. Sections 61 to 63 of the Income-tax Act, 1961, state as under : " 61. Revocable transfer of assets. --- All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income. 62. Transfer irrevocable for a specified period. --- (1) The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer--- (i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccumulations or accretions thereof. The second deed was executed on October 26, 1979. This second deed, which is a supplementary deed was executed for clarifying what is stated in clause 22 of the first deed dated December 6, 1971. In the supplementary deed it was stated that the period of 20 years as stated in clause 22 of the first deed would be substituted by 25 years. So also in the first deed what is stated is that if the trust fails, the trust fund shall become reinvested in the settlor as the beneficial owner thereof, and was changed into in case the trust fails, the trust fund shall come to the University of Madras. For the assessment years under consideration, the assessee filed a return not showing the income from these trusts. According to the Department, in view of the provisions contained in section 61 read with section 63(a)(i) and (ii) of the Income-tax Act, 1961, read with clause 22 of the trust deed dated December 6, 1971, which alone is applicable for the assessment years under consideration, since the supplementary deed executed on October 26, 1979, would not be applicable during the assessment years under consideration, inasmuch as the trust fund was to be ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets. For the transfer to be deemed revocable, the trust deed must contain a provision for retransfer directly or indirectly of the whole or any part of the income or assets to the transferor. According to the Department, clause 22 contemplates retransfer of the income of the trust to the transferor when the trust fails. Therefore, a combined reading of section 63 with clause 22 would postulate that the trusts in question are revocable trusts. We have already seen that clause 22 was incorporated for the purpose of application of income of the trust in case the object of the trust fails. This clause 22 was incorporated in accordance with the provisions contained in section 83 of the Indian Trusts Act. Clause 22 would take effect after 20 years, if the marriages of the minors did not take place. But during the assessment years 1977-78 and 1978-79, clause 22 would have no application. Therefore, in order to understand whether the trusts in question are revocable or not, we have to read the trust deed dated December 6, 1971, minus clause 22. Thus, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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