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TMI Blog2002 (3) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... s orders of the Settlement Commission. Paper Book No. 11 comprising 14 pages include inter alia statements of income f or the assessment years under appeal enclosed by the assessee along with the returns of income for such years. 4. The relevant facts may be briefly set out at the outset. Late Shri Vikramsinhji, the ex-ruler of erstwhile Princely State of Gondal in Saurashtra, father of the assessee, created the following trusts in USA and UK during the accounting period 1963-64 relevant to the assessment year 1964-65:-- Date of Trust Value of assets transferred Deed (as originally shown) 1 . USA Trusts: Trust No. 1 19-12-1963 Rs. 501965 Trust No. 2 -do- Rs. 1746455 Trust No. 3 -do- Rs. 4852855 ----------- Rs. 7101305 2. UK Trusts: Settlement'A' 1-1-1964 Rs. 4035574 Settlement'B' -do- Rs. 1182238 ----------- Rs. 217812 ----------- Rs.11319117 ----------- The three settlements executed in the United States are on identical terms. Similarly the two settlements executed in the UK are similar. Both the sets of settlements are meant for the benefit of the settlor and the members of his family. The settlor died on 22-6-1969. He was being assessed in the status of an 'i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment Jyotindrasinhji v. S.L Tripathi [1993] 201 ITR 611 has upheld the order of the Settlement Commission. 6. Insofar as the three settlements executed in the US are concerned, the Hon'ble Supreme Court has held that the US trusts are revocable trusts and income from these trusts has been rightly included in the income of the settlor by virtue of section 61 read with section 63 of the I.T. Act, 1961. 7. Regarding the two settlements executed in the UK the Hon'ble Supreme Court upheld the inclusion of the trust income in the hands of the settlor on the ground that the settlor has himself admitted in the returns that the income belongs to him. So, with regard to the interpretation of the various clauses of the UK settlement, the Hon'ble Supreme Court has duly taken note of the reasoning and finding of the UK settlements. However, the Hon'ble Supreme Court while approving the order of the Settlement Commission has recorded no express finding regarding the interpretation of these two settlements. 8. In the backdrop of the aforesaid facts, we may now consider the issue of inclusion of the income from UK trusts for assessment years 1984-85 to 1989-90 and income from US trusts for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod by any deed or deeds revocable appoint AND in default of and subject to any such appointment upon the trusts and with and subject to the powers and provisions hereinafter declared and contained concerning the same: Provided always that the foregoing power of appointment shall not be capable of being exercised: (a) by anyone other than the settlor or the elder son or the younger son; or (b) in favour of the person making the appointment save with the consent of the trustees (being at least two in number or a trust Corporation) such consent to be testified by their being parties to 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of his father as well as in his own case, the ld.counsel argued that the said decisions are not binding for the assessment years under appeal before us. Shri Patel submitted that the crucial distinguishing feature of the present appeals before us is that the assessee has not included the income from the UK trusts in his returns of income for the assessment years 1984-85 to 1989-90 under reference whereas in the cases before the Settlement Commission, such income has been included by late Shri Vikramsinhji, father of the assessee as well as by the assessee himself in the returns filed before the Department. According to Shri Patel, since the income had been included by the assessee himself in the returns, the Settlement Commission as well as the Hon'ble Supreme Court reached the conclusion that such income belongs to the assessee and is liable to be included in his case. The learned counsel very vehemently argued that since the facts are different for the assessment years involved in the present batch of appeals, the decision of the Hon'ble Supreme Court would not apply. 11. Shri Vimal Sah, the ld. Sr. Departmental Representative, on the other hand, placed heavy reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not available at the time of filing the original return and the assessee, therefore, subsequently filed revised statement of income for such years. While submitting the revised return for assessment year 1970-71, the counsel of the assessee filed a letter dated 20th February, 1974 stating as under:-- "At the time of filing the original return, our above client did not know whether any income falls in his hand out of India, consequent to the death of late H.H. Vikramsinhji of Gondal in August, 1969. We have, therefore, sent a letter dated 23-8-1971 stating this fact and further stating that if the assessee will come to know if any income falls in his hands he will inform accordingly. At the time of assessment the information was not available and hence in the assessment order this income was not taxed. The figures of income in U.K. are now available and accordingly we are filing amended return showing the income in U.K. falling in the hands of H.H. Jyotindrasinhji of Gondal consequent to the death of late H.H. Vikramsinhji of Gondal. We have to request your honour to kindly accept the return and assessment be made accordingly. As regards the income in U.S.A. is concerned accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he paper book shows that the following note has been enclosed with the return:-- "Notes: (1) The remittance received from the trusts is not included as according to the assessee's opinion the Trust being Discretionary Trust the receipt Trust is not income. (2) The return is subject to our filing petition before the Settlement Commission." Similar note has been enclosed for assessment year 1986-87 indicating in addition income in UK trusts 1,04,473 Pounds, income in US trusts $1,08,617. For assessment year 1987-88 income computation of Indian income shown loss of Rs. 82,864. The assessee has, however, claimed deductions under section 80L, etc. along with details of foreign income 'A' and 'B' UK settlements subject to Supreme Court decision 1,20,590 Pounds and USA trusts $82,476. For assessment years 1988-89 and 1989-90, the assessee has similarly claimed deduction under section 80L, etc. even though the Indian income has been shown as loss figure. At page 12 of the paper book Note 2 forming part of the return is relevant for our purposes which reads as under:-- "(2) According to the order received from Settlement Commission UK Settlement is considered non-discretionary. The inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the trust fund and the trust fund itself shall be held upon trust. First of all the income of the trust fund accruing during the life of the settlor shall belong and be paid to the settlor and subject to this the income of the trust fund accruing during the life of the Maharaja's elder son, namely, Shri Jyotindrasinhji, shall belong and be paid to him, and so on." The Settlement Commission had analysed these crucial clauses videparas 11.1 to 18.12 of its order dated 31st March, 1989 in the case of late Shri Vikramsinhji. According to the Settlement Commission, clause 3(2) gives the power of appointment of discretion exercisers to the Maharaja. As mentioned in the clauses, this appointment has to be by any deed or deeds revocable or irrevocable". This discretion exercisers would have the discretion of selection of beneficiaries, their shares and conditions of making any grants to them. Now, it is an admitted position that neither the settlor Shri Vikramsinhji nor his son Shri Jyotindrasinhji who is the assessee before us, ever passed any order of appointment in writing in favour of the trustees. For default in the appointment of discretion exercisers, as provided in clause 3( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of income filed from time to time. Had the trust deeds been really understood by the trustees and the beneficiaries as discretionary by virtue of the operation of clause 3, one would have expected the state of affairs to have been different. In our considered view, the true intention of the settlor, as reflected in his subsequent conduct in treating the trust property as his own is clearly in conformity with the normal family traditions of princely families whereby trust property and income therefrom were to be treated as belonging to the Maharaja with the beneficiary and the family members not entitled to any share therein. Apart from the aforesaid facts, it deserves to be noted that the method and manner of maintaining records and accounts separately in respect of capital of the trust funds as well as income thereof further bring out the fact that the trustees were well aware about the requirements of clause 4. The Settlement Commission has referred to these facts and pointed out that the assessee filed income appropriation account for the year ending 31st March, 1971 which separately indicated income and capital of the settlor Shri Vikramsinhji as well as his son Shri Jyotindr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee by virtue of section 166, the issue whether such trusts arc of the nature of the specific trusts is academic. For the aforesaid reasons, we hold that income from UK trusts has been rightly assessed in the hands of the assessee for the assessment years 1984-85 to 1989-90 under appeal. 17. The only issue which remains to be considered is the taxability of income from the three USA trusts for assessment year 1987-88. Since the Assessing Officer has not included the income from USA trusts for the other assessment years involved in the present appeals before us, no such question has been raised for those assessment years. 18. The Assessing Officer has assessed the income from the three USA trusts for asst. year 1989-90 on the ground that the same has been shown by the assessee. In the enclosure to the return of income at page 8 of the paper book No. II filed by the assessee. Income from the three USA trusts has been shown as under:-- (i) Trust No. 1 $ 8,133 (ii) Trust No. 2 $ 20,334 (iii) Trust No. 3 $ 54,009 -------- $ 82,476 The rupees equivalent of the aforesaid income amounting to Rs. 10,43,000 has been included in the total income of the assessee for assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or more written instruments duly executed by the Maharaja or by the trustee or by both and delivered to the trustee then acting hereunder, provided, however, that if either the Maharaja or the trustee, but not both of them, shall release such power, then the party not so releasing shall continue to have the power to appoint hereinbefore provided, acting alone." 20. Clauses 2 and 3 of the deeds confer an absolute discretion upon the trustee to pay over or apply in his discretion, any part or the whole of the income or any part of or the whole of the principal to "any person then eligible to receive the income of this trust" at such time and in such manner, as he may decide in his absolute discretion. Clause 3 says further that "the trustee may omit eligible members of the class from any or all such payments and applications, and no such payment or application or omission of a person from participation therein shall cause a charge against or otherwise affect the future interest or share of any person hereunder". Any determination made by the trustee in good faith in exercising the said discretion is held to be binding and conclusive. It is not necessary to notice the other clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F deposit and Unit Trusts with the remark 'claimed in case of positive return'. So these facts clearly indicate that the assessee has himself admitted that the income from US trusts, as well as UK trusts is liable to be included in his hands in accordance with the Hon'ble Supreme Court decision. Thus, on the basis of assessee's own statement, the decision of the Hon'ble Supreme Court, which sustained the additions on account of income from US and UK trusts in the hands of the assessee for the earlier assessment years upto assessment year 1982-83, would equally apply for assessment year 1987-88 under reference also. While discussing the issue concerning taxability of income from UK trusts hereinbefore, we have held that the facts and circumstances of the case for the assessment years before us are substantially identical with the earlier years and, therefore, the finding of the Settlement Commission sustained by the Hon'ble Supreme Court would hold good for the assessment years under appeal also. We would, accordingly, uphold the addition of Rs. 10,43,321 as income from the three USA trusts in the hands of the assessee for assessment year 1987-88. 24. No other ground has been argue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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