Income Tax Appellate Tribunal - Pune
Sapna Benefit Trust vs Income-Tax Officer on 14 September, 1987
Equivalent citations: [1988]24ITR249(PUNE)
ORDER
V.S. Gaitonde, Accountant Member
1. These appeals have been filed by the assessee against the order of the AAC Aurangabad dt. 14-1-1987 for assessment years 1981-82 to 1984-85. The only point in appeal is regarding the rate at which the assessee trust is assessable.
2. At the time of hearing, both sides stated that there is no direct judgment of any High Court or of Supreme Court on the issue.
3. Shri Lakshminarayan explained the factual position as below. One Smt. Taramati Bafna executed a Will on 4-1-1979. She expired on 8-7-1979. It is stated that on 17-7-1979 all the concerned persons assembled and opened the Will. They noticed that the Will provided for certain specific legatees. One such provision in the Will was as below :
4. I make the following specific legatees sic.
Rs.
(a) To Kailash Benefit Trust 10,000 (b) To S.C. Bafna Family Trust 10,000 (c) To P.S. Bafna Family Trust 10,000 (d) To Vimla Rani Bafna Family Trust 10,000 (e) To Sundeep Bafna Benefit Trust 10,000 (f) To Sapna Benefit Trust 10,000 (g) To Deobala Benefit Trust 10,000
Apart from the above fixed sums, the residuary asset was also available to these trusts in terms of Clause (5) of the Will as below:
5. As regards the rest and residue of my estate (hereinafter referred to as the residuary estate), I direct that my executors should divide the same into seven equal parts for the purpose of being handed over to the Trustees of Seven Trusts which I have created under this Will and for the purpose of such division my executors shall have full discretion to decide as to which assets forming part of the residuary estate should be given and/or allotted to any particular Trust. The seven Trusts referred to in this Will are as under :
(i) Kailash Benefit Trust;
(ii) S.C. Bafna Family Trust;
(iii) P.S. Bafna Family Trust;
(iv) Vimla Rani Bafna Family Trust ;
(v) Sandeep Bafna Benefit Trust ;
(vi) Sapna Benefit Trust;
(vii) Deobala Benefit Trust.
The deceased appointed her husband Shri Sanchalal Chhaganmal Bafna and son Shri Prakash Sanchalal Bafna as the executors of the Will. Regarding the trust coming into existence in terms of the Will the deceased appointed these two persons and one more vis. Smt. Vimla Rani Prakash Bafna as the trustees. Thus, where' as the executors were two in number the trustees were three in number, two of them being common. The Will mentions other details of the benefits to be made available to each of the trusts as per clause 9 of the Will which need not be reproduced here.
4. It is stated that when the above Will was examined Shri Sanchalal and Prakash as also Smt. Vimla Rani passed two resolutions on 17-7-1979 for their [own guidelines. The first one stated as below : (page 25 of the compilation).
We, (1) Shri Sanchalal Chaganmal Bafna ;
(2) Shri Prakashkumar S. Bafna ;
(3) Smt. Vimlarani Prakashkumar Bafna do hereby declare as under :
WHEREAS Mrs. Taramati S. Bafna died on 8-7-1979 in Bombay and WHEREAS she left a Will dt. 4-1-1979 and WHEREAS the said Will was opened by 1 and 2 of us who are the executors of the said Will and WHEREAS under the said Will we were appointed as Trustees of the following Trusts which were created under the clause 4 of the said Will.
Amount Rs.
(a) Kailash Benefit Trust 10,000 (b) S.C. Bafna Family Trust 10,000 (c) P.S. Bafna Family Trust 10,000 (d) Vimla Rani Bafna Family Trust 10,000 (e) Sandeep Bafna Benefit Trust 10,000 (f) Sapna Benefit Trust 10,000 (g) Deobala Benefit Trust 10,000
AND WHEREAS under the clauses 9(a)(vi), 9(b)(vi), 9(c)(vi), 9(d)(vi), 9(e)(vi) and 9(/)(vi) we are empowered to divide and distribute the corpus of all the above trusts as may be in existence or one or more of them and to the exclusion of the other or others in our absolute discretion to any of the aforesaid trusts. AND WHEREAS in exercise of the said powers vested in us we the Trustees have resolved and decided to distribute the corpus of all the trusts mentioned above except of Sapna Benefit Trust to Sapna Benefit Trust. The said corpus of all the aforesaid Trusts shall vest in Sapna Benefit Trust and therefore said amount shall be made over to the Trustees of Sapna Benefit Trust for the benefit of the beneficiaries mentioned in the clause 9( f)(iv) of the said Will Trust. It will be seen from the above, although the resolution expressed a desire of the executors, it is also signed by the non-executor-trustee. The second resolution is passed by the Trustees. In this it is decided that in terms of the powers vested through the Will itself the property intended to be vested in the names of six trustees shall not vest in them but shall vest in the 7th Trust viz. the assessee-trust. The relevant portion of the resolution is as below:
We the following trustees :
1. Sanchalal Chhaganmal Bafna ;
2. Prakash Sanchalal Bafna ;
3. Vimlarani Prakash Bafna appointed as Trustees of
1. Kailash Benefit Trust ;
2. S.C. Bafna Family Trust ;
3. P.S. Bafna Family Trust ;
4. Vimlarani Bafna Family Trust;
5. Sundeep Bafna Benefit Trust;
6. Sapna Benefit Trust ;
7. Deobala Benefit Trust.
deviced and intended under the Will of late Mrs. Taramati Sanchalal Bafna dated 4-1-1979 do hereby resolve and decide on this date 17-7-1979 of execution of this Will, that by exercise of the powers vested in the Will property intended to be vested in Trusts in the names of Rs.
1. Kailash Benefit Trust 10,000
2. S.C. Bafna Family Trust 10,000
3. P.S. Bafna Family Trust 10,000
4. Vimlarani Bafna Family Trust 10,000
5. Sundeep Bafna Benefit Trust 10,000
6. Deobala Benefit Trust 10,000 shall all of the amounts vest in Sapna Benefit Trust and therefore shall be made over to Sapna Benefit Trust and that the aforesaid six trusts shall be deemed as either not come into existence or got extinct or cease to exist as the case may be. The Trustees cease to be Trustees of the aforesaid six Trusts which have been deviced in the Will of Late Smt. Taramati Sanchalal Bafna. It is further resolved that Sapna Benefit Trust shall be the only trust declared and accepted under the Will by the executors of the Will.
5. Accordingly, the Trustees filed a return only for the assessee-trust and claimed that the assessee-trust though discretionary is assessable only at the appropriate rate and not at the maximum rate because this is the only trust coming into existence under the Will. Before filing this return, however, the various trusts had actually paid advance tax as if they were separate trusts.
6. The factual aspects were examined by the ITO who noticed that all the trusts were discretionary and that the contention that only one trust came under the Will would not be factually correct. Without prejudice he held that the two resolutions mentioned above had not represented the real state of affairs and that even if they did, they do not mean that only one trust has, in fact, come into existence in terms of the Will. For this purpose, he noticed that the seven trusts had deposited the corpus received (Rs. 10,000) from the executor separately in cash. Four of the trusts had deposited the amount with the associate concern of M/s Sandeep Agency, Aurangataad on 13-12-1979 and the remaining three had deposited similar amounts on 11-12-1979 in M/s Kailash Motors, Aurangabad another associate firm. He also noticed that each of the trusts had paid advance tax payment on its behalf. Each of the trusts were credited with interest for 1979-80 and 1980-81 and tax was also deducted as far as M/s Sandeep Agency is concerned M/s Kailash Motors do not appear to have credited any interest of this type. In a later year Sapna Benefit Trust became a partner sharing 5 per cent profit in M/s Kailash Motors (A.Y. 1980-81).
7. When confronted with the above facts, the assessee appears to have taken a new stand before the ITO. All these actions as far as the firms are concerned were the result of a genuine oversight and a misunderstanding between the executor-cum-trustees and the accountants. It was explained to the ITO that book entries are not relevant for the purpose and are in any case to be seen in the light of the resolution of the trustees and executors. The ITO did not accept this contention and held that in fact, 7 trusts have come into existence and that subsequent winding up, if any, does not affect the conditions of Section 164(1) proviso which reads as below :
Provided that in a case where :
(i) ** ** **
(ii) the relevant income or part of relevant income is receivable under (a trust declared by any person by Will and such trust is the only trust so declared by him) ; or ** ** ** tax shall be charged (on the relevant income or part of relevant income as if it) were the total income of an association of persons.
(Provided further that where any income in respect of which the person mentioned in Clause (iv) of Sub-section (1) of Section 160 is liable as representative assessee consists of, or includes, profits and gains of business, the preceding proviso shall apply only if such profits and gains are receivable under a trust declared by any person by Will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him).
Accordingly, the ITO assessed the income for the various years at maximum rates.
8. Aggrieved by the decision of the ITO, the assessee filed an appeal before the AAC who found no reason to interfere with the order of the ITO for the reasons given in the orders now under appeal. The AAC held that the resolution of the trustees and the executors are self-serving resolutions and that in fact 7 trusts have come into existence in terms of the Will of the deceased. He further noted that the beneficiaries in the different trusts were not the same. The executors would therefore be committing a breach of trust if they go against the express desire of the testatrix, particularly when the minor's interests were also involved. He also rejected the claim that since the trustees had refused to execute all the six discretionary trusts, the conditions of assessing the income of the assessee-trust at appropriate rate are fulfilled. He also took note of the fact that each of the trusts were entitled not merely to the sum of Rs. 10,000 mentioned above, but also to an undetermined part of the residuary assets. Thus, it cannot be said that the Trustees have, in fact, wound up the entire trust till the trust property in the form of interest in residuary estate is identified and distributed by executors in terms of the powers vested in them. Lastly, the AAC rejected the contention that as the executors are empowered under clause 5 of the Will to decide the destination of residuary estate also they were within their rights in directing diversion of such residuary interest to assessee-trust. Actually since only existing property can be transferred, such a transfer by the executors of trustees could have come into effect only after ascertainment or quantification of such residuary asset to which a particular trust might be entitled. Thus on a reading of the relevant clause of resolution as also Clause (9) of the Will the conclusion that more than one trust has, in fact, come into existence was inevitable. Accordingly, the AAC confirmed the decision of the ITO.
9. Before us, Shri Lakshminarayan contended that the authorities below erred in not giving due importance to the two resolutions passed by the executors and trustees on 17-7-1979. He further submitted that after all, the executors have a duty to ensure that maximum possible benefit goes to the beneficiaries or beneficiaries-cum-legatees. There is no obligation on any person to arrange affairs in such a manner as to allow the revenue to throw its biggest shovel into the coffers of taxpayer. The action of the executors and trustees though resulting in reduced liability to tax is bona fide and should be honoured. Actually, what the executors have done is to fairly interpret the provisions of the Will. The Indian Succession Act provides for several rules for interpretation of the Will wherever there is a doubt. The authorities below have not shown how the interpretation given bona fide by the executors is not consistent with the facts of the case. It is quite certain that if only the testatrix knew about the consequences of the terms mentioned in the Will, she would doubtless have settled on only one trust. The relevant provisions of law, however, came only by Finance Act (No. 2) of 1980. As the trustees had only some vague idea of the possible repercussions on the liability to tax it cannot be said that the action of the trustees is mala fide. It cannot be said that as on 17-7-1979 the trustees were motivated by a sole desire to avoid the legitimate payment of taxes. Thus on the ground of fair interpretation of the Will alone, the assessee should succeed.
10. The second argument of Shri Lakshminarayan was that one has to see the Will as actually executed and not only the executory part. From the facts, it is quite clear that all the six trusts were stillborn for want of execution. Therefore, in the eyes of law they should be taken as having never acquired a legal existence. In law, the trust comes into existence only when all the essential conditions of a valid trust are fulfilled. One such condition is that the trust should come in possession of the property in terms of the obligation cast on them. In this case the refusal to take over the properties by the proposed trustees means that the trusts have not come into existence at all. (except asses-see-trust).
11. In this connection, Shri Lakshminarayan submitted that the authorities below have made a mountain out of a mole hill in respect of a genuine mistake or misunderstanding between the executors and the accountants of the two firms. The affidavit of Mr. Santosh Dharma Choudhary (page 34 of the compilation) shows clearly how exactly the mistake arose and how the same was set right on 1-4-1982. During the interregnum the executors though they were partners or associates, were ignorant of what had been noted in the books of account and what had been done by the accountant in the form of advance tax, tax deduction etc. Shri Lakshminarayan laid great stress on the powers of the executors and trustees in terms of the Will and submitted that the theory of the after-thought propounded by the authorities below is without any basis. Winding up his arguments and quoting from Underhill's Law of Trusts and Trustees, Shri Lakshminarayan sought reversal of the decision of the authorities below. The observations of Underhill are as below :
Underbill's Law of Trusts and Trustees Butterworth's 1979 Edn. page 223 :
Ch. 4 : Interpretation of executory trusts ;
Article 20 : Executory Trusts are construed as strictly and executed Trusts :
1. In the construction of executed trusts, technical terms are construed in their legal and technical sense.
2. In the construction of executory trusts, the court is not confined to the language used. Where, therefore, such language is improper or informal, or would create illegal trust, or one which is impossible to execute, or would otherwise defeat the settlor's intentions, as gathered from the motives which led to the settlement, and from it general objects and purpose, or from other instruments to which it refers, or from any circumstances which may have influenced the settlor's mind, the court will direct the settlement to be executed in such form as will best answer the intent of the parties.
12. At this stage, we enquired with Shri Lakshminarayan as to how the executors could appropriate to themselves the powers which even according to Underhill are vested only in the courts. Shri Lakshminarayan submitted that the executors have given their own interpretations to the Will and can at best be said to have exposed themselves to an action by the excluded beneficiaries if any. This does not mean that the action of the trustees is not correct or is not in conformity with the legal provisions.
13. In reply, the DR submitted that when the words of the Will are quite clear admitting of no scope for raising any doubts, the question of invoking the rules of interpretation of the Will in terms of the Indian Succession Act does not arise. Taking us through the detailed provision in the Will, Shri Roy submitted that the intention of the testatrix is quite clear, she desired to execute 7 trusts under the Will each trust having its own set of beneficiaries. The fact that each of the trusts was discretionary does not mean that the executors or trustees could appropriate the corpus of one trust for the benefit of another, particularly when interests of minors are involved. This is not a case of simple breach of trust but an action in excess of the authority vested in executors and trustees in terms of the Will which they are bound to honour. Secondly, Shri Roy submitted that the observations of Underhill on which so much reliance is placed are not applicable because Clause (9) of the Will on which reliance is placed particularly clause 9(vi) comes into operation only after the trustees take over i.e., after the trust actually comes into existence. Thus, more than one trust have clearly come into existence in terms of the Will.
14. Shri Roy then referred to certain submissions made before the AAC. If as alleged, the trustees refused to execute the trust the resolutions would be contradictory to this position. In particular it is to be noted that the executors and trustees are not one and the same. One executor or trustee is not an agent of the other. Actions of all the executors are, therefore, not to be taken as actions of all the trustees.
15. Shri Roy then referred to the Indian Trusts Act (sections 5 and 6 of the Trust Act) and submitted that what we are really concerned is not whether in effect one trust actually come into existence but what is declared by the testatrix. The legislature has admittedly used the word "declared". The words apply to executory part also. Thus, a mere declaration in the Will of the intention to have more than one trust is sufficient to take the case out of the concerning treatment Under Section 164(1)(ii). Further, referring to Rangachari on Trust (page 136 to 138 and 142) Shri Roy pointed out that the beneficiaries specified in the Will itself cannot be changed by any unilateral action on the part of the executors. Shri Roy next contended that the Trust could not have been wound up when the residuary estate was not known or quantified or made available. Shri Roy was not quite clear as to whether any Gift-tax assessment has been made on the executors in respect of funds of one trust transferred to the assessee-trust. He, however, contended that if as alleged the trust did not come into existence the property would revert back to the executors and to be treated as passing through intestate succession. If such intestate succession provisions are looked into, there would be no authority in the executors to transfer the funds of six of the trusts to the assessee-trust.
16. On the factual side, Shri Roy submitted that the facts brought out by the ITO are relevant. The resolution and the affidavit do not have much of evidential value being self serving statements. It is too much to hold that the instructions of S.C. Bafna executor were not understood properly by the accountant or that Shri S.C. Bafna who was very much active in the business was blissfully ignorant up to 1982 about the entries made, interest credited, advance tax paid etc. Accordingly, the DR sought confirmation of the order of the authorities below.
17. In his rejoinder, Shri Lakshminarayan submitted that the combined resolutions of the trustees and the executors need not go against the assessee. He also refuted the allegation that the decision refusing to accept the trust and the supporting resolution is an after thought. Shri Lakshminarayan submitted that in such cases, liberal interpretation has to be given.
18. We have carefully examined the various facts and arguments. We are aware of the principle that a liberal interpretation has to be given to the various provisions. We have also taken note of a similar case which was before the Ahmedabad Bench in ITO v. Rajnikant Gulabdas Sheth Family Trust [1987] 20 ITD 668. In this case initially under the Will two discretionary trusts were created but on 1-5-1979, much prior to the introduction of the Finance (No. 2) Bill 1980 on 18-6-1980, one of them was wound up with the result that during the relevant accounting period there was only one discretionary trust created under the Will and the Tribunal relying on Saroj Aggarwal v. CIT [1985] 156 ITR 497 (SC) and CIT v. J.H. Gotla [1985] 156 ITR 323 (SC) held that where the plain interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the legislature from the language used. The learned Members also held relying on the above judgments that the facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice. Too hypertechnical or legalistic approach should be avoided in looking at a provision which might be equitably interpreted and justly administered. Relying on Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC), it was held that the principle that fiscal statutes should be strictly construed does not rule out the application of the principles of reasonable construction to give effect to the purpose or intention of any particular provision as apparent from the scheme of the Act with the assistance of such external aids as are permissible under the law. 19. We have, however, to consider the main aspect, viz., where the words of statute are clear, the mere fact that it may cause some hardships cannot be a ground for giving a different meaning. It is only where the words of a statute are ambiguous that a question of fair and beneficial interpretation may arise. We find that the scope of the words in Section 164 "declared" has not become the subject matter of argument before the Ahmedabad Bench. The relevant provision is as below :
Provided that in a case where :
(i) * * *
(ii) the relevant income or part of relevant income is receivable under (a trust, declared by any person by Will and such trust is the only trust so declared by him) ; or * * * tax shall be charged (on the relevant income or part of relevant income as if it) were the total income of an association of persons ?
The expression "declared" connotes making known or announcing. The actual result or final impact is not so material. The statute thus lays greater stress on declarations in the Will than on the manner in which the Will might be subsequently interpreted or executed. If the Will is ambiguous the assessee may still get the benefit. If, however, the terms of the Will are clear, what has happened in terms of the volition of the executors or trustees cannot be equated with what is declared in the Will. When the deceased had made known and announced her intention in no uncertain terms, it does not lie in the mouth of anyone to say that the testatrix deceased did not mean what she said or did not say what she meant. The intention of the testatrix is clear, viz., to bring into the existence 7 trusts through her Will. The assessee's case thus clearly goes out of the proviso (ii) to Section 164(1).
20. Apart from this legal aspect, we find that even on the factual side, the facts are different from those before the Ahmedabad Bench. In that case, there was no dispute that by 1-5-1979 i.e., before the commencement of the accounting period for the assessment year in question, one trust was dissolved and its assets were distributed amongst the beneficiaries. In the case before us, the trust was not dissolved nor were the assets distributed amongst the beneficiaries in terms of those trusts. Instead the assets were passed on to the assessee-trust. Secondly, all the book entries, crediting of interest, payment of advance tax cannot be said to be all genuine mistakes. These are acts done in the ordinary course of events. The affidavit of Santosh Dharma Choudhary is a self serving statement and cannot be taken as representing a true state of affairs. The mere fact that Shri Choudhary-the deponent was not specifically cross-examined is also no ground for holding that all that he has stated is correct and is sufficient to explain the various actions including the book entries, etc. Lastly, unless the interest of each of the trusts in the residuary estate is determined it cannot be said that the trusts are finally wound up. The ratio of Rajnikant Gulabdas Sheth Family Trust's case (supra) would not, therefore, be applicable on facts also.
21. We thus find that more than one trust was declared in the Will and all the trusts came into existence in terms of the Will. The best that could be said is that on 1-4-1982 when the amounts were transferred to the assessee-trust, the trusts other than the assessee-trust could have come to an end. But, even this finding cannot be given, because the trusts still have the property in the form of right to share in the residuary estate. Unless this residuary estate is crystallised and distributed amongst the beneficiaries all the trusts would be considered as existing and not wound up. Lastly if the trusts are not executed the property would pass by intestate succession with no authority to executors to appropriate fund earmarked for one trust for the benefit of another trust. We accordingly hold that the authorities were justified in denying the concession available under provision (ii) of Section 164(1).
22. Appeals are dismissed.