Patna High Court
The Province Of Bihar vs F. R. Hayes And Others. on 28 January, 1946
Equivalent citations: [1946]14ITR326(PATNA), AIR 1946 PATNA 361
JUDGMENT
FAZL ALI C.J. - This is a reference by the Board of Agricultural Income-tax, Bihar under Section 25(2) of the Bihar Agricultural Income-tax Act (VII of 1938). The question which the assesses asked the Board to refer was framed on their behalf in these words :-
"Whether an individual, holding separate powers of attorney from different proprietors regarding their respective specific shards in the estate can be said to be holding the land within the meaning either of Section 11 or of Section 12 of the Bihar Agricultural Income-tax Act 1938."
The Board in submitting the question to this Court has expressed the following opinion (See Boards resolution dated the 22nd April 1943) :-
It seems to the Board that there is no question of law involved in the application of Section 12 which certainly does not apply to the present case but that there is a question of law whether Section 11 applies to the manager on behalf of a number of shareholders each share being separate and distinct and separately recorded in the collectors registers. A reference will be made to the High Court on this point."
The assessees in the present case are 15 persons who inherited specific shares in an estate in Purnea from one Mrs. Hayes. They reside in different parts of the world and each of them has executed a general power of attorney in favour of one Mr. Picachy authorising him to manage the property which devolved upon the death of Mrs. Hayes. The incomes received by the various assessees have been set out in the following schedule which is printed at page 3 of the paper-book :
Serial No. Names of proprietors Extent of shares Amount of profits.
Rs.
Ps.1
F. R. Hayes, Esqr.
1 17 3 1 3253 1 6 2 John Kissock Hayes 18 3 1 2 1626 8 9 3 Mrs. Mary Affleck Hayes 18 3 1 2 1626 8 9 4 Mrs. L. M. Jelbart 1 17 3 1 3253 1 6 5 Miss. M. N. Hayes 1 17 3 1 3253 1 6 6 Mrs. M. E. Betteley 1 17 3 1 3253 1 6 7 Mrs. V. G. Dickinson 1 17 3 1 3253 1 6 8 Mr. G. P. Cammiade 6 1 2 2 6 2 558
2 1 9 Mr. P. F. Cammiade 6 1 2 2 6 2 558 2 1 10 Mr. T. B. Cammiade 6 1 2 2 6 2 558 2 1 11 Mrs. A.M. Fellowes 18 1 1 1578 11 4 12 Mr. A. H. W. Bentinck 12 2 1 6 2 1084 5 10 13 Mr. D. W. Bentinck 12 2 1 6 2 1084 5 10 14 Mrs. A. W. Perrie 12 2 1 6 2 1084 5 10 15 Mrs. G. Holyoak 17 3 1 1530 13 10 Total 27555 9 7 The real question to be decided in this reference is whether the 15 assessees should be assessed on their separate incomes or the income received by them should be added to together and the aggregate amount should be taxed under Section 11 of the Act. The contention put forward on behalf of the assessees is that their income cannot be lumped together for the purpose of assessment and that they are not liable to be assessed at all because the individual income of each assessee is less than Rs. 5,000. They point out that it is most unjust that persons whose income is just a little over Rs. 1,000 or Rs. 500 should be assessed at all or assessed at rates of applicable to more than 25 to 50 times these figures respectively. The schedule shows that in the year of accounting three of the assessees had received Rs. 558 each; three Rs. 1,084 each and the highest income received by any of the assessees did not exceed Rs. 3,253 odd. The assessees contention has been negatived by the Agricultural Income tax authorities and it has been held that their case is covered by Section 11 of the Act and the aggregate of their incomes in the hands of Mr. Picachy is liable to assessment under that section.
It has been conceded on behalf of the Department that the assessees have no community of interest with each other, that they reside in different countries such as England, East Africa, India etc. and that Mr. Picachy was appointed by them at different times and under different powers of attorney and it is a mere coincidence that he is the holder of a power of attorney on behalf of all the assessees. But it has been held that the terms of Section 11 are wide enough to cover a case like the present and to justify the assessment of the total agricultural income. Section 11 runs thus :-
"(1) Save as provided in Sections 9, 12, and 13, if a person holds land from which agricultural income is derived partly for his own benefit and partly for the benefit of beneficiaries or wholly for the benefit of beneficiaries, agricultural income-tax shall be assessed on the total agricultural income derived from such land at the rate which would have been applicable if such person had held the land exclusively for his own benefit and the agricultural income-tax so payable shall be assessed on the person holding such land and he shall be liable to pay the same.
(2) Any person holding such land shall be entitled before paying to any beneficiary the amount of agricultural income which such beneficiary is entitled to receive from the agricultural income derived from such land, to deduct the amount of agricultural income-tax at the rate at which the agricultural income is or will be assessed under sub-section (1).
Explanation. - In this Section beneficiary means a person entitled to a portion of the agricultural income derived from the land."
In my opinion the language of the section strongly suggests that it was meant to apply to those cases where land is held by a trustee or someone whose position in relation to the land is similar to that of a trustee. Trust has been defined by Sir Arthur Underhill in his well-known treatise relating to the Law of Trusts and Trustees as follows :-
"Trust is an equitable obligation binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property) for the benefit of persons (who are called the beneficiaries of whom he may himself be one, and any one of whom may enforce the obligation."
Another well-known definition of trust is to be found in the Indian Trusts Act and it runs as follows :-
"A trust is an obligation annexed to the ownership of property, and arising out of a reposed in and accepted by the owner, or declared and accepted by him for the benefit of another or of another and the owner :
The person who reposes or declares the confidence is called the author of the trust : the person who accepts the confidence is called the trustee : the person for whose benefit the confidence is accepted is called the beneficiary : the subject matter of the trust is called trust property ortrust money : the beneficial interest or interest of the beneficiary is his right against the trustee as owner of the trust property : and the instrument if any, by which the trust is declared is called the instrument of trust."
It is true that there is no express reference to trust property in Section 11, but one who is familiar with the legal conception of a trust cannot fail to observe that the words used in Section 11 have a strong resemblance to those which are used in the two definitions. Trust maybe expressed or implied or constructive but the common feature of all trusts is that (1) there should be a person who has possession or custody of some property, (2) there should be a person or persons for whose benefit the property is held by the former, and (3) there must be an obligation annexed to the ownership of the property for the benefit of another or another and the owner. The person who is entitled to certain benefit in the property is described as a beneficiary. This will known legal expression has been defined in Whartons Law Lexicon as follows :-
"A person having the beneficial enjoyment of property of which a trustee executor etc. has the legal possession, in which sense it is gradually superseding the old term cestui que trust."
This is accepted legal sense in which the expression "beneficiary" is commonly used and I have no reason to think that it could have been intended to be used in an entirely different sense in this section. It is true that the explanation to the section purports to define the term "beneficiary" and states that the expression means "a person entitled to a portion of the agricultural income derived from the land." But this definition cannot be taken to be exhaustive or complete. The framers of the Act must be assumed to have known the accepted legal meaning of the expression and also known that the term "beneficiary" in law is not generally used with reference to a full legal owner but with reference to a person who has "beneficial interest" in some property which is usually in the possession and control of another person. The distinction between beneficial interest and legal ownership is one of the most notable features of a trust and in my judgment "beneficiaries" referred to in Section 11 are those persons who have merely beneficial interest in a property while the legal ownership of the property vests in a person or persons who hold the property for their benefit.
In the present case Mr. Picachy is merely an agent of the assessees and not the legal owner of the property, whereas every one of the assessees is the full legal owner of a distinct unit of property over which he has complete dominion. He is something more than a beneficiary, because he is not merely entitled to receive the income of the property but he can deal with in it any way he likes. He has also power to remove his agent whenever he likes and either take over the management of the property himself or appoint another agent to manage it. It is elementary that such a person is not a mere beneficiary of the property in the accepted sense of the term and as I have already observed I do not think that the accepted sense is excluded by the definition which is to be found in the explanation to Section 11 of the Act. Apart from its legal meaning even in ordinary use the expression "beneficiary" is seldom employed with reference to a full owner. In the Oxford Dictionary its meaning is stated to be "one who receives benefits or favours; a debtor to anothers bounty." Even according to this meaning a beneficiary would be a very different person from a full owner who has complete dominion over his property and whose right is not limited to mere enjoyment of a certain part of the income of the property. If follows that an owner cannot become a beneficiary merely by executing a power of attorney in favour of another person authorising him to manage his own property. Therefore my conclusions are (1) that the definition of "beneficiary" as given in the explanation to Section 11 must be held to be controlled by its accepted legal meaning, otherwise it will be too wide and will cover persons who could not have been intended to be dealt within that section, and (2) that the section could not have been intended to apply to income received by full owners of property through their servant or agent or manager.
Even if we assume for the purpose of this reference that Section 11 may be given the meaning which has been given to it by the Board, there would still be considerable difficulty, in my opinion, in applying it to the present case because of the fact that the word "land", which is used in Section 11 being singular, must be taken to apply to one unit of agricultural property and not to be a number of separate and independent properties. In the present case each assessee holds a separate share in the estate and each share forms an independent unit of agricultural property by itself. Therefore in law each assessee holds a different property. From this it must necessarily follow that Mr. Picachy is the holder of 15 different l properties (which we may refer to as properties A, B, C, D, etc.) belonging to 15 different persons. It is not disputed that the owner of each property, that is to say, each of the present assessees is entitled to the whole income of the property which is held by him that is to say, one assessee is entitled to the whole income derived from A; another assessee is entitled to the whole income derived from B and the next assessee is entitled to the whole income derived from C and so on. As each share forms a separate unit of property, none of the assessees is entitle merely to a portion of the agricultural income derived from that property and therefore in the present case the assessees do not come within the definition of the word "beneficiary" as given in the Section. That Section 11 will not be applicable to a case like the present may be illustrated by a more obvious example. Let us suppose that Mr. Picachy was appointed to manage a certain property on behalf of X in the district Patna; another property on behalf of Y in the district of Muzaffarpur and a third property on behalf of Z in the district of Darbhanga X, Y, and Z having nothing to do with each other and being separate owners of these properties. I do not think that in such a case the language of Section 11 would justify the assessment of the aggregate to agricultural incomes of these persons X, Y, and Z derived from the properties in three different districts merely because they happen to be managed by the same person. The difficulty in the way of such assessment will as I have already indicated, be created by the use of the word "land" will not apply to three different and independent estates belonging to three different persons in different parts of the province. X, Y, and Z would not be hit by Section 11 because they would be respective estates in Patna, Muzaffarpur and Darbhanga and would not therefore be included in the definition of "beneficiary" which means a person entitled to a portion of the agricultural income.
If Section 11 was not intended to apply to the case covered by the illustration, it could not have been intended to cover the present case because as I have already said, though by coincidence the assesses have become entitled to specific shares in the same estate yet each share constitutes a distinct unit of property and their case is not distinguishable in principle from that of a number of owners having different estates in different parts of the province.
I would, therefore, while recognising that Section 11 is somewhat clumsily drafted and therefore seems at first sight to be capable of being construed in the manner in which it has been construed by the Board hold that according to its true meaning it cannot be held to apply to the assessees concerned in this reference. I would therefore, upon the facts stated in the reference answer the question which has been referred to us in the negative.
When this reference was put up before us it was brought to our notice that the statement of the case which was submitted to us under Section 25(2) purported to have been signed only by the Secretary to the Board of Revenue. At that time we were constrained to point out that Section 25 of the Act clearly contemplated that the statement must be drawn up and referred to the High Court by the Board and not by someone representing the Board. We had to take notice of the sudden departure from the usual practice because it was the common feature of several references and in one case at least the statement which was submitted to the Court did not bear the signature of any person with the result that no one could say who had drawn up the statement. Fortunately the learned Advocate General realised that the statement was not in order and necessary corrections have been made. WE hope that in future the statements will be drawn up and submitted to this Court in conformity to the provisions of the Act under which the statements are to be submitted. The assessees are entitled to the costs of the reference which are assessed at Rs. 250 and they are also entitled to a refund of Rs. 100 deposited by them.
MANOHAR LALL, J. - I agree.
SINHA, J. - I agree with my lord, the Chief Justice.
Reference answered in the negative.