Income Tax Appellate Tribunal - Indore
Maharaja Bahadursingh Kasliwal vs Wealth-Tax Officer on 15 April, 1997
ORDER
1. These appeals by the assessee arise out of two common orders dated 4-9-1991 and 6-11-1991 of the CWT (Appeals), I, Indore, pertaining to the assessment years 1984-85 to 1989-90. Since common issue is involved in all these appeals, these were heard together and are being disposed of by this common order for the sake of convenience.
2. The common issue relates to the inclusion of the value of 1/6th share in Lady Kanchanbai Trust and Sir Hukumchand Trust in the net wealth of the assessee. Briefly stated, the assessee is an individual. He filed his returns of net wealth as under :
Assessment year Date of filing New wealth declared
the return
1984-85 30-9-1985 6,11,298
1985-86 31-12-1985 4,32,180
1986-87 31-3-1987 7,76,382
1987-88 30-7-1987 10,49,948
1988-89 29-7-1988 96,965
1989-90 4-10-1989 (-) 17,488
During the course of assessment proceedings of the aforesaid assessment years, the assessee vide his letter dated 5-1-1989 stated that he has made unequivocal declaration on 19-10-1964 by which he has thrown 1/6th interest in the trusts, namely, M/s. Shreemant Danvir Sir Hukumchand Trust (hereinafter referred to as 'Sir Hukumchand Trust') and Smt. Shoubhagya Danshila Lady Kanchanbai Trust (hereinafter referred to as 'Lady Kanchanbai Trust') in the common hotch-potch of his HUF w.e.f. 31-10-1959. In support thereof, copies of documents executed on 19-10-1964 were filed. It was contended before the Assessing Officer that the effect of the said declaration has never been considered from the angle of disposition of beneficiary interest in favour of HUF. The tax authorities and Court have interpreted the declaration in the context of intention of the Settler of the trust and have considered that the declaration did not change the intention of the Settler. It was contended that the declaration has not been considered with a view whether the beneficiary could dispose of his share in the manner he liked. It was further stated therein that as per section 58 of the Indian Trust Act, the beneficiary is competent to transfer or dispose of his interest subject to law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest. In view of the above and on the strength and effect of the declaration made by the assessee, it was submitted that the decision of the Supreme Court in CIT v. Maharaja Bahadur Singh [1986] 162 ITR 343/28 Taxman 560A rendered on 13-10-1986 is inapplicable to the assessee's case as the Hon'ble Supreme Court has also not considered this another effect of declaration. It was also stated therein that the decision (supra) of the Hon'ble Supreme Court pertained to assessment years 1962-63 and 1963-64. It was, thus, claimed that 1/6th interest in the corpus of the above two trusts belongs to his HUF and, therefore, be not included in his individual assessments for the assessment years in question. The submissions of the assessee did not find favour with the Assessing Officer. Relying on the decision in Maharaja Bahadur Singh (supra) and the decision of the Tribunal rendered on 10-2-1989 in ITO v. Jambukumar Singh Kasliwal, Indore [IT Appeal Nos. 106 to 108 (Indore) of 1985] in the case of the assessment years 1981-82 to 1983-84, he rejected the assessee's contention and included 1/6th share in the two trusts to the wealth of the assessee individual in all the assessment years as under :
Asstt. 1/6th share from 1/6th share in Date of Asstt.
year. Lady Kanchanbai Sir Hukumchand order u/s
Trust Trust 16(3)
--------- ---------------- ------------- -------------
1984-85 4,96,628 2,56,278 20-3-1989
1985-86 5,11,217 2,35,209 -do-
1986-87 4,91,307 1,93,373 4-1-1990
1987-89 6,09,874 2,90,062 15-3-1991
1988-89 6,28,810 1,12,314 -do-
1989-90 6,28,810 1,12,314 -do-
Dissatisfied, the assessee appealed.
3. Before the CIT (A), the assessee reiterated the same contentions. The assessee did not succeed for the following reasons recorded by the CWT (Appeals) :
(i) The declaration dated 19-10-1964 was with retrospective effect from 31-10-1959. Hence the same was applicable to the assessments for the assessment years 1962-63 and 1963-64 as decided by the Hon'ble Supreme Court against the assessee.
(ii) The effect of the Tribunal's decision dated 21-4-1987 in the assessee's case for the assessment years 1980-81 and 1981-82 in WTA Nos. 210 and 211/Ind/1986 is that the inclusion of 1/6th share in the above two trusts in the hands of the assessee in his individual capacity stands upheld.
(iii) Shri Jambukumar Singh Kasliwal is one of the beneficiaries of the two trusts along with the assessee and the decision of the Tribunal in the case of Jambukumar Singh Kasliwal for the assessment years 1981-82 to 1983-84 is also applicable, the facts being identical.
4. Interpreting clause (4) of the trust deed, the CWT (Appeals) further held that the assessee did not have absolute right in the beneficial interest and was, therefore, not competent to dispose of the same in the manner he liked at least till the due date of distribution of corpus. Feeling aggrieved, the assessee is before us.
5. Shri P.M. Choudhary, the ld. advocate for the assessee, submitted that during the course of assessment proceedings, the assessee had raised a plea that even after the decision of the Supreme Court reported in Maharaja Bahadur Singh's case (supra) the beneficial interest in the two trusts could not be brought to tax in the hands of the individual. The assessee had right to throw his beneficial interest in the two trusts in the common hotch-potch of the HUF and accordingly after 19-10-1964 i.e., the date of declaration, the beneficial interest in the two trusts became the property of HUF by virtue of unequivocal declaration. He stated that it was contended before the lower authorities that the merits of declaration qua assessee's right to make such declaration was never examined even upto the Supreme Court because the cases before the Supreme Court were much prior to the date of declaration and the declarations were referred to only for the purpose of inferring the intention of the author of the trust. Shri Choudhary vehemently argued that the assessee's plea regarding the prospective effect of declaration dated 19-10-1964 has been rejected merely on the ground that the issue is covered by Supreme Court decision as also the decision of the Tribunal dated 10-2-1989 in ITA Nos. 106 to 108/Ind/85. Nonetheless the revenue authorities have not challenged the merits of declaration and in particular the genuineness thereof. Hence, the position that emerges is that the declaration dated 19-10-1964 by which the assessee has thrown his beneficial interest in the two trusts in which he was beneficiary has the effect of impressing the character of the assessee's interest in the said trusts with that of the HUF by virtue of unequivocal declaration. As to the observations of the CWT (Appeals) regarding the competence of the assessee to make an unequivocal declaration, Shri Choudhary argued that the same are contrary to the provisions of section 58 of Indian Trust Act. Section 58 of Indian Trust Act provides that a beneficiary, if he is competent to contract, may transfer his interest so as to dispose of the same. In the instant case, the assessee was at the time of making declaration competent to contract and hence had a right to dispose of his interest in the manner he liked. He further submitted that the observations of the CWT (Appeal) are also contrary to the decision of the Supreme Court reported in Maharaja Bahadur Singh's case (supra), wherein the Hon'ble Supreme Court has finally held that the beneficial interest in the two trusts belongs to the assessee as individual as an absolute owner and if that be so the assessee was competent to deal with the same or dispose of the same in the manner he liked. He argued that a member of the HUF is always competent to impress his property with the character of HUF property. This he can do by making an unilateral and unequivocal declaration and when such a thing is done, it will be impressed with the character of HUF property. In support of this contention, he relied on the decision of Bombay High Court in CIT v. Gopaldas T. Agrawal [1979] 116 ITR 613. He pointed out that there is no contrary decision to that of the Bombay High Court. Referring to the decision of M.P. High Court in CIT v. Vrajlal Manilal & Co. [1981] 127 ITR 512, Shri Choudhary argued that the Tribunal and the income-tax authorities are bound by ruling of other High Courts also when there is no contrary decision of the jurisdictional High Court. He, therefore, argued that the revenue authorities were bound by the decision (supra) of Bombay High Court and could not take a view contrary to that taken by the Bombay High Court.
6. Shri Choudhary further argued that the principle regarding co-parcener right to throw his individual property to the HUF hotch-potch is well settled. In this connection, he referred to the following decisions :
(i) Addl. CIT v. Vidhya Sagar Hasija [1979] ITR 249 (MP);
(ii) Autoways (India) v. CIT [1976] 102 ITR 761 (Ori.); and,
(iii) CIT v. Ashok Kumar Jain [1993] 204 ITR 16 (Pat.).
7. On the strength of the above decision, Shri Choudhary argued that the assessee had a right to dispose of his beneficial interest in the two trusts and he, in fact, disposed of the same in favour of HUF by making an unequivocal declaration on 19-10-1964. The effect of declaration is that the beneficial interest gets impressed with the character of HUF property and needs no acceptance by HUF also. He, therefore, urged that the contention of the assessee deserves to be accepted.
8. Shri G.L. Verma, the ld. D.R., supported the orders of the authorities below :
9. We have considered the rival submissions, perused the orders of the authorities below as also the documents placed before us. We have also perused the decision cited by Mr. Choudhary, the ld. counsel for the assessee. The short questions for our consideration are these :
(i) Whether the plea raised by the assessee about throwing his beneficial interest arising out of the two trusts into the common hotch-potch of his HUF by virtue of declaration dated 19-10-1964 can justifiably be rejected on the ground that the matter is covered by the decision of the Supreme Court in the assessee's own case reported in 162 ITR 343 and that of the Tribunal in Jambukumarsingh Kasliwal's case (supra) rendered on 10-2-1989 for the assessment years 1981-82 to 1983-84;
(ii) whether the assessee was competent to throw his aforesaid beneficial interest into the common hotch-potch of his HUF by virtue of the declaration dated 19-10-1964; and
(iii) whether the revenue can examine the trust deed afresh while adjudicating the issue at (ii) above.
10. We have thoroughly perused the decision (supra) of the Apex Court. Their lordships noted these facts. Sir Hukumchand Seth was the Head of a well known family of Indore. Prior to March 31, 1950, Sir Hukumchand and the members of his family constituted an HUF. By a deed of partition dated March 31, 1950, various family properties were partitioned between Sir Hukumchand, his wife, Lady Kanchanbai and their son, Rajkumarsingh in equal shares. Sir Hukumchand and Lady Kanchanbai executed two trusts deeds on the same date March 21, 1952 purporting to constitute a trust of the properties respectively belonging to them. The trusts deeds contain identical terms and conditions. Under the terms of the trust, the beneficiaries were their son and their five grandsons. With the passage of time and in accordance with the terms and conditions of the trusts deeds, the beneficiaries came into possession of their respective shares of properties. Originally the income from those properties was returned by them for the purpose of their income-tax assessments in their individual status, but subsequently they began to assert that properties were received by them as the Kartas of their Hindu Undivided Families and that, therefore, the income was liable to be assessed in that status.
10.1. Their lordships further noted at page 349 of 162 ITR that the assessees filed a declaration dated 19-10-1994, that on and from Diwali, 1959, the income accruing to them as beneficiary from the two trusts deeds should be regarded as income belonging to their HUFs.
11. At the stage, it may be noted that the Apex Court was concerned with the assessment in the case of Maharaja Bahadur Singh's case (supra) for the assessment year 1962-63, Maharaja Bahadur Singh for the assessment year 1961-61 and Jambukumar Singh for the assessment years 1961-62 and 1962-63. While considering the effect of declaration dated 19-10-1964 vis-a-vis that above assessment years, the Tribunal had opined that the declaration dated 19-10-1964 cannot have retrospective effect as what the intention of the assessee or the Settler should be from 31-10-1959. The Hon'ble Court of M.P. also concurred with the view interpreted for the purpose of ascertaining the intention of the Settlors and the subsequent declaration by the beneficiaries will not be relevant for such interpretation. On construing the relevant terms of the trust deeds and applying the tests laid down by their lordships of the Supreme Court in certain cases the Hon'ble High Court held that the beneficiaries under the two trusts deeds got the benefit not in their individual capacity but in their capacity as Manager of the respective branch consisting of wife, sons and daughters. Hence, the tax authorities were in error in assessing them in their individual capacity. They should have been taxed in the capacity of Manager of the Joint Hindu Family representing their own branch.
12. When the matter came up for consideration before the Hon'ble Supreme Court, the Court addressed itself to the question whether upon the terms and conditions of the two trusts deeds, it was intended by the Settlors that the beneficiaries should receive the properties in their individual capacity or in representative capacity as Karta of their respective HUFs. The Hon'ble Supreme Court observed that the High Court and Tribunal have rightly held that subsequent declaration can be of no moment for deciding whether the income belonged to the individual or their HUFs. It is settled law that the question has to be resolved upon the contents of the trusts deeds, their terms and conditions being free from ambiguities. On construction of the two trusts deeds couched in identical terms, their lordships held that the properties were intended to devolve on the beneficiaries in their individual capacity, after making following observations :
"Even if the matter be looked at in the context of the Hindu law as it obtained at the relevant time, the terms and conditions of the trust deeds are wholly inconsistent with the property passing into the hands of the beneficiaries as Kartas of their respective Hindu undivided families. There is clear indication in the trust deeds which bears this out. In the first place, had it been intended that the beneficiary should receive the property as karta of his Hindu undivided family, the document would not have empowered the trustees, in clause 1, to exercise an absolute and uncontrolled discretion on the death of a beneficiary to apply his share to the maintenance of his widow and his male issue and to accumulate the surplus to the account of the said beneficiary for distribution. On the contrary, the trustees would have been under an obligation to entrust the income falling to the share of the deceased beneficiary to the members of his Hindu undivided family and no discretion would have been permissible in regard to the disposal or otherwise of any part thereof. Secondly, the document would not have provided that if before the time of division and distribution, a beneficiary dies leaving only a widow the said widow would get a half of the share belonging to the deceased beneficiary while the other half would be liable to distribution among the remaining beneficiaries and the heirs of other deceased beneficiaries. These two conditions are sufficient in themselves to lead to the conclusion that it was never intended that the properties should pass to the beneficiaries to be held by them for their respective Hindu undivided families. On the plain terms of the trust deeds, the properties were intended to devolve on the beneficiaries in their individual capacity.
It is contended by learned counsel for the assessee that the settlors intended under the two trust deeds to protect the grandsons and the scheme incorporated in the trust deeds must be regarded as akin to a family settlement. We are unable to agree. The interest of the grandsons has been sufficiently protected by the terms and conditions of the trust deeds, and in order to safeguard that interest, it is not necessary to conclude that the properties were intended to go to the beneficiaries as kartas of the Hindu undivided families. The grandsons themselves were beneficiaries and on the division and distribution of the properties, they would have full power to deal with them according to their will and discretion. It is only where a beneficiary dies before the division and distribution of the properties without leaving a widow or sons that the trustees are empowered to intervene and direct, subject to providing for the maintenance, education and marriage of the deceased beneficiary's daughters, that the share of such beneficiary be divided among the remaining beneficiaries and the heirs of the deceased beneficiaries."
13. From the decision (supra) it is crystal clear that it had become well established that whether interest of beneficiary under a trust is held for individual or for his HUF depends on the terms of the trust deed and in the absence of clarity, the question has to be decided on the intention of the Settler and construction of the document. In the case of Maharaja Bahadur Singh (supra) the two trusts in question were created in the year 1952 and on construction of the two trusts deeds the Hon'ble Supreme Court held that the properties were intended to devolve on the beneficiaries in their individual capacity irrespective of the unequivocal declaration dated 19-10-1964. The stand of the assessee taken in these proceedings is that by virtue of the declaration dated 19-10-1964, they have thrown their beneficiary interest into the hotch-potch of their respective HUFs. and this issue whether they could legally do so or not has not been considered and decided by the Hon'ble Supreme Court in Maharaja Bahadur Singh's case (supra). To our mind, this stand of the assessee appears to be correct.
14. We have gone through minutely the decision of the Tribunal dated 10-2-1989 in Jambukumar Singh Kasliwal's case (supra). In that case, the assessee had sought to introduce additional evidence in the form of copy of declaration dated 19-10-1964 before the Tribunal and raised the plea that by the said declaration, the assessee threw the income from the two trusts into the hotch-potch of his HUF and that the income should be assessed in the hands of the HUF of the assessee. The Tribunal declined to admit the said additional evidence and observed that the plea raised before the Tribunal was considered by the Hon'ble Supreme Court but was not accepted in 1961-62 and 1962-63 and on the basis of the same declaration it is difficult to accept for the subsequent years that the property was thrown into the common hotch-potch. With utmost respect, we are unable to agree to the above observation. As stated earlier, the Hon'ble Supreme Court in Maharaja Bahadursingh's case (supra) have given their verdict on construction of the two trust deeds that the beneficiary interest of the assessee belonged to him in his individual capacity, as it was intended by the Settlers that the beneficiaries should receive the properties in their individual capacity. The issue of throwing of beneficiary interest by the assessee into the common hotch-potch of their respective HUFs. was not the issue to which the Hon'ble Supreme Court had addressed itself in Maharaja Bahadursingh's case (supra) for consideration. We are, therefore, of the considered view that the authorities below erred in holding that the plea taken before them in these proceedings under consideration could not be considered, the issue being covered by the decisions (supra).
15. The assessee has made an unequivocal declaration on 19-10-1964 whereby he has thrown his beneficiary interest accrued from two trusts to the common hotch-potch of his HUF. Though this declaration was placed before the Hon'ble Supreme Court while deciding the appeal in the assessee's case, the genuineness and the veracity of the declaration was not examined by the Hon'ble Supreme Court. Their Lordships have simply ignored this declaration on the premise that this declaration did not have retrospective effect and as such it was not relevant for the assessment years 1961-62 and 1962-63. This declaration was again filed before the Tribunal as additional evidence during the pendency of the appeal for the assessment years 1981-84, to 1983-84, but this declaration was not again examined by the Tribunal on account of non-admission of the additional evidence. Even this declaration was not examined by the Assessing Officer during the course of assessment and the Assessing Officer has rejected the claim of the assessee on the ground that the issue is squarely convered by the judgment of the Apex Court and the Tribunal order for the assessment years 1981-82 to 1983-84 in the case of Jambukumar Singh Kasliwal (supra). This declaration has, however, been examined by the CIT (A). Since the powers of the CIT (A) are coterminus with that of the Assessing Officer, he is competent enough to examine the veracity of the declarations and the competency of its executor. The CIT (A) has examined the declaration vis-a-vis the deed trust and came to the conclusion that the assessee did not have the absolute right in the beneficial interest and, hence, was not competent to dispose of the same in the manner he liked till the due date of distribution of corpus. Shri Choudhary, the ld. counsel for the assessee, has raised strong objection that since the trust deeds have been duly interpreted by the Hon'ble Supreme Court, the CIT (A) is not empowered to examine the trust deeds afresh and to conclude that the assessee did not have absolute right in the beneficial interest. The argument of Shri Choudhary is that being a coparcener of the joint Hindu undivided family, the assessee is competent to throw his beneficial interest in the common hotch-potch of the HUF by making an unequivocal declaration. We may agree to the above arguments of Shri Choudhary in view of the judgment of Bombay High Court in the case of Gopaldas T. Agrawal (supra) that a member of the HUF is always competent to impress his separate property with the character of the HUF property but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest. For that purpose it has got to be examined how much beneficial interest, the assessee has acquired from the trusts and whether he is competent to make a declaration or not. These facts cannot be ascertained without examining the trust deeds. Section 58 of the Trust Act provides that the beneficiary if competent to contract may transfer his interest under a trust, but subject to the law for the time being in force, as to the circumstances or extent in or to which he may dispose of such interest. The Hon'ble Apex Court has interpreted the trusts deeds only on the premise whether the beneficial interests are enjoyed by the assessee in his individual capacity or by the HUF of the assessee. Their Lordships did not express any opinion on the subject that how much and to which extent the beneficial interest in the trust(s) will be acquired by the assessee in his individual capacity. To examine this aspect, it is necessary for the revenue to look into the trust deeds afresh. We are, therefore, of the view that the CIT (A) who is armed with the co-terminous power, has rightly examined the trust deeds and there is no illegality involved in it.
16. In the trust deeds the Settlors had settled the manner in which the beneficial interest in the trust would be enjoyed for the benefit of the beneficiaries, his wife and children, etc. in various clauses of the trust deed. In clause 4 they had settled :
"that upon the youngest of the said beneficiaries attaining the age of 30 years the Trustees shall divide and distribute the trust properties together with the accumulated interest and income thereof if any among the said beneficiaries if all of them be alive according to their respective rights and shares as defined by these presents, i.e., equally and in making the said division the Trustees shall take into consideration the amount due by the beneficiary or beneficiaries to the trustees by way of loan or advance made to the beneficiary or beneficiaries under the proviso herein before contained or the share of the corpus paid or made over to the beneficiary or beneficiaries under the said provisions and the trustees shall deduct that the same out of the share of the beneficiary concerned PROVIDED that if any of the said beneficiaries shall have died before the time or period of the said division and distribution of the trust properties aforesaid leaving a widow and any son or sons or only a son or sons the said widow and/or son and/or sons shall take by substitution the share which the said beneficiary would have taken if he had been then alive and that such share shall be divided equally between the said widow and/or son and/or sons, PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that if at the time of the said division and distribution of the trust properties any of the said beneficiaries shall have died without leaving any son but leaving only a widow the said widow shall get a half of the share of the said beneficiary while the other half shall be distributed among the remaining beneficiaries and/or the heirs of the beneficiaries entitled to distribution under this clause PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that it at the time of the said division and distribution of the trust properties any of the said beneficiaries shall have died without leaving a widow for or a son, the share of the said beneficiary shall, subject to such adequate provision being made for the maintenance and education till marriage and marriage expenses of the daughter or daughters of the said beneficiary as the trustees may in their discretion think fit, be distributed among the remaining beneficiaries and/or the heirs of the beneficiaries entitled to distribution under this clause."
17. While interpreting the trust deeds their lordships of the Supreme Court in the assessee's case observed that the interest of the grandsons has been sufficiently protected by the terms and conditions of the trust deed and in order to safeguard his interest, it is not necessary to conclude that the properties were intended to go to the beneficiary as karta of the HUF. The grandsons themselves were beneficiaries and on the division and distribution of the properties, they would have full power to deal with them according to their will and discretion. It is only where a beneficiary dies before the division and distribution of the properties without leaving a widow or sons that the trustees are empowered to intervene and direct, subject to providing for the maintenance, education and marriage of the deceased beneficiary's daughter(s) that the share of such beneficiary be divided among the remaining beneficiaries and heirs of the deceased beneficiaries. From a careful perusal of the aforesaid clause of the trust deeds and the observations of the Hon'ble Supreme Court, it appears to us that the settlors of the trust intended to give beneficial interest in the trust to the assessee in the individual capacity with a limited right. They protected beneficial interest of the grandsons and the wives of the beneficiaries etc. We have carefully perused the judgments placed by the assessee with regard to the powers of the member of the HUF in impressing the beneficial interest of the trust with the character of the HUF property but all these judgments and section 58 of the Trust Act provide that the beneficiary if competent to contract may transfer his interest under the trust, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of this interest. If the beneficiary does not have the absolute right in the beneficial interest, he is not competent to impress his separate property with the character of the HUF property by making an unequivocal declaration. The facts of the instant case suggest that at least till the due date of distribution of the corpus, none of the beneficiaries could dispose of their share as in the eventuality of any beneficiary dying before the due date of distribution of corpus, the widow and children of such beneficiary had been granted benefit of the interest in that trust. Whereas the assessee has sought to transfer such interest much earlier into the common hotch-potch of the HUF which is detrimental to the interest of other beneficiary whose interest the settlor intended to protect. Therefore, it is abundantly clear that the assessee did not have an absolute right in the beneficial interest and as such he was not competent to throw his beneficial interest into the common hotch-potch of the HUF by making unequivocal declaration till the due date of distribution of the corpus. In the light of these observations, we find ourselves in agreement with the CIT(A) and, accordingly, we uphold his order and dismiss the appeal of the assessee.
18. In the result, the appeals of the assessee are dismissed.