Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs Vijaya Family Trust And Ors. on 30 March, 1995
Equivalent citations: 1995(2)ALT774, [1995]215ITR939(AP)
Author: Syed Shah Mohammed Quadri
Bench: S.S. Mohammed Quadri
JUDGMENT Syed Shah Mohammed Quadri, J.
1. Out of the six appeals relating to three trusts, viz., Vijaya Family Trust, Kakinada, Uday Family Trust, Kakinada and Sowmya Family Trust, Kakinada, the above reference arises. The facts in all these cases are identical. For appreciating the question involved, we refer to the facts in Vijaya Family Trust.
2. One, G. Narayana Murthy, created a trust and appointed Sri K. Saradhy as a trustee. The beneficiaries of the trust are the children of the said Saradhy. The trust was created with a corpus of Rs. 10,000 with a provision that all further additions to the trust and all income arising thereof would also constitute the corpus. Some 11 persons made cash gifts of Rs. 2,29,000. The trustee accepted the amounts and treated them as part and parcel of the trust property and, accordingly, invested them.
3. For the assessment year 1980-81 in so far as the Sowmya Family Trust is concerned and for the assessment year 1981-82 in respect of the other two trusts, the Income-tax Officer accepted the returns filed showing an income of Rs. 16,370. However, the Commissioner of Income-tax took the view that the gifts made by the 11 persons would constitute an oral trust and, therefore, the income was liable to be assessed at the maximum rate. On appeal, the Tribunal held that there was no oral trust. It opined that these gifts were part of the corpus of the trust itself. It is, on those facts, that under section 256(1) of the Income-tax Act, the following question was referred at the instance of the Revenue :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the gifts received by the trustees are not oral trusts and further the provisions contained in Explanation (ii) to section 164A are not applicable ?"
4. Sri S. R. Ashok, learned standing counsel for the Revenue, strenuously contends that as the gift could not be made to the trust, which is only a private trust, receipt of the amounts by the trustees constitutes "oral trust" within the meaning of Explanation 2 to sub-section (1) of section 160 of the Income-tax Act.
5. The dispute in this case relates to the rate of tax applicable to the income of the trust. The contention of the Revenue was that Explanation (ii) to section 164A was applicable and, therefore, the income was chargeable at the maximum marginal rate. We shall read here section 164A of the Income-tax Act, which is in the following terms :
"Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate.
Explanation. - For the purposes of this section, -....
(ii) 'oral trust' shall have the meaning assigned to it in Explanation 2 below sub-section (1) of section 160."
6. From a perusal of the above provisions, it is evident that where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be chargeable on the income of the trust at the maximum rate. For the purpose of this section "oral trust" shall have the same meaning as contained in Explanation (2) below sub-section (1) of section 160. The said Explanation runs as follows :
"For the purposes of clause (v), 'oral trust' means a trust which is not declared by a duly executed instrument in writing (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)), and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing."
7. The definition of "oral trust" given in the above extracted Explanation would apply :
(1) if the trust is not declared by a duly executed instrument in writing, which includes any wakf deed under the Mussalman Wakf Validating Act, 1913; and (2) the trust is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing.
Explanation 1 deals with a trust which is not declared by a duly executed instrument in writing, which also includes a wakf deed valid under the Mussalman Wakf Validating Act, 1913, and is declared by a duly executed instrument in writing forwarded to the Assessing Officer by the trustees setting out the purpose or purposes of the trust as to the beneficiary or beneficiaries and the trust property.
8. These questions appropriately arise in cases where there are two trusts. We are not concerned here as to whether the second trust, if any, is an "oral trust" or not. The germane question is whether the act of gifting the cash to the trustees of the existing trust which is duly constituted under the executed trust deed, would amount to creation of a fresh oral trust. We can usefully rely upon the observation of the Supreme Court in this context in Sardar Bahadur S. Indra Singh Trust v. CIT . There, donations were made to an existing trust by one Ajaib Singh. Those donations were accepted by the trustees. The Calcutta High Court in CIT v. Sardar Bahadur Indra Singh Trust took the view that the acceptance of the gift was not authorised and, therefore, the gifts did not have effect of augmenting the assessee-trust. Disagreeing with the opinion expressed by the High Court, the Supreme Court observed as follows (at page 565) :
"It is somewhat difficult to follow the reasoning adopted by the learned judges of the High Court. Either the gift made by Ajaib Singh and accepted by the trustees was a valid gift or it was not a valid gift. If it was a valid gift, the shares gifted became the property of the trust. If it was not a valid gift, the shares still continued to be the property of Ajaib Singh. It is nobody's case that there was a trust within a trust. No such trust is put forward either by the Department or pleaded by the assessee. The existence of a trust is a fact and not a fiction. We fail to see how the learned judges were able to come to the conclusion that Ajaib Singh while gifting the shares created one more trust without any writing and without any objective and appointed the trustees of the assessee-trust to be the trustees of the new trust as well. These assumptions have no basis either in fact or in law."
9. In the present case, the finding of the Tribunal is that the trust deed authorised receipt of gifts by the trustee. Indeed, the gifts were received and accepted by the trustee. The question also suggests that the gifts were received by the trustee. In view of this finding, the conclusion is some- what irresistible that the amounts received under the gifts would be accretions to the trust. Inasmuch as we came to the conclusion that there was no second trust, the question of there being a second oral trust does not arise.
10. In this view of the matter, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.