Income Tax Appellate Tribunal - Hyderabad
Sitaratnam Family Trust vs Income-Tax Officer on 27 February, 1987
Equivalent citations: [1987]22ITD117(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. Common points are involved in all these three appeals. These were heard together. The point at issue in all these appeals is firstly whether the amounts made over to the trustees amount to oral trust and whether maximum marginal rate is to be applied to the income derived from out of the oral trust funds.
2. The pattern on which the trusts were created and the subsequent gifts were made in favour of those trusts were similar in all these cases and therefore it is enough if we consider one of the trust deeds out of the three trust deeds which are before us.
3. In IT Appeal No. 1277 (Hyd.) 1983 we are concerned with K.V.R. Family Trust, Kakinada. Copy of the trust deed is furnished from pages 1 to 22 of the first paper book filed on behalf of the assessee. One Smt. Chundru Bulliammai alias Sathomma wife of Sri Venkanna, belonging to Machavaram village, Ramachandra-puram Taluk was the settlor and the author of the trust She settled a sum of Rs. 10,000 for the benefit of Sri K. Veerraju Choudhary son of Sri Narayanamurthy of Kakinda. The appointed trustee is one Smt. Kantipudi Sitaratnam wife of Sri Veerraju Choudary of Kakinada. That means the trustee is none other than the wife of the beneficiary. According to Clause 4 of trust deed the trust moneys can be invested in shares, stocks, securities and other investments in business, purchase of properties and the income thereof together with the trust fund should be aggregated or accumulated for a period of 10 years and after the expiry of 10 years from the date of trust deed the income of the trust fund will be applied for the benefit of the beneficiary. The accumulation shall not exceed the period of 10 years or the death of the settlor whichever is longer. Before the expiration of the period of determination of trust if the beneficiary dies then the heirs of the beneficiary or beneficiaries other than the settlor shall be treated as equal beneficiary under the trust. Even in such a case the income of the trust be accumulated and should not be applied for any beneficiary or beneficiaries and thereafter i.e. after the expiration of the trust period the same shall be handed over to the beneficiary. Under clause 6 the trust was stated to be irrevocable and no part of the trust fund shall be paid or applied for the benefit of the settlor. Clause 7 releases the trustee from the obligation to invest the trust moneys only in the recognised investments but allows her to invest the moneys in purchase of immovable properties or in development thereof, in purchase of stocks, funds, shares and securities of any company or corporation, in making loans or deposits with any person, firm, company or corporation, in purchase of any movable property etc. Clauses 3 and 4 of the trust deed signify what the trust fund should consist of. Clause 3 states that the trust funds are consisted of not only the sum settled viz., Rs. 10,000 but all additions to the trust fund and all income arising thereof upon the trust. Clause 4 appears to be more specific and the relevant portion reads as follows :
It is hereby agreed and declared bet1ween the parties to these presents that the Trustee shall stand and be possessed the said sum of Rs. 10,000 (Rupees Ten thousand only) and which sum such shares, stocks and securities and other investments, business, properties and funds which may under the Trust of these presents, be submitted or added in the execution of the said Trust, hereinafter designated as the Trust Fund.
The trust deed is dated 1-10-1980. It was a registered deed. After the execution of the trust deed 16 more persons settled various amounts in favour of the KVR Family Trust. S. No., name of the donor, date of settlement, amounts settled, whether gift-tax proceedings are over, if so, on what date, were all furnished in the table below:
Sl. Name of the Date G.T. Return
No. donor and address date Amount
Rs.
1. T. Ramakrishna, Kakinada 1-10-1980 20-4-1981 15,000
2. K. Sita Mahalakshmi 2-10-1980 23-4-1981 7,500
3. B.V. Subba Rao 3-10-1980 23-4-1981 7,000
4. Ch. Gopalam 3-10-1980 20-4-1981 9,000
5. J. Vasanta Rayudu Kakinada 5-10-1980 23-4-1981 9,500
6. D. Ramakrishna 5-10-1980 23-4-1981 36,000
7. K. Subbamma 7-10-1980 not known 9,500
8. K. Pullayya alias
Tatarao 7-10-1980 23-4-1981 7,500
9. V. Veerayya 8-10-1980 24-4-1981 10,000
10. N. Venkataramayya 8-10-1980 23-4-1981 16,000
Chowdary
11. K.M. Veerraju 8-10-1980 24-4-1981 20,000
12. V. Ammi Reddi 9-10-1980 23-4-1981 15,000
13. N. Maheswara Rao 16-10-1980 23-4-1981 15,000
14. V. Satyanarayana
Murthy 5-11-1980 20-4-1981 11,000
15. K. Veeraju Chowdary 11-11-1980 20-4-1981 60,000
16. G. Satyavathi 7-10-1980 25-4-1981 5,000
2,63,000
4. In I.T.A. No. 1276 (Hyd.) 1983 the settlement deed is dated 23-1-1981. The settlor is one Sri Teledevara Pattabhiramayya, son of Late Sri Subba Rao, 48 years, Kakinada. The sole trustee appointed was Smt. Manorama wife of Sri Srihari Rao, aged 28 years, resident of Kakinada. The settled amount was Rs. 5,000 for the benefit of Sri Ch. Srihari Rao son of Sri Venkanna. The trust was created under the deed named Srihari Family Trust. As in the above case under Clause 3 the trust fund was contemplated to comprise of not only the settled amount of Rs. 5,000 but also all the additions made to the trust fund and all income arising thereof to the trust. After incurring the costs and expenses for the administration of the trust and also after paying income-tax, wealth-tax and other taxes from the trust the trustee shall accumulate the residue of such annual or other income without application for the benefit of the beneficiary till the beneficiary under the trust completes 15 years from the date of the trust and the income during the said 15 years will be added year to year to the corpus of the trust and after the completion of 15 years the income of the trust fund will be applied to the benefit of beneficiaries and the trust fund also shall be handed over to the beneficiary. In no case the period of 15 years should be extended. If during the 15 years' time the sole beneficiary happens to die then his son should be treated as his sole alternate beneficiary. The trustee is entitled to carry on the business and is free to invest all moneys which shall require for investment in any manner she may think proper without being obliged to invest the same in the investments permitted by law for the investment of trust fund. If the sole trustee dies during the tenure of the trust then Sri Kantipudi Veeraju Choudary son of Late Narayana Murthy of Kakinada is authorised to act as sole trustee in the place of Smt. Chundru Manorama. The trustee shall not directly or indirectly pay to or apply from the benefit of beneficiary any income of the trust or any asset or the fund of the trust till the beneficiary completes 15 years from the date of the settlement deed and till then the income or the trust fund shall be accumulated or added to the trust fund. In all other respects the trust deed contains similar clauses as were found contained in the first mentioned deed. After the execution of the trust deed just like in the first mentioned case 10 persons settled various amounts on various dates on Srihari Family Trust. The names of the donors, date when they made the settlement, amount of gift, date of G.T. return and the date of gift-tax assessment, if any, made are all furnished in the table below :
Sl. Name of the Date Date of
No. donor and address G.T. Return Amount
Rs.
1. Yeleti Peda Veeraju
Peddapuram 18-2-1981 21-4-1981 20,000
2. Yeleti Venkatarao
Peddapuram 18.2-1981 21-4-1981 18,000
3. Kongara Narayanarao
Jaggampeta 20-2-1981 21-4-1981 10,000
4. Bikkani Krishnamurty
Samalkot 20-2-1981 28-4-1981 8,500
5. Yarlagadda Raghavulu
Jaggampeta 20-2-1981 21-4-1981 15,000
6. Kantipudi Satyanarayana-
murthy, Kakinada 22-2-1981 23-4-1981 16,000
7. Pynni Suryakantam 18-2-1981 12,000
8. Pynni Ravindranath 29-2-1981 16,000
9. Pynni Gangadharam 19-2-1981 17,000
10. Palacherla Govindarao 22-2-1981 13,000
1,45,500
In ITA No. 1275 (Hyd.) 1983 we are concerned with Sitaratnam Family Trust evidenced by a registered deed dated 25-2-1981. The settlor was one Sri Yelati Subbarao, son of Sri Dhanayya of Kakinada and the sole trustee was one Smt. Kantipudi Sitaratnam. wife of Sri Veeraju Chowdary. The settled amount was Rs. 5,000 and the beneficiaries were said to be the children of Kanthipudi Saradhi son of Sri Veeraju Chowdary. It is stated in Clause 3 that by the date of the trust deed Sri K. Saradhi was having only one son viz., Vijay. If he does not beget any other child or children during the tenure of the trust then the said Vijay shall be the sole beneficiary. However, if during the tenure of the trust if Sri Saradhi begets a child or children all his children would become beneficiaries in the trust fund as and from their respective dates of their birth and they should also be treated as beneficiaries under the trust deed having equal shares in the trust fund. If during the tenure of the trust any beneficiary dies, the interest of other beneficiaries get enhanced to the extent of the share of the deceased beneficiary. The settled amount was Rs. 5,000. Under Clause 5 the settlor contemplates that the trust fund comprises of not only the amount settled by him but also all the additions made to the trust fund and all income arising thereof upon the trust. In all other respects this trust deed contains clauses similar to first and second trust deeds already extracted above. Eleven persons whose names and other particulars are furnished in the table below settled various amounts totalling to Rs. 1,81,000 on the Seetharatnam Family Trust.
Sl. Name of the Date Date of
No. donor and address G.T. Return Amount
Rs.
1. K. Pullayya alias Tatarao,
Kakinada 1-3-1981 23-4-1981 20,000
2. Chundru Ammannachoudary,
Kakinada 2-3-1981 23-4-1981 10,000
3. M. Subbarayudu 2-3-1981 20-4-1981 10,000
4. Remella Gangadhara Rao,
Kakinada 2-3-1981 20-4-1981 25,000
5. Vundavalli Krishnamurthy,
Rangampeta 2-3-1981 20-4-1981 20,000
6. V. Subbarao, Rangampeta 2-3-1981 20-4-1981 20,000
7. Manyam Veera Venkata
Satyanarayana Murthy,
Kakinada 16-3-1981 23-4-1981 17,000
8. Manyam Venkata
Satyaprasad Babu 17-3-1981 20-4-1981 10,000
9. Smt. M.V.S. Bhavani 17-3-1981 20-4-1981 10,000
10. Sunkavalli Veerraju,
Vadlamuru 17-3-1981 20-4-1981 22,000
11. Goli Pardhasaradhi Rao,
Vadlamuru 17-3-1981 20-4-1981 20,000
1,84,000
6. The assessment against Sitaratnam Family Trust for assessment year 1981-82 was completed by the Income-tax Officer on 14-8-1981 under Section 143(3). So also, the assessment against Srihari Family Trust for assessment year 1981-82 was completed on 13-8-1981 under Section 143(3). Similarly the assessment on KVR Family Trust for assessment year 1981-82 was completed on 14-8-1981 for assessment year 1981-82 under Section 143(3). According to the learned CIT, Visakhapatnam who had revised the orders of the Income-tax Officer stating that they are erroneous and prejudicial to the interests of revenue firstly held in the case of Sitaratnam Family Trust that the income-tax is chargeable on income of the trust at the maximum marginal rate. Secondly he held that if 12 other persons who have gifted amounts to the extent of Rs. 1,81,000 wanted to entrust the amounts gifted by them to the trustees with the same trust and intended them to be spent for the same purposes for which the original trust is created then they ought to have executed separate trust deeds. Even if it is assumed that in making the gifts with the trustees their intention was to create a trust in favour of the beneficiaries on the same terms and conditions as are contained in the trust deed then also it will amount to creation of oral trust within the meaning of Explanation 2 to Section 164A. A combined reading of Section 160(1) Explanations 1 and 2 thereunder would clearly show that if a trust is not declared by a duly constituted instrument in writing it amounts to an oral trust and when once it is an oral trust Section 164A ordains that tax must be collected at the maximum marginal rate. According to him the Income-tax Officer while making assessment for 1981-82 did not keep these aspects in mind but instead he had charged the assessees' income at normal rates. The learned Commissioner considered the objections filed on behalf of the assessees and heard also the counsels representing them and passed the three impugned orders dated 10-8-1983 as against which these appeals are filed before us and thus they stand for consideration before us.
7. In Seetharatnam Family Trust the learned Commissioner held after considering the terms and conditions of the Trust deed as follows :
Thus, the amount of income to be received by the beneficiary will be varying depending upon the number of beneficiaries that may be available at the time of completion of the period of 15 years. During each accounting year when the income accrues in favour of beneficiary it cannot be said that it accrues in favour of any particular beneficiary nor it can be said that that particular beneficiary is entitled either to entire or a particular portion of such an income...As the persons in whose favour such income is receivable are not known or identifiable on the date of the creation of the trust it has to be held that the income is not specifically receivable on behalf of one person and the shares of each beneficiary are indeterminate. Accordingly the income of the trust has to be charged at the maximum marginal rate.
8. Firstly we have to see whether this objection raised on behalf of the revenue is tenable. According to us it is not tenable. Firstly we must point out that the settlor had named the existing son of Sri Saradhi viz., Vijay as the beneficiary and it is further stated in the trust deed that if Vijay happens to beget more children then those children also become the beneficiaries under the trust. Who are the children of Saradhi can easily be found out and we hold that they are an identifiable class. In CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 at page 557 in the head-note the following ratio was propounded by the Hon'ble Supreme Court:
It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of Sub-section (1) of Section 21. The position has to be seen on the relevant valuation date as if the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinate shares, Sub-section (1) of Section 21 must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being.
In view of the above ratio of the Hon'ble Supreme Court it is clear that we have to determine who are all the beneficiaries at the end of previous assessment year. If on that date the beneficiaries are ascertainable with certainty then Section 160(1)(iii) applies. In Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra) their Lordships of the Supreme Court extracted the relevant Andhra Pradesh High Court decision rendered in the case. That decision was rendered by Justice Chinnappa Reddy. At page 573 of the reported judgment Justice Chinnappa Reddy whose decision was upheld ultimately by the Hon'ble Supreme Court followed the Calcutta High Court decision in Suhashini Karuri v. WTO [1962] 46 ITR 953. The facts of that case are as follows. One Nandalal Karuri by his will created a trust appointing his wife and his eldest son as trustees. The income from trust estate, after defraying certain expenses, was to be divided in equal shares between his sons and in the event of the death of any of these sons his share was to be divided amongst his sons. The trust was to come to an end when all the sons and grandsons die. The sons of the grandsons would then deal with the property as they thought best. It was argued for the department that the number of beneficiaries was not known because a son might die leaving several grandsons and, therefore, the shares of persons on whose behalf the assets were held were indeterminate or unknown. The Calcutta High Court did not accept this contention. But it was observed at pages 963, 965, as follows:
The share of the beneficiary can be said to be indeterminate, if at the relevant time the share cannot be determined. Merely because the number of beneficiaries varies from time to time one cannot say that it is indeterminate....Now in the present case there seems to be no difficulty in determining the shares of the beneficiaries during the relevant account period. The will clearly lays down as to who would be entitled to the income and it is a mere matter of calculation as to how many sons or grandsons were in existence at the relevant date and to calculate according to their respective shares, as provided under the testamentary trust.
The learned Judge also followed the ratio of the Gujarat High Court decision in Padmavati Jaykrishna Trust v. CWT [1966] 61 ITR 66. The judgment of the Calcutta High Court quoted above was also followed in other cases. In Khan Bahadur M. Habibur Rahman v. CIT [1945] 13 ITR 189 (Pat.) and CWT v. Puthiya Ponmanichintakam Wakf [1967] 63 ITR 787 (Ker.) the Hon'ble High Court of Gujarat in Padmavati Jaykrishna Trust's case (supra) at page 80 of the reported decision as follows:
These decisions are clear authorities for the proposition that in determining whether the shares of beneficiaries are determinate and known, so that assessment should be made under subsection (1) of Section 41 of the Income-tax Act, what the revenue authorities have to see is whether such shares are known and specific during the accounting period. If these facts are known Sub-section (1) and not the first proviso would apply and it does not matter that the number of beneficiaries might vary in future. Tax being leviable with reference to the income of the year of account, the crucial fact is not what is the general position but what is the position during the year of account. If during that year the number of beneficiaries is known and specific and their shares in the income are capable of determination, it would be sufficient and Sub-section (1) of Section 41 would apply and the exceptions laid down in the first proviso thereof would not apply. The language used in Sub-sections (1) and (4) of Section 21 being similar to that in sub-section (1) of Section 41 and the first proviso thereof, there is no reason why the same interpretation should not apply to the provisions of Sub-sections (1) and (4) of the Wealth-tax Act.
Having regard to all the authorities quoted above and having regard to the fact that the judgment of the Andhra Pradesh High Court was confirmed by the Hon'ble Supreme Court in Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra) we are of the view that the finding of the learned Commissioner that because at the end of the period of 15 years, which is the period of accumulation set out in the relevant trust deed the beneficiaries are unknown, it should be held to be a non-specified trust, is an erroneous view which has no basis. We are only concerned to determine the beneficiaries at the end of each previous year if at the end of the relevant previous year the beneficiaries are determinate and identifiable then the trust should be held to be a specified trust. Under the circumstances we hold that Sitaratnam Family Trust is a specified trust and not an unspecified trust as held by the Commissioner.
9. The next contentions point which requires our determination is that according to the Commissioner the various persons who have made various gifts to the three trusts and whose names and particulars were mentioned in the three tables given in this order should be deemed to have been made oral gifts and they all come under the Explanation 2 to Section 160(1). Section 160(1) Clause (iv) and (v) and Explanations 1 and 2 thereunder are as follows :
160. (1) For the purposes of this Act, 'representative assessee' means--
(iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913) receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees.
(v) in respect of income which a trustee appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees.
Explanation 1 : 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) shall be deemed for the purposes of Clause (iv) to be a trust declared by a duly executed instrument in writing if a statement in writing signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the Income-tax Officer--
(i) where the trust has been declared before the 1st day of June, 1981, within a period of three months from that day ; and
(ii) in any other case, within three months from the date of declaration of the trust.
Explanation 2 : 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.
So also Section 164(1) without the proviso thereunder is as follows :
164. (1) Subject to the provisions of Sub-sections (2) and (3), where any income in respect of which the persons mentioned in Clauses (iii) and (iv) of Sub-section (1) of Section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person are where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income such part of the income and such persons being hereafter in this Section referred to as 'relevant income', 'part of relevant income' and 'beneficiaries', respectively tax shall be charged on the relevant income or part of relevant Income at the maximum marginal rate.
It is an undisputed fact that none of the subsequent settlors executed a trust deed of his own in favour of the beneficiaries. It is also not the case of the settlors that any of the trustee or trustees after receiving the gift money from the settlors made a statement in writing under their signature or signatures set out the purpose or purposes of the trust, particulars of the trustee or trustees, the beneficiary or beneficiaries and the trust property within three months from 1-6-1981 or within three months from the declaration of deed of trust. Explanation 2 under Section 160 defines what an oral trust is. According to its terms an oral trust means a trust which is not declared by a duly executed instrument in writing and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing. Therefore it can be seen that if the trustee leaves a statement in writing containing the particulars stated in Explanation 1 to Section 160 then though there is no formal deed of trust the declaration so left with the Income-tax Officer within three months from 1-6-1981 or from the date of duly executed trust deed would itself be considered to be a trust and all such cases should be taken to be a trust and declared a duly executed instrument. If such a, procedure is not followed but at if a settlor makes a gift to a beneficiary under an existing trust then it would be considered to be an oral trust not declared by a duly executed instrument in writing under Explanation 2 to Section 160(1) and the income thereon should be charged with maximum marginal rate under Section 164(1).
10. Now we have to see whether this finding of the learned Commissioner is tenable on a consideration of facts and circumstances of the case. It is argued by Sri B. Satyanarayana Moorthy, the learned counsel for the assessee that this is not an oral trust and this is a trust made by each of the settlors enumerated in the three lists noted in the order above. They made the gifts to the respective trusts after fully knowing the terms of those respective trust deeds and also the beneficiaries of the respective trusts. He submitted that the settlors not only made the gifts but also submitted the gift-tax returns shown against each one of their names in the three tables above. Except in the case of one or two persons the Gift-tax Officer completed their assessments also. The assessment orders and the statements that were filed along with the G.T. returns by each and every settlor who made the gifts to the three trusts which are subject matters before us are filed in the second paper book in each of the three appeals before us. As the statements are all stereotyped it is enough if we extract one of such statements. For instance the statement of Ch. Amanna son of Narayya of Kakinada may be extracted as under:
The Kakinada Income-tax Circle II Officer-
Respected Sir, I have gifted Rs. 10,000 (Rupees ten thousand only) on 2-3-1981 to Sitharatnam Family Trust, Kakinada. I have secured the amounts from out of my agricultural income. I have possessed 4.64 acres agricultural lands in Machavaram village. From out the amounts realised from agricultural lands the above said gift was made by me. I have also filed G.T. return. What all I have stated above is true.
The order would become unwieldy if we have to extract the statements sent along with their gift-tax returns by each and every one of the settlors on the three trusts. As can be readily seen from the above statement the gift is made to the trust. Admittedly the gifted amount was handed over to the trustee of the respective trusts to whom each settlor wanted to make a gift. The very fact that the statement extracted above is clear and unambiguous and similar statements were made by each and every settlor and each and every G.T. return was accompanied by such statement and the very fact that their G.T. returns were accepted and G.T. assessments were made against them (except one or two persons whose assessments are said to be still pending) would go to establish the fact that each settlor must be knowing the contents of the trust deed, the trustees appointed thereunder, the beneficiaries under each of the trust deed and every other particular concerning the trust to which each of them was making a gift. We can understand the argument of the revenue if a gift of an amount is made to the beneficiary named under the trust without naming the trust in the statement. But that is not the case here. The statement would clearly show that each of the settlor wanted to settle the amount on the beneficiary in terms of the trust he mentions in his statement accompanying his gift-tax return. In such a case the trust cannot be said to be an oral trust and the same terms and stipulations of the trust deeds would govern the disposal of the gifted amounts also. The gifted amounts according to Sri B. Satyanarayanamurthy would form part of the corpus of the trust. There are instances where the Hon'ble Supreme Court as well as the Andhra Pradesh High Court held that when additional amounts were gifted to the already existing trust evidenced by written instrument then the gifted amount should be considered to be governed by the same terms and stipulations as found in the written trust deeds. He had cited before us two decisions--the first being Sardar Bahadur S. Indra Singh Trust v. CIT [1971] 82 ITR 561. In the case before the Supreme Court the assessee is a charitable trust constituted under a trust deed dated 19-12-1944 supplemented by another trust deed dated 16-1-1951. The object of the trust deed is stated to be advancement of learning and education, amelioration of the sufferings of all citizens of Indian Union irrespective of caste, colour or creed for maintaining library or libraries for the free use of the public in general etc. etc. Sardar Ajaib Singh is one of the trustees. The assessment year in appeal is 1960-61 for which the previous year ended on 31-3-1960. On 23-1-1959 Sardar Ajaib Singh transferred 640 fully-paid up equity shares of the face value of Rs. 6,40,000 to the assessee-trust. He reserved to himself the right to revoke or recall the transfer of either the entire 640 shares or any portion thereof but not until the expiry of clear full seven years from the date of the delivery of the shares to the trust. The trust by their letter dated 1-2-1959 accepted the offer and also the terms and conditions upon which the offer had been made and ratified the same by their resolution dated 5-2-1959 and March 4, 1959. Therefore shares were transferred and given delivery of to the trustees. In the accounting year in question a dividend amounting to Rs. 1,28,000 accrued on which tax was deducted at source. The assessee trust claimed that the said income was exempt from the payment of income-tax. The Income-tax Officer refused the refund on the ground that the trust deed under which the trust was formed did not contain any provision for receipt of donations or gifts from outsiders and therefore the gift was not a valid gift. The Hon'ble Supreme Court after having appreciated the facts on record gave their decision as follows at page 566 :
As seen earlier, the appellant is a public trust. Its objects are charitable objects. Ajaib Singh made over the shares to that trust for effectuating the very objects of the trust. He did not stipulate any other object to be attained. The trustees had accepted the gift. The trust deed does not prohibit the trustees from accepting a new gift. We fail to see what difficulty was there for the trustees to accept gifts from third parties for the purpose of furthering the objectives of the trust, so long as the trust deed did not prohibit them from receiving such gifts and so long as the gift made did not in any manner impinge on the objects intended to be achieved by the trust. We fail to see why the trustees could not accept that gift.
11. The learned Departmental Representative contends that this is a case where a public trust is the subject matter of interpretation, whereas the case before us is of only a private trust. We fail to understand how that distinction would be germane for interpreting the terms of the document. We hold that the fact that the case before us is a private trust is not at all relevant for appreciation of ratio laid down by the Hon'ble Supreme Court. Further, Sri B. Satyanarayana Murthy, learned counsel for the assessee invited our attention to Andhra Pradesh High Court decision reported in CIT v. Trustees of H.E.H. the Nizam's Dependants & Khanazads Trust [1983] 139 ITR 517. In that case H.B.H. the Nizam executed a trust deed dated 12-8-1957 by transferring shares bearing a face value of Rs. 85,01,650 for the benefit of the dependants and Khanazads of the Nizam. It was advised by the solicitors of Nizam that the trust was void. The trustees by a resolution on 4-3-1959 decided to close the trust account in the Central Bank of India and placed it at the disposal of the financial advisers of the Nizam. Accordingly the original account of the bank was closed and a new account 'Account of Nizam Khanazads' was opened. As the Nizam created the trust the Income-tax Officer initiated gift-tax proceedings against the settlor. The settlor contended that there was no gift. The Gift-tax Officer rejected this claim which was upheld in appeal. The settlor approached the CBDT. Sometime in October 1966 the settlor accepted that there was no valid and proper gift prior to the execution of the trust deed dated 12-8-1957 and therefore accepted the correctness of the gift. The settlor had an intention of creating another trust for the benefit of some of Khanazads that were left out at the time of creation of the earlier trust dated 12-8-1957. This trust was to be formed on 12-6-1961. Shares of the face value of Us. 23.5 lakhs were transferred by June 1961 and that amount formed part and parcel of the trust created on August 12, 1957. The Andhra Pradesh High Court held as follows :
Though initially the trust deed dated August 12, 1957, was found to be void, later it was realised that it was a valid one, and, subsequently, shares of Rs. 23.5 lakhs, transferred in 1961, were also placed at the disposal of the very same trust. The settlor himself was the managing trustee. In the circumstances, both the trusts, i.e., the trust created in 1957 and the trust created in 1961 by transfer of shares of Rs. 23.5 lakhs, must be deemed to be one and the trustees of the old trust dated August 12, 1957, must be deemed to be trustees for the second trust also.
The beneficiaries of the trust created in 1961 were ascertained and specific. There was no uncertainty about the beneficiaries. Hence, constitution of the trust in 1961 was valid, and merely because a few more beneficiaries were added by the trustees subsequent to the demise of the settlor, it could not be said that the original trust was invalidated.
The learned Departmental Representative contended that even in these trust deeds there was no specific provision for the trustees to accept gift from outsiders. He also contended that a trust cannot be a recipient of gift. Both these contentions are stated to be rejected.
12. We have already stated the respective clauses of the trust deeds which authorise the additions made to the trusts also to form part of the trust fund. For instance in Clause 5 of Sitharatnam Family Trust the trust fund is stated to be comprised of not only the sum of Rs. 5,000 settled but also the additions to the trust fund as well as the income arising out of the trust fund. Therefore the settlor clearly contemplated the additions to be made to the trust fund. Farther according to Sardar Bahadur S. Indra Singh Trust's case (supra) referred to above we have to see whether there is any recital in the trust deed prohibiting receipt of gifts. A reading of all the three trust deeds before us leaves us in no doubt to conclude that there are no clauses prohibiting receipt of gifts. On the other hand, there are relevant clauses contemplating additions to be made to the trust funds. Further under Section 2(viii) of the G.T. Act 'donee' is defined as to mean any person who acquires any property under a gift, and where a gift is made to a trustee for the benefit of another person includes both the trustee and the beneficiary. Therefore, there is no force in the contention that a trust cannot be a recipient of a gift. Having regard to all the above we hold that the gifts made by the settlors listed out in the three lists mentioned in the above paras of the order did not make any oral gifts. On the other hand, they made gifts only to the trusts and they completed the gifts by handing over the gift moneys to the trustees. Their intention was that their gifts should form part of the corpus of the trust fund and the disposal of the trust fund must be according to the terms of the trust deeds. The learned Departmental Representative cited before us Bhagwatiprasad Jhunjhunwala v. First WTO [1984] 7 ITD 216 (Bom.) and Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra) which according to us are not relevant for our purposes.
13. In the result, the appeals of the assessees are allowed and the orders of the CIT are set aside. The orders of the Income-tax Officer are restored and we hold that the Income-tax Officer is correct in bringing to tax the income on the gifted amounts also at normal rates.