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Trust Deed

2. "(b) The trustees shall given the entire income for a period of thirty years to the settlor from the date of execution of these presents or till the death of settlor whichever period expires earlier.

(c) On the date of distribution to hold the trust fund and the investments for the time being representing the trust fund upon trust for the settlor and if the settlor is not alive for children of the settlor as may then be living in equal shares.

The date of distribution shall arrive at the end of the period of 30 years and in case the settlor of the trust expires earlier than the said period of 30 years, the period of distribution shall arrive on the date of the death of the settlor.

4. The trustees shall at any time before the date of distribution be entitled to accelerate the date of distribution of the trust fund or any part thereof and in the event of the trustees deciding to do so, the trusts referred to in sub-clause (b) as the case may be shall forthwith cease and the trusts contained in sub-clause (c), (d) or (e) as the case may be shall become operative to the extent of the trust fund or any part thereof to which the decision of the trustees applies".

8. On consideration of the various definitions of the Act, it is clear that a gift for the purpose of the Act means transfer of any property made voluntarily and without consideration by one person to another. The definition of transfer of property takes within its sweep the creation of a trust in property. The donor is a person who makes gift and the donee is a person who acquires any property under a gift and includes both the trustee and the beneficiary where a gift is made to a trustee for the benefit of another person. The definition of donee specifically states that where a gift is made to a trustee for the benefit of another person includes both the trustee and the beneficiary, meaning thereby that the trustee does not receive the property for his absolute use but receives the same for the benefit of another person and such another person when read in context of a trust and as distinguished from the trustee shall have to be the beneficiary. Therefore, it appears that where the donor is the settlor of a trust and beneficiary is the sole beneficiary under deed of trust, the donee would be both the trustee and such beneficiary, and the trustee would hold the gifted property for the benefit of such beneficiary. The Act provides an inherent indication in this regard when one considers sections like 21A and 29 which fasten liability to tax on donee in certain situations. However, this position will also have to be examined in light of the definition clause under the Trust Act.

10. The question, therefore, that would arise is, can there be a trust where the settlor or creator of the trust and the sole beneficiary under the trust are one and the same person but the trustee or the trustees are distinct from such settlor or the beneficiary. This is the situation in the present case. If the answer in yes, what is the obligation that the trustee is required to discharge or what is the obligation which such a trustee is fastened with. Under the Trust Act the obligation is attached with the property and such obligation is for the purpose of administration and management of the property in question for the benefit of another, viz., beneficiary. The performance of such an obligation necessarily implies that the trustee has some control over the property which is the subject of the trust, or otherwise the trustee would be unable to deal with said property for the benefit of the beneficiary. To put it in other words the ownership of a trust is a matter of form rather than of substance. The property may belong to the beneficiary, but for obligation and use of it, the property vests in trust. The trustee is under an obligation to use the ownership rights for the benefit of those to whom the ownership rights for the benefit of those to whom the ownership rights really belong, i.e., beneficiary.

12. As can be seen from the provisions of the trust deed the trustees held the property for the benefit of the sole beneficiary, viz., the assessee, who is the settlor. The trustees are bound to give the entire income from the trust property for a period of 30 years to the settlor from the date of the execution of the deed of trust or till death of settlor, whichever period expires earlier. As regards the corpus or the trust fund the stipulation in the deed of trust is that the fund has to be held by the trustees for the settlor on the date of distribution. If the settlor is not alive on the date of distribution then various contingencies are provided. Firstly, if the settlor is not alive on the date of distribution, then various contingencies are provided. Firstly, if the settlor is not alive on the date of distribution to her children in equal shares; secondly, if neither the settlor nor her children are alive on the date of distribution, to the brother, sister and mother of the settlor in equal shares; and thirdly, if on the date of distribution none of the aforementioned are alive, to the children of the brother and children of the sister per stripes. The date of distribution is denoted to be the end of period of 30 years and in case of death of settlor prior to that date. However, what has weighted mainly with the Tribunal is clause 4 of the deed of trust which provides that the trustee may accelerate date of distribution before the date of distribution specified, but the Tribunal has fallen into error in reading later part of the said clause when it provides that the trust referred to in sub-clause (b) shall forthwith cease, i.e., when the trustee decide to accelerate date of distribution and the trust contained in sub-clause (c), (d) or (e), as the case may be, shall become operative. Therefore, it appears that the Tribunal took into consideration the fact that on acceleration of date of distribution sub-clause (b) providing for giving entire income to settlor would cease and thus the property would not remain with settlor. It appears that the Tribunal equated income with the property in question and fell into error. In fact, sub-clause (c) specifically states that on the date of distribution the entire trust fund shall pass on to the settlor and only if the settlor is not alive other contingencies mentioned therein would come into operation. Hence, even on acceleration of date of distribution the same position would come about namely, the corpus would go to settlor it she is alive. The reasoning and conclusion of the Tribunal based on the interpretation of this clause of the trust deed is not correct in law.