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G. Krishnamurthy, Senior Vice President

1. The first point, which is common to all these appeals, is whether the Commissioner (Appeals) is justified in deleting the assets in the name of Mrs. Sushila Daphtary and Mr. Anil Chander Daphtary Trust from the net wealth. Briefly stated, the facts are:

The assessee, a leading jurist of the country and Solicitor General of India at the relevant time, created by a registered document dated 15-10-1951, executed on a stamp paper of the value of Rs. 2,362.50, a trust in favour of his unmarried daughters, Sunita and Leela, and appointed his wife, Smt. Sushila Daphtary, and major son, Shri Anil Chander Daphtary, as the trustees. The trust deed provided that the assessee, the settlor, was desirous of providing for his wife and children by settling upon a trust a sum of Rs. 2 lakhs. The said sum of Rs. 2 lakhs was, thus, settled on trust. The assessee earlier entered into an agreement on 26-7-1950 with one Ram Karan Chothmal Kedia for the purchase of an immovable property at Napean Sea Road, Bombay, and paid earnest money of Rs. 10,000. That amount also was settled on trust so that the total amount settled on trust was Rs. 2,10,000. The trust deed directed that the trustees shall complete the transaction of the purchase of the property of Napean Sea Road and hold it upon trust. That property was, accordingly, purchased on 14-11-1952 in the name of the trustees for a sum of Rs. 2,15,000 and later on 15-10-1959 that property was sold for Rs. 2,53,000 and the amount was deposited in the bank account of the trust. The claim of the assessee before the WTO was that the property settled on trust did not any more belong to him and that it should not be included in his net wealth by reason of the application of Section 4(4) of the Wealth-tax Act 1957 ('the Act'). The WTO was, however, of a totally different view. The WTO interpreted the deed of trust as in the nature of a will, that the assessee derived benefit from the trust by taking a huge amount of loan free of interest to pay income-tax, which was more in the nature of a settlement made for the provision for maintenance of his wife and children. He, therefore, was of the opinion that the entire amount still belonged to the assessee as the beneficial owner of the trust property. Since at the relevant time, this property was sold for Rs. 2,53,000, he held that amount to represent the market value of the property and included that amount as the wealth of the assessee for all these years. The reasons that prevailed with the WTO to come to the above conclusions need not be narrated here for the present discussion. But, on appeal, the Commissioner (Appeals) had come to a totally different conclusion. He held that whatever may be the conclusion to be drawn on an interpretation of the trust deed and the conduct of the assessee by taking a loan, etc., the fact remains that Section 4(4) excluded all the properties settled on trust, whether revocable or irrevocable, prior to 1-4-1956 from inclusion in the assessee's net wealth. Even if this trust was held to be a revocable trust, all the same it was a trust excluded by Section 4(4) and, consequently, the value of the property was not includible in the wealth of the assessee. He has given very elaborate reasons for his conclusion and he summed up his conclusions in paragraph 4.4 in the following terms:

4.4 In my view, the contention regarding the irrelevance of the application of Section 64 of the Income-tax Act to the question of the exemption of the impugned property under Section 4(4) of the Wealth-tax Act is well-taken. The expression 'transfer' as inclusively defined in Explanation (a) to Section 4 is wide in its sweep including even an 'arrangement', 'transfer' under Section 4, therefore, very clearly includes all types of transfers, which in a real, commercial and business sense amount to transfer, including revocable transfers. Section 126 of the Transfer of Property Act also recognises a revocable gift, in which the donor and donee may agree that on the happening of any specified event which does not depend on the will of the donor, the gift would be suspended or revoked. Explanation (b) to Section 4 of the Wealth-tax Act defines 'irrevocable transfer' and Section 4(1)(a)(iv) refers to a transfer of asset 'otherwise than under an irrevocable transfer'. Section 4(5) refers to 'irrevocable transfer'. The definition of 'irrevocable transfer' also underwent a clarificatory amendment with effect from 1-4-1965 by the Wealth-tax (Amendment) Act, 1964. The Legislature was, thus, very much alive to the distinction that exists in law between irrevocable and revocable transfers, both of which are undoubtedly transfers. However, Section 4(4) refers only to 'any such transfer' and Explanation (a) gives a very wide, sweeping and inclusive definition of 'transfer'. I have, therefore, no difficulty to accept the contention raised that even if the transfer to the trust on 15-10-1951 made by the assessee was a revocable transfer, he is entitled to the exemption under Section 4(4).

2. The first point taken up by the revenue is that the assessee took a loan of Rs. 1,10,000 without interest on securities and that was a benefit derived by the assessee and, therefore, the transfer must be held to be a revocable transfer. First of all, we do not agree with this proposition that obtaining a loan without interest on securities amounted to deriving a benefit, directly or indirectly, by the assessee under the terms of the deed of the trust. If there is no term in the deed of the trust conferring a power on the assessee to derive any benefit, whether direct or indirect, the misuse of the power given by the settlor to the trustees cannot amount to a reservation of a provision in the trust deed to confer benefit, direct or indirect, on settlor. That may be a breach of trust, for which proceedings have to be taken separately under the relevant law. But it cannot be said that the terras of the deed of trust by the trustees provided for the conferment of a benefit on the assessee. This is also the view expressed by the Commissioner (Appeals) and what is more, he derived support for this view from a decision of the Madras High Court in the case of CIT v. EM. Gopalakrishna Kone [1965] 57 ITR 569. Thus, the contention of the department that the fact that the assessee took a loan 13 years after the creation of the trust free of interest amounted to a conferment of a benefit on him and, therefore, there was no trust and the properties belonged to the assessee, cannot be accepted. If this argument leads to the conclusion that the trust is revocable, then as rightly pointed out by the Commissioner (Appeals), even such a revocable transfer is excluded by the specific provisions of Section 4(4). The next point relied on by the department was that the trust property in Bombay was occasionally used as residence whenever the assessee happened to visit Bombay. The assessee used to reside no doubt in this building with his family in Bombay whenever he visited Bombay from Delhi where he was practising and was also employed as Solicitor General of India, if we are right. The deed of trust nowhere provided any right of residence to the assessee. Therefore, reliance on the mere occasional spells of stay in the property cannot be read as a reserving of a right to the assessee under the deed of trust for residence. If again this argument is used to show that there is a revocable transfer, then again by reason of the provisions of Section 4(4) even such a transfer is put beyond the reach of Section 4(1)(a). The department's reliance was on Clause 15(b) of the deed of trust, which provided that at the request of the settlor during his lifetime, the trustees may allow the whole or any part of the settled premises to be occupied by such persons as the settlor or the said Sushila Chandra Daphtary may direct free of rent or on such rents and on such terms and conditions as they may decide. This does not mean by any stretch of imagination that the settlor by this clause provided for himself a right of residence. Rightly, in our opinion, the Commissioner (Appeals) relied upon a decision of the Bombay High Court in the case of Ramji Keshavji v. CIT [1945] 13 ITR 105 to hold that even this did not amount to a right to reassume power, directly or indirectly, over the assets of the trust. Again in the case of CIT v. Jayantilal Amratlal [1968] 67 ITR 1, the Supreme Court pointed out that a provision enabling the settlor to give directions to trustees to employ the assets or funds of the trust in a particular manner would not tantamount to conferring a right on the settlor to reassume power over the income or the assets settled. The reliance of the department on this clause to show that the assessee reserved a benefit of free residence in the property is only factually incorrect but even if correct, it does not militate against the application of the provisions of Section 4(4). Again, another point worthy of note here is that whenever the settlor stayed in the house, he did not do so in his capacity as the settlor but as the husband and father of the beneficiaries. The Commissioner (Appeals) in this context made reference to a decision of the Supreme Court in estate duty matter in the case of CED v. Umesh Rudra [1979] 117 ITR 579 and, in our opinion, very rightly. If such a strict interpretation is placed upon the provisions of Section 4(1)(a), as pointed out by the Supreme Court in that case, such an interpretation would subvert family life and social order and would be contrary to morality and good sense. Another point strongly relied upon by the revenue was that the beneficiaries were not known and their shares were not determinate on the ground that the settlor reserved to himself the power or the right to vary the shares of the beneficiaries. We have gone through Clause 3 of the trust deed and it nowhere states that the settlor has got the right to vary the shares of the beneficiaries. In this context, we would like to reproduce what the Commissioner (Appeals) on the subject has said:

We are in entire agreement with this view and, if we may say, not one word can be deleted or added to what he said as either superfluous or as unwanting. Lastly, it was urged that Clauses 3, 4 and 5 of the trust deed give the impression that the settlor retained to himself the general power to disburse the beneficial interests of the assessee and, therefore, there was no transfer. This again is as wrong as advancing the argument that the beneficiaries were not known. In fact this argument is an extension of the earlier argument which we have disposed of. None of these arguments raised by the department can prove its case that there was no transfer at all on 15-10-1951 and that if at all there was any settlement, it was only in the nature of a will. We hold that the trust deed read as a whole coupled with the fact that it was acted upon, the conduct of the parties amply proved that there was a transfer on 15-10-1951 of the trust properties to the trustees and the trustees held the properties thereafter on trust and that even if at the worst it was held that this was a revocable trust, it was fairly governed by the exception provided in Section 4(4), which excluded from the operation of Section 4(1)(a) the transfers made of any kind before 1-4-1956. We are, therefore, in entire agreement with the Commissioner (Appeals) on this point and hold against the revenue. This is the first common point in all the appeals.