Indian Kanoon - Search engine for Indian Law

4. Aggrieved by the order passed by the CIT in both the assessment years under consideration, the assessee filed appeals before the Tribunal. The Tribunal after hearing the learned counsel appearing for the assessee as well as the learned Departmental Representative ultimately held that the CIT was not justified in directing the ITO to include in the assessment of the assessee the income arising out of the trusts referred to above.

5. Before us, learned senior standing counsel appearing for the Department submitted that the Tribunal was not correct in holding that both the abovesaid trusts are irrevocable trusts. It was further submitted that cl. 19 and cl. 22 in the trust deed dt. 6th December, 1971 are contradictory and in view of cl. 22, since there is retransfer of the corpus of the trusts in favour of the donor of transferor, the trusts should be considered as revocable trusts. Learned senior standing counsel further submitted that the second deed executed on 26th October, 1979 stating that the corpus is on the interest of the trusts, if the trusts fail would go to the University of Madras would virtually amount to application of income. Further, according to the learned senior standing counsel, the second deed executed on 26th October, 1979 would not be capable of giving retrospective effect to what is stated in the second deed from the execution of the first deed. According to the learned senior standing counsel, what we are concerned in the assessment years under consideration is the first trust deed executed on 6th December, 1971 and the second deed executed on 26th October, 1979 has no relevance for this period. In support of his contention reliance was placed upon a decision of this Court in the case of Sakthi Charities vs. CIT (1984) 149 ITR 624 (Mad) : TC 23R.771. Learned senior standing counsel further submitted that even if cl. 22 was incorporated in accordance with s. 83 of the Indian Trusts Act, still the fact remains that when the trusts fail, the corpus on the interest of the trust would go back to the donor or the transferor. In such case also s. 63 would apply and the trusts would become revocable trusts and in such a case the income of the trusts is assessable in the hands of the assessee. It was further submitted the Tribunal was not correct in holding that the trusts are revocable trusts and, therefore, income from the trusts cannot be assessed in the hands of the assessee.

6. On the other hand, learned counsel appearing for the assessee while supporting the order passed by the Tribunal submitted that cl. 22 of the trust deed dt. 6th December, 1971 would come into operation only after 20 years as per the first deed and after 25 years as per the second deed dt. 26th October, 1979. Therefore, during the assessment years under consideration, only the first deed dt. 6th December, 1971 was in force and cl. 22 would not be applicable for the period relating to the assessment years under consideration. Learned counsel appearing for the assessee also submitted that the marriage of both the minors takes place within the period stipulated in the trust deeds and therefore, there is no question of the trusts being incapable of execution without exhausting trust property. Therefore, learned counsel appearing for the assessee submitted that inasmuch as cl. 22 in the trust deed dt. 26th October, 1979 was introduced in compliance with s. 83 of the Indian Trusts Act and which would come into force only after 20 years according to the first trust deed and after 25 years according to the second trust deed, during the assessment years under consideration, cl. 22 has got no relevance and therefore, it need not be looked into. According to the learned counsel, even if cl. 22 is not incorporated by act of law, s. 83 of the Indian Trust Act would come into operation. For these reasons, according to learned counsel for the assessee, inasmuch as no income was transferred to the donor from the trust during the assessment years under consideration, no assessment can be made in his hands inasmuch as the above said trusts are not revocable trusts.

9. According to the Department, in view of the provisions contained in s. 61 r/w s. 63(i) and (ii) of the IT Act, 1961 r/w cl. 22 of the trust deed dt. 6th December, 1971 which alone is applicable for the assessment years under consideration, since the supplementary deed executed on 1st October, 1979 would not be applicable during the assessment years under consideration, inasmuch as the trust fund was retransferred for the benefit of the settlor in case the trust fails, the trust would become a revocable trust. In such a case, the income from the trusts would be assessable in the hands of the assessee.

12. Sec. 63 of the IT Act, 1961 lays down that a transfer shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the whole or any part of the income or assets to the transferor or it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets. For the transfer to be deemed revocable, the trust deed must contain a provision for retransfer directly or indirectly of the whole or any part of the income or assets to the transferor. According to the Department, cl. 22 contemplates retransfer when the trust fails. Therefore, a combined reading of s. 63 with cl. 22 would postulate that the trusts in question are revocable trusts. We have already seen that cl. 22 was incorporated for the purpose of application of income of the trust in case the object of the trust fails. This cl. 22 was incorporated in accordance with the provisions contained in s. 83 of the Indian Trust Act. Clause 22 would take effect after 20 years if the marriages of the minors did not take place. But during the asst. yrs. 1977-78 and 1978-79 cl. 22 would have no application. Therefore, in order to understand whether the trusts in question are revocable or not, we have to read the trust deed dt. 6th December, 1971 minus cl. 22. Thus, the provisions of cl. 22 would operate only on the failure of the operation of the settlement and not till then. During the operation of the settlement that clause will not come into force and during the operation of the settlement the properties stand completely in the hands of the trustees and during that period the settlor, the assessee, cannot either directly or indirectly enjoy either the whole or any part of the income or exercise any right of resumption of power over the income or assets. Therefore, a plain reading of s. 63 along with trust deed dt. 6th December, 1971 would go to show that the trusts in question are not revocable trusts. Therefore, the Tribunal was correct in holding that the CIT was not justified in directing ITO to include in the assessment of the assessee the income arising to the trusts of M. C. Shyamala Marriage Benefit Trust and M. S. Sowmiyaram Marriage Benefit Trust. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.