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Showing contexts for: settlor trust in Statesman Ltd. vs Inspecting Assistant Commissioner on 5 May, 1988Matching Fragments
Y. Upadhyay, V.P.
1. These two appeals are taken together and disposed of by this common order for the sake of convenience.
2. The assessee is a limited company and derives income from publication of an English daily 'The Statesman' and from allied publications. The assessee is in appeal against the consolidated order passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961 for the assessment years 1981-82 and 1982-83. The point did not arise before the Inspecting Asstt. Commissioner while he was completing the assessments. However, the brief facts relevant for these appeals are that the assessee-company, as a settlor, created two irrevocable trusts on llth September, 1979 and 12th November, 1979. The first trust was created for providing financial assistance to the employees of the settlor and their families a.nd dependents for their education, medical facilities, sports, games, cultural and other activities and their welfare generally. The second trust was created for the financial assistance to be provided to the officers of the settlor and their families and dependents for their education, medical facilities, sports, games, cultural and other activities and their welfare generally. In short, the first trust was created for the benefit of the employees of the settlor whereas the second. trust was created for the benefit of the officers of the settlor. The settlor, 'The Statesman Limited' settled a sum of Rs. 4,00,500 for the first trust whereas a sum of Rs. 2,50,000.was settled for the second trust. The amounts settled by the Settlor were invested in shares and for the years under consideration the first and the second trusts respectively received dividends amounting- to Rs. 34,650 and Rs. 21,970. The total dividend received by the two trusts in each year is thus Rs. 56,620. The assessments for the two years were completed by the Inspecting Asstt. Commissioner under Section 143(3) of the Act.
5. The short point for consideration is whether the CIT has rightly set aside the assessments for these years for consideration of the application of the provisions of Section 63(a)(ii) of the Act in view of Clause 8(b) of the trust deeds. The assessee., as a Settlor, created two trusts as noted above. The first trust was created for the benefit of the employees and the second trust was created for the benefit of the officers. The shares had been purchased out of the amounts settled by the Settlor for the trusts and the trusts received dividends of Es. 66,620 in aggregate. The provisions of Section 63(a)(ii) and Clause 8(b) of the trust deeds are quoted below:
What then is the fair meaning of Section 16(1)(c), proviso 1 ? It seems to us that the words 'reassume power' give indication to the correct meaning of the proviso. The latter part of the proviso contemplates that the settlor should be able, by virtue of something contained in the trust deed, to take back the power he had over the assets or income previous to the execution of the trust deed. A provision enabling the settlor to give directions to trustees to employ the assets or funds of the trust in a particular manner or for a particular charitable object contemplated by the trust cannot be said to confer a right to reassume power within the first proviso. Otherwise a settlor could never name himself as a sole trustee. It seems to us that the latter part of the proviso contemplates a provision which would enable the settlor to take the income or assets outside the provisions of the trust deed.
The Hon'ble High Court further considered the decision of the Supreme Court in the case of CIT v. S. Raghbir Singh [1965] 57 ITR 408. The view taken by the Hon'ble Calcutta High Court has been referred to the case of Mrs. Leela Nath v. CIT [1982] 134 ITR 507.
6. A perusal of Clause 8(b), as quoted above, does not indicate, in any way, that the Settlor reassumed power directly or indirectly over the whole or any part of income or the assets of the trusts; rather, it has been made clear that variation shall not extend to vary or affect the definition of the objects of the trusts, as contained herein nor authorise the application of any part of the capital or income of the trust funds for any purpose other than the purposes specified therein. Therefore, the power to reassume over a part or whole of the income or assets of the trusts by the Settlor was not given by Clause 8(b) of the trust deed. It has been made very clear by the Supreme Court in the case of Jayantilal Amratlal (supra) that if such power is reassumed by the Settlor; then the trust could be revocable. The CIT erroneously came to the conclusion that by virtue of Clause 8(b) of the trust deeds, the trusts were revocable and, therefore, the income earned by the two trusts was includible in the income of the Settlor. This is not correct. Clause 8(b) of the trust deed is not hit by the provisions of Section 63(a)(ii) of the Act both on facts as well as on law, as it is clear by the judicial pronouncements made by the Hon'ble Supreme Court and the Calcutta High Court (supra).