JUDGMENT
K. Ramaswamy, J.
1. This reference arises under section 26(1) of the Gift-tax Act, 1958 (18 of 1958), for short, “the Act”, at the instance of the Revenue. The questions referred are as follows :
“(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the exercise of right vested in the princes by the trust deed dated March 29, 1951, had not resulted in a gift within the meaning of section 4 of the Gift-tax Act ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the trustees of the wedding gift trust had no right over these swords except the right to keep them in safe custody ?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that neither of the trusts was the legal or lawful owner of the swords ?
(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that no gift was involved in the transaction of handing over the swords by the trustees and consequently no gift-tax was leviable under the Gift-tax Act ?”
The facts as set out succinctly in the statement of the case a re that for the gift-tax assessment year 1972-73, the two swords gifted over by H. E. H. the Nizam of Hyderabad to the two grandsons, viz., Prince Mukarram Jah and Prince Muffakham Jah, under the Nizam’s trust deed dated March 29, 1951 as described in Schedule I under items 2 and 3. Under the trust, these two items are to be handed over to the above princes at the time of their marriage. It would appear that the marriage of prince Mukarram Jah took place on May 8, 1959 and the marriage of Prince Muffakham Jah took place on February 15, 1965 and subsequent thereto, on April 8, 1971, and February 10, 1972, respectively, these two swords have been handed over to the princes. Prince Mukarram Jah sold the sword for a sum of Rs. 12,46,926 on February 26, 1974. The Gift-tax Officer, on becoming aware of it, initiated proceedings to tax the gift under the Gift-tax Act and the value of the sword delivered to the princes was assessed at Rs. 25,00,000 and gift-tax of Rs. 10,00,000 was levied. The Gift-tax Officer treated these gifts as attracting section 4(1)(a) of section 4(1)(c) of the Act as deemed gifts under the wedding gifts trust to the princes. Feeling aggrieved against this decision, the assessee went in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner reversed the finding of the Gift-tax Officer and held that in law, there is no gift. On further appeal, the Income-tax Appellate Tribunal agreed with the Appellate Assistant Commissioner and thus the reference.
The question that arises for consideration is whether there is any gift by the assessee to the princes in terms of the trust deed attracting the provisions of the Act.
Before proceeding with the case, let us have a perception of the relevant provisions of the Act. “Gift” has been defined under section 2(xii) to mean the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth and includes the transfer or conversion of any property referred to in section 4, deemed to be a gift under that section. “Donor” has been defined under section 2(ix) to mean any person who makes a gift; “donee” has been defined under section 2(viii) as 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; “property” has been defined under section 2(xxii) to include any interest in property, movable or immovable; “transfer of property” has been defined under section 2(xxiv)to mean “any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes –
(a) the creation of a trust in property;
(b) the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property;
(c) the exercise of a power of appointment (whether general, special or subject to any restrictions as to the persons in whose favour the appointment may be made) of property vested in any person, not the owner of the property, to determine its disposition in favour of any person other than the donee of the power; and
(d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person.”
Chargeability to gift-tax under Chapter II arises under section 3 which reads thus :
“Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957), at the rate or rates specified in the Schedule.”
The relevant provisions to include certain transfers in section 4(1)(a) and 4(1)(c) which read thus :
“4. (1) For the purposes of this Act, –
(a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor : – …
(The proviso is not relevant. Hence omitted).
(c) where there is release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge surrender, forfeiture or abandonment to the extent to which it has not been found to the satisfaction of the Gift-tax Officer to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment.”
A reading of these provisions would establish that a gift is a transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth, including the transfer or conversion of any property referred to in section, 4, which is deemed to be a gift under this Act by the donor to the donee and the transfer of the property is by any disposition, conveyance, assignment, settlement, delivery, payment or any other alienation of the property. The trustee is only a donee and holds it for the benefit of the beneficiary. The question, therefore, is whether the assessee is a donor within the meaning of the Act and whether it had transferred to the princes the movable property without any consideration attracting the provisions of the Act. From this light, to arrive at the satisfactory solution, it is necessary to note the relevant clauses in the trust deed. H.E.H. the Nizam’s Jewellery Trust was executed and registered on March 29, 1951, and clause 3(c) and (d) relating to the two swords, which are material for the purpose of this case reads thus :
“(3) (c) On the marriage of Prince Mukarram Jah, one of the grandsons of the settlor by his eldest son, Prince Azam Jah, the Prince of Berar to give the sword known as “SHAMSHEER MURRASSA KHURD” mentioned in item 2 (two) of the First Schedule hereunder written to the said Prince Mukarram Jah as “Sarapa” or wedding gift to his from the settlor along with other jewellery which may be given to him as Sarapa on the occasion. Provided, however, that if, God forbidding, the said Prince Mukarram Jah shall die before his marriage shall take place, the said sword shall be held by the trustees upon the same trusts as those upon which the principal fund is hereby directed to be held.
(d) On the marriage of Prince Muffakham Jah, another grandson of the settlor by his eldest son, Prince Azam Jah, the Prince of Berar of give the sword known as “SHAMSHEER MURRASSA” mentioned in item 3 (there) of the First Schedule hereunder written to the said Prince Muffakham Jah as “Sarapa” or wedding gift to him from the settlor along with other jewellery which may be given to him as Sarapa on the occasion. Provided, however, that if, God forbidding, the said Prince Muffakham Jah shall die before his marriage shall take place, the sword shall be held by the trustees upon the same trusts as those upon which the principal fund is hereby directed to be held.”
A reading of these clauses would make the intention of the settlor amply clear that on the marriage of Prince Mukarram Jah and Prince Muffakham Jah, his two grandsons, the swords are to be handed over by the trustees as “Sarapa” or wedding gift, along with other jewellery. The contingence postulated thereunder is not relevant for the purpose of this case. Therefore, in terms of these clauses, on celebration of the marriages of the two princes, the swords became their absolute property and the trustees are to hand over them to the beneficiaries – Princes. Thereby, the beneficiaries, viz., the two princes, became the absolute owners of the two swords which were gifted over to them by the settlor, viz., their grandfather. The fact that the postponement of handing them over the princes on the respective dates of their wedding does not take away the legal effect. The assessee did not become the donors on their handing over the swords to the donee-beneficiaries. They continued to be the donee-agents on behalf of the princes till the date of actual handing over. Their responsibility is fiduciary in character. No doubt, H.E.H. the Nizam executed a trust deed on September 4, 1951, and in clauses 6 and 7 which are material for the purpose of this case, the settlor referred to the gift of these two swords in his first trust deed dated March 29, 1951, and expressed his wish that the princes, after receiving the said swords as part of Sarapa, on their wedding, hand over and entrust the same to the trustees under the first trust to be held by them upon the same trusts and subject to the same powers and provisions as those relating to the articles of jewellery specified in part I of the first and second schedules, respectively. It is well to remember that admittedly no reference to the two swords was made in the schedules. Relying upon this clause, the Revenue has contended that the settlor has reserved the power to himself to alter the terms of the first trust and thereby there is no vested right accrued to the settles, viz., the princes under the first trust deed. The handing over of the two swords on the marriage of the Princes, viz., the beneficiaries on the respective dates referred to hereinbefore by the trustees, without consideration, attracts section 4 of the Act. We are unable to agree. Once a gift is created under a deed, the settlor ceases to have any power to modify or alter in any manner the covenants of the trust unless the settlor reserves in himself the power to so effect or alter or modify it. Therefore, reservation of a right or power to vary, modify or alter the terms of the trust deed is a condition precedent; otherwise the trust becomes irrevocable. The question is whether H.E.H. the Nizam has reserved this power of revocation, alteration or modification or variation of the convenants when he executed the first trust. It is not disputed that there is no such power reserved in himself by the settlor. On the other hand, under the first trust, absolute rights have been created in the beneficiaries in respect of the swords on the dates of their marriage and thereby they became owners. The trustees are obliged to hand over the swords to them on the dates of their marriage. Thereby, clauses 6 and 7 of the second trust deed speaks out only a mere wish or a pious hope in the belief that the settlees would abide by the wish of their grandfather to return the swords to the trustees. It may be in vogue on compliance with the wish of their grandfather. When they are handed back, they may become the corpus of the trust. But it is open to them to defy the wish of the settlor and choose to remain absolute owners in terms of sub-clauses (c) and (d) of clause 3 of the first trust. Therefore, we have no hesitation to hold that the second trust does not have any effect nor does it nullify the effect of their acquiring absolute right of ownership under the first trust, of the two swords. The exercise of the right by the princes in terms of clause 3(c) and (d) of the trust deed dated March 29, 1951, has not resulted in any transfer and is not a gift under the Act. The trustees (under the second trust deed dated September 4, 1951) had no right over the swords except as donees for the benefit of the princes and they acquired no legal ownership over the swords as donors. Therefore, it is not a gift made by the assessee to the settlees, viz., the princes, under the Act. Even otherwise, there is another legal impediment in the way of the Revenue. The assessees are only donees. They have no absolute right, title or interest in the property except in their capacity as trustees for the benefit of beneficiaries under the Act. They cannot make a gift de hors the terms of the trust in favour of the beneficiaries. Therefore, they cannot hold the property as absolute owners nor transfer the same to the princes without consideration. Under those circumstances, we hold that there is no gift as defined under section 2(xii) of the Act and section 4(1)(a) or 4(1)(c) does not apply to the facts in this case. Accordingly, we answer the reference against the Revenue and in favour of the assessee. In the circumstances, there will be no order as to costs.