PETITIONER:
COMMISSIONER OF INCOME-TAX, MADHYA PRADESH
Vs.
RESPONDENT:
MAHARAJA BAHADUR SINGH & ORS.
DATE OF JUDGMENT13/10/1986
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION:
1987 AIR 518 1986 SCR (3)1020
1986 SCC (4) 512 JT 1986 648
1986 SCALE (2)591
ACT:
Income Tax Act, 1961-Income derived by beneficiaries
under Trust Deeds-Income derived in individual capacity and
not as representing HUF-Assessment of Income-Determination
of.
HEADNOTE:
One Hukum Chand Seth, who constituted a HUF with the
members of his family, owned extensive properties. The
properties were partitioned between him, his wife and their
son in equal shares by a Deed of Partition dated March 31,
1950. On the same date, Hukum Chand Seth and his wife
executed two trust deeds nominating their son and five
grandsons as the beneficiaries in respect of their shares in
the aforesaid properties. The trust deeds which contained
identical terms inter alia provided (a) that in the event of
a beneficiary dying before the time of distribution of the
properties between the beneficiaries, the share of the
beneficiary so dying would be used to support and maintain
his widow and his male issue in such manner as the trustees
shall "in their absolute and uncontrolled discretion deem
proper" and the surplus, if any, of the share of that
beneficiary and the income therefrom would be accumulated
and kept in credit to his account and preserved in order to
be distributed; (b) that upon the youngest of the
beneficiaries attaining the age of 30 years, the trustees
would divide and distribute the trust properties together
with the accumulated interest and income thereon among the
beneficiaries according to their respective rights and
shares; and (c) that if at the time of the division and
distribution any beneficiary should have died without
leaving any son but leaving only a widow, the widow would
get half of the share of that beneficiary while the other
half would be distributed among the remaining beneficiaries
and the heirs of the beneficiaries entitled to distribution.
With the passage of time the beneficiaries came into
possession of their respective shares of the properties and
the income from those properties was returned by them for
the purpose of their income tax
1021
assessment in their individual status, but subsequently they
began to assert that the properties were received by them as
the Karta of their respective Hindu undivided families and
that therefore the income was liable to be assessed in that
status. The Income Tax Officer, during the relevant
assessment years assessed the assessees/beneficiaries in
their individual status and these assessments were confirmed
by the Appellate Assistant Commissioner and the Income Tax
Appellate Tribunal. However, in a reference at the instance
of the assessees, the High Court held that the properties
had been settled with the assessees in their representative
capacity as Kartas of their respective Hindu undivided
families.
Allowing the appeals by the Revenue to this Court,
^
HELD 1.1 The High Court has erred in the view taken by
it of the two trust deeds. The question whether the income
belongs to the individuals or Hindu undivided families has
to be resolved upon the contents of the trust deeds, their
terms and conditions being free from ambiguity. [1028D;
1026F]
1.2 Where the document contains no clear words
describing the kind of interest which the donee is to take,
the question is one of construction and the court must
collect the intention of the donor from the language of the
document taken along with the surrounding circumstances.
There is no presumption one way or the other. Each case must
be decided on its own facts and each document calls for its
own particular construction. [1026H; 1027A-B]
C.N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar
and Another, [1954] 5 SCR 243, referred to.
In the instant case, on the plain terms of the trust
deeds, the properties were intended to devolve on the
beneficiaries in their individual capacity. The circustances
surrounding the execution of the two documents indicate that
a common intention inspired the minds of the two settlors.
This has considerable significance when it is realised that
while one trust deed was executed by a male member of the
family the other was executed by a female member of the
family. The course of devolution under the Hindu law would
be materially different in the two cases and, therefore, the
principles of the Hindu law governing the devolution of
property in the case of property passing from a father to
his son and grandsons cannot be invoked in these appeals.
[1027B-C]
1022
2. The terms and conditions of the trust deeds are
wholly inconsistent with the property passing into the hands
of the beneficiaries as Kartas of their respective Hindu
undivided families. There is clear indication in the trust
deeds which bears this out. In the first place, had it been
intended that the beneficiary should receive the property as
Karta of his Hindu undivided family the document would not
have empowered the trustees, in clause 1 to exercise an
absolute and uncontrolled discretion on the death of a
beneficiary to apply his share to the maintenance of his
widow and his male issue and to accumulate the surplus to
the account of the said beneficiary for distribution. On the
contrary, the trustees would have been under an obligation
to entrust the income falling to the share of the deceased
beneficiary to the members of his Hindu Undivided family and
no discretion would have been permissible in regard to the
disposal or otherwise of any part thereof. Secondly, the
document would not have provided that if before the time of
division and distribution a beneficiay died leaving only a
widow, the widow would get a half of the share belonging to
the deceased beneficiary while the other half would be
liable to distribution among the remaining beneficiaries.
These two conditions are sufficient in themselves to lead to
the conclusion that it was never intended that the
properties should pass to the beneficiaries to be held by
them for their respective Hindu undivided families. [1027D-
H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1681-84
of 1974.
From the Judgment and Order dated 1/6th February, 1974
of the Madhya Pradesh High Court in Civil Cases Nos. 240,
238 and 239 of 1971.
M.K. Banerjee, Additional Solicitor General, Ms. A.
Subhashini and B.B. Ahuja for the Appellant.
S.T. Desai, A.K. Chitale, Mrs. S. Gambhir and S.K.
Gambhir for the Respondents.
The Judgment of the Court was delivered by
PATHAK, J. These appeals by special leave are directed
against the common judgment of the High Court of Madhya
Pradesh disposing of four Income-tax References and
answering the following identical question of law arising in
each Reference in favour of the assessee and against the
Revenue:
1023
“Whether on the facts and in the circumstances of
the case, the Tribunal was justified in law in
holding that the income derived by the
beneficiaries under the two trust-deeds belonged
to the beneficiary in individual capacity and not
in the capacity as representing the Hindu
undivided family?”
These appeals involve the construction of two trust-
deeds couched in identical terms. To understand their import
it is necessary to set out a genealogical table:
Sir Hukumachand Seth (Karta)
m
Lady Kanchanbai (Wife)
Shri Rajkumarsingh (Son)
m
Smt. Premkumari Devi (Wife)
____________________________________________________________
Raj Bahadur Maharaj Bahadur Jambukumar Ch. Kumar Yesh
Singh(son) Singh (son) Singh (son) Singh Kumar
Singh
__________ _______________ ____________
m m m (Minor) (Minor)
Smt.Indrani Smt.Sneha Lata Smt.Urmila
Devi (wife) Devi (wife) Devi (wife)
__________ _____________ ___________
Pravin Dhir- Naina Sunaina Pramod Kumar (son)
Kumar rendra Kumari Kumari
(son) (son) (Daughter)
Sir Hukumchand Seth was the head of a well known family
of Indore. The family carried on various businesses and
owned extensive properties. Prior to March 31, 1950 Sir
Hukum Chand and the members of his family constituted a
Hindu Undivided family. By a deed of partition dated March
31, 1950 various family properties were partitioned between
Sir Hukum Chand, his wife Lady Kanchanbai and their son Raj
Kumar Singh in equal shares. Sir Hukum Chand and Lady
Kanchanbai executed two trust deeds on the same date, March
21, 1952 purporting to constitute a trust of the properties
respectively belonging to them. The trust deeds contained
identical terms and conditions. The trustees in each case
were Sir Hukum Chand, Lady Kanchanbai, their son Raj Kumar
Singh and his wife Prem Kumari
1024
Devi and the eldest grandson Raja Bahadur Singh. The
beneficiaries named in the trust deeds were Rajkumar Singh
and his sons Raja Bahadur Singh, Maharaja Bahadur Singh,
Jambukumar Singh, Chandrakumar Singh and Yeshkumar Singh.
With the passage of time and in accordance with the terms
and conditions of the trust deeds the beneficiaries came
into possession of their respective shares of the
properties. Originally the income from those properties was
returned by them for the purpose of their income-tax
assessments in their individual status, but subsequently
they began to assert that the properties were received by
them as the Karta of their respective Hindu undivided
families and that, therefore, the income was liable to be
assessed in that status.
These appeals arise out of income tax assessments made
in the case of Raja Bahadur Singh for the assessment year
1962-63, Maharaja Bahadur Singh for the assessment year
1961-62 and Jambukumar Singh for the assessment years 1961-
62 and 1962-63. The Income Tax Officer assessed all three
assessees in their individual status and the assessments
were confirmed in that status by the Appellate Assistant
Commissioner on appeal. On second appeal by the assessees
the Income Tax Appellate Tribunal also took the view that
the income from the properties received by the assessees
under the two trust deeds fell to be taxed in their
individual status. At the instance of the assessees the
Appellate Tribunal referred the cases to the High Court of
Madhya Pradesh for its opinion in each case on the question
of law set forth earlier. The High Court understood the two
trust deeds differently from the Appellate Tribunal and the
taxing authorities and held that the properties had been
settled with the assessees in their representative(capacity
as Kartas of their respective Hindu undivided families.
It may be mentioned at the outset that neither the
assessees nor the Revenue dispute the legality of the trust
deeds and we must proceed on the assumption, as did the High
Court, the Appellate Tribunal and the taxing authorities,
that the authors of the trust deeds were competent to settle
the properties in accordance with the terms and conditions
expressed in those documents.
The sole question before us is whether upon those terms
and conditions it was intended by the settlors that the
beneficiaries should receive the properties in their
individual capacity or in a representative capacity as
Kartas of the respective Hindu undivided families. It is not
necessary to refer to all the provisions of the trust deeds
because the
1025
parties are in common agreement that the principal
provisions calling for consideration are clauses 1, 3 and 4
of the trust deeds. Clause 1 empowers the trustees to apply
the income from the trust properties to the rent, rates,
taxes and other liabilities in respect of the trust
properties, including the cost of maintenance, and
thereafter to divide the balance left over in equal shares
between the beneficiaries, so that each beneficiary received
one-sixth of the balance. In the event of a beneficiary
being a minor, his share of the income was payable to his
natural guardian for being applied towards his education,
maintenance and advancement in life, marriage and other
expenses. It was also provided that in the event of a
beneficiary dying before the time of distribution of the
properties between the beneficiaries under clause 4, the
share of the beneficiary so dying would be used to support
and maintain his widow and his male issue “in such manner as
the trustees shall in their absolute and uncontrolled
discretion deem proper” and the surplus, if any, of the
share of that beneficiary and the income therefrom would be
accumulated and kept in credit to his account and preserved
in order to be distributed in accordance with clause 4. In
the event of a beneficiary dying before the time of
distribution without leaving any widow or male issue his
share was to be divided equally among other beneficiaries
then alive or the then widow and male issue of any other
deceased beneficiary, if any, entitled to share in the
distribution, subject, however, to provision being made for
the maintenance and education until marriage and the
marriage expenses of the daughter or daughters, if any of
the said beneficiary. Clause 3 declares that if any moneys
were required for meeting extraordinary expenses of or for
the benefit of any beneficiary or his wife or children on
special occasions, such as the marriage of the beneficiary
and of his children, the illness of the beneficiary or of
his children, travelling expenses of the beneficiary and of
his family for going abroad, their education in a foreign
country or on such other occasions as the trustees may deem
fit for special treatment, the trustees were empowered to
pay to the beneficiary such amounts from time to time as
they thought fit in their absolute discretion. Such amounts
could be paid to the beneficiary out of the trust properties
either by way of advance or loan either on interest or out
of his share of the corpus. In the latter event the share of
the net income payable to the beneficiary was liable to
proportionate reduction. Clause 4 provides that upon the
youngest of the beneficiaries attaining the age of 30 years
the trustees would divide and distribute the trust
properties together with the accumulated interest and income
thereon among the beneficiaries according to their
respective rights and shares, that is to say equally,
1026
and in making such division the trustees would take into
consideration the amount due by the beneficiary to the
trustees by way of loan or advance made to him. It was
further provided that if any beneficiary should have died
before the time of such division or distribution leaving a
widow and any son or sons or only son or sons the widow
and/or the sons would take by substitution the share which
the beneficiary would have taken had he been alive, and such
share would be divided equally between the widow and the
sons. The proviso declares that if at the time of the
division and distribution any beneficiary should have died
without leaving any son but leaving only a widow, the widow
would get half of the share of that beneficiary while the
other half would be distributed among the remaining
beneficiaries and the heirs of the beneficiaries entitled to
distribution. A further provision declares that if at the
time of division and distribution any beneficiary should
have died without leaving a widow or a son his share would,
subject to such adequate provision made for the maintenance
and education until marriage and the marriage expenses of
the daughter or daughters of such beneficiary as the
trustees may in their discretion think fit, he distributed
among the remaining beneficiaries and the heirs of the
beneficiaries entitled to distribution.
The assesses filed a declaration dated October 19, 1964
that on and from Diwali 1959 the income accruing to them as
beneficiaries from the two trust deeds should be regarded as
income belonging to their Hindu undivided families. The High
Court and the Appellate Tribunal have rightly held that
those subsequent declarations can be of no moment for
deciding whether the income belonged to the individuals or
their Hindu undivided families. It is settled by law that
the question has to be resolved upon the contents of the
trust deeds, their terms and conditions being free from
ambiguity. The question whether a gift of self-acquired or
separate property by a father to his son results in the son
holding it as ancestral property was considered by this
Court in C.N. Arunachala Mudaliar v. C.A. Muruganatha
Mudaliar and Another, [1954] 5 S.C.R. 243, and it was laid
down that it was perfectly competent for the father, when he
makes a gift, to provide expressly either that the donee
would take it exclusively for himself or that the gift would
be for the benefit of the branch of his family, and if there
are express provisions to that effect in the deed of gift or
will, the interest which the son would take in such property
would depend upon the terms of the grant. Where the document
contains no clear words describing the kind of interest
which the donee is to take, the question is one of
construction and the Court must collect the intention of the
1027
donor from the language of the document taken along with the
surrounding circumstances. There is no presumption one way
or the other. It is not necessary for us to refer to the
several cases cited before us, because each case must be
decided on its own facts and each document calls for its own
particular construction.
The circumstances surrounding the execution of the two
documents indicate that a common intention inspired the
minds of the two settlors. This has considerable
significance when it is realised that while one trust deed
was executed by a male member of the family the other was
executed by a female member of the family. The course of
devolution under the Hindu law would be materially different
in the two cases and, therefore, the principles of the Hindu
law governing the devolution of property in the case of
property passing from a father to his son and grandsons
cannot be invoked in these appeals.
Even if the matter be looked at in the context of the
Hindu law as it obtained at the relevant time, the terms and
conditions of the trust deeds are wholly inconsistent with
the property passing into the hands of the beneficiaries as
Kartas of their respective Hindu undivided families. There
is clear indication in the trust deeds which bears this out.
In the first place, had it been intended that the
beneficiary should receive the property as Karta of his
Hindu undivided family the document would not have empowered
the trustees, in clause 1, to exercise an absolute and
uncontrolled discretion on the death of a beneficiary to
apply his share to the maintenance of his widow and his male
issue and to accumulate the surplus to the account of the
said beneficiary for distribution. On the contrary, the
trustees would have been under an obligation to entrust the
income falling to the share of the deceased beneficiary to
the members of his Hindu undivided family and no discretion
would have been permissible in regard to the disposal or
otherwise of any part thereof. Secondly, the document would
not have provided that if before the time of division and
distribution a beneficiary died leaving only a widow, the
widow would get a half of the share belonging to the
deceased beneficiary while the other half would be liable to
distribution among the remaining beneficiaries and the heirs
of other deceased beneficiaries. These two conditions are
sufficient in themselves to lead to the conclusion that it
was never intended that the properties should pass to the
beneficiaries to be held by them for their respective Hindu
undivided families. On the plain terms of the trust deeds,
the properties were intended to devolve on the beneficiaries
in their individual capacity.
1028
It is contended by learned counsel for the assesses
that the settlors intended under the two trust deeds to
protect the grandsons, and the scheme incorporated in the
trust deeds must be regarded as akin to a family settlement.
We are unable to agree. The interest of the grandsons has
been sufficiently protected by the terms and conditions of
the trust deeds, and in order to safeguard that interest it
is not necessary to conclude that the properties were
intended to go to the beneficiaries as Kartas of the Hindu
undivided families. The grandsons themselves were
beneficiaries and on the division and distribution of the
properties they would have full power to deal with them
according to their will and discretion. It is only where a
beneficiary dies before division and distribution of the
properties without leaving a widow or sons that the trustees
are empowered to intervene and direct, subject to providing
for the maintenance, education and marriage of the deceased
beneficiary’s daughters, that the share of such beneficiary
be divided among the remaining beneficiaries and the heirs
of deceased beneficiaries.
We are of opinion that the High Court has erred in the
view taken by it of the two trust deeds and that the
Appellate Tribunal was right in its conclusions.
Accordingly, we answer the question referred to the High
Court in each case in the affirmative, in favour of the
Revenue and against the assessees. The appeals are allowed
with costs.
A.P.J. Appeals allowed.
1029