{"id":152649,"date":"1967-05-05T00:00:00","date_gmt":"1967-05-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-jayantilal-amratlal-ahmedabad-on-5-may-1967"},"modified":"2015-12-27T14:56:31","modified_gmt":"2015-12-27T09:26:31","slug":"commissioner-of-income-tax-vs-jayantilal-amratlal-ahmedabad-on-5-may-1967","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-jayantilal-amratlal-ahmedabad-on-5-may-1967","title":{"rendered":"Commissioner Of Income-Tax, … vs Jayantilal Amratlal, Ahmedabad on 5 May, 1967"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of Income-Tax, … vs Jayantilal Amratlal, Ahmedabad on 5 May, 1967<\/div>\n
Equivalent citations: 1968 AIR 189, \t\t 1967 SCR (3) 946<\/div>\n
Author: S Sikri<\/div>\n
Bench: Sikri, S.M.<\/div>\n
           PETITIONER:\nCOMMISSIONER OF INCOME-TAX, GUJARAT\n\n\tVs.\n\nRESPONDENT:\nJAYANTILAL AMRATLAL, AHMEDABAD\n\nDATE OF JUDGMENT:\n05\/05\/1967\n\nBENCH:\nSIKRI, S.M.\nBENCH:\nSIKRI, S.M.\nSHAH, J.C.\nRAMASWAMI, V.\n\nCITATION:\n 1968 AIR  189\t\t  1967 SCR  (3) 946\n\n\nACT:\n    Indian  Income-tax\tAct,  1922,  s.\t 16(1)(c),   proviso\n1--Settlor making charitable trust and registering it  under\ns. 35-- Bombay Public  Trusts Act, 1950--S. 16(1)(c) proviso\n1  whether can be applied to income of trust on\t presumption\nthat  settlor  may derive benefit  contravening\t the  Bombay\nAct--Facts  justifying applicability of s. 16(1)(c)  proviso\n1.\n\n\n\nHEADNOTE:\n  J   executed a trust deed whereby he created a  charitable\ntrust.\t  The\t4iced  was  registered\twith   the   Charity\nCommissioner  under the Bombay Public Trust Act, 1950.\t For\nthe year 1958-59 the Income-tax Officer held that since\t the\nsettlor had reserved to himself wide powers for own  benefit\nand had also utilised those powers to his benefit, the\tcase\nwas  coveted  by s. 16(1)(c) of the  Income-tax\t Act,  1922.\nAccordingly  the Income-tax Officer taxed the income of\t the\ntrust  in  the hands of the 'settlor.  A similar  order\t was\npassed\tfor  the  year 1959-60.\t In his\t appeal\t before\t the\nAppellate Assistant Commissioner the settlor relied on s. 35\nof  the Bombay Public Trusts Act, 1950 to .show that he\t was\nthereby\t precluded  from  utilising the funds  for  his\t own\nbenefit\t but  his  plea was  not  accepted.   The  Appellate\nTribunal, however, relying on the terms .of the deed  itself\ndecided\t in  favour of the settlor and. the  High  Court  in\nreference did the same.\t The revenue appealed.\n    HELD: (i) There was no doubt' that under the Trust\tDeed\nthe  settlor  had  very wide powers and\t could\tdirect'\t the\nTrustees to. grant loan him.  The Trustees could even  grant\na loan to a firm in which he was interested.  But this would\nbe contrary to the provisions of s. 35 the Bombay Trust Act.\nThe  said  Act\tto  the extent\tit  operates  must  override\nprovisions in the Trust Deed.  [953E-954A-B]\n    The Legislature in proviso 1 to s. 16(1)(c) is  thinking\nof powers lawfully given and powers lawfully exercised.\t Any\nperson\tcan commit breach   of trust and assume\t power\tover\nincome or assets but for that reason the income of the trust\ncannot\tbe  treated as the income of the settlor  under\t the\nproviso.\n    Commissioner  of  Income-tax,  West Bengal v.  Sir\tS.M.\nBose,<\/a>  21 ].T.R. 135 and Commissioner of Income-tax,  Bombay\nNorth  v. Mathuradas Mangaldas Parekh, I.T. Ref.  No.<\/a>  4\/54,\nJudgment  by  Bombay  High  Court  dated  August  26,  1954,\nreferred to.\n    (ii) The words 're-assume power' give indication to\t the\ncorrect\t meaning of s. 16(1)(c) proviso 1.  The latter\tpart\nof the proviso contemplates that the settlor should be\table\nby virtue of something contained in the Trust Deed, to\ttake\nback the power he had over the assets  or income previous to\nthe  execution of the Trust Deed.  A provision enabling\t the\nsettlor to give directions to. trustees to employ the assets\nor  funds  of  the trust in a particular  manner  or  for  a\nparticular  charitable\tobject\tcontemplated  by  the  trust\ncannot\tbe said to confer a right to re-assume power  within\nthe  first  proviso.  Otherwise a settlor could\t never\tname\nhimself a sole trustee.\t The mere fact that the settlor\t can\nderive\tsome direct or indirect benefit under a\t trust\tdeed\nwould not' bring the deed within the first proviso.   [955G-\nH; 966A-B]\n\t947\n    Chamberlain v. Inland Revenue Commissioner 25 T.C.\t317,\nTulsidar Kalichand v. Commissioner of Income-tax, 42  I.T.R.\n1,  WoIfson v. Commissoners  Inland Reventte, 31  T.C.\t141,\nSaunders v. Commissioners\nInland Revenue, 37 T.C. 416, referred to.\nCommissioner  of  Income-tax,  Punjab  v.S.  Raghbir  Singh,\n57\/.T.R., followed.\nOn an examination of terms of the Trust Deed the Court\theld\nnone  of its clauses came within the purview of\t Proviso  1.\n[956C-F]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 474-477\n<\/p>\n
966.
\n    Appeals  by\t special leave from the judgment  and  order
\ndated  September  5,  1963 of the  Gujarat  High  Court\t  in
\nIncome-tax Reference No. 19 of 1962.\n<\/p>\n
    S.T. Desai, A. N. Kirpal, R.N. Sachthey and S.P.  Nayyar
\nfor the appellant (in all the appeals).\n<\/p>\n
    R.J.  Kolah,  M.L.\tBhakta\tand  O.C.  Mathur,  for\t the
\nrespondents (in all the appeals).\n<\/p>\n
The Judgment of the Court was delivered by
\n    Sikri,  J.\t These\tfour appeals by special\t leave\tare’
\ndirected  against the judgment of the Gujarat High Court  in
\nIncome Tax Reference No. 19 of 1962, whereby the High  Court
\nanswered  the  questions referred to it\t by  the  Income-tax
\nAppellate  Tribunal against the Commissioner of\t Income-tax,
\nwho  is\t the   appellant before us.  The  reference  was  in
\nrespect of assessment  years 1955-56 and 1956-57 in the case
\nof  Shri Jayantilal Amratlai (Individual) and in respect  of
\nassessments  years  1958-59  and  1959-60  in  the  case  of
\nJayantilal  Amratlal   Charitable   Trust  Ahamedabad.\t The
\nquestions referred are:\n<\/p>\n
    (1\t) Whether on the facts and in the  circumstances  of
\nthe case, the Tribunal was right in holding that the  income
\nof  Jayantilal Amratlal Charitable Trust was not  assessable
\nin  the hands of the settlor Jayantilal Amratlal  under\t the
\nfirst proviso to Sec. 16(1)(c) of the Income-tax Act for the
\nassessment years 1955-56 and 1956-57 ?\n<\/p>\n
    (2) Whether on 1he facts and in the circumstances of the
\ncase,  the Tribunal was right in holding that the income  of
\nthe  Trust  should be considered in the\t assessment  of\t the
\ntrustees and that they were entitled to the benefits of\t the
\nrefunds attached to the dividends from the Trust  properties
\nfor ‘the assessment years 1958-59 and 1959-60 ?\n<\/p>\n
    The\t answer\t to  these quest.ions depends  on  the\ttrue
\ninterpretation of s. 16(1)(c) of the Indian Income-tax\tAct,
\n1922,  and the interpretation of the Trust Deed\t dated\tJune
\n19, 1947, and
\n948<\/span>
\nto appreciate the points fully it is necessary to give a few
\nfacts which are stated in the statement of the case.
\nJayantilal Amratlal, individual, hereinafter referred to  as
\nthe  settlor,  executed a trust deed whereby he\t settled  80
\nordinary  shares of M\/s Jayantilal Amratlal Ltd.,  on  trust
\nand created a trust known as “Jayantilal Amratlal Charitable
\nTrust” to carry out the following various objects set out in
\nthe Trust Deed :\n<\/p>\n
\t      “For  the relief of poor, for  education,\t for
\n\t      medical  relief, for advancement of  religion,
\n\t      knowledge,  commerce,  health, safety  or\t any
\n\t      other objects beneficial to mankind.”\n<\/p><\/blockquote>\n
This Trust Deed was registered with the Charity Commissioner
\nunder  the  Bombay Public Trust Act, 1950.   The  Department
\naccepted this trust as a valid charitable trust and gave the
\nnecessary relief to the trustees in respect of the income of
\nthe Trust. till the assessment year 1957-58.
\nThe Income-tax Officer, while dealing with the assessment of
\nJayantilal  Amratlal Charitable Trust for the year  1958-59,
\nwrote A letter to the Trust to show cause why the income  of
\nthe Trust should not be included in that of the settlor\t and
\nwhy the case of the Trust should not be decided accordingly.
\nThe  Managing Trustee submitted his reply.   The  Income-tax
\nOfficer\t wrote lengthy order holding that on the  facts\t the
\ncase  was covered by the first proviso to S. 16 ( 1  )\t(c).
\nHe  was\t impressed  both by the wide  powers  given  to\t the
\nsettlor and the way in which the settlor had been  utilising
\nhis powers under the various clauses of the Trust Deed.\t  He
\nheld :\n<\/p>\n
\t      “It  is  not necessary that  there  should  be
\n\t      diversion of income or assets from  char-table
\n\t      purposes\t to   noncharitable   purposes\t  to
\n\t      constitute  “retransfer  of assets to  or\t re-
\n\t      assumption of power over” the income or assets
\n\t      of the settlor.  It is not even necessary\t for
\n\t      the   purpose  of\t 1st  proviso\tto   section
\n\t      16(1)(c), especially its later part i.e. “give\n<\/p><\/blockquote>\n
\t      -the   settlor  a\t right\tto  reassume   power
\n\t      directly\tor  indirectly over  the  income  or
\n\t      assets”  that income or assets should be\tused
\n\t      for  personal  ends.  For\t diversion  of\tsuch
\n\t      assets  or income from one charitable  purpose
\n\t      to  another in accordance with the  wishes  of
\n\t      the settlor and the utilisation of income\t and
\n\t      investment  of  income or assets not  in\tfull
\n\t      conformity  with the desires of  the  trustees
\n\t      would be enough to drag the Trust property  in
\n\t      the  ambit  of  section 16 (I)  (c).   In\t the
\n\t      instant case, the settlor is all in all, he is
\n\t      the  managing  trustee and in the event  of  a
\n\t      conflict\tof opinion amongst the trustees\t the
\n\t      settlor would exercise predominating
\n\t      949<\/span>
\n\t      influence both as managing trustee as also  in
\n\t      his capacity of an arbitrator and his decision
\n\t      would  be binding on all.\t The most  important
\n\t      point  which needs consideration is  that\t all
\n\t      the  inherent  powers and discretion  for\t the
\n\t      income and corpus of the Trust property remain
\n\t      with  The settlor, in his capacity as  settlor
\n\t      and not by way of his capacity of a trustee.”\n<\/p><\/blockquote>\n
The  Income-tax Officer accordingly held that the income  of
\nthe Trust would not be computed in the hands of the trustees
\nbut  would be computed in the hands of the settlor under  s.
\n16(1)  (c).   For the assessment year 1959-60  he  passed  a
\nsimilar order on the same date.\n<\/p>\n
On  the\t same  day he also dealt  with\tthe  assessments  of
\nJayantilal  Amratlal, individual, for the years 1955-56\t and
\n1956-57.   Following his reasoning he included the  relevant
\nincome of the Trust in the hands of Jayantilal Amratlal.
\nFour  appeals were taken to the Appellate Assistant  Commis-
\nsioner\twho,  by  his two orders  dated\t November  8,  1960,
\ndismissed the appeals.\tBefore him the settlor relied on  s.
\n35  of the Bombay Public Trust Act, 1950, but the  Appellate
\nAssistant  Commissioner\t held that this did not\t assist\t the
\nsettlor\t  because   the\t Income-tax  law   did\t take\tinto
\nconsideration  income  derived\tdirectly  or  indirectly  by
\nillegal\t means.\t  He  felt that the settlor  “could  not  be
\nprecluded  from\t utilising funds of the\t trust\tdirectly  or
\nindirectly  to\this benefit since he had a right  under\t the
\nsettlement to do so and the Bombay Public Trust Act did\t not
\nhold any fear for him as the penalties leviable were not  of
\na deterrent nature, compared to the advantages that he could
\ngain directly or indirectly by re-assuming control over\t the
\ninvestments or its income”.\n<\/p>\n
On appeal, Income-tax Appellate Tribunal, however,  reversed
\nthese orders and held that the income from the Trust was not
\nhit  by\t the  first proviso to s.  16(1)(c).   The  Tribunal
\nignored\t the  factual position relied on by  the  Income-tax
\nOfficer\t  and  the  Appellate  Assistant  Commissioner\t and
\nconfined  itself  only\tto the Trust  Deed.   Regarding\t the
\noffending  clauses 4, 10 and 21 of the Trust Deed, which  we
\nwill presently refer to, the Appellate Tribunal held:\n<\/p>\n
\t      “We see nothing in these clauses which  confer
\n\t      on the assessee the right to retransfer to the
\n\t      assessee directly or indirectly the income  or
\n\t      the assets or to reassume power over them.  He
\n\t      has always to exercise these powers within the
\n\t      framework\t of  the Trust.\t There is  no  doubt
\n\t      power  in clause (10) to invest in any  manner
\n\t      and  thereby in the assessee’s own  companies,
\n\t      but  this\t is overridden by clause 35  of\t the
\n\t      Bombay Trust
\n\t      9 5 0
\n\t      Act  under  which it is  registered.   If\t the
\n\t      Charity  Commissioner has chosen not  to\ttake
\n\t      action, it may also be that he has  considered
\n\t      the  matter  and approved the action.   It  is
\n\t      purely his responsibility.  The. fact that the
\n\t      investment  itself has not been  made  illegal
\n\t      under the Trust Act and that the assessee\t can
\n\t      offend  the  provisions with impunity  as\t the
\n\t      penalty is light are all matters extraneous to
\n\t      this  consideration which has to\tbe  confined
\n\t      only to the provisions in the deed.”\n<\/p><\/blockquote>\n
At  the\t instance  of the  Commissioner\t of  Income-tax\t the
\nAppellate   Tribunal  stated  the  case\t and  referred\t the
\nquestions which we have already reproduced above.  The\tHigh
\nCourt held :\n<\/p>\n
\t      “When  a\tstatute\t talks\tabout  a  right\t  to
\n\t      reassume,\t it must mean a lawful\tright  which
\n\t      can  be lawfully exercised. . . . a  right  to
\n\t      reassume\t must  be  given  to   the   settlor
\n\t      independently of any third party and dependent
\n\t      upon  his own volition.  It is true  that\t the
\n\t      Charity  Commissioner may grant leave  to\t the
\n\t      settlor,\tbut he may or may not grant  it.   A
\n\t      right  to reassume cannot rest dependent\tupon
\n\t      whether  the Charity Commissioner may  or\t may
\n\t      not grant sanction.”\n<\/p><\/blockquote>\n
\t      Shelat, C.J., observed
\n\t      “Surely, it must be presumed that the  Charity
\n\t      Commissioner  would not grant his sanction  to
\n\t      an  investment which is bound to result  in  a
\n\t      conflict\tof duty and interest on the part  of
\n\t      the settlor who is also a trustee.  Therefore,
\n\t      such a right, if it can be called a right,  is
\n\t      not   one\t  of  any  substance   and   cannot,
\n\t      therefore, be construed as a right to reassume
\n\t      power  over  the trust assets  or\t the  income
\n\t      thereof,\tas  contemplated  by  proviso  I  to
\n\t      section 16(1)(c).”\n<\/p><\/blockquote>\n
\t      “A  loan, by the very nature of it, cannot  be
\n\t      said  to amount to an exercise of dominion  or
\n\t      control  over  its  subject  matter.   It\t  is
\n\t      repayable and is given on conditions as to the
\n\t      time  of repayment and interest, if  any.\t  By
\n\t      taking a loan a settlor does not exercise over
\n\t      its  subject matter power.or  dominion  which,
\n\t      but for the trust or the settlement, he- would
\n\t      have been able to exercise.”\n<\/p><\/blockquote>\n
\t      Section 16(1) (c) reads as follows
\n\t      “16.  Exemptions and exclusions in determining
\n\t      the
\n\t      total income.-.\n<\/p><\/blockquote>\n
\t      (1)   In\tComputing  the total  income  of  an
\n\t      assessee.\n<\/p><\/blockquote>\n
\t      (a)   ……\n<\/p><\/blockquote>\n
\t      951<\/span><\/p>\n
\t      (b)……\n<\/p><\/blockquote>\n
\t      (c)   all\t income\t arising to  any  person  by
\n\t      virtue of a settlement or disposition  whether
\n\t      revocable or not, and whether effected  before
\n\t      or  after\t the  commencement  of\tthe   Indian
\n\t      Income-tax  (Amendment)  Act,  1939  (VII\t  of
\n\t      1939),  from assets remaining the property  of
\n\t      the settlor or disponer, shall be deemed to be
\n\t      income  of  the settlor or disponer,  and\t all
\n\t      income  arising to any person by virtue  of  a
\n\t      revocable\t transfer of assets shall be  deemed
\n\t      to be income of the transferor :\n<\/p><\/blockquote>\n
\t      Provided that for the purposes of this  clause
\n\t      a settlement, disposition or transfer shall be
\n\t      deemed  to  be revocable if  it  contains\t any
\n\t      provision\t for  the  retransfer  directly\t  or
\n\t      indirectly  of  the income or  assets  to\t the
\n\t      settlor, disponer or transferor, or in any way
\n\t      gives  the settlor, disponer or  transferor  a
\n\t      right to reassume power directly or indirectly
\n\t      over the income or assets;\n<\/p><\/blockquote>\n
\t      Provided\t  further   that   the\t  expression
\n\t      “settlement  or  disposition”  shall  for\t the
\n\t      purposes\t of   this   clause   include\t any
\n\t      disposition,  trust, covenant,  agreement,  or
\n\t      arrangement,  and the expression\t“settlor  or
\n\t      dispone  r”  in relation to  a  settlement  or
\n\t      disposition  shall include any person by\twhom
\n\t      the settlement or disposition was made :
\n\t      Provided\tfurther that this clause  shall\t not
\n\t      apply  to any income arising to any person  by
\n\t      virtue of a settlement or disposition which is
\n\t      not revocable for a period exceeding six years
\n\t      or during the life-time of the person and from
\n\t      which  income the settlor or disponer  derives
\n\t      no  direct  or indirect benefit but  that\t the
\n\t      settlor shall be liable to be assessed on\t the
\n\t      said  income as and when the power  to  revoke
\n\t      arises to him.”\n<\/p><\/blockquote>\n
The learned counsel for the appellant, Mr. S. T. Desai,\t has
\nsubmitted three propositions before us (1) The operation  of
\nthe  first  proviso  to s. 16(1) (c)  depends  only  on\t the
\nsettlement  and\t its terms and not on any provision  of\t the
\nBombay Public Trusts Act, which may or may not be  observed;
\n(2) The absolute powers reserved over the income and  corpus
\nof  the trust property remain vested in the settlor  in\t his
\ncapacity as the settlor and not as trustee, and further they
\nfall within the purview of the first pro. viso to s.  16(l.)\n<\/p>\n
(c);  and (3) It is a relevant consideration that, as  found
\nby the authorities, the settlor has been deriving direct and
\nindirect  benefits from the trust properties.  He relies  on
\nclauses\t 4,  6, 8, 10, 11 and 21 of the Trust Deed  to\tshow
\nthat  the  Trust Deed gives the settlor right  to  re-assume
\npower directly
\n9 Sup.\tCI\/67-17
\n952<\/span>
\nor indirectly over the income or assets of the Trust  within
\nthe first proviso to s. 16(1)(c).\n<\/p>\n
Let us now examine the Trust Deed.  This indenture was\tmade
\nbetween Jayantilal Amratlal, hereinafter called the settlor,
\nand   Jayantilal  Amratlal,  Padmavati\twife  of  the\tsaid
\nJayantilal Amratlal, Ramanlal Amratlal, Hariprasad Amratlal,
\nKasturlal   Chandulal\tParikh\tand   Bhagubhai\t  Chandulal,
\nhereinafter called the Trustees.  Clause, 1 vests the shares
\nand  the other trust properties and income in the  trustees.
\nClause 2 gives the name of the\t   trust  Clause  3  obliges
\nthe trustees to get and collect income ,of   the       trust
\nproperties  and\t pay expenses, etc.  Clause  4\tcreates\t the
\ntrust  for  the relief of poor, and for\t education,  medical
\nrelief, etc.   It further provides : “The Trustees shall  at
\nthe direction of the\t Settlor  during, his  lifetime\t and
\nafter his death at their discretion set aside any portion of
\nthe  income of the Trust Premises to provide cash, food\t and
\nclothes\t for  any  temple  or temples  of  the\tPushti\tMarg
\nSampradaya.   In applying. the income of the Trust  Premises
\nfor  all  or any of the objects hereinbefore  specified\t the
\nTrustees may consider the claims of any needy or poor person
\nbelonging  to the Visa Porwad Community.” Clause  5  enables
\nthe  settlor  to give direction to the\ttrustees  to  accept
\ncontributions ,or donations to the Trust from other persons.
\nClause 6 provides as follows : “The Setflor may at any\ttime
\nor  times  by  writing direct that  any\t specific  funds  or
\ninvestments  or property forming part of the Trust  Premises
\nand\/or\tthe  income thereof shall be  utilised\tand  applied
\nexclusively  for any one more of the  aforesaid\t ,charitable
\nobjects and the Settlor may by writing at any time or  times
\nvary  or revoke any such directions previously given by\t him
\nand  Trustees shall be bound to carry into effect  all\tsuch
\ndirections  given  by  the Settlor.” Clause  7\tenables\t the
\nTrustees  to utilise the whole or any portion of  the  Trust
\nPremises for all or any of the charitable object-,,, if\t the
\nSettlor so directs.  Clause 8 may be set out in full :\n<\/p>\n
\t      “8.  The Trustees shall from time to  time  at
\n\t      the  direction of the settlor during his\tlife
\n\t      time  and after his death may at any  time  at
\n\t      their  discretion\t deliver or  hand  over\t the
\n\t      income  of the Trust Premises or any  part  of
\n\t      such income to any institution, association or
\n\t      society  to be applied for all or any  of\t the
\n\t      purposes of these presents without being bound
\n\t      to  see  to the application thereof  or  being
\n\t      liable   for   the  loss\t or   misapplication
\n\t      thereof.”\n<\/p><\/blockquote>\n
Clause\t9 enables the Trustees to invest the residue,  etc.,
\nand to accumulate the same and apply towards the objects  of
\nthe  Trust.   Clause 10 inter alia empowers the\t Settlor  to
\ngive  directions regardin- the investment of moneys “as\t are
\nauthorised by law for invest-\n<\/p>\n
953<\/span><\/p>\n
ment  of trust premises or in ordinary or preference  shares
\nof  joint stock companies, whether partly or fully paid,  or
\nin  debentures or in giving loans to any public\t company  or
\nfirm  of good standing and reputation or in the purchase  or
\nmortgage of any movable or immovable property with power  to
\nthe  Trustees with the like direction to vary  or  transpose
\nthe said investments into or for others of the same or of  a
\nlike  nature.” Clause II inter -alia enables the Settlor  to
\ndirect\tthe  Trustees to vary the investments.\tOut  of\t the
\nother clauses we need only mention clause 21 which reads  as
\nfollows :\n<\/p>\n
\t      “All  questions arising in the management\t and
\n\t      administration of the trusts or powers  hereof
\n\t      and  all\tdifferences of opinion\tamongst\t the
\n\t      Trustees\tshall be disposed of  in  accordance
\n\t      with  the\t opinion of the Settlor\t during\t his
\n\t      lifetime\tand  on and after the death  of\t the
\n\t      settlor in accordance with the opinion of\t the
\n\t      majority of the Trustees in the case of  their
\n\t      being equally divided the trustee senior\tmost
\n\t      in age shall have a casting vote.”\n<\/p><\/blockquote>\n
The  learned  counsel  for the\tappellant  says\t that  these
\nclauses\t read fairly would enable the Settlor to direct\t the
\nTrustees to give a loan to him and he could give  directions
\nto the Trustees in ‘such a way as to re-assume control\tover
\nthe assets.  He says that as a matter of fact the Income-tax
\nOfficer\t did find that the Settlor has been utilising  these
\npowers\tfor his own benefit.  There is no doubt\t that  under
\nthe  Trust  Deed the Settlor has very wide  powers  and\t the
\nSettlor could direct the Trustees to grant loan to him.\t The
\nTrustees  could\t even grant loan to a firm in which  be\t was
\ninterested. But this would be contrary to the provisions  of
\nthe  Bombay Public Trust Act.  Section 35 (I) of the  Bombay
\nPublic Trust Act provides :\n<\/p>\n
\t      “35(1) : Investment of Public Trust Money
\n\t      Where the trust property consists of money and
\n\t      cannot  be applied immediately or at an  early
\n\t      date for the purposes of the public trusts the
\n\t      trustee  shall be bound  (notwithstanding\t any
\n\t      direction\t contained in the Instrument of\t the
\n\t      Trust)  to deposit the money in any  scheduled
\n\t      bank  as defined in the Reserve Bank of  India
\n\t      Act, 1934, in the Postal Savings Bank or in  a
\n\t      Cooperative   Bank  approved  by\t the   State
\n\t      Government for the purpose or to invest it  in
\n\t      Public security;\n<\/p><\/blockquote>\n
\t      Provided……\n<\/p><\/blockquote>\n
\t      Provided further that the Charity Commissioner
\n\t      may  by  general or special order\t permit\t the
\n\t      Trustee of any public trust or classes of such
\n\t      trusts  to  invest  the  money  in  any  other
\n\t      manner.”<\/p><\/blockquote>\n
\t      9 54
\nMr.   S.  T.  Desai  submits  that  we\tcannot\t take\tinto
\nconsideration the provisions of the Bombay Public Trust Act.
\nWe are unable to accept this submission.  The Bombay  Public
\nTrust  Act  must, to the extent it  operates,  override\t any
\nprovisions  in\tthe Trust Deed.\t As  Shelat,  J.,  observed,
\n“when proviso 1 talks about a right to reassume power, prima
\nfacie,\tthat  must mean that there, is such  power  lawfully
\ngiven  under  the deed of trust.” It seems to  us  that\t the
\nLegislature,  in  proviso I to s. 16(1)(c)  is\tthinking  of
\npowers\tlawfully given and powers lawfully  exercised.\t Any
\nperson can commit breach of trust and assume power over\t the
\nincome or assets but for that reason the income of the trust
\ncannot\tbe  treated as the Income of the settlor  under\t the
\nproviso.\n<\/p>\n
The Calcutta High Court in Commissioner of Income-tax,\tWest
\nBengal v. Sir S. M. Bose<\/a>(1) observed
\n\t      “The  first proviso to Section  16(1)(c)\tonly
\n\t      contemplates  cases  where  the  settlor\t can
\n\t      lawfully reassume power over the income or the
\n\t      assets.  Unless that was so, the proviso would
\n\t      cover  every  trust where a settlor  has\tmade
\n\t      himself trustee because a trustee acting\tdis-
\n\t      honestly could always assume control over\t the
\n\t      income.”\n<\/p>\n
We   agree  with  these\t observations.\t Similarly,  in\t  an
\nunreported  judgment  (Commissioner  of\t Income-tax,  Bombay
\nNorth  v. Mathuradas Mangaldas Parekh<\/a> ( 2 ) the Bombay\tHigh
\nCourt repelled a similar argument by observing :\n<\/p>\n
\t      “The  first answer to this contention is\tthat
\n\t      them trustees would be committing a breach  of
\n\t      the  law\tif they were to\t advance  moneys  to
\n\t      themselves.   There  is  a  clear\t prohibition
\n\t      under Section 54 of the Trusts Act.”\n<\/p><\/blockquote>\n
If  we\tdo not ignore the provisions of\t the  Bombay  Public
\nTrust  Act and the general principles applicable  to  public
\ntrusts, the question arises whether on a true interpretation
\nof the first proviso to S. 16 ( 1 ) (c) the powers  reserved
\nto  the\t settlor  under\t the Trust  Deed  come\twithin\tits-
\nmischief.   The learned counsel says that the words  of\t the
\nproviso\t are  very wide.  I He points out  the\treasons\t why
\nParliament  has inserted this proviso.\tHe draws our  atten-
\ntion  to -the -following observations of Lord  Macmillan  in
\nChamberlain  v.\t Inland\t Revenue  Commissioners(1),   quoted
\nin.–Tulsidas Kilachand v. Commissioner of Income-tax<\/a>(1)
\n(1)  21 I.T.R. 135 at p. 141.\n<\/p>\n
(2)  I.T.  Ref.\t  No. 4 of 1954, judgment dated\t August\t 26,
\n1954,  reported in “unreported Income-tax Judgmenis  of\t the
\nBombay\tHigh  Court, Book One, Published  by  Western  India
\nRegional  Council of the Institute of Chartered\t Accountants
\nof India, Bombay” p. 314 at p. 316.\n<\/p>\n
(3)  25 T.C. 317. 329.\t\t\t\t\t (4)\n42 I.T.R. 1, 4.\n955<\/span>\n.lm15\n<\/pre>\n
“This\tlegislation….\t (is)  designed\t to   overtake\t and
\ncircumvent  a growing tendency on the part of  taxpayers  to
\nendeavour  to  avoid or reduce tax liability.  by  means  of
\nsettlements.   Stated quite generally, the method  consisted
\nin  the disposal by the taxpayer of part of his property  in
\nsuch a way that the income should no longer be receivable by
\nhim, while at the same time he retained certain powers over,
\nor   interests\tin,  the  property  or\tits   income.\t The
\nLegislature’s  counter\twas to declare that  the  income  of
\nwhich  the taxpayer had thus sought to disembarrass  himself
\nshould, notwithstanding, be treated as still his income\t and
\ntaxed in his hands accordingly.”\n<\/p>\n
This  Court  held  in that  case,  that\t these\tobservations
\napplied\t also  to the section under consideration,  and\t the
\nIndian\tprovision is enacted with the, same intent  and\t for
\nthe same purpose.  But even so, Lord Simonds observed  while
\nconstruing  a similar provision in Wolfson v.  Commissioners
\nof Inland Revenue(1) :\n<\/p>\n
\t      “It  was\turged that the construction  that  I
\n\t      favour  leaves an easy loophole through  which
\n\t      the  evasive taxpayer may find  escape.\tThat
\n\t      may  be  so; but I will repeat what  has\tbeen
\n\t      said  before.   It is not the  function  of  a
\n\t      court  of law to give to words a strained\t and
\n\t      unnatural\t meaning  because only thus  will  a
\n\t      taxing  section apply to a transaction  which,
\n\t      had the Legislature thought, of it, would have
\n\t      been covered by appropriate words.”\n<\/p><\/blockquote>\n
Viscount Simonds observed again in Saunders v. Commissioners
\nof  Inland  Revenue(1)\tin construing  a  similar  provision
\noccurring in the English Act :\n<\/p>\n
\t      “I  am assuredly not going to depart from\t the
\n\t      fair  meaning of words in a taxing Section  in
\n\t      order that tax may be exacted.”\n<\/p><\/blockquote>\n
What then is the fair meaning of s. 16(1)(c) proviso.1 ?  It
\nseems to us that the words “reassume power’ give  indication
\nto  the correct meaning of the proviso.\t The latter part  of
\nthe proviso contemplated that the settlor should be- able by
\nvirtue\tof  something contained in the Trust Deed,  to\ttake
\nback the power he had over the assets or income previous  to
\nthe  execution of the Trust Deed.  A provision enabling\t the
\nsettlor to give directions -to trustees to employ the assets
\nor  funds  of  the trust in a particular  manner  or  for  a
\nparticular  charitable\tobject\tcontemplated  by  the  trust
\ncannot\tbe said to confer a right to reassume  power  within
\nthe  first  proviso.  Otherwise a settlor could\t never\tname
\nhimself a sole trustee.\t It seems to us that the latter part
\nof  the proviso contemplates a provision which would  enable
\nthe settlor
\n(1) 31 T. C. 141, 169.\n<\/p>\n
(2) 37 T.C. 416,431,
\n956<\/span>
\nto  take the income or assets outside the provisions of\t the
\nTrust  Deed.   Mr. Desai says that if a settlor\t can  derive
\nsome direct or indirect benefit under a trust deed the trust
\nwould fall within first proviso.  But the first proviso does
\nnot use these words.  The words “direct or indirect benefit”
\noccur  only  in\t the  third proviso.   This  Court  held  in
\nCommissioner  of Income-tax, Punjab v. S.  Raghbir  Singh<\/a>(1)
\nthat  although the settlor in that case obtained  a  benefit
\nfrom  the trust-payment of his debts-the first\tproviso\t was
\nnot attracted.\n<\/p>\n
Coming to the various clauses of the Trust Deed there is  no
\ndoubt  that the settlor has retained power to see  that\t his
\nwishes\tare carried out while he is alive.  But he can\tonly
\ndirect\tthe carrying out of his wishes within the  terms  of
\nthe  Trust Deed.  What he can direct under clause 4  is\t the
\napplication  of income to a particular\tcharitable  purpose.
\nSimilarly  under  clause 6 he can  nominate  the  charitable
\nobject\tand the fund or investment which should be  utilised
\nfor  that object.  This is in no sense a power\tto  reassume
\ncontrol.   Clause  8  enables the settlor  to  delegate\t the
\ncarrying  out  of  a  particular  charitable  object.\t For
\ninstance, he could direct some contributions to be made to a
\nhospital  or a school without obliging the trustees  to\t see
\nthat the hospital or the school does not misapply the funds.
\nClauses\t 10  and  It  which  enable  the  settlor  to\tgive
\ndirections regarding the investment must be read subject  to
\nthe  provisions\t of  the Bombay Public\tTrust  Act  and\t the
\ngeneral\t principles  of\t law relating to  trusts.   We\thave
\nalready\t said that he could not legally direct a loan to  be
\nmade  to himself.  Further it is difficult to  subscribe  to
\nthe,,  proposition  that a loan to a company  in  which\t the
\nsettlor\t is interested would give power to the settlor\tover
\nthe assets within the meaning of the first proviso.   Clause
\n21 only shows the wide powers which the settlor has reserved
\nto himself.  None of these clauses comes within the  purview
\nof Proviso 1.\n<\/p>\n
In  the\t result we agree with the conclusions  of  the\tHigh
\nCourt.\tThe appeals accordingly fail and are dismissed\twith
\ncosts.\tOne hearing fee.\n<\/p>\n
G.C.\t\t\t\t     Appleas dismissed.\n(1) 57 I.T.R. 408.\n957<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of Income-Tax, … vs Jayantilal Amratlal, Ahmedabad on 5 May, 1967 Equivalent citations: 1968 AIR 189, 1967 SCR (3) 946 Author: S Sikri Bench: Sikri, S.M. PETITIONER: COMMISSIONER OF INCOME-TAX, GUJARAT Vs. RESPONDENT: JAYANTILAL AMRATLAL, AHMEDABAD DATE OF JUDGMENT: 05\/05\/1967 BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SHAH, J.C. RAMASWAMI, V. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-152649","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of Income-Tax, ... vs Jayantilal Amratlal, Ahmedabad on 5 May, 1967 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-jayantilal-amratlal-ahmedabad-on-5-may-1967\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Commissioner Of Income-Tax, ... vs Jayantilal Amratlal, Ahmedabad on 5 May, 1967 - 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