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Petitioner: JYOTENDRASINHJI VS Respondent: S.I. TRIPATHI and others
Court Name: Supreme Court of India Judge(s): N. Venkatachala, B. P. Jeevan Reddy Title: JYOTENDRASINHJI vs S.I. TRIPATHI and others Case No.: Civil Appeals Nos. 1301 to 1307 of 1991Civil Appeals Nos. 1288 to 1300 of 1991 Date of Judgment:1993-04-02 Reported As: 1993 PTD 1594 Result: Appeals dismissed
JUDGMENT
JUDGMENT B.P. JEEVAN REDDY, J.---These appeals are preferred against the orders of the Settlement Commission, dated March 31,1989, in pursuance of the offers of settlement made by the appellant. Civil Appeals Nos. 1301 to 1307 of 1991, relate to the assessment years 1964-65 to 1970-71 while Civil Appeals Nos. 1288 to 1300 of 1991, relate to the assessment years 1970-71 to 1982-83. Under its orders, the Settlement Commission computed the taxable income of the appellant's father (who died on August 22, 1969) and of the appellant for the aforesaid assessment years and gave certain directions, applying which the Income Tax Officer was directed to compute the total income for each of the said assessm ent years and raise demand for the tax due. The main issue in all these matters is the assessability of income from five foreign trusts created by the appellant's father, Sri Vikramsinhji. Sri Vikramsinhji, Ex-ruler of Gondal, executed three deeds of settlement (trust deeds) in the United States of America on December 19, 1963, and two deeds in the United Kingdom on January 1, 1964. The three settlements, executed in the United States are in identical terms. Similarly, the two settlements executed in the United Kingdom are similar. The two sets of settlements, however, differ from each other in certain particulars, though both the sets are meant for the benefit of the settlor and the members of his family. We may refer to the relevant clauses in the settlements executed in the U.S. In the first instance. Under the U.S. Settlements, the National City Bank, Now York, is constituted the sole trustee. The trust is created for the benefit of the grantor/settlor, his wife and children and their spouses (referred to as family members) and their descendants. The trustee is empowered to collect the income from the trust properties and to apply the same among the family members and/or their descendants
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in such manner as he thinks appropriate. He is also authorised to terminate the trusts for any reason (including tax reasons) and to transfer, convey and pay off the property held thereunder to any person or persons then eligible to receive the income of trusts. On such termination, the entire assets in the hands of the trustee are to be paid over to the then Maharaja (Ruler) or to his living male descendants in equal shares per stripes. The clause which, is relevant herein, which according to the Revenue, makes the trusts revocable ones---we may refer to it as paragraph 1(2) for the sake of convenience---reads thus: "Anything hereinabove to the contrary notwithstanding, at any time and from time to time the trustee shall transfer, convey and pay over any portion of the income of the trust fund and any portion or all of the principal held in trust to or to the use of such one or more members of a class composed of the grantor, the wife or widow of the grantor, the children of the grantor living from time to time, the spouse of any child of the grantor, then living or deceased (hereinafter referred to as the family members), and the descendants of the family members living from time to time, in such amounts, shares and proportions either absolutely or in trust, and upon such terms and conditions (including the grant of a further power to appoint) as the trustee and a Maharaja who shall have attained the age of eighteen (18 years) shall at any time and from time to time appoint and direct in a written instrument which refers to and specifically exercises this power and which is duly executed by the Maharaja and by the trustee then acting hereunder. The foregoing power to appoint may be released in whole or in part by the Maharaja or by the trustee or by both at any time by one or more written instruments duly executed by the Maharaja or by the trustee or by both and delivered to the trustee then acting hereunder, provided, however, that if either the Maharaja or the trustee, but not both of them, shall release such power, then the party not so releasing shall continue to have the power to appointment hereinbefore provided, acting alone." Clauses 2 and 3 of the deeds confer an absolute discretion upon the trustee to pay over or apply in his discretion, any part or the whole of the income or any part of or the whole of the principal to "any person then eligible to receive the income of this trust" at such time and in such manner, as he may decide in his absolute discretion. Clause 3 says further that "the trustee may omit eligible members of the class from any or all such payments and applications, and no such payment or application or omission of a person from participation therein shall cause a charge against or otherwise affect the future interest or share of any person hereunder". Any determination made by the trustee in good faith in exercising the said discretion is held to be binding and conclusive. It is not necessary to notice the other clauses of these settlements except to say that the object of these trusts is to provide for the education, maintenance and upkeep of the members of the settlors, family and their descendants. The settlor died on August 22, 1969. During his lifetime, the settlor, Vikramsinhji, was filing returns of his income in India including therein the whole of the income arising from the U.S. Trusts. The returns were filed by him for the assessment years 1964-65 to 1969-70 (both years inclusive). Since he died in the middle of the accounting year, relevant to the assessment year 1970-71, two returns were filed for the said assessm ent year, one up to the date of the death of the settlor and the other from the date of the death of the settlor to the end of the accounting year. These returns were filed by his elder son, Jyotendrasinhji, appellant in these appeals. In these returns too, the appellant included the whole of the income from the U.S. Trusts in the respective returns. At this stage, the appellant says, he was advised that the income from the U.S. Trusts was not taxable in India either in the hands of the settlor or in his hands and that inclusion of the said income in the returns by the settlor and by the appellant was a mistake. Urging the said contention, the appellant filed appeals against the assessm ent orders pertaining to the assessment years 1965-66 and 1966-67. Inasmuch as the appeals were barred with respect to other assessment orders, he preferred revisions before the Commissioner of Income-tax. (It may be mentioned at this stage itself that the
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income from the U.K. Trusts was included in the aforesaid returns just as the income from the U.S. Trusts was included. Similarly, the plea of non-taxibility was urged with respect to the income from the U.K. Trust on the same basis as was urged with respect to the income from the U.S. Trusts). The Appellate Assistant Commissioner, Rajkot, admitted the additional grounds and allowed the aforesaid appeals by his orders, dated April 4, 1975, and August 20, 1975. The Revenue went up in appeal to the Tribunal. The Tribunal allowed the appeals holding that the Appellate Assistant Commissioner acted contrary to rule 46(2) of the Income-tax Rules in admitting the additional grounds and in looking into new material. Accordingly, it set aside his orders and remitted the appeals back to the Appellate Assistant Commissioner. It is at this stage that the appellant approached the Settlement Commission under Chapter XIX-A of the Income Tax Act, 1961. We may now notice the relevant clauses in the deeds of settlement executed in the U.K. Under these settlement deeds, one Mr.Robert Hampton Robertson McGill was designated as the trustee, referred to in the deeds as "the original trustees". These trusts too were created for the benefit of the settlor, the members of his family and their descendants, referred to as "beneficiaries". The deeds define the expression "the trustees" to mean and include the original trustee or the other trustees for the time being appointed in terms of the deeds of settlement. The expression "the beneficiaries" was defined to mean and include (a) the settlor, (b) the children and remoter issue for the time being in existence of the settlor, and (c) any person for the time being in existence who is the wife or widow of the settlor or the wife or widow or husband or widower of any of them, the children and remoter issue of the settlor. The clauses which are relevant for our purposes read thus: (We have, for the sake of convenient reference, numbered them as clauses 3 and 4): "3. The settlor hereby directs that the trustee shall and accordingly, the trustee shall stand possessed of the trust fund and the income thereof upon the trusts following that is to say. (1) Upon trust to raise and pay out of the capital thereof any further estate duty which may still be payable thereon in respect of the death of the settlor's father. His Late Highness Shri Bhojrajji Maharaja Saheb of Gondal who died on the thirty-first day of July, one thousand nine hundred and fifty-two and any interest payable on such duty and any costs incurred in connection with the ascertainment or payment of such duty and interest. (2) Subject as aforesaid upon trust for all or such one more and more exclusively of the others or other of the beneficiaries at such age or time or respective ages or times if more than one in such shares and with such trusts for their respective benefit and such provisions for their respective advancement and maintenance and education at the discretion of the trustees or of any other person or persons as the person who for the time being is the Maharaja or (if the title is abolished) would have been the Maharaja had the title not been abolished shall at any time during the specified period by any deed or deeds, revocable or irrevocable, appoint and in default of and subject to any such appointment upon the trusts and with and subject to the powers and provisions thereinafter declared and contained concerning the same: Provided always that the foregoing power of appointment shall not be capable of being exercised- -- (a) by anyone other than the settlor or the elder son or the younger son; or (b) in favour of the person making the appointment save with the consent of the trustees (being at least two in number or a trust Corporation) such consent to be testified by their being parties to the deed of appointment and executing the same.... 4. Subject as aforesaid the trustees shall stand possessed of the trust fund and the income thereof upon the trusts following that is to say: (1) The income of the trust fund accruing during the life of the settlor shall belong and be paid to the settlor.
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(2) Subject as aforesaid the income of the trust fund accruing during the life of the elder son shall belong and be paid to the elder son.... (3) Subject as aforesaid the trust fund shall be held in trust for the person who (being a descendant of the elder son) first during the specified period--- (a) becomes the Maharaja or would have become the Maharaja if his title had not been abolished; and (b) attains the age of eighteen years.... It is not necessary to notice the other provisions/clauses of these deeds During his lifetime, the settlor, Vikramsinhji, was including the whole of the income from these trusts in his returns of income just as he was doing in the case of the U.S. Trusts. The said income was also included in the two returns filed by his son for the assessment year 1970-71. Thereafter, however, the appellant took the stand, as mentioned hereinbefore, that the income from these trusts is not includible in his income. He also took the stand that the inclusion of the said income in the returns submitted by his father for the assessment years 1964-65 to 1969-70 and by him in the returns relating to the assessm ent year 1970-71 was under a mistake. This submission too was the subject- matter of the appeals and the revision filed before the Appellate Assistant Commissioner of Income-tax, referred to hereinbefore. When the appellant approached the Settlement Commission with an application for settlement, it related to the income from the U.K. Trusts as well. The Settlement Commission heard the arguments in extenso spread over several days and disposed of the matter under two elaborate orders. One order relates to the assessment years 1964-65 to 1970-71 (Vikramsinhji) and the other to the assessment years 1970-71 to 1982-83 (the appellant). The findings of the Commission which constitute the bases for its orders may briefly be stated as the following: (i) Though the U.S. Settlements are in the nature of discretionary trusts, they fall within the mischief of sub-clause (ii) of clause (a) of section 63 of the Act. For this reason, the whole of the income arising from the trust properties was liable to be included and was rightly included in the income of the settlor/transferor, Sri Vikramsinhji. On the death of the settlor, the U.S. Settlement deeds ceased to be revocable but inasmuch as the entire income thereunder was received by the appellant, Sri Jyotendrasinhji, it constitutes his income and could be and was lawfully taxed in his hands. So far as the U.K. Trusts are concerned, clause 3 did never come into operation inasmuch as no additional trustees were appointed as contemplated by it. If so, clause 4 sprang into operation whereunder the entire income under the settlements flowed to the settlor during his lifetime and on his death, to his elder son, the appellant herein . In other words, these settlements are in the nature of specific trusts. In any event, the entire income from these trusts was received by the settlor during his lifetime and after the settlor's death, by the appellant. Therefore, the said income was rightly included in the total income of the settlor and the assessee during the respective assessm ent years. On the above bases, the Commission computed the taxable income of the settlor under both the sets of trusts for the assessm ent year 1964-65 to 1970-71 (up to the date of death of the settlor) as also the income of the appellant for the assessment years 1970-71 to 1982-83. The appellant then preferred these two sets of appeals against the two orders. At the stage of granting leave, this Court ordered (vide order, dated March 22, 1991) that the appellant shall not be entitled to question the jurisdiction of the Settlement Commission to decide the issues before it and that he will "confine himself in appeal only to the questions relating to the correctness or otherwise of the Commission's order". Sri Ashok Desai, learned counsel for the appellant, urged the following contentions:
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(1) The Settlement Commission erred in law in holding that the U.S. Trusts are revocable trusts within the meaning of section 63 of the Act. For attracting section 63, the deed of transfer should give the transferor a right to retransfer directly or indirectly the whole or any part of the income or assets to the transferor or it must give him a right to reassume power directly or indirectly over the whole or any part of the income or assets. In this case, the relevant clause does not give the transferor such a power. The power is given to the trustee to be exercised with the concurrence of the transferor/settlor. Even if, for any reason, the clause is construed as giving such a power to the settlor/transferor, section 63 is not attracted inasmuch as the power is given not to him as such but jointly to him and the trustee. Such a power does not attract the mischief of section 63. (2) The U.S. Trusts are discretionary trusts. In such a case, the assessment can be made only upon the trustees and not upon the beneficiaries-recipients. The Revenue has no option in such a situation. It must necessarily tax the trustees and trustees alone. The Revenue cannot take advantage of the mistake of law on the part of the settlor or the appellant. (3) At any rate, with the death of the settlor, the U.S. Trusts ceased to be revocable trusts, assuming that they were so during his lifetime. So far as the appellant is concerned, he cannot be taxed on the income received by him from the said trusts. Only the trustee can be taxed. (4) So far as the U.K. Trusts are concerned, the Settlement Commission has committed an error of law in holding that clause 3 could come into operation only if and when the settlor appointed the additional trustees as contemplated by it. In fact, the trust had come into existence with the sole trustee (McGill) and it did not depend upon the appointment of additional trustees. Clause (3) prevails over clause 4. If so, the U.K. Trusts/settlement are also discretionary trusts and not specific trusts as held by the Settlement Commission. In such a case again, the assessments can be made only upon the trustees and not upon the beneficiaries-recipients. (5) So far as the U.K. Results are concerned, no income was received by the settlor or the appellant either in the U.K. Or in India. So long as the trustees decided not to exercise the discretion to distribute the income, no income arose to any of the beneficiaries. The deeds do not prescribe a time limit within which the trustees should exercise their discretion to distribute income. Until the trustees take a decision to distribute and distribute the income, the beneficiaries have no right to the income nor can it be said that the income accrues to them. The Settlement Commission committed a legal error in including the income from the U.K. Trusts in the total income of the settlor and the appellant even though it was not paid out by the trustee nor received by the assessees. At any rate, no income was received in India. (6) In both the U.S. And the U.K. Tax has been levied upon the respective trust incomes under the laws of those countries. Levying tax over again in this country on the very same income amounts to double taxation. On this ground too, the tax levied in India must be waived. On the other hand, Dr. Gauri Shankar, learned counsel for the Revenue, made the following submission: (i) The Settlement Commission is not a regular Tribunal. Its function is different from those of other quasi-judicial authorities created by the Income-tax Act. Where an offer of settlement has been made, the Commission either accepts it or rejects it subject to such conditions and terms as it thinks fit to impose in that behalf. As the name itself suggests, it is a settlement---a sort of composition. It need not even give reasons for its order. Even if any principles are decided by the Commission, they do not bind the income-tax authorities in proceedings relating to subsequent years. The order of the Commission is relevant to and is confined only to the assessment years to which it relates. The jurisdiction of this Court under Article 136 in an appeal against the orders of the Settlement Commission must be conditioned by the above considerations. This Court would not be able to go into the merits of the order. The Commission's order cannot be dissected, inasmuch as it is a package deal. Either it stands or falls as a whole.
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The interpretation placed by the Commission on both the U.S. And the U.K. Trusts is perfectly in order and does not call for any interference by this Court. Indeed, under the impugned orders, several benefits have been conferred upon the settlor and the appellant like waiving of penalties, interest and other liabilities attaching to the assessees under the Act. While accepting the same, the appellant cannot be allowed to disown those features of the order which go against him. The argument of not receiving the income from the U.K trusts is a mere afterthought and should not be given any credence. During his lifetime, the settlor had declared that he had received income from both the U.K and the U.S. Trusts and had included the same in his returns of income for each of the assessm ent years relevant herein. The appellant too acted similarly. (iv) A trustee or the trustees, as the case may be, are expected to act reasonably and in furtherance of the object of the trusts. They must apply the income 'or the purposes specified. They cannot just accumulate it. Applying the test of reasonableness, it must be held that, ordinarily, the trustee ought to distribute the income each year. As a matter of fact, it was so distributed. If so, it must be held that income from these U.K. Trusts has rightly been taken into account by the Commission while passing its orders. The first question we have to answer is on the scope of these appeals preferred under Article 136 of the Constitution against the orders of the Settlement Commission. The question is whether all the questions of fact and law as may have been decided by the Commission are open to review in this appeal. For answering this question one has to have regard to the scheme of Chapter XIX-A. The said Chapter was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. A somewhat similar provision was contained in subsections (1-A) to (1-D) of section 34 of the Indian Income Tax Act, 1922, introduced in the year 1954. The provisions of Chapter XIX-A are, however, qualitatively different and more elaborate than the said provisions in the 1922 Act. The proceedings under this Chapter commence by an application made by the assessee as contemplated by section 245-C. Section 245-D prescribes the procedure to be followed by the Commission on receipt of an application under section 245-C. Subsection (4) says: "After examination of the records and the report of the Commissioner received under subsection (1), and the report, if any, of the Commissioner received under subsection (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under subsection (1) or subsection (3)". Section 245-E empowers the Commission to reopen the completed proceedings in appropriate cases, while section 245-F confers all the powers of an income-tax authority upon the Commission. Section 245-H empowers the Commission to grant immunity from penalty and prosecution, with or without conditions, in cases where it is satisfied that the assessee has made a full disclosure of his income and its sources. Under section 245-HA, the Commission can send back the matter to the Assessing Officer, where it finds that the applicant is not co-operating with it. Section 245-1 declares that every order of settlement passed under subsection (4) of section 245-D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in Chapter XIX-A, be reopened in any proceedings under the Act or under any other law for the time being in force. Section 245-L declares that any proceedings under Chapter XIX-A before the Settlement Commission shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purposes of section 196 of the Indian Penal Code. It is true that the finality clause contained in section 245-I does not and cannot bar the jurisdiction of the High Court under Article 226 or the jurisdiction of this Court under Article 32 or under Article
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136, as the case may be. But that does not mean that the jurisdiction of this Court in the appeal preferred directly in this Court is any different than what it would be if the assessee had first approached the High Court under Article 226 and then come up in appeal to this Court under Article 136. A party does not and connot gain any advantage by approaching this Court directly under Article 136, instead of approaching the High Court under Article 226. This is not a limitation inherent in Article 136: it is a limitation which this Court imposes on itself having regard to the nature of the function performed by the Commission and keeping in view the principles of judicial review. May be, there is also some force in what Dr. Gauri Shankar says, viz. That the order of the Commission is in the nature of a package deal and that it may not be possible, ordinarily speaking, to dissect its order and that the assessee should not be permitted to accept what is favourable to him and reject…
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