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Petitioner: PRINCE RANJITSINH P. GAEKWAD AND OTHERS VS Respondent: COMMISSIONER OF WEALTH JUDGMENT
Court Name: Gujarat High Court Judge(s): P. N. Bhagabati, Divan Title:PRINCE RANJITSINH P. GAEKWAD AND OTHERS vs COMMISSIONER OF WEALTH
JUDGMENT
Reported As: 1971 PTD 1077 Result: N/A Judgment JUDGMENT DIVAN, J.-----Both these references arise in connection with the assessments under the Wealth Tax Act of three different members of the same family and in the case of each of the three assessee, the question has arisen under a separate trust deed created by the settlor in favour of the assessee concerned. Each of the three trust deeds is in identical terms except that in the case of the assessee in Wealth Tax Reference No. 5 of 1965, there is only one clause different from the two trust deeds in the case of the assessee in Wealth Tax Reference No. 3 of 1965. Since the questions arising in the two references are common and since the clauses of the trust deed which require interpretation are common, except for the one variation, we will dispose of both the references by this common judgment. The facts giving rise to this reference are that by three different trust deeds, all executed on February 28, 1958, the settlor, who was under an obligation to provide for the expenses of and incidental to the marriage of his two brothers and his sister, settled certain jewellery mentioned in the schedule to each of the three trust deeds on trust for the purposes set out in the three trust deeds ; and the jewellery was settled upon trust with a view to make due provision for the expenses of and incidental to the marriage of the two brothers and the sister of the settlor. In the case of Sangramsinh, the brother, the jewellery settled upon trust was worth Rs. 6,94,804, in the case of Ranjitsinh, the other assessee in Wealth Tax Reference No. 3/1965, the jewellery was worth Rs. 6,93,250 ; and in the case of the sister, who is the assessee in Wealth Tax Reference No. 5 of 1965, the jewellery was worth Rs. 6,99,790. So far as Sangramsinh was concerned, there were two trustees, viz., the settlor and the mother of the settlor and in the case of Ranjitsinh and Lalita Raje,
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the sister, the trustees were the settlor, the mother of the settlor and one Jaysinhrao Mansinhrao Ghorpade. There was no dispute regarding the validity and the genuineness of the trust deeds and regarding the amounts of the value of the jewellery mentioned in each of the three deeds. The values of the jewellery were shown by each of the three assessee as forming part of his or her not wealth as on the valuation date, March 31, 1957 ; and each of the three assessee was accordingly assessed to wealth tax for the assess--ment year 1957-58. So far as the assessment year 1958-59 was concerned, each of the assessee first filed his or her wealth tax return showing the value of the said jewellery as forming part of his or her wealth on the relevant valuation date but later on filed a revised return excluding the value of the jewellery mentioned fn the respective trusts deed. The trustees filed separate returns for all the assessment years under consideration showing the value of the jewellery as forming part of their wealth on the relevant valuation dates. Before the Wealth Tax Officer, the assessee contended that, since the jewellery settled on trust was to be handed over by the trustees to the assessee's wife, so far as the two brothers were concerned, if there was any surplus left after meeting the expenses of the marriage, the value of the jewellery should not be included in the not wealth of the assessee for the assess--ment years under consideration. It was also submitted that the trustees had also filed their wealth tax return showing the value of the jewellery as their not wealth and, therefore, the trustees can be assessed to wealth tax in respect of the value of the jewellery settled upon trust so far as the two brothers were concerned. In view of the different provisions in the trust deed concerning the sister, Lalita Raje, this contention could not be advanced in her case. On construction of the different clauses of the different trust deeds, the Wealth Tax Officer came to the conclusion that each of the assessee had a beneficial interest in the trust property and exercising the option under section 21(2) of the Wealth Tax Act, the Wealth Tax Officer included the value of the jewellery settled upon trust in the not wealth of the assessee concerned. The matters were taken in appeal to the Appellate Assistant Commissioner and the contentions which were urged before the Wealth Tax Officer were repeated before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that each of the assessee had a beneficial interest in the trust fund and as the trustees were at liberty to utilize the whole or any part of the corpus on the occasion of the marriage of the assessee, they had a wide discretion in this regard and the amount remaining after meeting the marriage expenses had to go to the wives of the assessee, so far as the two brothers were concerned ; and the Appellate Assistant Commissioner held that the assessee's beneficial interest in the trust was indeterminate and unknown. In the case of the sister, Lalita Raje, the Appellate Assistant Commissioner was of the view that the assets were held by the trustees for the benefit of the assessee as the balance of the corpus which might be unexpended was to be handed over to the assessee and, therefore, he came to the conclusion that the assets were held by the trustees for the benefit of the assessee : and her share was neither indeterminate nor unknown and the entire value was includible in the not wealth of that particular assessee. As regards the two brothers, the Appellate Assistant Commissioner took the view that the proper course in their case was to apply the provisions of section 21(4) and levy wealth tax upon the trustees and recover the same from the trustees as if the persons on whose behalf the assets were held were individuals for the purposes of the Act. Under these circumstances, the Appellate Assistant Commissioner deleted the value of the jewellery from the total wealth of the two assessee, i.e. The two brothers ; but included it in the total wealth of the sister, Lalita Raje. The matters were then taken in appeal to the Tribunal and the Tribunal held that an absolute interest was created under the trust deed in favour of each of the assessee concerned on the execution of the relevant trust deed. The Tribunal also came to the conclusion that the assessee was not a minor at the date of the execution of the trust deed and the Tribunal held that the direction regarding accumulation of income till the marriage of the assessee was not binding. The
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Tribunal, therefore, held that the trust in question was entirely for the benefit of the assessee and that the assessee had the absolute and vested interest in the trust property on the execution of the relevant trust deed and beneficial enjoyment of the assets was in the assessee. The Tribunal, therefore, held that the value of the jewellery should be included in the not wealth of the assessee under section 21(2) of the Wealth Tax Act and the same orders were passed in all the three matters ; and thereafter at the instance of the two assessee, Sangramsinh and Ranjitsinh, the brothers of the settlor, the following two questions have been referred to this Court by the Tribunal: "(1) Whether, on the facts and in the circumstances of the case, did the assessee have any such interest on the valuation dates relevant to the assessment years 1958-59 to 1961-62 under the trust deed dated February 28, 1958, created by H. H. The Maharaja Fatehsinh Gaekwad of Baroda, which was includible in the not wealth of the assessee ? (2) If the answer to question No. (1) is in the affirma--tive, then whether, on the facts and in the circumstances of the case, was the Tribunal justified in valuing the assessee's interest on the relevant valuation dates in the trust created by H. H. The Maharaja Fatebsinh Gaekwad by deed, dated February 28, 1958, at the total value of the trust corpus on the relevant valuation dates ?" The same two questions have also been referred at the instance of the assesses so far as the wealth tax assessm ent regard--ing the sister, Lalita Raje, was concerned. It is necessary to set out the material clauses of the trust deed. As we have already pointed out above, barring one clause, viz, clause 3(e), the provisions of all the three trust deeds executed on February 28, 1958, concerning each of the three assessee, are identical. In the recitals to the trust deed, it has been mentioned that the settlor was the ruler of Baroda State and as such was under an obligation to provide for expenses of and incidental to the marriage of his brother. Prince Sangramsinh, and in each trust deed the name differs on this recital clause ; and in the recital it has been further mentioned that it was with a view to make due provision for the expenses of and incidental to the marriage of the assessee in question that the settlor had set apart the jewellery described in the schedule to each of the three trust deeds ; and it was further mentioned in this recital clause that the said jewellery had been handed over to the trustees prior to the execution of the trust deeds and that the trustees were to hold them upon trusts mentioned in the deed of trust. Under clause 2 of the deed of trust, the trustees are to hold and stand possessed of the jewellery described in the Schedule to the relevant trust deed and these items of jewellery are referred to as the trust fund. Under clause 4 of the trust deed, in each of the three cases, the trustees have been given the power to keep the trust fund in the shape of jewellery for such time or times however long as they may in their absolute discre tion think fit without being answerable or accountable to the beneficiaries or any other party for any loss caused thereby and in their absolute discre--petition to sell, assign, transfer or realise the same or any part thereof and to invest the sale proceeds or other realisations or any other moneys requiring investment in the trust deed. The material clause for the purposes of this judgment is clause 3 of the trust deed and is as follows: "3. The trustees shall hold and stand possessed of the trust fund upon trust : (a) To allow the trust fund or any part thereof to remain in its present state of investment or to sell the same and realise the sale proceeds and invest the same as hereinafter mentioned and to recover the interest, dividends and income of the trust fund and to pay out of the same the charges for collection and all other outgoings, if any. (b) For a period of ten years from the date of these presents or until the marriage of the settlor's brother the said Prince Sangramsinh whichever event shall happen first to accumulate the interest, dividends and income of the trust fund and to add the same to the corpus of the trust fund. (c) If at the expiration of the said period of ten years the settlor's brother the said Sangramsinh shall not have married to pay the whole of the interest, dividends and income of the accumulated
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trust fund to the settlor's brother the said Sangramsinh until the death or marriage or until he attains the age of fifty years whichever event shall happen first. (d) On the occasion of the marriage of the settlor's brother the said Prince Sangramsinh to expend or untilise the corpus of the trust fund on behalf of or for the benefit of the said Prince Sangramsinh for the purpose of the marriage and it is hereby provided that it shall be lawful for the trustees to pay or utilise the whole or any part of the corpus of the trust fund in advance of such marriage for enabling the expenses in respect of such marriage being defrayed thereout and for making gifts and presents to the bride and members of the family according to the custom of the family of the settlor provided further that the trustees shall not be liable for any account in respect of the expenses for marriage including feasts and presents incurred by them as aforesaid provided further that the trustees shall be at liberty in their absolute discretion to pay to the said Prince Sangramsinh the whole or any part of the corpus of the trust fund for such purposes and in any such event the trustees shall not be liable to see to the application or be responsible for the non- application or mis-application thereof and it is hereby agreed and declared that notwithstanding anything herein or in general law contained to the contrary any act bona fide done by the trustees or any payment bona fide made or expenses bona fide incurred by the trustees in pursuance of the provisions of this clause shall not be questioned in any Court of law or otherwise howsoever by any person whom--soever. (e) If any amount of the same corpus remains unexpended, the same shall be handed over to such wife absolutely. (f) If the said Prince Sangramsinh shall not have married up to the age of 50 years, then on his attaining the age of fifty years, the corpus of the trust fund shall be handed over to the said Prince Sangramsinh absolutely. (g) In the event of the death of the said Prince Sangramsinh before marriage and before attaining the age of fifty years, then on his death, the corpus of the trust fund shall be divided amongst the heirs of the said Prince Sangramsinh according to the law of intestate succession amongst the Hindus." The difference between the trust deed executed in favour of the sister, Princess Lalita Raje, is that in her case clause 3(e) is in these terms: "If any amount of the corpus remains unexpended, the same shall be paid and handed over to the said Princess Lalita Raje absolutely." Thus, so far as the two brothers, Ranjitsinh and Sangramsinh, are concerned, the provision in clause 3(e) is that in the event of any corpus remaining unexpended in connection with the marriage ceremony of the person concerned, the balance was to be handed over to the wife of Sangramsinh or Sanjitsinh as the case may be ; but as regards Princess Lalita Raje, the provision is that the unexpended surplus of the corpus of the trust fund should be handed over to her absolutely by the trustees ; provided, of course, that any surplus remains after all the expenses in connection with and incidental to the marriage have been met. It is clear that under clause 3(a), the trustees have been given the power to allow the trust fund or any part thereof to remain in the same state of investment or to sell the same and invest the sale proceeds in other property and to pay out of the income the charges for the collection and all other outgoings in convection with the trust fund. In clause 3(b), there is a direction for accumulating the income of the trust fund for a period of 10 years from the date of the execution of the trust deed or until the marriage of Sangramsinh Ranjitsinh, or Lalita Raje, as the case may be, and the material words t in the clause are : "whichever event shall happen first". Under clause 3(b), the accumulated income is to be added to the corpus of the trust fund. The Tribunal came to the conclu--sion that section 11 of the Transfer of Property Act applied to clause 3(b). Under section 11 of the Transfer of Property Act, where on a transfer of property an interest therein is created
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absolutely in favour of any person but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of any such interest as if there was no such direction. Under section 17 of the Transfer of Property Act, where the terms of a transfer of property direct that the income arising from the property shall be accumulated either wholly or in part during a period longer than the life of the transferor, or a period of eighteen years from the date of the transfer, such direction shall, save as provided in the Transfer of Property Act, be void to the extent to which the period during which the accumulation is directed exceeds the longer of the aforesaid periods and at the end of such last-mentioned period the property and the Income thereof shall be disposed of as if the period during which the accumulation has been directed to be made had elapsed. In the instant case, the period during which the income from the trust fund is to be accumulated is a period of 10 years, i.e. Less than the statutory period mentioned in section 17(b) of the Transfer of Property Act ; and, therefore, the direction contained in clause 3 (b) is a valid direction in the eye of the law ; and as regards the interpretation of clause 3(b), we are unable to agree with the conclusion reached by the Tribunal. We are unable to agree in this connection that the provisions of section 11 have any application to the interpretation of clause 3(b). It is clear that this clause is valid under section 17(1) of the Transfer of Property Act and in arriving at our conclusions in this case, it is not possible for us to base our decision purely on the interpretation of clause 3(b). Clause 3(c) in each of the three cases provides that after the expiration of the period of 10 years during which the income is to be accumulated and added to the corpus, the settlor's brothers or sister, as the case might be, shall not have married then the whole of the interest, dividends and income of the accumulated trust fund have to be handed over to the brother or the sister, as the case might be, until the death of the brother or sister or marriage or until the brother or the sister attaining the age of 50 years, whichever out of the three events, vie., death, marriage or attaining of the age of 55 years, shall happen first. It is again clear that clause 3(c) purports to dispose of the not income of the trust fund after the expiry of ten years from the date of the execution of the trust deed. It is this clause 3(c) which has some bearing on the interpretation of the rest of the clauses. It is co-related to the later clauses 3(d), 3(e) and 3(f ) of the trust deed. Under clause 3(d) of the trust deed, directions have been given to the trustees to spend the whole or such part as they think proper on behalf of and for the benefit of the brother or the sister in question and power has been conferred upon the trustees to pay or utilize the whole or any part of the trust fund even in advance for the marriage for meeting the expenses in connection with the marriage being defrayed from it and for making gifts and presents to the bride and to the members of the family according to the custom of the family of the settlor. Clause 3(d) also confers powers on the trustees to hand over the entire amount of the trust fund to the brother or the sister concerned but that must be done for such purposes, i.e. For purposes of and incidental to the marriage of the person concerned ; under this sub-clause immunity has been conferred upon the trustees by stating that they are not liable for any account in respect of the expenses for marriage including feasts and presents incurred by the trustees and they are also not to be held liable for seeing that the amounts so handed over to the brother or the sister concerned is or is not applied to the purposes of and incidental to the marriage of the person concerned ; nor are the trustees to be responsible for the non-applicability or the mis-application of the trust fund ; and the action of the trustees in pursuance of clause 3(d) is not to be questioned in any Court of law or otherwise howsoever by any person whomsoever. Under clause 3(e) provision is made as to what should be done in the event of any surplus remaining out of the trust fund after all the expenses of and incidental to the marriage have been met and in the case of the two brothers, the wife of the brother concerned is to get absolutely the unexpended balance of the corpus of the trust and such surplus is to be ascertained after the
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trustees have, in their discretion, spent the said amount as they think proper in connection with the marriages of the two brothers. In the case of the sister, Lalita Raje, clause 3 (e) specifically provides that the unexpended surplus is to belong absolutely to her arid is to be handed over to her. Reading clauses 3 (d) and 3(e) together, therefore, it is obvious that the trustees have been placed under an obligation to spend such amount as they like out of the trust fund corpus on behalf of and for the benefit of the two brothers and the sister, but the expenditure must be for the purpose of the marriage and not for any other purpose and out of the trust fund in question, the trustees are to defray the expenses in connection with the marriage and also for making gifts and presents to the bride and members of the family according to the custom of the family of the settlor. Under clause 3(e), therefore, in each of the three cases, it is only such balance as may remain over after the trustees in their absolute discretion have defrayed the expenses of the marriage of the assessee concerned, that in the case of the two brothers the wife is to get the unexpended surplus and 4n the case of the sister, she herself is to get such surplus absolutely. Under clause 3(f), provision has been made that if either of the two brothers or the sister remains unmarried up to the age of 50 years, on attaining the age of 50 years, the corpus of the trust fund is to be handed over to the assessee concerned. Thus, it is clear that the handing over of the entire corpus to either of the two brothers or the sister is to occur if the assessee concerned is not married till the age of 50 years. Clause 3(c), which deals with the disposal of the income of the trust fund after the period of expiry of 10 years from the date of the deed of trust, is to cease to have operation on the assessee concerned remaining unmarried up to the age of 50 years. Thus, for the first 10 years the income is to be accumu--lated and added to the corpus. At the end of 10 years, the income from the trust fund is to be paid to the assessee concerned till the happening of any one of the three events, viz. The assessee attaining the age of 50 years, the assessee getting married or the assessee dying before marriage or before attaining the age of 50 years. On the happening of any of these three events, the payment of the income is to stop and the entire income is to be utilised by the trustees as directed in clauses 3(d) and 3(e) ; but if there is no marriage before 50 years, then clause 3( f ), the entire corpus of the trust fund is to be handed over to the brother or the sister concerned ` absolutely. Clause 3 (g) provides for a situation which may arise when the brother or the sister concerned dies before attaining the age of 50 years but without getting married and in the case of death thus happening, the entire corpus of the trust fund is to be divided amongst the heirs of the brother or the sister concerned, the heirs being determined according to the law of intestate succession applicable to Hindus. It is, therefore, clear that both clauses 3(f) and 3(g) provide for the assessee concerned remaining unmarried and either attaining the age of 50 years or dying. In the event of attaining the age of 50 years without getting married, the corpus is to be handed over to the assessee himself, in the event of the assessee concern--ed dying before attaining the age of 50 years but without getting married, the corpus of the trust fund is to go to the assessee concerned, the heirs being determined in accordance with the law of intestate succession applicable amongst the Hindus. We may also point out that under clause 11 of each of the three trust deeds the trust deed is to remain irrevocable up to 12 noon of March 15, 1954, and after the expiration of that period of irrevocability, it is open to the settlor at any time or times in his absolute discretion to revoke all or any of the uses, trusts, powers, provisions and limitations set out in the earlier clauses of the trust deed. After the power of revocation is exercised by the settlor under clause 11, the trust fund or any part thereof in respect of such power of revocation is exercised is to belong absolutely to the settlor. "As regards clauses 3(c) and 3(d) read with clauses 3(e), (f ) and (g) of the trust deed, it is clear that those clauses provide for the disposal of the corpus of the property ; but each sub-clause provides for a different eventuality. It was contend--ed on behalf of the revenue before us by the
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learned Advocate --General that the real scheme of the trust deed is to give the entire corpus to the person concerned on the attainment of 50 years or on death ; the benefit of the corpus going to the heirs in the event of the death and if the person concerned gets married before attaining the age of 50 years, then…
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