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TMI Blog1968 (9) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the two trust deeds in the case of the assessees 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 Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer included the value of the jewellery settled upon trust in the net 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 assessees 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 assessees, so far as the two brothers were concerned ; and the Appellate Assistant Commissioner held that the assessees' 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 hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Tribunal justified in valuing the assessee's interest on the relevant valuation dates in the trust created by H. H. the Maharaja Fatehsinh 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 assessee so far as the wealth-tax assessment regarding 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 assessees, 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 in 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 conclusion 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 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 peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 utilized by the trustees as directed in clauses 3(d) and 3(e) ; but if there is no marriage before 50 years, then under 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 concerned dyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take effect only on the happening of a specified uncertain event, or if a specified uncertain event shall not happen, such person thereby acquires a contingent interest in the property. Such interest becomes a vested interest, in the former case, on the happening of the event, in the latter, when the happening of the event becomes impossible. Exception.--Where under a transfer of property, a person becomes entitled to an interest therein upon attaining a particular age, and the transferor also gives to him absolutely the income to arise from such interest before he reaches that age, or directs the income or so much thereof as may be necessary to be applied for his benefit, such interest is not contingent. " It may be pointed out that no reliance was placed on behalf of the revenue on this Exception to section 21. It is clear from the wording of the Exception that the Exception applies only to a case where the interest in the fund is given to any person on his attaining a particular age. If the vesting is to take effect on the happening of any other contingency (in the instant case, it is not only attaining the age of 50 years but also remaining unmarried till that age), the Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (g), in the light of what has been stated in those two clauses without recourse to the second rule in Phipps v. Ackers. It is true, as was urged by the learned Advocate-General on behalf of the revenue, that the court has to approach the task of construction in such cases with a bias in favour of vested interest unless the intention to the contrary is definite and clear. In view of the decision in Rajes Kanta Roy v. Smt. Shanti Devi, it is clear that there can be no doubt that the question is really one of intention to be gathered from a comprehensive view of all the terms of the document and further that the task of construction has to be approached with a bias in favour of vesting unless the intention against vesting is definite and clear. We have, therefore, to ascertain the intention upon reading all the relevant clauses in the trust deed and find out whether there is a clear and definite intention that the interest of the assessee concerned in the relevant trust deed should be a contingent interest or whether the bias in favour of vesting should operate in each of these three cases. When one turns to clauses 3(f) and (g), it is clear that in each of these two clauses what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the trust deed ; but in order to find out whether the trust deed creates a vested interest or a contingent interest, it is obvious after a complete analysis of the different sub-clauses of clause 3, that the events on the happening of which clauses 3(f) and 3(g) are to come into operation are not certain events, that is, are not events which are bound to happen and, therefore, the interest created under clauses 3(f) and (g) can only be a contingent interest and not a vested interest. Though no such vested interest can be said to have been created under clauses 3(f) and 3(g), at the same time we must take note of the fact that under clause 3(d), provision has been made by the settlor for the disposal of the corpus of the entire trust fund and the trustees have been empowered to utilize the whole or such part of the corpus as they in their absolute discretion think fit for defraying the expenses of and incidental to the marriage of the assessee concerned. There is no direction given to the trustees as to what proportion of the entire corpus they should utilize for the purposes of and incidental to the marriage ; and the discretion of the trustees in that behalf i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nh and Ranjitsinh, the balance that may remain out of the corpus for meeting the marriage expenses under clause 3(d) is to be handed over to the wife of the assessee concerned. Therefore, so far as these two assessees are concerned, their interest in this particular property under clause 3(d) can only be described as indeterminate. How much is to be spent out of the trust fund depends upon the discretion of the trustees and it is not open to the assessee to insist that a particular portion out of this property shall be spent in connection with his/her marriage. The case would, therefore, clearly fall under section 21(4) of the Wealth-tax Act since the share of the assessee on whose behalf or for whose benefit the corpus fund is held is indeterminate and the wealth-tax can be levied upon the trustees of the particular deed of settlement, so far as the two brothers at least are concerned. Though each of the assessees under clause 3(d) had a vested interest in the property, it cannot be said as to how much portion, whether whole or part, is being held by trustees on behalf of or for the benefit of the particular assessee. Under these circumstances, section 21(2) of the Wealth-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------- (7th October, 1968) After the above judgment was delivered by us in open court but before it was signed by us, Mr. Kaji, on behalf of the assessees, drew our attention to a judgment of the Supreme Court in Commissioner of Wealth-tax v. Smi. Muthukrishna Ammal, in Civil Appeal No. 1922 of 1967, delivered by the Supreme Court on September 6, 1968, and asked us to reconsider our decision in the light of this judgment of the Supreme Court. As we have indicated in our judgment, Mr. Kaji had relied upon section 2(e)(v) of the Act and also the decision of the Madras High Court in Commissioner of Wealth-tax v. Srimathi Martinammal Machado, and it is in the context of section 2(e)(v) that this latest decision of the Supreme Court requires consideration. In the case before the Supreme Court, the respondent, Smt. Muthukrishna Ammal, had obtained from the Government of India on lease certain salt-pans by two agreements, dated January 1, 1943, and January 1, 1945, respectively. Each lease was to endure for 25 years unless otherwise determined under the covenants of the relevant indenture. The respondent sub-let the right under the first lease to one K. Nadar in considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see for period not exceeding six years ", occurring in section 2(e)(v), to mean that, though the assessee has an interest in property at the valuation date, the interest will remain available for a period not exceeding six years. If it is to remain available for six years or for a shorter period the interest will fall within the exception ; if it is to remain available for a period exceeding six years, it will fall within the definition of " assets " and its value will be liable to be included in the net wealth of the assessee. It was contended before the Supreme Court on behalf of the revenue that Parliament had amended section 2(e)(v) of the Act by the Wealth-tax (Amendment) Act, 1964 ; and the words, " from the date the interest vests in the assessee ", added at the end of section 2(e)(v), were an instance of parliamentary exposition of the meaning of the clause as it stood prior to the amendment. The Supreme Court repelled that argument and in the end observed : " We are of the view that interest in property which is available to the taxpayer for a period not exceeding six years from the valuation date is not an asset within the meaning of section 2(e) and the value thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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