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TMI Blog2004 (11) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... ll these references involve common questions of law. This is a wealth-tax reference made by the Tribunal (the ITAT) under section 27(1) of the Wealth-tax Act, 1957, to this court in R.A. No. 60/IND/97 which in turn arises out of an order of the Tribunal dated April 15, 1997, passed in W.T.A. Nos. 78, 79 and 80/IND/91 as also 12, 13 and 14/IND/92 (assessment years 1984-85 to 1986-87 and 1987-88 to 1989-90) for answering the following questions of law: "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the beneficial interest held by the assessee in two trusts was only a limited interest in spite of the judgment of the Supreme Court in the assessee's own case holding that the beneficial interest was held by him as individual and the assessee was not competent to throw his beneficial interest to common hotchpotch of the Hindu undivided family by executing an unequivocal declaration on October 19, 1964? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in construing clause 4 of the trust deed limiting the beneficial interest of the beneficiary so as to debar him from dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee prayed to the Tribunal for making a reference to this court. As observed supra, the Tribunal did accept the prayer made by the assessee and made reference to this court on the questions referred above. This is how these two questions have been referred to this court on a reference made by the Tribunal by taking recourse to the provisions of section 27(1) of the Act. It may be relevant here to take note of the background of the case which has a material bearing over the question referred. Indeed, one can safely conclude that this litigation is an off-shoot of the earlier litigation which travelled up to the Supreme Court at the instance of these assessees. The assessee is a grandson of Sir Hukumchand Seth, who was the head of the family. The family carried on various businesses and owned extensive properties. Prior to March 31, 1950, Sir Hukumchand and the members of his family constituted a Hindu undivided family. By a deed of partition dated March 31, 1950, various family properties were partitioned between Sir Hukumchand, his wife, Lady Kanchanbai, executed two trust deeds on the same date, i.e., March 21, 1952, purporting to constitute trust of the properties re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined the issue in great detail in the context of the relevant clauses of the two trust deeds and answered the question in favour of the Revenue and against the assessee. In other words, their Lordships held that on a proper construction of the relevant clauses of the trust deeds in question, the properties, i.e., 1/6th share in the trust was held by the assessee in his individual capacity and not in his capacity as karta of his Hindu undivided family. Since the reasoning that led their Lordships for coming to such conclusion is very material for the disposal of their case, we consider it proper to quote the same in extenso infra for reference: "The sole question before us is whether upon those terms and conditions, it was intended by the settlors that the beneficiaries should receive the properties in their individual capacity or in a representative capacity as kartas of their respective Hindu undivided families. It is not necessary to refer to all the provisions of the trust deeds because, the parties are in common agreement, that the principal provisions calling for consideration are clauses 1, 3 and 4 of the trust deeds. Clause 1 empowers the trustees to apply the income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to proportionate reduction. Clause 4 provides that upon the youngest of the beneficiaries attaining the age of 30 years, the trustees would divide and distribute the trust properties together with the accumulated interest and income thereon among the beneficiaries, according to their respective rights and shares, that is to say equally, and in making such division, the trustees would take into consideration the amount due by the beneficiary to the trustees by way of loan or advance made to him. It was further provided that if any beneficiary should have died before the time of such division or distribution leaving a widow and any son or sons or only son or sons, the widow and/or the sons would take by substitution the share which the beneficiary would have taken had he been alive, and such share would be divided equally between the widow and the sons. The proviso declares that if at the time of the division and distribution, any beneficiary should have died without leaving any son but leaving only a widow, the widow would get half of the share of that beneficiary while the other half would be distributed among the remaining beneficiaries and the heirs of the beneficiaries entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inds of the two settlors. This has considerable significance when it is realized that while one trust deed was executed by a male member of the family, the other was executed by a female member of the family. The course of devolution under the Hindu law would be materially different in the two cases and, therefore, the principles of the Hindu law governing the devolution of property, in the case of property passing from a father to his son and grandsons, cannot be invoked in these appeals. Even if the matter be looked at in the context of the Hindu law as it obtained at the relevant time, the terms and conditions of the trust deeds are wholly inconsistent with the property passing into the hands of the beneficiaries as kartas of their respective Hindu undivided families. There is clear indication in the trust deeds which bears this out. In the first place, had it been intended that the beneficiary should receive the property as karta of his Hindu undivided family, the document would not have empowered the trustees, in clause 1, to exercise an absolute and uncontrolled discretion on the death of a beneficiary to apply his share to the maintenance of his widow and his male issue an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question referred to the High Court in each case in the affirmative, in favour of the Revenue? And against the assessees. The appeals are allowed with costs." It is after this decision rendered by the Supreme Court which is reported in CIT v. Maharaja Bahadur Singh [1986] 162 ITR 343 that the present controversy was raised by the assessee in the subsequent assessment years contending that he being a beneficiary holding 1/6th share in his individual capacity as held by their Lordships of the Supreme Court, has a right to throw the same into the common hotchpotch. It is pursuant to this right, the assessee asserted that he has thrown his 1/6th individual share in his Hindu undivided family by executing a declaration dated October 19, 1964, referred to supra and hence the same cannot be included in his individual net wealth. This is how this issue again came up before the taxing authorities in this litigation as to whether the stand of the assessee is legally sustainable or not. As noted supra, all the taxing authorities have negativated the stand of the assessee and now it is before this court in this reference at the instance of the assessee. Heard Shri P.M. Choudhary, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also of the declarations dated October 19, 1964, have to be given effect to and are in fact binding on this court while answering the questions referred in this reference. In our considered view, while answering the questions, the intention of the settlors in managing the trust properties as also the restrictions placed on the powers of the trustees as also the beneficiaries in dealing with the trust properties have a material bearing. Their Lordships of the Supreme Court have in clear terms held that the rights of the beneficiaries are not absolute in dealing with the trust properties. The relevant clauses of the trust deed (1, 3 4) extensively discussed in the aforementioned paragraphs by their Lordships clearly show that the settlors have provided the manner of its utilization by the beneficiaries in the event of particular happening or contingencies specified in the clauses in the trust deed. This clearly indicates that the settlors did not intend to confer power upon the beneficiary to completely divest themselves of their interest in the 1/6th share by blending it in their respective Hindu undivided family. Indeed, what the assessee failed to achieve in the earlier li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undivided family or to any other person. We are also of the view that this issue having been dealt with by the Supreme Court in the earlier litigation, the assessee cannot now be allowed to agitate indirectly on the strength of declaration dated October 19, 1964. It is clear from the question posed by the Supreme Court which reads as under: "The sole question before us is whether those terms and conditions, it was intended by the settlors that the beneficiaries should receive the properties in their individual capacity or in a representative capacity as kartas of their respective Hindu undivided families." As observed supra, this question was answered against the assessee. It may be noted that the assessee had also placed reliance on the declaration dated October 19, 1964, in the earlier litigation, but their Lordships did not attach any importance to the same. In the light of their Lordships' finding that the intention of the settlors was not to allow the beneficiary to hold the property for the benefit of his own Hindu undivided family as karta, we cannot now hold in this second round of litigation that the beneficiary could transfer that very interest in favour of his Hin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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