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TMI Blog1951 (5) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of its staff. The deed declared that a pension fund had been constituted and established. It then recited that a sum of ₹ 2,00,000 had already been made over to three persons who were referred to as the "present trustees" and proceeded to state that the fund would consist in the first instance of the said sum of ₹ 2,00,000 and that there would be added to it such further contributions as the Bank might make from time to time though it would not be bound to make such contributions. In the course of the accounting year 1946-47, the Bank made a further payment of ₹ 2,00,000 to this fund, and in its assessment for the assessment year 1947-48, it claimed deduction of that amount under section 10(2)(xv) of the Income Tax Act on the ground that it was an item of expenditure laid out or expended wholly and exclusively for the purposes of its business. We were informed that no similar claim had been made in the earlier assessment in respect of the initial payment. The claim, when it was made in the assessment for 1947-48, was put forward in the form that the money had been paid to a fund constituted under an irrevocable trust and the contention apparently was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inclusion of the third question on the ground that it did not arise out of the Tribunals order, inasmuch as the Tribunal had not dealt with it at all. In the ultimate event, the Tribunal referred the question in the form I have already read. On those facts the first question that arises is, what is the scope of this reference ? In view of the wide terms in which the question has been framed, one possible view is that all considerations relevant to Section 10(2)(xv) which arise out of the facts of the case can and ought to be gone into by this Court. The other view is that the question does not ask whether the deduction claimed is allowable or disallowable in any circumstances under Section 10(2)(xv), but only whether the Tribunal was right in rejecting the claim on the grounds it did. Although at the end of the hearing the learning Counsel for both parties agreed that we should limit ourselves to the questions dealt with by the Tribunal, there was some discussion at the Bar as to the scope of the High Courts jurisdiction in such cases. Both sides referred to the wide language in which the question had been expressed. Mr. Mitter, on behalf of the assessee, while he did not ask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on that question on which its opinion had been sought. In dealing with a reference, it is not revising the assessment itself but only answering a particular question or questions. Accordingly, no question of doing justice between there parties in a general sense arises, although the question or questions referred will be justly, fully and properly answered. I am aware that because of a difference in language between Section 66(1) which speaks of question of law "arising out of such order" and and Section 66(5) which speaks of question "raised by the case" and because of some uncertainty as to whether the word "case" means the whole assessment case or the case stated, two opposite trends of judicial opinion have grown up, one favouring the view that all questions of law arising out of the facts of the case can and ought to be gone into in a reference, irrespective of whether they were dealt with by the Tribunal or not, and the other insisting that the jurisdiction of the High Court is limited the questions actually referred. The recent decision of the Bombay High Court Madanlal Dharnidharka v. Commissioner of Income Tax, Bombay, is an example of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expended, whether it was expended solely for the purpose of the business; (3) even if expended solely for the purpose of the business, whether it was a capital or revenue expenditure; (4) whether even if a revenue expenditure, laid out solely for the purpose of the business, the deduction could still not be allowed in view of the provisions of Section 10(4)(c). Of these four questions, the first two were dealt with by the Tribunal as I shall endeavour to show, and those have been referred. The third and the fourth were not dealt with by the Tribunal and, in my view, they have not been referred. If it be held that there was no valid trust, Mr. Mitter conceded that the assessee had no further case, so far as the present Reference was concerned. But if the decision on the first two question be in favour of the assessee, the department, if still desirous of resisting the deduction, might urge that, in any event, the payment was a capital payment, since in fact and in substance it was only a lump sum payment, since in fact and in substance it was only a lump sum payment under an irrevocable trust to serve as a nucleus of a pension fund for its employees. Even if the department failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Before dealing with the terms of the deed, I might read at this stage the relevant provisions of the Indian Trusts Act. Section 3 of the Act defines a trust as "an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner." The section goes on to define "beneficiary" as "the person for whose benefit the confidence is accepted". Section 5, to quote only the material portion, provides that no trust in relation to movable property is valid unless declared by a non-testamentary instrument or unless the ownership of the property is transferred to the trustee. Section 6, to quote again only the material portion, provides that "subject to the provisions of Section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts... (c) the beneficiary..... and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust property to the trustee." The validity or otherwise of the deed in the present case wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t state that all the employees of the Bank or such of its employees as may possess some defined qualifications will be entitled to receive a pension. On the other hand, the deed leaves it entirely to the will and the pleasure of the Bank to grant or not to grant a pension, there being no means of knowing in whose favour the will or pleasure will be exercised and nothing to require the Bank to exercise it at all. The utmost that clause 8 can be said to do is to indicate the genus of persons who will be eligible candidates for pension, but as to the species or identity of persons who may actually get a pension, it is left solely to the unknown and unknowable will of the Bank to choose the persons who will be granted a pension and that again without any obligation to make any choice at all. In actual fact, nobody may be granted a pension at any time. In my view, a clause of that character cannot be said to indicate the beneficiary with reasonable certainty. The case is even worse than that contemplated by Illustration (c) to Section 6 of the Indian Trusts Act with runs as follows :- "A bequeaths certain property to B, requesting him to distribute it amongst such members of Cs f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the test was whether at any given point of time one could ascertain who the actual beneficiaries were and he submitted that in view of the provisions of clause 16, there was not the slightest difficulty in the present case in finding out who the persons were who were beneficiaries at a given point of time under the provisions of the trust. In my view, Section 6 of the Trusts Act has reference to the stage at which the trust is being created and the beneficiary, defined by Section 3 and contemplated by Section 6, is not the person who may come to be in actual receipt of the benefit at some future point of time, but the person who is intended by the trustee to be benefited, at the creation of the trust, and to whom the benefit goes under the provisions of the trust itself, whether immediately or in a certain contingency, but without the aid of a further choice at someone's discretion. If that be the correct view of the section, as I think it is, the provision for the maintenance of a register does not suffice to validate the trust, for it does not cure the initial defect of uncertainty as to whether any pension will be granted at all or to whom it will be granted. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its real character. They do not bear upon the uncertainty about the beneficiaries, but they do bear upon the uncertainty of the pension itself and do indicate what the true position under the deed is. There is first clause 3 which recites the initial contribution of ₹ 2,00,000 already made, but adds that though the Bank might make further contributions, it would not be bound to decided on so. There is no mention anywhere of any pension scheme or of any contribution to be made by the employees themselves. Next there is clause 9 under which the bank may modify or determine any pension payable under the deed when, in its opinion, the conduct of the recipient or the circumstances of the case shall justify it in so doing and the trustees shall be bound to act upon any direction of the Bank. Another provision is clause 24 which provides that if the Bank should be wound up or when the longest liver of the now existing issue of his late Majesty King Emperor George V shall die, the fund shall be realised and shall be redistributed among such of the employees of the Bank in such proportions as the Bank shall determine. It is thus quite clear that not only is the grant of a pension to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of Section 10(2)(xv) of the Income Tax Act. Even if the ownership of the money has passed to the trustees, still the further provisions regarding the application of the money to the payment of pensions being entirely ineffective and void, the money cannot be said to have been expended for the purpose of the business. What has in effect happened is that the Bank has merely put by the money, which remains its money, in another chest and in the custody of the so-called trustees or that there is a resulting trust in favour of the Bank, so that the beneficial interest remains with the Bank itself. The only way in which the amount paid to the fund can, in the facts of the case, be connected with the Banks business and made out to be a business expenditure is by establishing its payability as pensions, whether immediately or at some time or other but a probability which must occur. But all that the Bank has said in the deed is : "We are putting this money into a fund, out of which pensions will be paid to our employees if and when we grant any pensions and to such employees as we may in our discretion choose, if we make any choice at all." Such a provision, besides being inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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