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TMI Blog1990 (6) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the transfer of the shares was void, the income from the said shares and accretions which were in fact not received by the assessee but by the Birla Jankalyan Trust was assessable in its hands ?" (B) Income-tax Reference No. 313 of 1980 at the instance of the assessee - under section 256 (1) of the Act: "(1) Whether, on the facts and in the circumstances of the case and on a proper construction of the deed of settlement dated May 20, 1943, the trustees of Raja Baldeodas Birla Santatikosh could make a donation of 3,75,000 ordinary shares in Jiyajeerao Cotton Mills Ltd. and other shares on March 30, 1964, to Birla Jankalyan Trust, a public charitable trust, for its objects? (2) Whether, on the facts and in the circumstances of the case and on a proper interpretation of the deed of settlement dated May 20, 1943, the Tribunal was right in holding that the consent of minor beneficiaries and/or competent civil court on their behalf was necessary for making donation of the shares in Jiyajeerao Cotton Mills Ltd. and other shares to the trustees of Birla Jankalyan Trust ? (3) Whether, on the facts and in the circumstances of the case and on a proper interpretation of the dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhawans, Banders and gardens belonging to and maintained by the male descendants of Raja Baldeodas Birla or some of them at Pilani and for meeting all the expenses of establishment and of boarding, lodging and entertaining of guests and visitors at the said place and of payment of the salaries, wages and other emoluments and perquisites payable to the staff for the time being maintained at Pilani or at other places in connection with the said properties provided, however, that if the fund earmarked or set apart as aforesaid or any portion thereof is not required at any time or times for the purpose aforesaid, the said fund shall be accumulated up to Rs. 2 lakhs to be spent for the purposes aforesaid as and when occasions arise. (ii) Secondly, to utilise and/or accumulate the rest or residue of such income to provide for the education, support and maintenance of the male descendants in the male line of Raja Baldeodas Birla, their wives, widows and daughters (hereinafter referred to as the "beneficiaries") and also for meeting medical expenses or other necessary requirements of life including the expenses of marriage, sradh and also other special or religious rites and ceremonies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". The question at the instance of the assessee in Income-tax Reference No. 37 of 1984 relates to this aspect, We will deal with it later in this judgment. On March 13, 1964, Sri Jugal kishore Birla established a public charitable trust named "Birla Jankalyan Trust (the donee-trust)". The trustees of the donee-trust were empowered to accept any gifts, donations or contributions in cash or in kind for all or some of the objects and purposes of the donee-trust. On March 23, 1964, the secretary of the assessee-trust recorded that the question of utilisation of the said 25,000 shares received by the assessee-trust from the said company in 1943 and accretions thereto (hereinafter referred to as the "said shares") had been under consideration of the trustees of the assessee-trust and that the adult male members of the Birla family desired that the said shares be donated to a public charitable trust. Accordingly, on March 23, 1964, the trustees of the assessee trust resolved that, with the approval of the said company, the settlor of the assessee-trust, the said shares as per list attached thereto should be donated to the Birla Jankalyan Trust for utilisation for the objects and purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter were transferred in the names of the trustees of the donee trust. In view of the facts stated above, the donation of the said shares by the assessee-trust to the donee-trust was complete in all respects. The assessee-trust lost all right, title and interest whatsoever on the said shares and the dividend thereon and the donee-trust became absolute owners of such shares to the exclusion of all others. From 1943 till the end of March, 1964, the assessee-trust held the said shares and the dividend received thereon. A major part of the dividend on the said shares was received in kind, i.e., in the form of shares and those shares were also held by the assessee-trust. The said shares, thereafter, were not assessed in the wealth-tax assessment of the assessee-trust for the assessment years 1964-65 to 1969-70. The income from the said shares was also not assessed in the hands of the assessee-trust for the assessment years 1965-66 to 1969-70 but was assessed in the hands of the donee-trust. The income-tax assessments of the assessee-trust up to the assessment year 1969-70 were completed accepting the validity of the donation of the said shares and accretions thereto to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not authorised under the provisions of the deed of settlement dated May 20, 1943. It further held that the donation of the said shares could be made only with the consent of the beneficiaries and since there were minor beneficiaries also, it was necessary to obtain the consent of the civil court. (iii) The Tribunal, however, held that the donation of the said shares was not void but only voidable. It was for the beneficiaries who might have been affected by the action of the trustees who could challenge the transfer and so long as the said donation was not set aside by a competent court of law, the income received on the said shares could not be assessed in the hands of the assessee-trust. (iv) The Tribunal held that the income of the donated shares could not be included in the hands of the assessee-trust as there was no real income in the hands of the assessee-trust in respect of the said shares. The Calcutta Bench of the Tribunal differed from the Jaipur Bench mainly on two issues, namely, (a) transfer of the said shares was not void but voidable, and (b) the income from the said shares after the date of donation was not the real income of the assessee-trust. Both these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under : "In our opinion, the earlier Bench of the Tribunal overlooked the factual position, viz., that there was no dispute raised by the Income-tax Officer regarding the consent of the majors. When there is no dispute raised, it must be accepted that what the assessee stated is correct. Moreover, there is ample evidence on record that the consent of the majors is clearly available. The settlor who is also the beneficiary, as also the beneficiaries of Santatikosh who are all majors, have agreed to the transfer of shares by Santatikosh in favour of Birla Jankalyan Trust. This is evidenced not only by the resolution of the Santatikosh dated March 23, 1964, but also clearly shows that the majors have consented to the disposition of the properties. We may add here that though the recital as regards the 'useful objects' is not accepted, the documents as such are genuine and they are quite relevant for the purpose of showing the consent of the majors. At any rate, we have shown from the assessment order that, so far as the question of consent of the majors is concerned, it was beyond the pale of any controversy and, therefore, the earlier Bench, with great respect, wrongly decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the karta of the family, it would be valid. The decision of the Punjab and Haryana High Court did not consider or decide the question whether a transfer by the trustees of a private trust is void or voidable. The said decision does not advance the case of the Revenue. It was next contended on behalf of the Revenue that the beneficial interest in the said shares transferred by the assessee-trust to the donee trust would accrue and arise to the assessee-trust who is the real owner of the shares in question and the dividend income received by the donee-trust would still be assessable in the hands of the assessee-trust. In this connection, reliance was placed on the decision of the Supreme Court in the case of Kishanchand Lunidasing Bajaj v. CIT [1966] 60 ITR 500. We fail to see how the said decision of the Supreme Court helps the Revenue. The facts of the case before the Supreme Court were that certain shares were acquired out of the joint family funds and were standing in the name of the karta of the family. On those facts, the question for decision was whether the dividend income on the said shares was assessable in the hands of the Hindu undivided family. The Supreme Court at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act becomes valid when the person affected thereby acquiesces in it or concurs with it. With the consent of or on behalf of the beneficiaries, the trustees could act beyond the terms of the trust deed. Where a trustee acts without the consent of the beneficiary, such action could only be voidable at the instance of a person whose consent was required to be taken. The consent may be prior or later. So far as a void transaction is concerned, the absence or presence of a consent or later ratification or acquiescence is absolutely of no consequence. This principle is imbedded in the provisions of section 23 of the Indian Trusts Act. The right to follow trust property in the hands of a third person is given to the beneficiary alone and not to a third party under section 63 of the Indian Trusts Act. Therefore, it is the beneficiary alone who could avoid a transfer of the property by the trustee in breach of trust and follow the trust property in the hands of a third person but, in a case where the beneficiary concurs in the transfer or later on acquiesces in it, he cannot follow the property. Therefore, on a harmonious reading of the provisions of sections 11, 23 and 63 of the Trusts Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 23 of the Indian Trusts Act provides for the consequences of a breach of trust. The relevant provisions of the said section are set out below : "Where the trustee commits a breach of trust, he is liable to make good the loss which the trust property or the beneficiary has thereby sustained, unless the beneficiary has by fraud induced the trustee to commit the breach, or the beneficiary, being competent to contract, has himself, without coercion or undue influence having been brought to bear on him, concurred in the breach, or subsequently acquiesced therein, with fun knowledge of the facts of the case and of his rights as against the trustee." (emphasis supplied) A plain reading of the aforesaid provisions would make it manifest that a trustee is made liable to make good the loss which the beneficiary or trust property has sustained. The provisions for making good the loss is by way of indemnity for the damages suffered on account of breach of trust. The very fact that compensation is provided for such breach of trust would clearly show that the action is not and cannot be treated as void. Furthermore, the above section also provides that, if the beneficiary, by fraud, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement in making the donation of the said shares to the donee trust, the donation is not void ab initio but, at the most, it can be challenged by an aggrieved beneficiary, and so long as it is not so challenged and so long as the said shares donated are not brought back into the assessee-trust, the transfer is fully effective and operative in law for all intents and purposes. It is relevant to refer to the definition of the expression "beneficial interest" in section 3 of the Indian Trusts Act. According to this definition, the interest of the beneficiary is his right against the trustee as owner of the trust property. It is well-settled that, in Indian law, beneficial ownership is unknown and there is but one owner, namely, the legal owner. The beneficiary has no right of ownership in the trust estate but merely has right against the trustee as owner of the trust property. The Privy Council, in the case of Chhatra Kumari Devi v. Mohan Bikram Shah, AIR 1931 PC 196, 202, stated: "The Indian law does not recognise legal and equitable estates : ... By that law, therefore, there can be but one 'owner', and where the property is vested in a trustee, the 'owner' must, their Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trustees having finally and effectively transferred the shares to the public trust, they have no right to claim the same back from the trust. The trustees are not entitled to question the validity or legality of their own act. Again, the correctness of the contention of the Department that since there was no consent on behalf of the minor beneficiaries, the donation is void ab initio may be tested by taking an illustration. Suppose there were only definite specified minor beneficiaries, and they, on attaining majority, expressly approve the donation, the acceptance of the Department's contention would lead to the absurd result that even though the donation is expressly approved by the minor beneficiaries on attaining majority, still the donated property would continue to be trust property right from the beginning. In other words, this contention would deprive the minor beneficiaries of their right to approve and consent to the donation. It is an established principle of trust laws that the beneficiaries alone can avoid an act of the trustees which is contrary to the provisions of the trust deed and/or the provisions of the Trusts Act. A stranger can have no say in the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t but in the ultimate analysis it depends upon the nature, scope and object of a particular provision. A workable test has been laid down by Justice Coleridge in Holmes v. Russell [1841] 9 Dowl 487 which reads: 'It is difficult sometimes to distinguish between an irregularity and nullity; but the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection ; if he can waive it, it amounts to an irregularity ; if he cannot, it is nullity'." (emphasis supplied). Maxwell, in his book "On the Interpretation of Statutes", 11 th Edition, at page 375, states the law as under : "Another maxim which sanctions the non-observance of a statutory provision is that cuilibet licet renuntiare juri pro se introducto. Everyone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy." Mr. Bajoria, therefore, rightly contended that, in the instant case, the trustees of the assessee-trust were the legal owners of the shares in question. The transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch breaches are unconstitutional or ultra vires. Neither the representatives of the trustees nor the heirs of late Brojendra Kishore Roy Choudhury are at all opposing such transfer." On the principles of the aforesaid decision, we do not see how the Income-tax Department could have any authority in law to hold the said donation as void. Mr. Bajoria, distinguishing the decision of the Full Bench of the Punjab and Haryana High Court in the case of CGT v. Tej Nath [1972] 86 ITR 96, contended that the principle laid down therein has not been accepted by other High Courts. Mr. Bajoria, in this regard, relied on the decision of the Rajasthan High Court in the case of CIT v. Braham Dutt Bhargava [1962] 46 ITR 387, wherein the court observed as follows (at pages 396, 399): "The crucial question raised before us is whether the trust or the gift made by the manager of the assessee-Hindu undivided family with the consent of the only other adult member of the family by which a provision was made for the education of the sons of the two brothers is unlawful or void ab initio. For, if it is ab initio void, then there may be something for the view that the property still continues to form p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ikaria Family Trust [1983] 142 ITR 677, 689 have also taken the same view. The Supreme Court, in Raghubanchmani Prasad Narain Singh v. Ambica Prasad Singh, AIR 1971 SC 776, 777, held that an alienation by the manager of the joint Hindu family even without legal necessity is voidable and not void. In view of the aforesaid decisions, we are of the view that the decision in CGT v. Tej Nath [1972] 86 ITR 96 (P H) [FB] does not lay down the law correctly and conclusively. The position of a karta cannot be equated with that of a trustee nor can the coparcener of a joint family be equated with the beneficiary under a trust. A coparcener has a legal right by birth in the Hindu undivided family properties and he has the right to demand partition. The beneficiary under a private discretional trust has no ownership in the trust estate but has only a right against the trustee to claim the benefits under the trust. Further, the position of a manager or karta of a Hindu undivided family cannot be compared to that of a trustee under a trust. The karta is not the legal owner of the property unlike the trustee. The karta is only a manager having no legal title to the Hindu undivided family prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deed of settlement and wanted us to read therein an implied power of donation. We do not agree. Clause 9(a) is a usual power of investment of trust properties. Power to ...... dispose of ... or otherwise deal" therein has to be construed ejusdem generis. Power to spend, given to the trustees in clause 12 also, in our opinion, means spending for any of the objects and purposes of the trust. It is really a restrictive clause intended to protect the corpus of the trust and cannot be read as an authority to the trustees to donate the trust property outside the scope of the trust. Under section 11 of the Indian Trusts Act, the trustees are required to utilise the trust property as directed in the trust deed. Section I1 of the Trusts Act authorises the trustees to modify the purposes of the trust with the consent of the beneficiaries and a competent civil court on behalf o the minor beneficiaries. In that sense, in our opinion, the Tribunal was right in holding that the consent of a competent civil court on behalf of the minor beneficiaries was necessary. But, as held before, absence of such consent of the civil court could not render the donation void ab initio. The minor benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-trust to be held by them for utilising the said shares for useful objects. It is, therefore, contended that the said shares did not, at any time, form part of the fund of the assessee-trust under the deed of settlement dated May 20, 1943, but constituted a separate trust for utilising the said shares for useful objects. It is contended that the "useful objects" really meant public charitable purposes and, therefore, the donation in March, 1964, was in consonance with the original gift of the said shares by the said company to the trustees of the assessee-trust. This contention has not found favour with the Tribunal. All the time, the trustees of the assessee-trust treated the shares as part of the corpus of the trust and never kept it separately. No separate accounts were made. The dispositions made by the trustees of the assessee-trust are from a common fund which not only included the original corpus of the trust but also the income arising from the shares transferred. Assessments were also made on the assessee-trust in respect of the entire income both under the Income-tax Act and in respect of wealth under the Wealth-tax Act. As regards the resolution of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at page 565 as follows : "If the gift in question was a valid one then the trust became the owner of the shares gifted. That being so it also became the owner of the dividends received. Hence, those dividends will have to be considered as the income of the trust." The contention of the Revenue proceeds on an assumption that the transfer was void and income was in fact not received by the donee-trust. On that assumption of the transfer being void could the income from the said shares be not includible in the assessment of the assessee-trust on the principle of "real income". This is a hypothetical contention. Arguments were, however, advanced by both parties, although it is not necessary we deal with the same. The Tribunal found that the donee-trust was registered as owners of the said shares in the registers of various companies. It is the donee-trust which has been receiving the dividends. The assessee-trust has not been receiving any income from the said shares which have been transferred since 1964. Assessments have been made, accordingly, both under the Income-tax Act as well as under the Wealth-tax Act. On these facts, it, cannot be held that the assessee-trust is asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ender of income which in theory may have accrued but in the reality of the situation no income had resulted because the income did not really accrue ... (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. ." In the instant case, judged in the light of the reality of the situation and the conduct of the parties, the income from the said shares after the date of the donation did not, at any time, really accrue to nor was it earned or received by the assessee-trust. If the said donation is assumed to be void which we have already held is not so, the dividend thereon, even when received by the said Birla Jankalyan Trust, would be assessable to incometax in the hands of the assessee unless, on the principles of real income, such dividend on the said shares having been lawfully earned and received by the donee-trust and not by the assessee-trust is held not to be includible in the hands of the assessee-trust. The Revenue also contended that they are entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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