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TMI Blog1981 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... narrow compass, and the facts may be briefly stated. We are concerned with the Indenture of Trust dated 6th April, 1944. This was executed by Bhagubhai Mafatlal, the father of the assessee. It appears to be the agreed position that the settlor died in September, 1944. By the Indenture of Trust the settlor had appointed two persons, namely, himself and his brother, Navinchandra, as trustees, and the trust property consisted of 250 shares of Mafatlal Gagalbhai and Co. Pvt. Ltd. and 100 shares of Surat Cotton Spg. Wvg. Mills Ltd. We are concerned with the directions given to the trustees by cl. 2 of the Indenture of Trust. By the said clause the trustees are enjoined : " (a) To collect and recover the dividends, interest, rents, profits and income of the Trust Fund and to pay thereout all outgoings and charges for collection, if any. (b) To accumulate the balance of the dividends, interest, rents, profits and income of the Trust Fund for a period of 18 years from the date hereof or until the death of the Settlor, whichever event shall first happen, and to add the accumulations to the corpus of the Trust Fund. (c) If at the expiration of the said period of 18 years or the death ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gst the Hindus. " In each of the accounting periods under consideration the assessee as the beneficiary received from the trustees of the said trust the sum of Rs. 30,000. The ITO, in the course of assessment proceedings for the assessment years 1958-59, 1959-60 and 1960-61, examined the terms and conditions of the said trust deed and was of the opinion that the assessee was the sole beneficiary entitled to demand that the entire income of the trust shall be applied for his support, maintenance, education and advancement. In his view, the trustees had no discretion to question any such demand nor had the trustees any discretion to define or limit the amount which they will apply for the above purposes. The ITO laid stress on the absence of any powers in the trustees to accumulate the income or any part thereof and add the same to the corpus of the trust. Accordingly, the ITO held that the provisions of s. 41(1) of the Indian I.T. Act, 1922, were not applicable and the said income was assessable by including the same in the income of the assessee under s. 41(2) of the said Act. For the following assessment years, the ITO followed his earlier view and held accordingly. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable at the maximum rate, but, where such persons have no other personal income chargeable under this Act and none of them is an artificial juridical person, as if such income, profits or gains or such part thereof were the total income of an association of persons." The question to be considered and answered is whether the income of the said trust or any part thereof is or is not specifically receivable on behalf of the beneficiary. The answer to be given to the question will turn on the phraseology employed in cl. 2 of the Indenture of Trust. Mr. Joshi, on behalf of the revenue, strenuously contended that the Tribunal was in error in regarding the said trust as a discretionary trust, and in his submission the trustees were obliged to utilise the entire net income for the support, maintenance, education and advancement of the beneficiary, Hemant. In connection with this argument he referred us to the trust considered by the Supreme Court in CIT v. Manilal Dhanji [1962] 44 ITR 876. He also referred us to the decision given by the Chancery Court in England in Tattersall v. Peel [1936] 1 Ch D 161. Now, the operative clause in Peel's case [1936] 1 Ch D 161 to be found reproduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation either to apply the whole income or to hand over the whole income to Hemant for the purpose indicated in the trust. That the discretion of the trustees is absolute and that they are not accountable to any one (including the beneficiary) is made clear by what is provided after the said proviso. It is very clear from the said provision that neither the beneficiary nor the persons interested in the corpus or income, after the beneficiary, can legally question the decision of the trustees. Once the scheme of the trust is properly understood, it is impossible to concur with the decision of the ITO or the argument of Mr. Joshi, which was similar, that under the trust deed Hemant was absolutely entitled to receive the whole of the income and that the trustees had no discretion to retain any part. We are really not concerned in putting any label on this trust, and it is unnecessary to opine whether this is discretionary trust or not. The question is whether there is any discretion in the trustees or are they under any binding legal obligation to pay the entire net income to, or apply the same in its entirety for, the benefit of Hemant. Our view is that they are under no such o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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