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TMI Blog1966 (5) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... shares in Sandur Manganese & Iron Ores Ltd. on March 31, 1957. On August 24, 1957, he created two trusts ; one may be called " the Charitable Trust " and the other, the Sandur Ruler's Family (Second) Trust, may hereinafter be referred to as " the Second Trust ". The assessee transferred some shares to the Second Trust under conditions contained in the trust deed. The Wealth-tax Officer and the Appellate Assistant Commissioner, in computing the net wealth of the assessee on March 31, 1958, and March 31, 1959, the valuation dates respectively for the assessment years 1958-59 and 1959-60, included the value of these shares held by the trustees under the Second Trust. On appeal, the Appellate Tribunal reversed the decisions of the authorities below and came to the conclusion that the value of the shares could not be taken into consideration in computing the net wealth of the assessee. The Tribunal, however, at the instance of the department referred the question of law already set out above for the opinion of the High Court. The High Court, as mentioned earlier, answered the question against the assessee. The assessee having obtained special leave, the appeals are now before us. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t property for the benefit of the charitable trust for a number of years before they start holding it for the benefit of the minor children. It is difficult to say that while the property is being held for the benefit of the charitable trust, it is also being held for the benefit of the minor children. Coming to the second point, namely, whether the trust property is held for the benefit of the minor children within section 4(1)(a)(iii), it is necessary to carefully consider the terms of the Second Trust deed, because the High Court has differed from the interpretation placed upon it by the Income-tax Appellate Tribunal. It is common ground that the trust deed must be considered as a whole. The preamble to the deed reads as follows : " This Deed of Settlement and Trust is made this 24th day of August, 1957, between His Highness Maharaj Shri Yeshwant Rao Hindu Rao Ghorpade, Ruler of Sandur, now residing at Sandur House, Palace Road, Bangalore, hereinafter called the SETTLOR, of the one part, and His Highness Maharaj Shri Yeshwant Rao Hindu Rao Ghorpade, Ruler of Sandur, and Captain Sardar Dattaji Rao Chander Rao Ranavare, both of whom are hereinafter collectively called the TR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of the third beneficiary. These clauses are couched in the same language and it is only necessary to set out clause 1, which is in the following terms : " The Settlor doth hereby grant, transfer and convey unto the trustees the shares set out and described in Schedule A hereto, to have and to hold the same in trust, both as to the corpus and income therefrom, for a period of two years from the date of this Indenture for the benefit of Shri Yeshwantrao Maharaj Charitable Trust and on the expiry of the said period of two years, to have and to hold the shares set out and described in Schedule A hereto in trust both as to the corpus and income received after the expiry of the aforesaid period of two years from the date of this Indenture, for the benefit of Rajkumar Shri Shivarao Yeshwantrao Ghorpade, the first beneficiary herein, as the full absolute and beneficial owner thereof, but subject to the terms and conditions hereinafter set forth. Clause 1 thus purports to vest the shares in the trustees and directs, first, that they shall hold the same in trust, both as to corpus and income therefrom, for a period of two years from August 24, 1957, for the benefit of the Charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question which we have posed above. Assuming the interest to be vested we still have to consider whether the trustees bold the shares for the benefit of the minor children as on the valuation dates, i.e., March 31, 1958, and March 31, 1959. Clause 21, to which reference was made a short while ago, and the provisos thereto, are as follows. We may mention that the High Court thought that the provisos were irrelevant but in our view they throw a great deal of light on the question before us. " 21. The Trustees may, in their absolute discretion, accumulate the income accruing under this settlement to the benefit of Shri Yeshwantrao Maharaj Charitable Trust for a period of two years from the date of this Indenture as respects the shares set out and described in Schedule A hereto and for a period of twelve years from the date of this Indenture as respects the shares set out and described in Schedule B hereto and for a period of eight years from the date of this Indenture as respects the shares set out and described in Schedule C hereto. Provided that : (a) The Trustees may, at any time and from time to time, during the aforesaid period of two years from the date of this Indenture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now. Clauses 22, 23 and 24 enable the trustees to accumulate the income accruing under the settlement to the first, second and the third beneficiary respectively till July 31, 1975. We may only set out clause 22 which deals with the first beneficiary. Clause 22 reads as follows : " The Trustees may in their absolute discretion accumulate the income accruing under this Settlement and Trust to the First Beneficiary herein until the 31st July, 1975, and on the aforesaid date shall make over to him all the trust funds in the possession of the Trustees as may belong to the said Beneficiary. " In our view, clause 22 enables the trustees to accumulate only the income accruing to the first beneficiary ; it does not say what income accrues to the first beneficiary. For that we have to look to the other clauses. It is only under the latter part of clause 1 of the trust deed that income accrues to the first beneficiary. Clause 25 deals with the eventuality of the first, second or the third beneficiary dying before July 31, 1975. It does not really throw much light on the question. The next clause, clause 26, is important, and Mr. Gupte strongly relies on this clause. This clause reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses after they had attained the age of about 18. It would be recalled that the effect of the earlier provisions is that income starts accruing under the settlement to each of the minor children when they reached the age of about 18. We are accordingly of the opinion that clause 26 does not cut down the interest which had been settled on the Charitable Trust. We may mention that in this connection Mr. Venkataraman drew our attention to the rule of construction laid down by this court in Sahebzada Mohammad Kamgar Shah v. Jagdish Chandra Deo Dhabal Deo and Ramkishore Lal v. Kamal Narain. In the latter case, Das Gupta J. speaking for the court, observed as follows : " Sometimes it happens in the case of documents as regards disposition of properties, whether they are testamentary or non-testamentary instruments, that there is a clear conflict between what is said in one part of the document and in another. A familiar instance of this is where in an earlier part of the document some property is given absolutely to one person but later on other directions about the same property are given which conflict with and take away from the absolute title given in the earlier portion. What i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted on August 24, 1957. The object of the settlor of the two deeds of trust was to evade the charge of wealth-tax on the properties covered thereby. It was so found by the High Court, and that was not denied before us. But it is open to a taxpayer to so order his affairs that incidence of tax may lawfully be avoided. Attempts at evading incidence of taxation, though not commendable, are not illegal. In each case the court must take the taxing statute as it stands, subject to all its imper-fections : if a transaction does not fairly fall within the letter of the law, the court will not seek to put a strained construction to bring it within the law. The court will not also stretch a point in favour of the taxpayer to enable him to get by his astuteness the benefit which other taxpayers do not obtain. The two trust deeds were executed on August 24, 1957. One is a trust deed styled " Shri Yeshwant Rao Maharaj Charitable Trust "---hereinafter called" the Charitable Trust "---and the other is styled " The Sandur Ruler's Family (Second) Trust "---hereinafter called " the Family Trust ". Of both these trusts, Yeshwant Rao Ghorpade, Ruler of Sandur, is the settlor and the trustees are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and affection towards them ... and with a view to make provision for them ", and by the third paragraph of the preamble it was declared that the settlor intended and desired to give to his minor sons and daughter from time to time further shares or other assets, with the intention that such further shares or other assets should be held in trust for the minor sons and daughter to be taken by them as set out and described in Schedules A, B, and C, as if such shares or other assets had formed part of the said Schedules. The primary intention disclosed by the preamble of the deed of trust was that the settlor settled properties described in Schedules A, B and C and declared his intention to settle other properties in future with the object of making provision for his three named children. The quantum of the estate settled must undoubtedly be determined by the habendum clause, but the preamble may in case of ambiguity be resorted to for ascertaining the object of the deed and the intention of the executant. By the first clause the settlor conveyed to the trustees the shares described in Schedule A, and to hold the same in trust " both as to the corpus and income therefrom for a period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the expiry of the periods mentioned, the shares and the assets are to be held in trust both as to the corpus and income therefrom for the benefit of the first, second or the third beneficiary. The scheme devised by the settlor is that during the minority of each beneficiary the property in Schedules A, B and C qua each beneficiary is to remain vested in the trustees for the benefit of the charitable trust, and after expiry of the period specified the corpus and income is to be held for the full, absolute and beneficial ownership of the respective beneficiaries. By clauses 6, 7 and 8 provision is made for appointment of trustees. It may suffice to mention that the settlor during his lifetime is to be the trustee and has in case of vacancy power to appoint new trustee by writing or by will, and by clause 10 the custody of the trust assets and every portion thereof is to remain with the settlor and the trustees have full power to alter the investments in their absolute discretion. Clause 9 reads as follows : " This Settlement and Trust is hereby declared to be irrevocable and shall take effect immediately and all trusts, settlements and interests granted or created by these prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that period to make over to the trust funds as may belong to the beneficiaries. This is clearly intended to maintain the control of the settlor over the properties settled in trust till July 31, 1975. By clause 25 it is directed that the trustees shall have control over the trust funds and the income, even if any of the beneficiaries dies before July 31, 1975. Clause 26 provides : " Notwithstanding anything contained in clauses 21 to 25, supra, the Trustees shall have full power during the currency of this Settlement and Trust to expend from out of the income accruing under this Settlement to each of the Beneficiaries herein such amount as the Trustees may in their discretion deem fit for the maintenance, education, health, marriage and advancement of each of the Beneficiaries herein. " Clause 26 confers upon the trustees full power during the currency of the settlement and trust to expend the income accruing under the settlement to each of the beneficiaries therein for the maintenance, education, health, marriage and advancement of the beneficiaries. This power is exercisable notwithstanding any provision to the contrary made in clauses 21 to 25. It may be recalled that clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment made in section 4(1)(a)(iii) by Act 46 of 1964 which sought to include in the computation of net wealth, assets transferred for " the immediate or deferred benefit of the individual, his or her spouse, or minor child " is not declaratory of pre-existing law. Under the clause as originally enacted, assets transferred for the immediate benefit of the individual, his wife or minor children alone may be included in the net wealth of the individual, and the liability of the settlor must be determined under the provision as it stood enacted in 1957. The question then is : Are the assets transferred by the settlor under the family trust instrument for the immediate benefit of his minor children ? That question can only be answered on a determination of the total effect of the instrument in the light of the diverse clauses. By the family trust the primary intention of the settlor as disclosed in the preamble is to make provision for his children, and for that purpose property is set apart by the Schedule read with clauses 1, 2 and 3. By clause 4 it is contemplated that other property will also be settled for the benefit of the children of the settlor. By clause 9 the interest cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of clause 26 that the interest was intended to be given to them after they attained the age of, majority, and not during their minority. In the deed of settlement charity is not directly mentioned as one of the beneficiaries, and the income is directed to be given for limited periods to charity and thereafter to the beneficiaries named therein. Clause 26 in terms confers power upon the trustees to expend from out of the income accruing under the settlement to each of the beneficiaries, such amounts for the maintenance, education, health, marriage and advancement of the beneficiaries or any of them as the trustees deem fit, and there is nothing in that clause which implies that this power is to be exercised after expiry of the periods specified in clauses 1, 2 and 3. The expression " beneficiary " in clause 26 clearly refers not to charity, but to the three children of the settlor, because the trustees are invested with power to expend from out of the income accruing under the settlement for the maintenance, education, health, marriage and advancement of each of the beneficiaries therein. Reading clauses 9 and 26 together, it appears that the settlor intended that the trus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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