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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 ..... y the answer to the question referred by the Appellate Tribunal and set out above must be against the revenue - C.A. No. 1133 of 1965 - - - Dated:- 6-5-1966 - Judge(s) : K. N. WANCHOO., J. C. SHAH., S. M. SIKRI JUDGMENT [The judgment of Wanchoo and Sikri JJ. was delivered by Sikri J. Shah J. delivered a separate judgment.] SIKRI J.---These appeals by special leave are directed against the judgment of the Mysore High Court in a reference under section 27(1) of the Wealth-tax Act, 1957 (XXVII of 1957)---hereinafter referred to as the Act---answering the question " whether the sums of Rs. 4,30,684 and Rs. 4,13,353 being the value of the shares transferred by the assessee to the Sandur Ruler's Family (Second) Trust could be included in the net wealth of the assessee for the assessment years 1958-59 and 1959-60 under the provisions of section 4(1)(a)(iii) of the Wealth-tax Act " in favour of the revenue. The question arose in the following circumstances : The appellant, His Highness Yeshwant Rao Ghorpade, hereinafter referred to as " the assessee, " held 12,750 shares in Sandur Manganese Iron Ores Ltd. on March 31, 1957. On August 24, 1957, he created two trusts ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clause set out above. The new clause is : (iii) by a person or association of persons to whom such assets have been transferred by the individual otherwise than for adequate consideration for the immediate or deferred benefit of the individual, his or her spouse or minor child (not being a married daughter) or both, or. . . " We are unable to regard the new amendment as declaratory. The amendment makes a deliberate change and the addition of the words " the immediate or deferred benefit " before the words " of the individual ", apart from other changes, cannot be called a mere declaratory legislation, and we must construe the word " benefit " apart from the amendments made by Act 46 of 1964. It seems to us that the word " benefit " in the context means for the immediate benefit of the individual or his wife or minor child. If a property is transferred to trustees to hold in trust for the life of A and then for B, we cannot hold that the property is held for the benefit of B during the lifetime of A. As will appear later, under the Second Trust, the trustees hold the trust property for the benefit of the charitable trust for a number of years before they start holding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last paragraph in the preamble. The learned Solicitor-General attaches importance to the recitals in the preamble, but, in our view, the recitals do not assist us in any manner. There is no doubt that the intention of the settlor was to make a settlement on his minor children, but the whole question which arises in this case is whether the settlement made by him is for the benefit of the minor children within section 4(1)(a)(iii). The word " settlement " is neutral, and the question is what has been settled on the minor children. But there is no doubt that the assessee out of natural love and affection for his minor children created the trust in question, and that the minor children are the beneficiaries under the trust. Clauses 1, 2 and 3 of the trust deed grant, transfer and convey the shares mentioned in the Schedules A, B and C to the trustees. Clause 1 deals with the shares settled for the ultimate benefit of the first beneficiary ; clause 2 deals with the shares settled for the ultimate benefit of the second beneficiary, and clause 3 deals with the shares settled for the ultimate benefit of the third beneficiary. These clauses are couched in the same language and it is onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars to us that in view of this definition it was perhaps necessary to mention the word " income " in clause 1 because the idea of the settlor was that income accruing in the first year should be invested and further returns secured from it. But it is manifest that the Rajkumar, the first beneficiary, had no interest whatsoever in the income accruing during the first two years from the trust properties. It is true that clause 1 does not direct that the income during the first two years should be handed over to the Charitable Trust, but this is made clear in clause 21, which we shall presently consider. The next relevant clause is clause 9, which reads as under : "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 presents shall vest in the respective Beneficiaries immediately." Mr. Gupte relied on this clause to show that the interest of the minor children was a vested interest and not a contingent interest. Assuming that it is so, it still does not assist us in answering the question which we have posed above. Assuming the interest to be vested we still have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in Schedule A should be either paid over to the Charitable Trust during the period of two years, or if it is not paid over during the two years, it should be paid over to the Charitable Trust on the expiry of the said two years. Now reading clause 1 and clause 21 with proviso (a) it seems to us that it is the Charitable Trust which is entitled to the income of the shares in Schedule A during the first two years. Reading clause 2 and clause 21 with proviso (b) it is equally clear that it is the Charitable Trust which is entitled to the income from the shares set out in Schedule B for a period of 12 years. Further it is manifest that reading clause 3 and clause 21 with proviso (c), it is the Charitable Trust which is entitled to the income from the shares set out in Schedule C during the first eight years. During these periods the first, second and third beneficiary had no interest whatsoever in that income. The learned Solicitor---General says that this may be so if we only consider clauses up to 21, but if we consider clauses 22, 23, 24, 25 and 26, they override the intention manifested uptill now. Clauses 22, 23 and 24 enable the trustees to accumulate the income accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re while dealing with clause 21, the only income that accrues to the three beneficiaries under the settlement is after it ceases to be accumulated for or given to the Charitable Trust. If we were to accept Mr. Gupte's argument we would have to omit the words " to each of the Beneficiaries herein " occurring in the clause. Mr. Gupte contends that the word " beneficiary " would include the Charitable Trust. We are unable to agree because the latter portion of the clause deals with education, marriage, etc., and these can have reference only to the first, second and the third beneficiary, i.e., his minor children. Mr. Gupte urges that it would be natural on the part of the settlor to provide for the maintenance, education, health, marriage and advancement of each of the beneficiaries during their minority, and it would be unnatural to attribute intention to him to leave them without any means of sustenance during their minority. There is no force in this contention. The settlor may well have thought that he would look after the minor children during their minority, and what he wanted to provide was for their expenses after they had attained the age of about 18. It would be recalled th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minor children as on March 31, 1958, and March 31, 1959. Accordingly the answer to the question referred by the Appellate Tribunal and set out above must be against the revenue. The appeals are accordingly allowed, the judgment of the High Court set aside and the question referred to the High Court answered in the negative. The assessee will be entitled to costs here and in the High court. One hearing fee. SHAH J.---The High Court of Mysore answered the following question referred under section 27(1) of the Wealth-tax Act, 1957 (27 of 1957), in the affirmative : " Whether the sums of Rs. 4,30,684 and Rs. 4,13,353 being the value of the shares transferred by the assessee to the Sandur Ruler's Family (Second) Trust could be included in the net wealth of the assessee for the assessment years 1958-59 and 1959-60 under the provisions of section 4(1)(a)(iii) of the Wealth-tax Act? " The Wealth-tax Bill was moved before the Parliament on May 15, 1957, and was enacted as law after receiving the assent of the President on September 12, 1957. The two trust deeds which fall to be construed in these appeals were executed on August 24, 1957. The object of the settlor of the two deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sums of money or other assets from any person or company subject to any special conditions as may be agreed upon, but not so as to be inconsistent with the intent and purposes of the trust. Simultaneously with the charitable trust, the family trust was executed. Initially the settlement was to operate in respect of 30 ordinary shares of the Sandur Manganese and Iron Ores (Private) Ltd., ten shares described in Schedule A to be held in trust for the benefit of Rajkumar Shivarao, the first beneficiary, ten shares described in Schedule B to be held in trust for the benefit of Rajkumar Venkatrao, the second beneficiary, and the remaining ten shares described in Schedule C to be held in trust for the benefit of Rajkumari Vijayadevi, the third beneficiary. By paragraph 2 of the preamble it is declared that the settlor was desirous of making a settlement " on his two minor sons, namely, Rajkumar Shri Shivrao Yeshwantrao Ghorpade, aged 16 years, and Rajkumar Shri Venkatrao Yeshwantrao Ghorpade, aged 6 years ... and on his minor daughter Rajkumari, Shri Vijayadevi Yeshwantrao Ghorpade, aged 10 years.... out of natural love and affection towards them ... and with a view to make provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med part of the Schedules A, B and C as may be specified by the settlor or such other person. Clause 31 of the deed of trust defines the expression " income " with reference to any beneficiary as meaning income derived from the shares set out and described in the Schedule appropriate to such beneficiary and any income that may be derived from the investment of such income including any income that may be derived from any further shares or other assets that may be transferred for the benefit of any such beneficiary. The scheme of clauses 1, 2, 3 and 4 of the family trust may first be examined. The shares initially settled and any other shares or assets subsequently settled for the benefit of the beneficiaries or any of them are by clause 4 to be dealt with as if they formed part of the three Schedules. The charitable trust is to obtain the benefit of the property in Schedules A, B and C both as to the corpus and income, approximately for the periods during which the three beneficiaries do not attain their respective ages of eighteen years, and income therefrom is to be held for the benefit of the charitable trust and on the expiry of the periods mentioned, the shares and the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustees of the charity the whole or any part of the income accruing under the settlement in respect of shares set out in Schedule A, and on the expiry of the said period the trustees are enjoined to pay over to the trustees of the charity the whole or the balance of the income as the case may be, and thereupon the trustees stand discharged of all their obligations to the charity. Similar provision is made by provisos (b) and (c) with regard to payment of income from the shares during the period of twelve years in respect of shares set out in Schedule B and during the period of eight years in respect of shares described in Schedule C. Prima facie, this may indicate that the income to be received from the shares is to be applied for the benefit of charity in respect of the shares set out in Schedules A, B and C during the specified periods and that the children of the settlor are not to have any interest in that income. By clauses 22, 23 and 24 an absolute discretion is conferred upon the trustees to accumulate the income until July 31, 1975, in respect of the shares mentioned in each of the schedules and on the expiry of that period to make over to the trust funds as may belong to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or minor child ......" Section 5 provides for exemptions of certain assets in the computation of net wealth. It provides in so far as it is material that : Wealth-tax shall not be payable by an assessee in respect of the following assets and such assets shall not be included in the net wealth of the assessee (i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India." Under the instrument of family trust the assets included in the Schedules A, B and C were on the valuation date held by an association of persons and those assets were transferred by the settlor otherwise than for adequate consideration. But says the settlor, on the valuation date the assets were not held for the benefit of himself, his wife or minor children, since they were held both as to corpus and income for the benefit of charity during the minority of his children. If on a true interpretation of the deed this plea be correct, the assets are not liable to be included in the net wealth of the settlor for the levy of wealth-tax. I agree with counsel for the settlor that the amendment made in section 4(1)(a)(iii) by Act 46 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise. Again the argument that reference to clause 21 was due to an error was never raised before the High Court : if there was any substance in that argument, the settlor would have executed a deed of rectification correcting the error after setting out the circumstances in which that error came to be made. It was urged that the power which the trustees could exercise is to expend the income accruing under the settlement for each of the beneficiaries under the trust, and since no income accrued to the beneficiaries during the periods for which the income was to be applied or accumulated for the benefit of charity, reference to clause 21 in clause 26 had no meaning. It is implicit in this submission that the settlor intended that the income arising from the trust property was to be utilized after the children attained the age of majority for their maintenance, education, health, marriage and advancement, and not during their minority. The children stood in greater need of provision for maintenance, education, health and advancement during their minority than after they attain their majority, but it is said contrary to the plain terms of clause 26 that the interest was intended ..... X X X X Extracts X X X X X X X X Extracts X X X X
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