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TMI Blog1985 (6) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... hashikant B. Garware, Chandrakant B. Garware, Ashok B. Garware and Romesh B. Garware. The beneficiaries, under both the trusts, were the HUFs of each one of the four sons whose names are furnished just above. Shashikant B. Garware executed two deeds of assignment on 26-3-1975 in favour of a company called Romesh B. Garware Investment Co. (P.) Ltd. The trust deeds dated 30-3-1970, executed by Balchandra D. Garware and Smt. Vimlabai B. Garware, and the assignments made by Shashikant B. Garware on 26-3-1975, are identical in terms and, as such, we may furnish the details of one as illustrative of the other also. 3. According to Garware Sons' Family Trust, the net income from the shares ('trust fund') had to be paid by the trustees to the HUFs of four sons (Shashikant B. Garware, Chandrakant B. Garware, Ashok B. Garware and Romesh B. Garware) in equal shares for a period of 25 years from the date of trust (30-3-1970) and, on the expiry of the 25th year, the corpus of the trust fund should be divided among the four sons in equal shares and delivered to them accordingly. 4. Shashikant B. Garware, as the karta of his branch of the joint family, and also as guardian of his three minor da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of Rs. 12 lakhs, in place of the declared valuation of Rs. 2,63,353 by the first appellate authority as the value of the beneficial asset held by the assessee in the two trusts on the material valuation dates. 9. The argument of Shri Jetly, the learned standing counsel, was that the legal ownership in the trust fund lies only with the trustees and that the assessee could not have made an effective transfer of the right to receive one-fourth share of the corpus in the trust fund after the term of 25 years to a third person without even the concurrence of the trustees and that neither the provisions in the Indian Trusts Act, 1882, nor the terms in the trust deeds dated 30-3-1970 countenance such a thing. Elaborating his argument, he stated that the assignments of 26-3-1975, in favour of the company, is nothing but an attempt at evasion of tax and that such tax planning should not be recognised by judicial forums in view of the nice distinction between tax planning and avoidance of tax as recently explained by the Supreme Court in the case of Mc Dowell & Co. Ltd. v. CTO [1985] 22 Taxman 11 (SC) Shri Dastur mainly based his argument upon the competence of the beneficiary to transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same proportion and delivered to the four beneficiaries. It was canvassed that the trustees had not even been consulted when gifts were made on 26-3-1975 by Shashikant B. Garware and that the ratification or affirmance of the trustees was long after the assignments and this was violative of the provisions in section 11. It was contended that giving effect to the gift deeds dated 26-3-1975 would amount to modification of the trust, for the trustees would be handing over the corpus to a company which had not been the intention of the authors at all. The argument of Shri Jetly, mainly, was that the Wealth-tax Act, 1957 ('the Act') recognises only the legal ownership and that such legal ownership indisputably existed in the trustees and that since these persons having not been either parties to the assignment deeds dated 26-3-1975 or assented to any modifications of the terms of the trust, the beneficiaries cannot be legally regarded as the full owners of the asset to be competent to make a transfer. In this connection, the decision of the Bombay High Court in the case of CGT v. Mrs. Jer Mavis Lubimoff [1978] 114 ITR 90 was relied upon. The decision of the Calcutta High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the Supreme Court in the case of CIT v. Kasturbai Walchand Trust [1967] 63 ITR 656 and we may add here that this authority has closest resemblance on facts to the gift effected by Shashikant B. Garware in favour of the Romesh B. Garware Investment Co. (P.) Ltd. 13. Mrs. Jer Mavis Lubimoff's case appears to be altogether on a different point. Certain 'J' was the beneficiary under the trust entitled to receive income from a trust fund for her life. A clause in the deed of trust specified that the trustees would hold the trust fund for the benefit of child or children or remoter issue of 'J' after her death, upon such conditions, restrictions or appointments and in accordance with new appointment she may make. The said 'J', by a deed of poll executed by her, exercised the power of appointment vested in her in favour of her daughter and simultaneously executed a deed of release surrendering her interest. The question was, whether the deed of poll amounted to a 'gift' or disposition of property according to the provisions in the Gift-tax Act, 1958, and their Lordships held that the deed of poll and the indenture of release did not amount to a gift, to be taxed under the Gift-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Income-tax Act. The analogy sought to be applied to attack the assignments dated 26-3-1975 cannot be countenanced for the simple reason that the revenue has not sought to tax the trustees (the legal owners) under the Act and, as we see, it is the beneficial owner that is being assessed for wealth-tax in respect of the HUF assets including the interest in the trust fund. In any event, in considering the validity of the transfer from the point of section 58, Ganga Properties Ltd.'s case provides no answer. We are clear that the beneficiary may transfer his interest in the trust and even a notice to the trustee is not contemplated---Agarwala on the Indian Trusts Act (6th edition, page 543). 16. The decision of the Bombay Bench of the Tribunal in the case of Surajba Patel Trust [IT Appeal Nos. 2007 (Bom.) of 1982 and 22 (Bom.) of 1983] was cited on behalf of the assessee and this, as rightly pointed out by Shri Jetly, cannot be an authority to the case of the assessee, for there is a distinction on one essential fact, namely, the deed of assignment had been jointly executed by the trustees and the beneficiaries. 17. Shashikant B. Garware HUF was the remainderman insofar as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The decision of the Rajasthan High Court in the case of CIT v. Braham Dutt Bhargava [1962] 46 ITR 387 and that of the Allahabad High Court in the case of Jugal Kishore Jai Prakash v. CIT [1971] 79 ITR 598, cited by Shri Dastur, indicate that the validity of the gift cannot be challenged by the revenue being strangers to the family. 19. The last limb of the argument of Shri Jetly was that the gift in favour of an investment company is a contrivance made for the purpose of evasion of wealth-tax and the stated purpose in para 8 of the assignment deed is nothing but a specious reason and that the Courts should refuse to recognise an artificial transaction brought about to overreach the revenue in the matter of payment of tax. In support, emphasis was laid upon the statement of the Supreme Court in the recent decision in McDowell Co.'s case: "The courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purpose. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it." The WTO has made critical observations on the assignment deed dated 26-3-1975 in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples of Hindu law. 20. There is a silverline of distinction between tax prevention in a legal manner and evasion which, of course, is illegal. If a person has incurred the liability to tax, then anything done to prevent payment thereof is, undoubtedly, an evasion. If a person has not incurred the liability to tax and colourable transaction done involving an element of illegality and to circumvent the provisions of tax law to prevent payment of tax, then also the transaction ought not be countenanced if the motive is obvious. But if no tax liability had arisen and the transaction is free from any legal objection and secures certain relief to the assessee as a consequence then such a transaction cannot be successfully assailed merely because it has resulted in tax reduction. The present is an instance of the last mentioned class. An owner of a property has an unrestricted right to deal with it in the manner he likes subject to recognised limitations. The department cannot compel an owner of the property to continue to hold the same and get assessed to wealth-tax and any restriction upon his power of alienation is opposed to the rule against perpetuity recognised in section 10 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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