PRABHUDAS JAGJIVANDAS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THIS reference raises an interesting question relating to the applicability of ss. 5 and 23 of the ED Act, 1953, in relation to a settlement made by one Rambhai Patel of Uganda. The settlement was made on 26th June, 1941, and the subject matter of the settlement consisted of 160 shares in a limited company called Central Cotton Trading Co. (Uganda) Ltd. It appears that prior to the date of the settlement a declaration of trust was made by Rambhai Patel on 19th Dec., 1939, settling on trust his six annas share in a partnership business carried on in the name of Central Cotton Trading Co., Uganda, for the benefit of his two minor sons, Mahendra and Manubhai. The partnership was thereafter converted into a limited company, namely, Central Cotton Trading Co. (Uganda) Ltd. and in respect of the six annas share settled on trust, 160 fully paid up shares were allotted, 80 shares bearing Nos. 279 to 358 being allotted in the name of one Purushottam Patel in trust for Mahendra and 80 shares bearing Nos. 1 to 80 being allotted in the name of Rambhai Patel in trust for Manubhai. Rambhai Patel thereafter made a declaration of trust in respect of these 160 shares by the settlement dt. 26th June, 1941, and in terms of the settlement and with a view to effectuating it, Rambhai Patel and Purshottam Patel transferred the respective 80 shares standing in their names to the trustees with the result that a trust was constituted in respect of these 160 shares on the terms and conditions contained in the settlement. The settlement was for the benefit of Mahendra and Manubhai, the minor sons of Rambhai Patel, with certain limitations over in case of death of either. Rambhai lived for several years after the making of the settlement and died on 17th Oct., 1953. We are, however, not concerned with the position arising on the death of Rambhai Patel. What concerns us in this reference is the position arising on the death of Manubhai.

(2.) FOR the decision of this Court.

(3.) THE terms of the settlement were of a simple character and the settlement was substantially for the benefit and advantage of Mahendra and Manubhai, the two minor sons of Rambhai Patel. Clause I made a gift of the said 160 shares in favour of Mahendra and Manubhai and provided that the trustees should hold the said 160 shares in trust for the benefit and advantage of Mahendra and Manubhai in equal shares. There were no words of contingency in the gift and it is, therefore, clear that under this clause, unless there be anything in the subsequent clauses which might point clearly and unmistakably in a different direction, Mahendra and Manubhai each got a vested interest in one half of the said 160 shares. Now, ordinarily, in the absence of any provision to the contrary in the settlement, a person who is given a vested interest in a fund is entitled not only to claim the income of the fund but also to require the trustees to transfer the fund to him. Mahendra and Manubhai each would, therefore, have been entitled to claim the income of his one half share of the said 160 shares as also to require the trustees to transfer such one half share to him. But cls. 2 and 4 postponed the period of distribution and also provided as to what was to happen to the income of the said 160 shares in the meantime. Some argument turned on the true construction of cls. 2 and 4 and we will, therefore, reproduce these clauses in full rather than give a mere summary of them, so that the argument may be properly appreciated. Clauses 2 and 4 were in the following terms :