COMMISSIONER OF INCOME TAX Vs. HEMANT BHAGUBHAI MAFATLAL

JUDGEMENT

(1.) IN this reference, which is under s. 66(1) of the Indian I.T. Act, 1922, for the first four assessment years, namely, 1958 -59, 1959 -60, 1960 -61 and under s. 256(1) of the I.T. Act, 1961, for the assessment year 1962 -63, the following two questions stand referred to us : '(1) Whether, on the facts and in the circumstances of the case and having regard to the relevant provisions of the trust deed dated 6th April, 1944, of the Hemant Bhagubhai Trust, the income of the trust was includible in the assessable income of the assessee or was it assessable in the hands of the trust ? (2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 30,000, actually received by the assessee in each of the assessment years in question from the trust, was assessable in the hands of the assessee for all or any of the assessment years in question ?'

(2.) THE matter lies within a very 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. and 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 of the Settlor, whichever event shall happen first, the Settlor's son, Hemant (hereinafter for brevity's sake referred to as 'the said Hemant'), shall be alive, then, and in that event, to hold the accumulated Trust Fund (i.e., the original Trust Fund plus the accumulated income thereof under sub -clause (b) hereof) upon Trust to apply the net income of the accumulated Trust Fund for the support, maintenance, education and advancement of the said Hemant in such manner as to enable the said Hemant to live as far as possible with the same comfort and to enjoy life in the same manner as he has been accustomed to do in the lifetime of the Settlor PROVIDED that in applying the income as aforesaid, the Trustees shall not be entitled to take into account any other income from any other source that the said Hemant may be receiving at the time PROVIDED FURTHER that the Trustees shall in their absolute discretion be at liberty to pay the whole or any part of the income to the said Hemant during his lifetime for any period or periods during his lifetime instead of applying the same for his benefit as aforesaid AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED that the Trustees shall not be liable to account to anyone for any bona fide done by them, or for any payment bona fide made by them in pursuance of this clause, and in particular they shall not be accountable or responsible for the amount so expended or applied by them or the manner in which or the purpose for which the same shall be applied, and all moneys so expended or applied by the Trustees in their absolute discretion as aforesaid shall not be questioned by any party in any court of law or otherwise howsoever. (d) In the event of the death of the said Hemant, leaving male issue in the male line him surviving, then subject to the provisions of sub -clause (b) thereof, on the death of the said Hemant, to divide the accumulated corpus of the Trust Fund amongst the male issue in the male line of the said Hemant living at the death of the said Hemant per stirpes in equal shares .... (g) In the event of the death of the said Hemant without leaving any issue, male or female, him surviving, the Trustees shall, subject to the provisions of sub -clauses (b) and (c) hereof, hold the accumulated corpus of the Trust Fund upon trusts for the heirs of the said Hemant according to the law of intestate succession among the Hindus.'

(3.) 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.