LAWS(BOM)-1962-9-9

COMMISSIONER OF INCOME TAX Vs. KASTURBAI WALCHAND TRUST

Decided On September 27, 1962
COMMISSIONER OF INCOME TAX Appellant
V/S
SHRIMATI KASTURBAI WALCHAND TRUST Respondents

JUDGEMENT

(1.) THIS reference under s. 66 (1) of the Indian IT Act raises a question, which is common to the Tribunal's orders relating to the asst. yrs. 1956-57 to 1959-60. The question arises in the following manner : Seth Walchand and his wife, Bai Kasturbai, both of whom were possessed of their own properties, decided to settle some of the properties possessed by them upon trust. They accordingly executed a trust deed on the 25th of Nov., 1946. Under the said trust deed they constituted themselves and three brothers of Seth Walchand as the trustees. The properties comprised in this trust were certain shares and policies of insurance on the life of Seth Walchand and also some shares, some house property and lands belonging to Bai Kasturbai. After providing for the management expenses of the trust, cl. 7 of the trust deed provided that the net income arising from the trust funds was to be paid to Bai Kasturbai during her lifetime and it also gave liberty to the settlors or any one of them to occupy and enjoy the house property and the lands comprised in the trust deed rent-free and without any obligation for payment of any out goings or moneys in respect thereof. Clause 8 of the deed provided that from and after the death of Bai Kasturbai the trustees shall apply the said net rents, profits and income of the said immovable properties and trust funds to charitable purposes which were further set out in detail in the said clause. The purposes so stated are undisputably charitable purposes within the meaning of s. 4 (3) (i) of the Act. In accordance with the trusts created by the trust deed Bai Kasturbai continued to receive the net income of the trust properties as the first beneficiary thereunder in accordance with cl. 7 of the said deed. Seth Walchand died on the 8th of April, 1953, and in July, 1955, Bai Kasturbai thought of surrendering her beneficial made a declaration to that effect. In the preamble of the said document of declaration after having referred to the trust deed and cl. 7 thereof, to the death of Seth Walchand Hirachand, the present trustees and to the trust funds, it was stated :

(2.) BAI Kasturbai doth hereby surrender, release, quit, claim, transfer and assign unto the trustees all the income to arise as from the 21st day of July one thousand nine hundred and fifty- five from the trust funds or the investments for the time being representing the same and her beneficial life interest and all her rights claims and demands under the said indenture of settlement including the liberty to occupy and enjoy rent-free of the lands, hereditaments, messuages and premises described in the First and Second Schedules hereto to the intent that her beneficial interest may be determined as aforesaid and that the same may be immediately vested in the trustees and that the trustees may utilise the same for charitable purposes mentioned in the said indenture of settlement."

(3.) WE are not impressed by any of the submissions which Mr. Joshi has made before us and in our opinion the view taken by the Tribunal is correct. The trust deed executed by Seth Walchand and Bai Kasturbai on the 25th of November, 1946, intended to benefit Kasturbai during her lifetimes as the first beneficiary under the trust and the charitable purposes specified in cl. 8 as the next, after the beneficial interest of the first beneficiary had come to an end. No doubt, the intention being to benefit the first beneficiary until she lived, the interest of the next beneficiary is expressed as "commencing on or after the death of Bai Kasturbai", but the said expression could not be said to have been intended not to commence the benefit in favour of the charitable object until Kasturbai was dead even through her beneficial interest under the trust deed had come to an end by a voluntary surrender on her part even prior to her death. Both under the Transfer of Property Act as well as under the Succession Act, where on a transfer of property, or on a bequest thereof, an interest therein is created in favour of one person and by the same transaction an ulterior disposition of the same interest is made in favour of another, if the prior disposition under the transfer or bequest fails, the ulterior disposition takes effect although the failure of the prior disposition does not occur in the matter contemplated by the transferor or testator. Thus, where there is a transfer or bequest in favour of A for his life and on his death in favour of B, if the interest of A in the transfer or bequest fails or comes to an end not only by his death, but even by his renunciation or release of his interest, the transfer or bequest in favour of B immediately takes effect. In other words, surrender of an interest by a prior beneficiary accelerates the interest of the subsequent beneficiary both under the Transfer of Property Act as well as under the Succession Act and it has been held that the same principle would also be applicable to cases of settlements (see Halsbury's Laws of England, third edition, vol. 34, para. 1062 at page 607; Flower vs. IRC (1957) 1 All ER 462 : (1957) 1 WLR 401 : (1958) 34 ITR (ED) 3 ; 3 EDC 781 and In re Young's (1959) 2 All ER 74, 78 : (1959) 1 WLR 457. Settlement Trust : (Royal Exchange Assurance vs. Taylor-Young). It is in the cases where an intention is clearly expressed that it is only in the event of a prior disposition failing in a particular manner that the ulterior disposition will take place, that the failure or the coming to an end of the prior bequest in any other manner than contemplated by the transferor or the donor does not accelerate the ulterior disposition. In the present case the language of cl. 8 does not, in our opinion, indicate an intention that in no event until the death of Kasturbai the benefit in favour of charities was to commence. The expression "from and after the death of Bai Kasturbai" employed in cl. 8 was for the purpose of indicating the natural and normal duration of the interest of the prior settlement of Bai Kasturbai. WE are also not in agreement with Mr. Joshi as regards the construction which he has sought to put on the document of declaration. According to Mr. Joshi, the said declaration does not amount to a surrender or release but a transfer of the income due to Bai Kasturbai under the trust to the trustees for the purpose of utilisation for charitable purposes. Mr. Joshi has pointed out to us that the words "transfer of the income" and the "vesting of the said income in the trustees" for charitable purpose indicate the intention of the beneficiary. In our opinion what is contended by Mr. Joshi is neither the intention of Kasturbai as evidenced by the document or the meaning of the language employed by her. The intention of Bai Kasturbai has been clearly expressed by her in the following words :