COMMISSIONER OF INCOME TAX Vs. RATANBAI MATHURADAS LADY

JUDGEMENT

(1.) ON 1st October, 1944, Lady Ratanbai Mathuradas Vissanji of Bombay created a trust of 235 ordinary shares of Vishnu Cotton Mills of the face value of Rs. 100 each (to which was later added ascertain deposit amount) in favour of her son, Pratapsinh, his wife, Pushpabai, and children. By this document she had first of all created an interest in the income in favour of Pratapsinh, her son, and after his lifetime in favour of Pushpabai, her daughter-in-law, and after the lifetime of the survivor of the two in favour of their four children upon certain terms, to which we shall presently refer. After the trust was in operation for nearly eleven years, the beneficiaries, Pratapsinh and his wife, Pushpabai, executed a deed of release on 3rd April, 1955, whereby they completely relinquished their right, title, and interest under the deed of trust dated 1st October, 1944. They merely declared that they "do and each of them both hereby relinquish, release, surrender the right, title, and interest, in the income hereafter to arise from the said trust property and to which they are entitled by virtue of the said deed of settlement dated the 1st day of October, 1944....." Nothing further was said with the result that the other terms of the deed of trust dated 1st October, 1944, continued to operate and as a result of the relinquishment of their interest by Pratapsinh and his wife, the interest created in favour of the grandchildren as remaindermen was accelerated.

(2.) NOW the terms of the trust deed relevant for the purposes of deciding the controversy in this reference are as follows : We state them serially and have numbered them for convenience of further reference though in the document they have not been numbered. After declaring the trusts, the settlor made provision for payment of all the usual expenses of management of the trust property, costs, charges and expenses of and incidental to the preservation of the trust property, costs, charges and expenses of and incidental to the preservation of the trust property. Then the directions as regards the corpus and the net income from the trust were as follows : "(1) To pay the net income to the said Pratapsinh for his absolute use and benefit during has lifetime; (2) from and after his death, to pay the net income thereof to Pushpabai, wife of the said Pratapsinh for her absolute use and benefit during her lifetime; (3) from and after the death of the survivor of the said Pratapsinh and the said Pushpabai, the trustees shall hold the trust property in the manner hereinafter mentioned; (4) they may in the meantime at their absolute discretion, accumulate the whole of the net income of the trust property or such portion thereof as they may think proper and or apply the whole income or such portion thereof as they may in their discretion think proper for the maintenance, education and benefit of such one or more to the exclusion of other or others of the following persons, viz., the male and female children and issues of the said Pratapsinh by any wife of the said Pratapsinh in such proportion and in such manner in all respects as the trustees may in their discretion think proper; (5) upon the youngest living child of the said Pratapsinh attaining the age of 18 years, the trustees hall hold the then corpus of the trust property upon trust and divide and distribute the same among all the children (male and female) of the said Pratapsinh in such proportions and shares that each son of the said Pratapsinh shall get double the share of each daughter of the said Pratapsinh and each daughter of the said Pratapsinh shall get half the share of each son of the said Pratapsinh and if there is only one child of the said Pratapsinh, then hand over and deliver the same to him or her alone; (6) provided that if any child either male or female of the said Pratapsinh has died before the period of distribution leaving children or child male and/or female, the trustees shall in making the aforesaid shares calculate one share of each predeceased child of the said Pratapsinh which he or she would have taken in the above proportion had he or she been living at the period of distribution and divide and distribute such share of each predeceased child of the said Pratapsinh among his or her children or child living at the period of distribution if more than one, then in such proportion that each male child gets double of what each female child gets and if there is only one child, to deliver and hand over the same to him or her alone." (7) Finally, there was a residuary clause, that if there be no person contemplated in the trust deed alive or no person in existence or capable of taking the corpus of the trust property, then the trustees were given the discretion to apply the corpus for certain stated charitable purposes, with which we are not here concerned.

(3.) NOW we are concerned with the assessment year 1958-59 corresponding to the previous year ending March 31, 1958, which is about three years after the deed of release was executed. For the years 1956-57 and 1957-58, the Income-tax Officer had made the assessment on the trustees as an association of persons, did not levy the tax on the association but taxed the shares of each beneficiary, in his or her hand separately. However, for the 1958-59 assessment year now under reference, he changed the basis of the assessment and assessed the income in the hands of the trustees and levied tax thereon at the maximum rate, because he held that the individual shares of the beneficiaries were "indeterminate and unknown". The reason why he did so may be stated in his own words as follows :