DWARKADAS BHIMJI Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) The four assessees purported to settle certain properties on charitable objects by a trust deed dated January 10, 1936, by a supplementary deed dated March 10, 1937, and by a third deed dated March 12, 1936. The trustees are given the power to utilise the net income on all or any of the charities which are enumerated in the trust deed, and it is clear that some of the objects on which the trustees can spend the trust income are clearly non-charitable. Some of the objects are merely for the benefit and advancement of the family of the settlor, and as it is open to the trustees to apply the whole of the trust income to a non-charitable object, it is clear that the trust is not a good and valid charitable trust. In view of this the Income-tax Department sought to assess the income of this trust as the income of the settlors and Sir Jamshedji's contention before us is that although the trust deeds may be bad as charitable trusts, they are valid for other purposes and the income which the trustees received docs not become the income of the settlors.

(2.) It is well established that when the objects of a trust wholly fail, a resulting trust comes into existence in favour of the settlor, and in this case, as the trust is bad as offending against the rule of perpetuity and also bad for uncertainty, the trustees hold these properties by reason of a resulting trust in favour of the settlors. The scheme of the Income-tax Act is that it is always open to the Income-tax authorities to assess a beneficiary direct. It is only under Section 41 in the cases enumerated in that section that it is competent to the taxing authority, instead of taxing the beneficiary, to tax the trustees. Section 4 itself makes it clear that the total income of any person includes all income, profits and gains from whatever source derived which are received or are deemed to be received in British India in such year by or on behalf of such person. Therefore, whether the income is received direct by the assessee or is received on his behalf, he is liable to be taxed under Section 4 of the Act, and, in my opinion, there can be no doubt that if there is a resulting trust in favour of the settlor, the income which the trustee receives is an income received on behalf of his beneficiary, viz. the settlor.

(3.) It is contended by Sir Jamshedji that although some of the objects may be bad as non- charitable objects, still they would be good as a private family settlement and would not offend against the rule of perpetuity so long as the beneficiaries to be benefited were those who were in existence at the date of the settlement, and Sir Jamshedji for this purpose relies on Section 15 of the Transfer of Property Act. Section 15, which is a provision radically different from the one to be found in English law, provides that if an interest is created for the benefit of a class of persons with regard to some of whom such interest fails because it offends against the rule of perpetuity, such interest fails in regard to those persons only and not in regard to the whole class. Therefore, it is only when a whole class is sought to be benefited, that some of the members of that class may take notwithstanding the fact that other members of the class may be incapacitated by reason of the rule of perpetuity. But in this case we have not any provision with regard to the benefit of a class. The trust deed attempts to benefit charitable and non-charitable objects, and inasmuch as the Court cannot compel the trustee to spend the whole of the trust income on charitable objects and the Court becomes incapable of administering the trust that the Court says that the trust is void on the ground of uncertainty.