Case: Sardar Bahadur S. Indra Singh Trust Vs. Commissioner Of Income Tax, Bengal

is not in issue before us, now, the same having been held against the Department by the Tribunal. 7. While dealing with the Reference made by the Tribunal, as mentioned earlier, the High Court upheld the validity of the gift made by Ajaib Singh but strangely enough after holding that the gift in question was a valid one, it came to the conclusion that the said gift did not have the effect of augmenting the assessees Trust and therefore the assessee was not entitled to the refund of the tax deducted at the source on the dividend accrued on the shares gifted by Ajaib Singh. To us these findings appear to be somewhat mutually conflicting. If the gift in question was a valid one then the Trust became the owner of the shares gifted. That being so it also became the owner of the dividends received. Hence those dividends will have to be considered as the income of the Trust. 8. The reason which persuaded the learned judges of the High Court for coming to the above conclusion are set out in their judgment at pp. 21 and 22 of the printed paper book. We shall quote that part of the High Courts judgment:"The question for our consideration, however, is whether the gift, as accepted by the trustee, had the effect of augmenting the assessee trust for taxation purposes, or whether the effect of it was that it remained a separate trust in the hands of the trustees of the assessee trust, with liberty to them to apply the income of the subsequent trust for the benefit of the assessee turst. Mr. Bannerje urged that it was not necessary expressly to empower the trust as of a public trust to accept gifts, donations or endowments. That, he submitted was a power inherently vested in them. We have our doubts. Trust is a confidence reposed in a person or persons, with respect to property of which he had or they have legal possession or over which he or they can exercise power to the intent that he or they may hold the property or exercise the power for the benefit of some other person or object. Now, this confidence may not necessarily include in itself the liberty that the trustees would go on accepting donations and try to augment the Trust to such dimensions that the purpose for which the original trust was created may be swamped or modified or qualified. If a settlor wants to invest the trustees with such a power, it is but reasonable to expect that the power should be conferred by the deed which created the trust. The trust that we have to consider does not appear to confer upon the trustees the further power to accept donations gifts or endowments. We, therefore, do not think that the trustees have the liberty or the right to accept further gifts, in the absence of specific authorisation, augment the original trust and then claim the benefit of Section 4 (3) (i) of the Indian Income-tax Act", 9. It is somewhat difficult to follow the reasoning adopted by the learned Judges of the High Court. Either the gift made by Ajaib Singh and accepted by the Trustees was a valid gift or it was not a valid gift If it was a valid gift, the shares gifted became the property of the Trust. If it was not a valid gift, the shares still continued to be the property of Ajaib Singh. It is nobodys case that there was a Trust within a Trust. No such Trust is put forward either by the Department or pleaded by the assessee. The existence of a Trust is a fact and not a fiction. We fail to see how the learned Judges were able to come to the conclusion that Ajaib Singh while gifting the shares created one more Trust without any writing and without any objective and appointed the Trustees of the assessee Trust to be the Trustees of the new Trust as well. These assumptions have no basis either in fact or in law. 10. At this stage we may mention that the very learned judges who decided this Reference had held in Wealth Tax Reference No. 444 of 1963 on the file of the High Court of Calcutta that the shares gifted by Ajaib Singh did not continue to be his property. If they are not Ajaib Singhs property, whose property are they? The only answer is that they are the property of the appellant Trust. Those shares cannot float in the mid air. They must be owned by some one. 11. As seen earlier, the appellant is a public Trust. Its objects are charitable objects. Ajaib Singh made over the shares to that Trust for effectuating the very objects of the Trust. He did not stipulate any other object to be attained. The Trustees had accepted the gift. The Trust Deed does not prohibit the Trustees from accepting a new gift. We fail to see what difficulty was there for the Trustees to accept gifts from third parties for the purpose of furthering the objectives of the Trust, so long as the Trust Deed did not prohibit them from receiving such gifts and so long as the gift made did not in any manner impinge on the objects intended to be achieved by the Trust We fail to see why the Trustees could not accept that gift. 12. In our opinion the assumption of the High Court that the Trustees were incompetent to receive the gift made by Ajaib Singh is an erroneous one. On the other hand we agree with the Tribunal that the gift made by Ajaib Singh was a valid gift. The shares gifted are vested in the Trust and therefore the Trust is entitled to the dividends received in respect of those shares. In view of Sec. 4 (3) (i), that dividend is exempt from tax. Hence the appellant is entitled to the refund claimed.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. It is somewhat difficult to follow the reasoning adopted by the learned Judges of the High Court. Either the gift made by Ajaib Singh and accepted by the Trustees was a valid gift or it was not a valid gift If it was a valid gift, the shares gifted became the property of the Trust. If it was not a valid gift, the shares still continued to be the property of Ajaib Singh. It is nobodys case that there was a Trust within a Trust. No such Trust is put forward either by the Department or pleaded by the assessee. The existence of a Trust is a fact and not a fiction. We fail to see how the learned Judges were able to come to the conclusion that Ajaib Singh while gifting the shares created one more Trust without any writing and without any objective and appointed the Trustees of the assessee Trust to be the Trustees of the new Trust as well. These assumptions have no basis either in fact or in law10. At this stage we may mention that the very learned judges who decided this Reference had held in Wealth Tax Reference No. 444 of 1963 on the file of the High Court of Calcutta that the shares gifted by Ajaib Singh did not continue to be his property. If they are not Ajaib Singhs property, whose property are they? The only answer is that they are the property of the appellant Trust. Those shares cannot float in the mid air. They must be owned by some one11. As seen earlier, the appellant is a public Trust. Its objects are charitable objects. Ajaib Singh made over the shares to that Trust for effectuating the very objects of the Trust. He did not stipulate any other object to be attained. The Trustees had accepted the gift. The Trust Deed does not prohibit the Trustees from accepting a new gift. We fail to see what difficulty was there for the Trustees to accept gifts from third parties for the purpose of furthering the objectives of the Trust, so long as the Trust Deed did not prohibit them from receiving such gifts and so long as the gift made did not in any manner impinge on the objects intended to be achieved by the Trust We fail to see why the Trustees could not accept that gift12. In our opinion the assumption of the High Court that the Trustees were incompetent to receive the gift made by Ajaib Singh is an erroneous one. On the other hand we agree with the Tribunal that the gift made by Ajaib Singh was a valid gift. The shares gifted are vested in the Trust and therefore the Trust is entitled to the dividends received in respect of those shares. In view of Sec. 4 (3) (i), that dividend is exempt from tax. Hence the appellant is entitled to the refund claimed.