Case: Commissioner Of Income-Tax, Gujarat Vs. Jayantilal Amratlal, Ahmedabad

26, 1954, reported in Unreported Income-tax Judgments of the Bombay High Court, Book One, Published by "Western India Regional Council of the Institute of Chartered Accountant of India, Bombay p. 314 at p. 316. "The first answer to this contention is that the trustees would be committing a breach of the law if they were to advance moneys to themselves. There is a clear prohibition under S. 54 of the Trusts Act." 13. If we do not ignore the provisions of the Bombay Public Trust Act and the general principles applicable to public trusts, the question arises whether on a true interpretation of the first proviso to S. l6(l)(c) the powers reserved to the settlor under the Trust Deed come within its mischief. The learned counsel says that the words of the proviso are very wide. He points out the reasons why Parliament has inserted this proviso. He draws our attention to the following observations of Lord MacMillian in Chamberlain v. Inland Revenue Commissioners, (l943) 25 Tax Cas 317 at p. 329 quoted in Tulsidas Kilachand v. Commissioner of Income-tax, (1961) 42 ITR 1 at p. 4 = (AIR 1961 SC 1023 at p. 1025):"The legislation.... (is) designed to overtake and circumvent a growing tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlements. Stated quite generally, the method consisted in the disposal by the taxpayer of part of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income. The Legislatures counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly." This Court held in that case that these observations applied also to the Section under consideration, and the Indian provision is enacted with the same intent and for the same purpose. But even so. Lord Simonds observed while construing a similar provision En Wolfson v. Commissioners of Inland Revenue, (1950) 31 Tax Cas 141 at p. 169 :"It was urged that the construction that I favour leaves an easy loophole through which the evasive taxpayer may find escape. That may be so; but I will repeat what has been said before. It is not the function of a court of law to give to words a strained and unnatural meaning because only thus will a taxing Section apply to a transaction which, had the legislature thought of it, would have been covered by appropriate words." Viscount Simonds observed again in Saunders v. Commissioners of Inland Revenue, (1957) 87 Tax Cas 416 at p. 431 in construing a similar provision occurring in the English Act :"I am assuredly not going to depart from the fair meaning of words in a taxing Section in order that tax may be exacted." What then is the fair meaning of S. l6(l)(c), proviso 1?It seems to us that the words "reassume power" give indication to the correct meaning of the proviso. The latter part of the proviso contemplates that the settlor should be able, by virtue of something contained in the Trust Deed, to take back the power he had over the assets or income previous to the execution of the Trust Deed, provision enabling the settlor to give directions to trustees to employ the assets or funds of the trust in a particular manner or for a particular charitable object contemplated by the trust cannot be said to confer a right to reassume power within the first proviso. Otherwise a settlor could never name himself a sole trustee.It seems to us that the latter part of the proviso contemplates a provision which would enable the settlor to take the income or assets outside the provisions of the Trust Deed. Mr. Desai says that if a settlor can derive some direct or indirect benefit under a trust deed the trust deed would fall within the first proviso.But the first proviso does not use these words. The words "direct or indirect benefit" occur only in the third proviso. This Court held in Commissioner of Income-tax, Punjab v. S. Raghbir Singh, 1965-57 ITR 408 = (AIR 1966 SC 18 ) that although the settlor in that case obtained a benefit from the trust- payment of his debts-the first proviso was not attracted. 14. Coming to the various clauses of the Trust Deed there is no doubt that the settlor has retained power to see that his wishes are carried out while he is alive. But he can only direct the carrying out of his wishes within the terms of the Trust Deed. What he can direct under clause 4 is the application of income to a particular charitable purpose. Similarly under clause 6 he can nominate the charitable object and the fund or investment which should be utilised for that object. This is in no sense a power to reassume control. Clause 8 enables the settlor to delegate the carrying out of a particular charitable object. For instance, he could direct some contributions to be made to a hospital or a school without obliging the trustees to see that the hospital or the school does not misapply the funds.Clauses 10 and 11 which enable the settlor to give directions regarding the investment must be read subject to the provisions of the Bombay Public Trust Act and the general principles of law relating to trusts. We have already said that he could not legally direct a loan to be made to himself. Further it is difficult to subscribe to the proposition that a loan to a company in which the settlor is interested would give power to the settlor over the assets within the meaning of the first proviso. Clause 21 only shows the wide powers which the settlor has reserved to himself. None of these clauses comes within the purview of Proviso 1.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]14. Coming to the various clauses of the Trust Deed there is no doubt that the settlor has retained power to see that his wishes are carried out while he is alive. But he can only direct the carrying out of his wishes within the terms of the Trust Deed. What he can direct under clause 4 is the application of income to a particular charitable purpose. Similarly under clause 6 he can nominate the charitable object and the fund or investment which should be utilised for that object. This is in no sense a power to reassume control. Clause 8 enables the settlor to delegate the carrying out of a particular charitable object. For instance, he could direct some contributions to be made to a hospital or a school without obliging the trustees to see that the hospital or the school does not misapply the funds.Clauses 10 and 11 which enable the settlor to give directions regarding the investment must be read subject to the provisions of the Bombay Public Trust Act and the general principles of law relating to trusts. We have already said that he could not legally direct a loan to be made to himself. Further it is difficult to subscribe to the proposition that a loan to a company in which the settlor is interested would give power to the settlor over the assets within the meaning of the first proviso. Clause 21 only shows the wide powers which the settlor has reserved to himself. None of these clauses comes within the purview of Proviso 110. Let us now examine the Trust Deed. This indenture was made between Jayantilal Amratlal, hereinafter called the settlor, and Jayantilal Amratlal, Padmavati wife of the said Jayantilal Amratlal, Ramanlal Amratlal, Hariprasad Amratlal, Kasturlal Chandulal Parikh and Bhagubhai Chandulal hereinafter called the Trustees. Clause 1 vests the shares and the other trust properties and income in the trustees. Clause 2 gives the name of the trust. Clause 3 obliges the trustees to get and collect income of the trust properties and pay expenses, etc. Clause 4 creates the trust for the relief of poor, and for education, medical relief, etc. It further provides"The Trustees shall at the direction of the Settlor during his lifetime and after his death at their discretion set aside any portion of the income of the Trust Premises to provide cash, food and clothes for any temple or temples of the Pushti Marg Sampradaya. In applying the income of the Trust Premises for all or any of the objects hereinbefore specified the Trustees may consider the claims of any needy or poor person belonging to the Visa Porwad Community."Clause 5 enables the settlor to give direction to the trustees to accent contributions or donations to the Trust from other persons Clause 6 provides as follows :"The Settlor may at any time or times by writing direct that any specific funds or investments or property forming part of the Trust Premises and/or the income thereof shall be utilised and applied exclusively for any one more of the aforesaid charitable objects and the Settlor may by writing at any time or times vary or revoke any such directions previously given by him and Trustees shall be bound to carry into effect all such directions given by the Settlor."Clause 7 enables the Trustees to utilise tha whole or any portion of the Trust Premises for all or any of the charitable objects if the Settlor so directs. Clause 8 may be set out in full :"8. The Trustees shall from time to time at the direction of the settlor during his life time and after his death may at any time at their discretion deliver or hand over the income of the Trust premises or any part of such income to any institution, association or society to be applied for all or any of the purposes of these presents without being bound to see to the application thereof or being liable for the loss or misapplication thereof."Clause 9 enables the Trustees to invest the residue, etc., and to accumulate the same and apply towards the objects of the Trust. Clause 10 inter alia empowers the Settlor to give directions regarding the investment of moneys"as are authorised by law for investment of trust premises or in ordinary or preference shares of joint stock companies, whether partly or fully paid, or in debentures or in giving loans to any public company or firm of good standing and reputation or in the purchase or mortgage of any movable or immovable property with power to the Trustees with the like direction to vary or transpose the said investments into or for others of the same or of a like nature."Clause 11 inter alia enables the Settlor to direct the Trustees to vary the investments. Out of the other clauses we need only mention clause 21 which reads as follows:"All questions arising in the management and administration of the trusts or powers hereof and all differences of opinion amongst the Trustees shall be disposed of in accordance with the opinion of the Settlor during his lifetime and on and after the death of the settlor in accordance with the opinion of the majority of the Trustees in the case of their being equally divided the trustee senior most in age shall have a casting vote. The learned counsel for the appellant says that these clauses read fairly would enable the Settlor to direct the Trustees to give a loan to him and he could give directions to the Trustees in such a way as toreassume controlover the assets. He says that as a matter of fact thex Officer did find that the Settlor has been utilising these powers for his own benefit. There is no doubt that under the Trust Deed the Settlor has very wide powers and the Settlor could direct the Trustees to grant loan to him. The Trustees could even grant loan to a firm in which he was interested. But this would be contrary to the provisions of the Bombay Public Trust Act. Section 35(1) of the Bombay Public Trust Act provides:"35 (1). Investment of Public Trust Money :Where the trust propertly consists of money and cannot be applied immediately or at an early date for the purposes of the public trusts the trustee shall be bound (notwithstanding any direction contained in the Instrument of the Trust) to deposit the money in any scheduled bank as defined in the Reserve Bank of India Act, 1934, in the Postal Savings Bank or in ae Bank approved by the State Government for the purpose or to invest it in Public Security;Provided . .Provided further that the Charity Commissioner may by general or special order permit the Trustee of any public trust or classes of such trusts to invest the money in any other manner."We are unable to accept this submission. The Bombay Public Trust Act must, to the extent it operates, override any provisions in the Trust Deed. As Shelat, J., observed"when proviso 1 talks about a right to reassume power, prima facie, that must mean that there is such power lawfully given under the deed oft seems to us that the legislature in proviso 1 to S. 16(1)(c) is thinking of powers lawfully given and powers lawfully exercised. Any person can commit breach of trust and assume power over the income or assets but for that reason the income of the trust cannot be treated as the income of the settlor under the proviso.12. The Calcutta High Court in Commissioner ofWest Bengal v. S. M. Bose. (1952) 25 ITR 135   at p. 141 (Cal) observed:"The first proviso to S. l6(1)(c) only contemplates cases where the settlor can lawfully reassume power over the income or the assets. Unless that was so, the proviso would cover every trust where a settlor has made himself trustee because a trustee acting dishonestly could always assume control over the income."We agree with these observations. Similarly, in an unreported judgment (Commissioner ofx Bombay North v. Mathuradas Mangaldas Parekh)*the Bombay High Court repelled a similar argument by observing :*I. T. Ref. No. 4 of 1954, judgment dated August 26, 1954, reported in Unreportedx Judgments of the Bombay High Court, Book One, Published by "Western India Regional Council of the Institute of Chartered Accountant of India, Bombay p. 314 at p. 316"The first answer to this contention is that the trustees would be committing a breach of the law if they were to advance moneys to themselves. There is a clear prohibition under S. 54 of the Trusts Act."What then is the fair meaning of S. l6(l)(c), proviso 1?It seems to us that the words "reassume power" give indication to the correct meaning of the proviso. The latter part of the proviso contemplates that the settlor should be able, by virtue of something contained in the Trust Deed, to take back the power he had over the assets or income previous to the execution of the Trust Deed, provision enabling the settlor to give directions to trustees to employ the assets or funds of the trust in a particular manner or for a particular charitable object contemplated by the trust cannot be said to confer a right to reassume power within the first proviso. Otherwise a settlor could never name himself a sole trustee.It seems to us that the latter part of the proviso contemplates a provision which would enable the settlor to take the income or assets outside the provisions of the Trust Deed. Mr. Desai says that if a settlor can derive some direct or indirect benefit under a trust deed the trust deed would fall within the first proviso.But the first proviso does not use these words. The words "direct or indirect benefit" occur only in the third proviso. This Court held in Commissioner ofPunjab v. S. Raghbir Singh,7 ITR 408 = (AIR 1966 SC 18  ) that although the settlor in that case obtained a benefit from the trustpayment of hise first proviso was not attracted14. Coming to the various clauses of the Trust Deed there is no doubt that the settlor has retained power to see that his wishes are carried out while he is alive. But he can only direct the carrying out of his wishes within the terms of the Trust Deed. What he can direct under clause 4 is the application of income to a particular charitable purpose. Similarly under clause 6 he can nominate the charitable object and the fund or investment which should be utilised for that object. This is in no sense a power toreassume. Clause 8 enables the settlor to delegate the carrying out of a particular charitable object. For instance, he could direct some contributions to be made to a hospital or a school without obliging the trustees to see that the hospital or the school does not misapply the funds.Clauses 10 and 11 which enable the settlor to give directions regarding the investment must be read subject to the provisions of the Bombay Public Trust Act and the general principles of law relating to trusts. We have already said that he could not legally direct a loan to be made to himself. Further it is difficult to subscribe to the proposition that a loan to a company in which the settlor is interested would give power to the settlor over the assets within the meaning of the first proviso. Clause 21 only shows the wide powers which the settlor has reserved to himself. None of these clauses comes within the purview of Proviso