CHINTAMANI GHOSHI TRUST VS COMMISSIONER OF INCOME-TAX, 1998 PTD-ALLAHABAD-HIGH-COURT-INDIA 3082 (1996)

Income-tax---

----Representative assessee-trustee---Trust executed in 1924 for benefit of relatives of settlor and for other charitable purposes---Decision by High Court that document was a trust and not a will---Proviso to 5.164(1) not applicable---Indian Income Tax Act, 1961, S.164.

The assessee was a trust created by a deed, dated July 24, 1924. It was mentioned in the deed that from that date, the settlor would act as the sole trustee and after his death he had appointed a board of trustees. Ten per cent of the net income of the trust was to go to the relatives and dependants of the settlor. The rest of the income was to be ultilised for charitable purposes. For the assessment years 1971-72, 1972-73 and 1973-74, part of its income was held to be specifically receivable on behalf of or for the benefit of the beneficiaries whose share was determinate and known. The remaining-income was assessed in the hands of the assessee in the status of an association of persons. Subsequently, the Commissioner of Income-tax felt that the orders passed by the Income-tax Officer were erroneous and prejudicial to the interests of the Revenue inasmuch as tax should have been levied on the assessee for all the three years at the rate of 65 per cent. The assessee claimed that the trust had been created by a will and its case was, therefore, covered by clause (ii) of the proviso to section 164(1) of the Income Tax Act, 1961. In the alternative, the assessee claimed that its case was covered by clause (iii) of the said proviso inasmuch as the trust had been created bona fide exclusively for the benefit of the relatives of the settlor before March 1, 1970. The Commissioner of Income tax rejected both the contentions and this was upheld by the Tribunal. On a reference:

Held, that it had already been held by the same High Court in its decision in the assessee's own case Chintamani Ghosh Trust v. CWT (1971) 80 ITR 331 that the document executed on July 24, 1924, was a trust and not a will and this decision was binding. The trust was not merely for the benefit of the relatives of the settlor but for various other purposes also. The Tribunal was correct in law in holding that the assessee was not covered by the provisos (ii) and (iii) to section 164(1) and was liable to be taxed at the rate of 65 per cent. under that section.

Chintamani Ghosh Trust v. CWT (1971) 80 ITR 331 (All.) fol.

Abdul Razak v. Ali Bakhsh (S.) AIR 1946 Lah. 200; CIT v. Kokila Devi (1970) 77 ITR 350 (SC); CWT v. Dorothy Martin (Mrs.) (1968) 69 ITR 586 (Cal.); Dubash (J.K.) (Executors of the Estate) v. CIT (1948) 16 ITR 90 (Bom.); Ramautar Singh v. Smt. Ramsundari Kur AIR 1959 Pat. 585 and Sree Sree Iswar Gopal Jew v. CIT (1950) 18 ITR 743 (Cal.) ref.

Shambhu Chopra for the Assessee.

Bharatji Agarwal for the Commissioner.

JUDGMENT

This is an income-tax reference under section 256 of the Income Tax Act 1961, in which the following question has been referred for our opinion:

"Whether, on the facts and in. the circumstances of the case, the income-tax Appellate Tribunal was correct in law in holding that the assessee was not covered by the proviso to section 164(1) and was liable to be taxed at the rate of 65 per cent under that section?"

The assessee is a trust and the relevant assessment years are 1971-72 and 1972-73. Part of its income was held to lie specifically receivable on behalf of or for the benefit of the beneficiaries whose share was determinate and known. The remaining income was assessed in the hands of the assessee in the status of an association of persons. The assessments were made by the Income-tax Officer and the tax was levied treating the income of an association of person for the respective years. Subsequently, the Commissioner of Income-tax felt that the orders passed by the Income-tax Officer were erroneous and prejudicial to the interests of the Revenues inasmuch as on the assessee tax should have been levied for the three years at the rate of 65 per cent. Hence, the Commissioner of Income-tax issued notice under section 263 of the Act to the assessee. The assessee claimed that there was no mistake in the assessment order and the Income-tax Officer had rightly charged the tax at the rate applicable to its total income. In support of its contention, the assessee claimed that trust had been created by a will and its case was, therefore, covered by clause (ii) of the proviso to section 164(1). In the alternative, the assessee claimed that its case was covered by clause (iii) of the said proviso inasmuch as the trust had been created bona fide exclusively for the benefit of the relatives of the settlor before March 1, 1970. The Commissioner of Income-tax rejected both these contentions of the assessee and held that its case was not covered by either clause (ii) or clause (iii) of the proviso to section 164(1) of the Act, and hence he accordingly held that the Income-tax Officer erred in not applying the rate of 65 per cent.

The assessee then filed an appeal before the Income-tax Appellate Tribunal and contended that the document, dated July 24, 1924, was a will of the settlor, Shri Chintamani Ghosh, who had subsequently executed another deed, dated June 1, 1925, by which he had referred to the deed, dated July 24, 1924, as a will. The assessee contended that in the deed, dated June 1, 1925, Shri Chintamvni Ghosh referred to the deed, dated July 24, 1924, as his last will and testament and this confirms that the deed, dated July 24, 1924, was the will of the settlor. In the alternative, the assessee also contended that if the above contention was not acceptable, then its case would be covered by clause (iii) of the proviso to section 164(1) of the Act.

The Income-tax Appellate Tribunal did not accept these contentions of the assessee and held that the document, dated July 24, 1924, was not a will since the will takes effect from the date of the death of the testator and is revocable by him in his lifetime, whereas the deed, dated July 24, 1924, clearly shows that it was intended to take effect immediately. By this deed. the settlor had endowed the properties mentioned in the schedule in favour of the deity and for the purpose of the carrying out of various objects. It was also held by the Tribunal that reference to this deed, dated July 24, 1924, as his will by the settlor in the deed, dated June 1, 1925, cannot change the legal position. The Tribunal further held that the submission that the trust came into existence only on the death of the settlor was also not acceptable, because the settlor had appointed himself not only as a shebayat but also as the sole trustee in his lifetime and it was, therefore, incorrect to say that there was no trustee during the lifetime of the settlor. The Tribunal relied on the decision of this Court in the case on Chintamani Ghosh Trust v. CWT (1971) 80 ITR 331, where it was observed as under (at page 340):

"On a reference to the extracts from the deed quoted above, it would appear that the settlor diverted himself completely of the property and conveyed the same absolutely to the trustees for the worship and upkeep of the family deity as also to carryout the objects of the trust mentioned in the deed. It is true that the property has been referred to in the deed as 'endowed property' and the settlor also states that the conveyance was made; by way of endowment of religious and charitable trust, to, unto and in favour and on behalf of the said deity ....' but these words do not detract from the real tenor of the document. It is a clear case of the creation of a trust conveying the property to the trustees."

As regards the alternative contention of the assessee that the case was covered by clause (iii) of the proviso to section 164(1), the Tribunal held that the trust had been created not only for the benefit of the relatives of the settlor but also for various other purpose, e.g., worship of the family deity and wages of the servants employed for the deity and for the maintenance of a Homeopathic dispensary and a fund for the maintenance of widows, orphans and students. Thus, the trust had not been created exclusively for the relatives of the settlor.

Shri Shambhoo Chopra, learned counsel for the assessee, urged before us that the document, dated July 24, 1924, was a will and not a trust. He has relied on the decision of the Lahore High Court in Haji Abdul Razak v. S. Ali Bakhsh, AIR 1946 Lahore 200, where it was held that one part of the instrument can operate in praesenti time as a deed and another part can operate in future as will. We agree with this observation, but so far as the document, dated July 24, 1924, is concerned, we are of the opinion that the document is not a will at all because it creates a trust in praesenti as is evident from a perusal of the very first paragraph of the said deed, dated July 24, 1924, which states: "from the date of these presents and for the rest of the term of his natural life, he, the said settlor, shall himself be and act as the sole and absolute shebayat of the said deity Sri Sridharjee and will alone exercise and enjoy all and singular the rights powers, privileges and functions of a shebayat, etc." Paragraph 2 of the said document states that after the death of the said settlor there would be a board of trustees whose names are mentioned therein.

Thus, this document comes into legal effect in praesenti and hence, obviously cannot be a will.

Shri Chopra, learned counsel for the assessee, relied upon the decision reported in Ramautar Singh v Sint. Ram Sundari Kur, AIR 1959 Patna 585, which also held to the same effect as the decision of the Lahore High Court, which we have referred to above. He has also relied upon the decisions m (1948) 57 ITR 587 (sic); CIT v. Kokila Devi (1970) 77 ITR 350 (SC); CWT Y. Mrs. Dorothy Martin (1968) 69 ITR 586 (Cal.); Executors of the Estate of J.K. Dubash v. CIT (1948) 16 ITR 90 (Bom.) and Sree Sree Iswar Gopal Jew v. CIT (1950) 18 ITR 743 (Cal.). In these cases it has been held that a trust can be created by a will. We do not disagree with this proposition, but, as already stated above a will comes into operation on the death of the testator and not in praesenti. The document, dated July 24, 1924, came into effect on the date of its execution and hence it cannot be called a will by any stretch of imagination. This document itself repeatedly uses the word "trustee which also goes to indicate that it is a trust for various purposes mentioned in paragraph 7 of the said deed.

In fact it was not necessary for us to go in detail in to the submission Shri Chopra because it has already been held by this Court in its decision in the assessee's own case Chintamani Ghosh Trust v. CWT (1981) 80 ITR 331, that the aforesaid document is a trust and this decision is binding on us, and we also agree with the same.

As regards the alternative submission that the deed was only for the benefit of the settlor, a mere perusal of the deed, dated July 24, 1924, shows that only ten per cent. of the net income of the trust is to go to the relatives and dependants of the settlor. The rest of the income will go for other purposes, e.g., a charitable homeopathic dispensary, a fund for the maintenance of widows, orphans and students, etc.

Thus, the object is not merely for the benefit of the relatives of the settlor but for various other purposes also.

Shri Chopra, learned counsel for the assessee, then submitted that in the subsequent document, dated June 1, 1925, it has been mentioned that the deed, dated July 24, 1924, was a will. In our opinion, if a document describes a previous document as a will, that by itself will not make the previous document a will. We have to examine the previous document itself and see whether the said document can be regarded as will. It is the substance and not the form, which is material. We have accordingly examined the document, dated July 24, 1924, and find that it is clearly a trust and not a will. In fact, this point has already been decided by this Court in the decision in the assessee's own case in Chintamani Ghosh Trust v. CWT (1971) 80 ITR 331 which is binding on us. The said decision operates as precedent and is binding on us and the matter cannot be agitated again.

Thus, there is no force in the submission of learned counsel for the assessee and hence we answer the question referred to us in the affirmative, i.e., in favour of the Department and against the assessee.

M.B:A./1573/FC Reference answered.