# COMMISSIONER OF INCOME· TAX, GUJARAT v. JAYANTILAL AMRA,TLAL, AHMEDABAD

- **Citation:** [1967] 3 S.C.R. 946
- **Court:** Supreme Court of India
- **Decided:** 1967
- **Bench:** J. C. Shah, S. M. S!Kri, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-gujarat-v-jayantilal-amra-tlal-ahmedabad-4077
- **Pages:** 11

## Headnote

B
Indian Income-tax "Act, 1922, s. 16(1) (c), proviso l-S1ttlor making
charitable trust and registering it under s. 35- Bombay Public Trusts
A ct, 1950-S. 16(1) ( c) proviso 1 whether can be applied to income of
trust on presumption +that sett/or may derive benefit contravening the
Bombay Act-Facts justifying applicability of s. 16(l){c) proviso 1.
J executed a trust deed wmreby he created a charitable trust. The
<ieccl was registered with the Charity Commissioner under the Bombay
Public Trust Act, 1950. For the year 1958-59 the Income-tax Officer
held that since the settlor had reserved to himself wide powers for his
own benefit and had also utilised those PoWers to his benefit, the case
was covered by s. 16(1) {c) of the Income-tax Act, 1922.
Accordingly
the Income-tax Officer taxed the income of the trust in the hands of the
settlor. A similar order was passed for the year 1959-60. In his appeal
before the Appellate Assistant Commissioner the settlor relied on s. 35
of the Bombay Public Trusts Act, 1950 to show that he was thereby
precluded from utilising the funds for his own benefit but his plea was
not accepted.
The Appellate Tribunal, however, relying on the terms
of the deed itself decided in favour of the settlor and the High Court
in reference did the same. The revenue appealed.
HELD : (i) There was no doubt that under the Trust Deed
the
settlor had very wide p<>wers and could direct the Trustees to grant loan to
him.
The Trustees could even grant a loan to a firm ,in which he was
interested.
But this would be contrary to the provisions of s. 35 the
Bombay Trust Act. The said Act to the extent it ·operates must override
provisions in the Trust Deed.
[95JE-954A-BJ
·
The Legislature in proviso 1 to s. 16(1) ( c) is thinking of powers lawfully gi""1 and powers lawfully exercised. Any person can commit breach
of trust and assume power over income or assets but for that reason the
income of the trust cannot be treated as the income of the settlor under
the proviso.
Conimissioner of lnco11ie-tax, West Bengal v. Sir S. M. Bose. 21
l.T.R. 135 and Commissiofler of Income-tax, Bombay Ncrth v. Mathura-
<ias Manga/das Parekh, I.T. Ref. No. 4/ 54, Judgment by Bombay High
Court dated August 26, 1954, referred to.
c
D
E
F
(ii) The words 're-assume power' give indication to the correct meanG
ing of s. 16(l){c) proviso 1.
The latter part of the proviso contemplates that the settlor should be able by virtue of something contained
in the Tru;t Deed to take back the power he had over. the assets or
income previous to the execution of the Trust Deed. A provision enabling the scttlor to give directions to trustees to emP!OY the ass~ts or fu!lds
of the tru;t in a particular manner or for a particular. charitable ob1ect
contemplated by the trust cannot be said to confer a r1ght to re-a;sume
H
power within the first proviso.
Otherwise a settlor could nev.er name
himself a sole trustee. _ The mere fact that the settlor can denve ';"";'•
direct or indirect benefif under a tru~t deed would not brin& the deed within
the first proviso. [9550-H; 966A-BJ
A
B
c
D
E
F
G
H
C.!.T. V. JAYANTILAL (Sikri, /.)
947
Chamberlain v. Inland Revenue Commissioner 25 T.C. 317, Tul.iidar
K<Jlic/1and v. Commis.rioner of Income"tax, 42 I.T.R. 1, Wolfson v. Comn1issiorzers oj Inland Revenue, 31 T.C. 141, Saunders v. Commissioners
of Inland Revenue, 37 T.C. 416, referred to.
Commissioner of Income-tax, Punjab '" S. Raghbir Singh, 57 I.T.R.,
408, followed.
On an examination of terms of the Trust Deed the Court held
lhut none of its clauses came within the purview of Proviso 1. [9S6C-F]
CIVIL APPELLATE Ju&ISDICTION : Civil Appeal Nos. 474-477
of 1966.
Appeals by special leave from the judgment and order dated
September 5, 1963 of the Gujarat High Court in Income-tax
Reference No. 19 of 1962.
·
S. T. Desai, A. N. Kirpa/, R. N. Sachthey and S. P. Nayyar
for the appellant (in all the appeals). ·
R. J. Ko/ah, M. L. Bhakta and 0. C. Mathur, for the respondents (in all the ap

## Text

COMMISSIONER OF INCOME· TAX, GUJARAT
v.
JAYANTILAL AMRA,TLAL, AHMEDABAD
May 5, 1961
A
(J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.]
B
Indian Income-tax "Act, 1922, s. 16(1) (c), proviso l-S1ttlor making
charitable trust and registering it under s. 35- Bombay Public Trusts
A ct, 1950-S. 16(1) ( c) proviso 1 whether can be applied to income of
trust on presumption +that sett/or may derive benefit contravening the
Bombay Act-Facts justifying applicability of s. 16(l){c) proviso 1.
J executed a trust deed wmreby he created a charitable trust. The
<ieccl was registered with the Charity Commissioner under the Bombay
Public Trust Act, 1950. For the year 1958-59 the Income-tax Officer
held that since the settlor had reserved to himself wide powers for his
own benefit and had also utilised those PoWers to his benefit, the case
was covered by s. 16(1) {c) of the Income-tax Act, 1922.
Accordingly
the Income-tax Officer taxed the income of the trust in the hands of the
settlor. A similar order was passed for the year 1959-60. In his appeal
before the Appellate Assistant Commissioner the settlor relied on s. 35
of the Bombay Public Trusts Act, 1950 to show that he was thereby
precluded from utilising the funds for his own benefit but his plea was
not accepted.
The Appellate Tribunal, however, relying on the terms
of the deed itself decided in favour of the settlor and the High Court
in reference did the same. The revenue appealed.
HELD : (i) There was no doubt that under the Trust Deed
the
settlor had very wide p<>wers and could direct the Trustees to grant loan to
him.
The Trustees could even grant a loan to a firm ,in which he was
interested.
But this would be contrary to the provisions of s. 35 the
Bombay Trust Act. The said Act to the extent it ·operates must override
provisions in the Trust Deed.
[95JE-954A-BJ
·
The Legislature in proviso 1 to s. 16(1) ( c) is thinking of powers lawfully gi""1 and powers lawfully exercised. Any person can commit breach
of trust and assume power over income or assets but for that reason the
income of the trust cannot be treated as the income of the settlor under
the proviso.
Conimissioner of lnco11ie-tax, West Bengal v. Sir S. M. Bose. 21
l.T.R. 135 and Commissiofler of Income-tax, Bombay Ncrth v. Mathura-
<ias Manga/das Parekh, I.T. Ref. No. 4/ 54, Judgment by Bombay High
Court dated August 26, 1954, referred to.
c
D
E
F
(ii) The words 're-assume power' give indication to the correct meanG
ing of s. 16(l){c) proviso 1.
The latter part of the proviso contemplates that the settlor should be able by virtue of something contained
in the Tru;t Deed to take back the power he had over. the assets or
income previous to the execution of the Trust Deed. A provision enabling the scttlor to give directions to trustees to emP!OY the ass~ts or fu!lds
of the tru;t in a particular manner or for a particular. charitable ob1ect
contemplated by the trust cannot be said to confer a r1ght to re-a;sume
H
power within the first proviso.
Otherwise a settlor could nev.er name
himself a sole trustee. _ The mere fact that the settlor can denve ';"";'•
direct or indirect benefif under a tru~t deed would not brin& the deed within
the first proviso. [9550-H; 966A-BJ
A
B
c
D
E
F
G
H
C.!.T. V. JAYANTILAL (Sikri, /.)
947
Chamberlain v. Inland Revenue Commissioner 25 T.C. 317, Tul.iidar
K<Jlic/1and v. Commis.rioner of Income"tax, 42 I.T.R. 1, Wolfson v. Comn1issiorzers oj Inland Revenue, 31 T.C. 141, Saunders v. Commissioners
of Inland Revenue, 37 T.C. 416, referred to.
Commissioner of Income-tax, Punjab '" S. Raghbir Singh, 57 I.T.R.,
408, followed.
On an examination of terms of the Trust Deed the Court held
lhut none of its clauses came within the purview of Proviso 1. [9S6C-F]
CIVIL APPELLATE Ju&ISDICTION : Civil Appeal Nos. 474-477
of 1966.
Appeals by special leave from the judgment and order dated
September 5, 1963 of the Gujarat High Court in Income-tax
Reference No. 19 of 1962.
·
S. T. Desai, A. N. Kirpa/, R. N. Sachthey and S. P. Nayyar
for the appellant (in all the appeals). ·
R. J. Ko/ah, M. L. Bhakta and 0. C. Mathur, for the respondents (in all the appeals).
The Judgment of the Court was delivered by
Sikri, J. These four appeals by special leave are directed
against the judgment of the Gujarat High Court in Income Tax
Reference No. 19 of 1962, whereby the High Court answered
the questions referred to it by the Income-tax Appellate Tribunal
against the Commissioner of Income-tax, who is the appellant
before us.
The reference was in respect of assessment
years
1955-56 and 1956-57 in the case of Shri Jayantilal Amratlal
(Individual) and in respect of assessments years 1958-59 and
1959-60 in the case of Jayantilal Amratlal Charitable Trust.
Ahmedabad.
The questions referred are :
( 1 ) Whether on the; facts 'and in the circumstances
of the case, the Tribunal was right in holding that the
income of Jayantilal Amratlal Charitable Trust was not
assessable in the hands of the settlor Jayantilal Amratlal
under the first proviso to Sec. 16(1)(c) of the Incometax Act for the assessment years 1955-56 and 1956-57?
( 2 r Whether. on the facts and in the circumstances
of the case, the Tribunal was right in holding that the
income of the Trust should be considered in the assessment of the trustees and that they were entitled to the
benefits of the refunds attached to the dividends from
the Trust properties for the assessment years 1958-59
and 1959-60?
The answer to these questions depends on the true. interpretation of s. 16 ( 1 )( c) of the Indian Income-tax Act, 1922, and
the interpretation of the Trust Deed dated June 19, 1947, and
948
SUPREME COURT REPORTS
[1967] 3 s.c.R.
to appreciate the points fully it is necessary to give a few facts
which are stated in the statement of the case.
Jayantilal Amratlal, individual, hereinafter referred to as the
settlor, executed a trust deed whereby he settled 80 ordinary
shares of M/s Iayantilal Amratlal Ltd., on trust and created a
trust known as "Jayantilal Ainratlal Charitable Trust" to carry out
the following various objects set out in the Trust Deed :
"For the relief of poor, for education, for medical
relief, for advancement of religion, knowledge, commerce, health, safety or any other objects beneficial to
mankind."
This Trust Deed was registered with the Charity Commissoiner
under the Bombay Public Trust Act, 1950. The Department
accepted this trust as a valid charitable trust and gave the necessary relief to the trustees in respect of the income of the Trust.
till the assessment year 1957-58.
The Income-tax Officer, while dealing with the assessment of
Jayantilal Amratlal Charitable Trust for the year 1958-59, wrote
a letter to the Trust to show cause why the income of the Trust
should not be included in that of the settlor and why the case
of the Trust should not be decided accordingly.
The Managing
Trustee submitted his reply. The Income-tax Officer wrote a
lengthy order holding that on the facts the case was covered by
the first proviso to s. 16"(1 )( c). He was impressed both by the
wide powers given to the settlor and the way in which the settlor
had been utilising his powers under the various clauses of the
Trust Deed.
He held :
"It is not necessary that there should be diversion
of income or assets from charitable purposes to noncharitable purposes to constitute "retransfer of assets to
or re-assumption of power over" the income or assets
of the settlor. It is not even nec~ssary for the purpose
of 1st proviso to section 16(1)(c), especially its later
part i.e. "give the settlor a right to reassume power
r· directly or indirectly over the income or assets" that
income or assets should be used for personal ends. For
diversion of such assets or income from one charitable
purpose to another in accordance with the wishes of the
settlor and the utilisation of income and investment of
income or assets not in full confonnity with the desires
of the trustees would be enough to drag the Trust property in the ambit of section 16 (1) ( c). In the instant
case, the settlor is all in all, he is the managing trustee
and in the event of a conflict of opinion amongst the
trustees the settlor would exercise predominatin[
A
I
c
...
D
E
F
•
G
H
..
A
B
c
D
F
G
H
c.1.T. v. JAYANTILAL (Sikri, I.)
influence both as managing trustee as also in his capacity
of an arbitrator and his decision would be binding on
all.
The most important point which needs consideration is that all the inherent powers and discretion for
the income and corpus of the Trust property remain
with the settlor, in his capacity as settlor and not by
way of his capacity of a trustee."
949
The Income-taic Officer accordingly held that the income of the
Trust would not be computed in the hands of the trustees but
would be computed in the hands of the settlor under s. 16(1) (c).
For the assessment year 1959-60 he passed a similar order on
the same date.
On the same day he also dealt with the assessll).ents of J ayantilal Amratlal, individual, for .¢,e years 1955-56 and 1956-57.
Following his reasoning he included the relevant income of the
Trust in the hands of J ayantilal Amratlal.
Four appeals were taken to the Appellate Assistant Commissioner who, by his two orders dated November 8, 1960, dismissed
the appeals.
Before him the settlor relied on s. 35 of the Bombay Public Trust Act, 1950, but the Appellate Assistant Commissioner held that this did not assist the settlor because the
Income-taic law did take into consideration income derived directly or indirectly by illegal means. He felt that the settlor "could
not be precluded from utilising funds of the trust directly or
indirectly to his benefit sincei he had a right under the settlement
to do so and the Bombay Public Trust Act did not hold any
fear for him as the penalties leviable were not of a deterrent
nature, compared to the advantages that he could gain directly
or indirectly by. re-assuming control over the investments or its
income".
On appeal, Income-tax Appellate Tribunal, however, reversed
these orders. and held that the income from the Trust was not
hit by the first proviso to s. 16(1) (c). The Tribunal ignored
the factual position relied on by the Income-tax Officer and the
Appellate Assistant Commissioner and confined itself only to the
Trust Deed. Regarding the offending clauses 4, 10 and 21 of
the Trust Deed, which we will presently refer to, the Appellate
Tribunal held :
"We see nothing in these clauses which confer on
the assessee the right to retransfer to the assessee
directly or indirectly the income or the assets or to reassume power over them.
He has always to exercise
these powers within the framework of the Trust. There
is no doubt power in clause (10) to invest in any
manner and thereby in the assessee's own companies,
but this is overridden by clause 35 of the Bombay Trust
950
SUPREME COURT REPORTS
(1967] 3 s.c.a..
Act under which it is registered. If the Chiirity Commissioner 'bas chosen not to take action, it may also
be that he has considered the matter and approved the
action.
It is purely his responsibility. . The fact that
the investment itself has not been made Ulegal under the
Trust Act and that the assessee can offc.nd the provisions
with impunity as the penalty is light are all matters
extraneous to .this consideration which has to be confined only to the provisions in the deed."
At the instance of the Commissioner of Income-tax the
Appellate Tribunal stated the case and referred the questions
which we have already reproduced above.
The High Court
held:
"When a statute talks about a right to reassume, it
must mean a lawful right which can be lawfully exercised .... a right to reassume must be given to the settlor
independently of any third party and dependent upon
his own volition. It is true that the Charity Commissioner may grant leave to the settlor, but he may or may
not grant it.
A right to re;issume cannot rest dependent upon whether the Charity Commissioner may or
may not grant sanction."
Shelat, C.J., observed :
"Surely, it must be presumed that the Charity Commissioner would not grant his sanction to an investment
which is bound· to result in a conllict of duty and
interest on the part of the settlor who is also a trustee.
Therefore, such a right, if it can be called a right, is
not one of any substance and cannot,
therefore, be
construed as a right to reassume power over the trust
assets or the income thereof,
as contemplated by
proviso 1 to section 16 ( 1 )( c) . "
"A loan, by the very nature of it, cannot be said to
amount to ·an exercise of dominion or control over its subject matter. rt' is repayable and is given on conditions as
to the time df repayment and interest, if any.
By taking a loan a settlor does not exercise over its subject
matter power or dominion which, but for the trust. or
the settlement, he would have been able to exercise."
Section 16 ( 1 )( c) reads as follows :
"16. Exemptions and exclusions in determining the
total income.-
(1) In computing the totalincome of an assessce-
(a) ......
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
C,!.T. V, JAYANTILAL (Sikri, J,)
(b) ' • " "
( c) all income arising to any person by virtue of
a settlement or disposition whether revocable or not,
and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act,
1939 (VII of 1939), from assets remaining the property of the settlor or disponer, shall be deemed to be
income of the settler or disponer, and all income arising
to any person by virtue of a revocable transfer of assets
shall be deemed to be income of the transferor :
Provided that for the purposes of this clause a
settlement, disposition or transfer shall be deemed to
be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to
the settlor, disponer or transferor, or in any way gives
the settler, disponer or transferor a right to reassume
power directly or indirectly over the income or assets;
Provided further that the expression "settlement or
disposition" shall for the purposes of this clause include
any disposition, trust, covenant, agreement, or arrangement, and the expression "settler or disponer" in relation to a settlement or disposition shall include any
person by whom the settlement or disposition was
made:
Provided further that this clause shall not apply to
any income arising to any person by virtue of a settle:
ment or disposition which is not revocable for a period
exceeding six years or during the life-t:me of the person
and from which income the settlor or disponer derives
no direct or indirect benefit but that the settler shall be
liable to be assessed on the said income as and when
the power to revoke arises to him."
951
The learned counsel for the appellant, Mr. S. T. Desai, has
submitted three propositions before us : ( 1) The operation of the
~rst proviso to s. 16(1) (c) depends only on the settlement and
its term~ and not on any provision of the Bombay Public Trusts
Act, which may oi;- may not be observed; (2) The absolute powers
reserved over the mcome and corpus of the trust property remah
vested in the settler in his capacity as the settler and not a
0s
ti:ustee, and further they fall withJn the purview of the first proviso to s. 16(l)(c); and (3) It 1s a relevant consideration that
as fo_un~ by the authorities, the settler has been deriving direct
and mdtrect benefits from the trust properties.
He
relies
on
clauses 4, 6, 8, 10, 11 and 21 of the Trust Deed to show that
the Trust Deed gives the settler right to re-assume power directly
9 Sup. CI/67-17
952
SUPREME COURT REPORTS
[1967) 3 S.C.R.
or indirectly over the income or assets of the Trust within the first
proviso to .s. 16(1) (c).
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.
Clausf! 1 vests the shares and the other trust properties and income in the trustees.
Clause 2 gives the name of
the trust Clau•e 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 accept 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 pf 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 Trustee,·
to utilise the 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 investA
B
c
D
E
F
G
H
A
8
c
D
E
F
G
"
C.I.T. V. JAYANTILAL (Sikri, J.)
95~
ment of trust premises or in ordinary or preference shares of
joint stock companies, whether partly or fully paid, or in debentures or in giving Joans to any public company or Jinn 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 managemeμt 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 to re-assume 'control over the assets.
He says tliat as a matter
of fact the Income-tax Officer did find that the Settlor has been
utilising these powers for his own benefit. There is no doubt that
under the Tmst 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 property 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 a Cooperative 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 pennit the Trust~e of any
public trust or classes of such trusts to invest the monev
in any other manner."
954
SUPREME COURT REPORTS
llllOIJ J ~·""'"
Mr. S. T. Desai submits that we cannot take into consideration
the provisions of the Bombay Public Trust Act.
We are unable
to accept thi:; submission.
The Bombay Public rrust Act must,
to the extent it operates, override any provisions in the Tmsl Deed.
As Shelat, J ., observed, "when proviso 1 talks about a right to
reassu!lle power, prima facie, that must mean t~at there is such
power lawfully given under the deed of trust.'
It 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.
The Calcutta High Court in Commissioner of Income-tax,
West Bengal v. Sir S. M. Bose(') observed:
"The first proviso to Section 16 (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 settler
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 of Income-tax, Bomba.v North v. Mathuradas Mangaldas Parekh(") the Bombay High Court repelled a
similar argument by observing :
"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 Section 54 of the Trusts Act."
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. 16 ( 1) ( c) the powers reserved to the settler 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 Macmillan in Chamberlain v. Inland Revenue Commissioners('), quoted in Tulsidas
f!.ilachand v. Commissioner of Income-tax(') :
(I) 21 l.T.R. 135 at p. 141.
(2) 1.T. Ref. No. 4 of 1954, judgment dated August ·26, 1954, reported in
"tJnrcported Income-tax Judgments of the Bombay High Court, Book One,
Published by Western India Regional Council of the Institute of Chartered
Accountants of India, Dombay" p. 314 at p. 316.
(3) 25 T.C. 317, 329.
(4) 42 I.T.R. I, 4.
c
D
E
F
G
H
A
8
D
&
G
H
C.l.T. v. JAYANrILAL (Sikri, !.)
"This legislation .... (is) designed to overtake and
circumvent a growinp; 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 Legislature's 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."
95 5
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
in Wolfson v. Commissioners of Inland Revenue(') :
"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 Jaw to give to words a strained and unnatural meaning because only thus will a tax.ing 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(') 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. 16 (1 )( c) proviso I ? It
seems to us that the words "reassume power" give indication to
the correct meaning of the proviso.
The latter part of the proviso contemplated 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.
A 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 obi~t 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
(lJ 31 r. c. 141, 169.
12) 37 r.c. 416, 431.
956
SUPREME COURT REPORTS
[1967] 3 S.C.R.
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 would fall within
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(') that although the settlor in that
case obtained' a benefit from the trust-payment of his debtsthe first proviso was not attracted.
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 applic<ition 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 I 0
and 11 which enable the settlor to give directions regarding the
investtnent 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 h\: could not legally direct a
loan to be made to himself. Further it is difficult to subscribe
to thei 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 I.
In the result we agree with the conclusions of the High Court.
The appeals accordingly fail and are dismissed with costs. One
hearing fee.
G.C.
Appeals dismissed.
(I) 57 l.T.R. 408.
B
c
D
E