# JYOTENDRASINHJJ v. S.l. TRIPATHI AND ORS

- **Citation:** [1993] 2 S.C.R. 938
- **Court:** Supreme Court of India
- **Decided:** 1993-04-02
- **Case number:** Civil Appeal Nos. 1301-07 Y of 1991
- **Bench:** B.P. Jeevan Reddy, N. Venkatachala
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jyotendrasinhjj-v-s-l-tripathi-and-ors-11783
- **Pages:** 31

## Headnote

Constitution of India, I950: Altic/es 136, 226 read with provisions in
-
Chapter XIX-A. Income Tax Act 1961-Settlement Commission's order-Interference or judicial review under Arlicle 226 or 136-Scop,,_.<;ommission 's
c interpretation of settlement deeds-Effect of
Income Tax Act, 196I: Sections 61, 63, 164(1), 166-U.S. settlement
~
deed/trnst deed-Whether discretionary-Revocability under section 6JSett/or's power under U.S. deed-Extent of-Revenue's. option to tax income
D
froni a discretionary trnst in the hands of trnstees or beneficiaries.
Income Tax Act, 1961: Sections 5, 63, 164( I T-f.J.K. settlement
deed/tn1st deed--lncome declared and .shown in Tax returns by sett/or and
after his death by his son--Taxability of-Payment of taxes in UK or USA on
Income from settlement deeds-{f proved, not taxable in India.
>-
E
Imerpretation of Documenr-u.SA. or U.K. settlement deeds or trnst
deeds-Constrnction_,'Transfer': "family members". "descendants of the Jamily members''-i'ffeaning of-Income derived from such trnsts whether taxable -
in India.
F
The apl"'llant's father executed on 1.1.1964, three deeds of settlements (trust deeds) in the United States of America. The terms in them
~
all were identical. The object of these trusts was to provide for the education, maintenance and up-keep of the members of the settlor's family and
their descendants. He also executed two settlements in U.K. with the very
G same object.
The settlor (appellant's father) was iiling returns of his income in
~
India including therein whole of the income arising from the trusts. For
the assessment years 1964-65 to 1969-70, he iiled the returns. Since he died
on 22-8-1969, i.e. in the middle of the accounting year (relevant to the
H
assessment year 1970-71), two returns \Vere fiJed, one up to the date of his
938
JYOTENDRASINHJJ v. S.J. TRIPA THI
939
..,.
death and the other from the date of bis death to the end of the accounting A
year, by bis eldest son, the appellant, including the whole of the income
from the trusts.
The appellant filed appeals against the assessment orders pertain·
y
ing to the assessment years 1965-66 and 1966-67 contending that. the
B
income from U.S. trusts was not taxable in India either in the hands of
settlor or in his hands and that the inclusion of the said income in the
returns by the settlor and by the appellant was a mistake.
-
The appellant preferred revisions against other assessment orders,
where appeal was barred, taking the plea of non-taxability with respect to c
the income from U.K. trusts and from the U.S. trusts.
-yThe Appellate Assistant Commissioner allowed the appeals.
The Revenue's appeals to the Tribunal were allowed holding that the
A.A.c. acted contrary to Rule 46(2) of the Income Tax Rules in admitting the D
additional grounds and in looking into new material. The Tribunal remitted
the appeals back to A.A.C. At that stage the appellant approached the
settlement commission under Chapter XIX(A) of the Income Tax Act, 1961.
The Settlement Commission went into all the aspects of the matter
"""-
and computed the taxable income of appellant's father and his income for E
the assessment years 1964-65 to 1970-71 and 1970-71 to 1982-83. It
directed the l.T.O. to compute the total income for each of the said
assessment years accordingly and raise demand for the tax due.
-
The appellant preferred two sets of appeals before this Court
against the two orders .of the Settlement Commission. C.A.s. ·1301-07 of F
'T
1991 related to the assessment years 1964-65 to 1970- 71 and C.As.12881300of1991 related to the assessment years 1970-71to1982-83.
The_ appellant contended that the settlement Commission erred in
law in holding that the U.S. trusts were revocable trusts within the mean- G
ing of Section 63 of the Act; that for attracting Section 63, the deed of
transfer must give the transferor a right to re-transfer directly or indirect•
)...
ly whole or any part of the income or assets to the transferor or it mus\.
give him a rig

## Text

_Characters 0–39,070 of 74,595. This is a partial read: ask again with offset=39070 for what follows._

y
~
A
JYOTENDRASINHJJ
v.
S.l. TRIPATHI AND ORS.
APRIL 2, 1993
,.,.
B
[B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.)
Constitution of India, I950: Altic/es 136, 226 read with provisions in
-
Chapter XIX-A. Income Tax Act 1961-Settlement Commission's order-Interference or judicial review under Arlicle 226 or 136-Scop,,_.<;ommission 's
c interpretation of settlement deeds-Effect of
Income Tax Act, 196I: Sections 61, 63, 164(1), 166-U.S. settlement
~
deed/trnst deed-Whether discretionary-Revocability under section 6JSett/or's power under U.S. deed-Extent of-Revenue's. option to tax income
D
froni a discretionary trnst in the hands of trnstees or beneficiaries.
Income Tax Act, 1961: Sections 5, 63, 164( I T-f.J.K. settlement
deed/tn1st deed--lncome declared and .shown in Tax returns by sett/or and
after his death by his son--Taxability of-Payment of taxes in UK or USA on
Income from settlement deeds-{f proved, not taxable in India.
>-
E
Imerpretation of Documenr-u.SA. or U.K. settlement deeds or trnst
deeds-Constrnction_,'Transfer': "family members". "descendants of the Jamily members''-i'ffeaning of-Income derived from such trnsts whether taxable -
in India.
F
The apl"'llant's father executed on 1.1.1964, three deeds of settlements (trust deeds) in the United States of America. The terms in them
~
all were identical. The object of these trusts was to provide for the education, maintenance and up-keep of the members of the settlor's family and
their descendants. He also executed two settlements in U.K. with the very
G same object.
The settlor (appellant's father) was iiling returns of his income in
~
India including therein whole of the income arising from the trusts. For
the assessment years 1964-65 to 1969-70, he iiled the returns. Since he died
on 22-8-1969, i.e. in the middle of the accounting year (relevant to the
H
assessment year 1970-71), two returns \Vere fiJed, one up to the date of his
938
JYOTENDRASINHJJ v. S.J. TRIPA THI
939
..,.
death and the other from the date of bis death to the end of the accounting A
year, by bis eldest son, the appellant, including the whole of the income
from the trusts.
The appellant filed appeals against the assessment orders pertain·
y
ing to the assessment years 1965-66 and 1966-67 contending that. the
B
income from U.S. trusts was not taxable in India either in the hands of
settlor or in his hands and that the inclusion of the said income in the
returns by the settlor and by the appellant was a mistake.
-
The appellant preferred revisions against other assessment orders,
where appeal was barred, taking the plea of non-taxability with respect to c
the income from U.K. trusts and from the U.S. trusts.
-yThe Appellate Assistant Commissioner allowed the appeals.
The Revenue's appeals to the Tribunal were allowed holding that the
A.A.c. acted contrary to Rule 46(2) of the Income Tax Rules in admitting the D
additional grounds and in looking into new material. The Tribunal remitted
the appeals back to A.A.C. At that stage the appellant approached the
settlement commission under Chapter XIX(A) of the Income Tax Act, 1961.
The Settlement Commission went into all the aspects of the matter
"""-
and computed the taxable income of appellant's father and his income for E
the assessment years 1964-65 to 1970-71 and 1970-71 to 1982-83. It
directed the l.T.O. to compute the total income for each of the said
assessment years accordingly and raise demand for the tax due.
-
The appellant preferred two sets of appeals before this Court
against the two orders .of the Settlement Commission. C.A.s. ·1301-07 of F
'T
1991 related to the assessment years 1964-65 to 1970- 71 and C.As.12881300of1991 related to the assessment years 1970-71to1982-83.
The_ appellant contended that the settlement Commission erred in
law in holding that the U.S. trusts were revocable trusts within the mean- G
ing of Section 63 of the Act; that for attracting Section 63, the deed of
transfer must give the transferor a right to re-transfer directly or indirect•
)...
ly whole or any part of the income or assets to the transferor or it mus\.
give him a right to re-assume power directly or indirectly over the whole
or any part of income or assets; that in the present case such power was
not given to the transferor; that U.S. trusts were discretionary trusts and H
•
940
SUPREME COURT REPORTS
(1993] 2 S.C.R.
'r
A therefore the assessment could be made only upon the trustees and not
~
upon the beneficiaries-recipients; that the revenue could not take advantage of the mistake of law on the part of the settlor or the appellant;
that with the death of the settlor, the U.S. trusts ceased to be revocable
trusts and the appellant could not be taxed on the income received by him
B from the said trust, because only the trustee could be taxed; that the.U.K.
..,.,
trusts were also discretionary trusts and not specific trusts as held by the
Settlement Commission and the assessment could be made only upon the
trustees and not upon the beneficiaries-recipients; that the Settlement
Commission committed a legal error in including the income from the
-
U.K. trusts in the total income of the settlor and the appellant even though
c it was not paid out by the trustee nor received by the assessees in India;
that in the U.S.A. and U.K.; tax was levied upon the respective trust
incomes under the laws of those countries; that levying tax over again in
~
India on the very same income amounted to double taxation and therefore
· the tax levied in India was to be waived.
D
The Revenue submitted that even if any principles were decided by the
Settlement Commission, they did not bind the Income"Tax authorities in
proceedings relating to subsequent years; that the order of the Commission
was relevant to and was confined only.to the assessment years to which it
related; that this Court under Article 136 of the Constitution would not be
E
able to go into the merits of the order; that .the Settlement Commission's
.,.
interpretation <)n the U.S. and U.K. trusts was perfectly in order and did not
call for any interference by this court; that during his life-time, the settlor
had declared that he had received income from the U.K. and U.S. trusts and
·-
had included the same in his returns of income for each of the assessment
F
years relevant herein; that the appellant too acted similarly and therefore
the argument of not receiving the iacome ·from UK trusts was a mere
after-thought and should not be given any credence; that a trustee or the
-....
trustees was/were expected to act reasonably and in furtherance of the object
or the trusts; that they were to apply the income for the purposes specified,
G
because they could not just accumulate it; that applying. the test of
reasonableness, it was to be held that ordinarily, the trustee ought to
distribute the income each year; and that it was to be held that the income
from the UK trusts had rightly been taken into account by the Commission
,.,J...,
while passing its orders.
H
Dismissing the appeals, this Court,
~·
r
JYOTENDRASINHJI v. S.I. TRIPATHI
941
HELD : 1.01. The finality clause contained in Section 245-1 does not A
and cannot bar the jurisdiction of the High Court under Article 226 or the
jurisdiction of this court under Article 32 or under Article 136, as the case
may be. But that does not mean that the jurisdiction of this court in the
'y
appeal preferred directly in this court is any different than what it would
be if the assessee had first approached the High Court under Article 226
and then come up in appeal to this court under Article 136. A party does B
not and cannot gain any advantage by approaching this Court directly
under Article 136, instead of approaching the High Court under Article
-
226. This is not a limitation inherent in Article 136; it is a limitation which
"1
this court imposes on itself having regard to the nature of the function
performed by the Commission and keeping lo view the principles of c
judicial review. [955. D-E]
..,...
1.02. The scope of enquiry, whether by High Court under Article 226
or br this Court under Article 136 is also the same • whether the order of
the Commission is contrary to any of the provisions of the Act and if so, D
has it prejudiced the petitioner/appellant-apart from ground of bias,
fraud & malice which, of course, constitute a separate and independent
category. [956-B)
.<(
1.03. The appellant power under Article 136 is similar to power of
j'!dicial review, where the appeal is directed against the orders of the E
Settlement Commission.
Sri Ram Durga Prasad v. Settlement Commission, 176 l.T.R. 169 and
-
Chief Constable of the N. W. Police v. Evans, [1982] 1 W.L.R. 1155, referred
to. [956-D]
F
,,..
1.04. The only ground upon which this Court can interfere in these
appeals is that the order of the Commission is contrary to the provisions of
the Act and that such contravention has prejudiced the appellant. [956-EJ
1.05. The main controversy in these appeals relates to the inter- G
pretation of the settlement deeds - though it is true, some contentions of
A
law are also raised. The commission has interpreted the trust deeds in a
particular manner. Even if the interpretation placed by the commission on
the said deeds is not correct, it would not be a ground for interference in
these appeals, since a wrong interpretation of a deed of trust cannot be
said to be a violation of the provisions of the Income Tax Act. [956-F)
H
942
SUPREME COURT REPORTS
[1993) 2 S.C.R.
'i'
'
A
1.06. The interpretation placed upon the said deeds by the Commission does not bind the authorities under the Act in proceedings relating
to other assessment years. [956-G]
1.07. Though it is not necessary, strictly speaking, to go into the
B
correctness of the interpretation placed upon the said deeds by the commis-
-y
sion, and it is enough if this court confines itself to the question whether the
order of the Commission is contrary to the provisions of the Act, yet, for the
sake of completeness, the Court examine whether the order of Commission
is vitiated by any such wrong interpretation. [956-H, 957-A)
-
c
2.01. A discretionary trust is described as a trust where the trustees
have been vested with a discretion in the matter of distribution of trust
income among the specified class of beneficiaries. In the case of such
"t
trusts, the trustees have a discretion to pay whole or part of the income to
such member or members of the designated class as they think lit and in
D
such proportion as they deem appropriate. [957 C-D)
Snell's Principles of Equity, 25th Edn. (1965) page 129, referred to.
(957-E)
2.02. The US settlement deed empowers the trustee to hold, manage,
E
invest and re-invest the principal of the trust fund, to collect and receive
>-
the income thereof and to pay or apply so much of the net income as the
trustee shall in his absolute and uncontrolled discretion deem advisable
to or to the use of one of more members of the settlor's family. It is thus
a discretionary trust.
-
F
2.03. P.ara 1(2) of the U.S. Deed empowers the settlor/transferor and
the trustee, acting together to direct the trustee, at any time, to pay over
the entire income and/or entire corpus or a part thereof to such member
-(
of the settlor's family or their descendants as they may direct. The said
power cannot be exercised hy the settlor acting .alone. [958-B)
G
2.04. The power, properly construed, is given to the settlor to, be
exercised together with the trustee · and not to the trustee to be.:exercised
together with the settlor. The trustee is anyhow vested with an absolute
~
discretion to distribute the income of or the principal of the trust to such
member of the family, as he thinks appropriate, under the clause precedH ing and paras following para 1 (2). If so, there was no point in saying that
t'
JYOTENDRASINIDI v. S.l. TRIPATHI
943
he can, together with the settlor, be empowered to pay over part or whole A
of income/principal to "such one or more members or a class composed or
the family members living.• It cannot also be forgotten that the trustee in
this case is a Bank - one of the largest in the U.S.A. - and not an individual
acquaited with the affairs of the settlor's family. [958-H, 959-A)
y
2.05. Section 63 doe5 not say that the power or revocation vesting in B
..
the transferor should be absolute. or unconditional. (959-B)
2.06. Section 63(1) also does not say that the deed of transfer must
-
confer or vest an unconditional or an exclusive power in the transferor to
give the power/direction of the nature contemplated by iL Merely because c
the concurrence of the trustee bad lo be obtained by the transreror/settlor
T
for giving the said direction it cannot be said that the deed does not
contain a provision giving the transferor a right to re-assume power
directly or indirectly over the whole or any part of income or assets within
the meaning of Section 63(a)(ii) of the Act. (960 B·CJ
D
2.07. During the lifetime of the settlor, the entire income arising from
the three U.S. trust deeds was bound to be and was rightly included in the
income of the settlor by virtue of Section 63 read with Section 61. (961~8]
2.08. With the death of the settlor, Section 63 ceased to apply even
though the aforesaid clause empowers not only the settlor but also the E
Maharaja for the time being to exercise the said power. (961-C]
2.09. Section 63 is attracted only where such power Is given to the
---
transferor - and the appellant (the son of the settlor) is not and cannot be
called the transferor. It is not denied that so far as the income from the
U.S. trusts is concerned, it was indeed received by the appellant. (961-D]
F
)""
2.10. The trustees in the case of a trust declared by a duly executed
instrument in writing are treated as representative assessees (Section
160(l)(iv)). It is equally true that in the case of a discretionary trust,
trustees are liable to be taxed in respect of the income received by them at
the rate specified in Section 164(1). (%1-F]
G
2.11. Section 166 states in unmistakable terms that nothing cootained in the preceding provisions in the chapter shall preclude the
Revenue from making a direct assessment upon the beneficiary-and/or
recovering the tax payable from such person. [962-B]
H
A
B
c
944
SUPREME COURT REPORTS
[1993) 2 S.C.R.
2.12. By virtue or Section 166, the Revenue has an option in the case
or a discretionary trust either to make an assessment upon the trustees or
to make an assessment upon the beneficiaries. or course, both the trustee
and the beneficiary cannot be simultaneously taxed in respect or the same
income. The assessments made by the Commission on the deceased-settlor
and the appellant are thus unexceptionable. (966-D]
Beltramji Sorabji v. Commissioner oflncome Tax, Bombay, 16 I.T.R.
301; Commissioner of Income Tax,' Bombay City v. Ratilal Nathalal, 25
1.T.R. 426; Tanmendra Nath Tagore v. Commr. of Income Tax, 33 I.T.R. 492
(Calcutta); K. Subramania Pillai v. Agricultural Income Tax Officer,
Thukalay, 53 l.T.R. 764; Commissioner of Income Tax, Punjab v. Raghubir
Singh, 57 I.T.R. 408; Nagappa v. C.I. T., 73 I.T.R. 626 and Ram Swaroop Das
v. T71e State of Bihar, 42 I.T.R. 770, referred to.
Sevantilal. Maneklal v. C./. T., 67 l.T.R. I, distinguished.
D
C.l. T. v. Kama/ini Khatau, 112 l.T.R. 652" (Gujarat) (F.B.) Agreed
E
with the dissenting opinion.
3.01. Both the settlor and the appellant have been receiving the
income from the UK trusts during the several assessment years concerned
herein. The settlor had voluntarily included the entire income from the
U.K. trusts in his income in the returns filed by him for the assessment
years 1964-65 to 1969-70. It is unlikely that he would have so included
unless he really received it. The Commission treated those declarations as
proof of the settlor's real intention. The Commission allso relied upon
certain other circumstances including the manner in which the accounts
F
or these trusts were maintained in support or their .opinion that all
concerned with the trusts, acted on the basis that the trust income was
flowing to the settlor, and after his death to the appellant. The Commis·
sion also referred spe,cifically to similar declarations made by the appellant in his returns. Even subsequent to the death of the settlor, the
G Commission pointed out, the appellant has been making similar declarations from time to time. (967 C-E)
3.02. The appellant did not say that he did not receive the income
from the U.K. trusts. All he said was, since it is a discretionary trust, its
income is not taxable in his hands. If he had not received the income, he
H
would have put forward that fact in the forefront. But be did not. Section
·-.f
... -
.. -
-
I
JYOTENDRASINHJI v: S.I. TRIPATHI [REDDY, J.]
945
5 of the Act is wide enough to bring all such income to tax. Io case A
appellant proves that any income has been taxed in U.S. or U.K., the same
income shall not be taxable over again in India. (967-H-, 968-D)
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1301-07
Y
of 1991
From the Judgment and Order dated 31-3-89 of the Income Tax
Settlement Commission Bombay in Settlement Application No. 10/5/41/78IT.
B
Ashok Desai, Debi Pa~ B.K. Mehta, N.K. Sahu, U.K. Sagar and P.H. C
Parekh for the Appellant.
Dr. V. Gaurishankar and S. Rajappa for the Respondents.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. These appeals are preferred against the
orders of the Settlement Commission dat~d March 31, 1989 in pursuance
of the offers of settlement made by the appellant. Civil Appeals 13.01-07 of
1991 relate to the assessment years 1964-65 to 1970-71 while Civil Appeals
1288-1300 of 1991 relate to the assessment years 1970-71 to 1982-83. Under
its orders, the Settlement Commission computed the taxable income of the
appellant's father (who died on August 22, 1969} and of the appellant for
the aforesaid assessment years and gave certain directions, applying which
the l.T.O. was directed to compute the total income for each of the said
assessment years and raise demand for the tax due. The main issue in all
these matters is the assessability of income from five foreign trusts created
by the appellant's father, Sri Vikramsinhji.
D
E
F
Sri Vikramsinhji, Ex-ruler of Gonda! executed three deeds of settlements (trusts deeds) in the United States of America on December 19,
1963 and two deeds in the United Kingdom on January 1, 1964. The three
settlements executed in U.S. are in identical terms. Similarly, the two G
settlements, executed in U .K. are similar. The two sets of settlements,
however, differ from each other in certain particulars, though both the sets
are meant for the benefit of the settlor and the members of his family. We
may refer to the relevant clauses in the settlements executed in U.S. in the
first instance.
H
946
SUPREME COURT REPORTS
[ 1993] 2 S.C.R.
A
Under the U.S. settlements, The National City Bank, New York is
B
constituted the sole trustee. The trust is created for the benefit of the
grantor/settlor, his wife and children and their spouses (referred to as
family members) and their descendants. The trustee is empowered to
collect the income from the trust properties and to apply the same among
the family members and/or their descendants in such manner as he thinks
appropriate. He is also authorised to terminate the trusts for any reason
(including tax reasons) and to transfer, convey and pay off the property
held thereunder to any person or persons then eligible to receive the
income of the trusts. On such termination, the entire assets in the hands
of the trustee are to be paid over to the then Maharaja (Ruler) or to his
C living male descendants in equal shares per stripes. The clause which is
relevant herein, which according to the Revenue, makes the trusts
revocable ones - we may refer to it as para 1(2) for the sake of convenience
- reads thus:
D
E
F
G
."Anything hereinabove to the contrary notwithstanding, at
any iime and from time to time the Trustee shall transfer,
convey and pay over any portion of the income of the trust
fund .and any portion or all of the principal held in trust
to or to the use of such one or more members of a class
composed of the Grantor, the wife or widow of the Grantor, the children of the Grantor living from time to time,
the spouse of any child of the Grantor then living or
deceased (hereinafter referred to as the "Family Members"), and the descendants of the Family Members living
from time to time, in such amounts1 shares and proportions, either absolutely or in trust, and upon such terms
and conditions (including the grant of a further power to
appoint) as the Trustee and a Maharaja who shall have
attained the age of eighteen ( 18 years) shall at any time
and from time to time appoint and direct in a written
instrument which refers to and specifically exercises this
power and which is duly executed by the Maharaja and
by the Trustee then acting here-under. The foregoing
power to appoint may be released in whole, or in part by
the Maharaja or by the Trustee or by both at any time by
one or more written instruments duly executed by the
Maharaja or by the Trustee or by both and delivered to
-
-
--
JYOTENDRASINHJI v. S.I. TRIPATHI [REUUY, J.J
the Trustee then acting here-under, provided, however,
that if either the Maharaja or the Trustee, but not both
of them, shall release such power, then the party not so
releasing shall continue to have the power to appointment
hereinbefore provided, acting alone.'
947
Clauses (2) and (3) of the deeds confer an absolute discretion upon
the trustee to pay over or apply in his discretion, any part or whole of
income or any part of or whole of the principal to "any person then eligible
A
B
c
to receive the income of this trust" at such time and in such manner, as he
may decide in his absolute discretion. Clause {3) says further that "the
Trustee may omit eligible members of the class from any and all such
payments and applications, and no such payment or application or ommission of a person from participation therein shall cause a charge against or
otherwise effect the future interest or share of any person here under.' Any
determination made by the trustee in good faith in exercising the said
discretion is held lo be binding and conclusive. It is not necessary to notice D
other clauses of these settlements except to say that the object of these
trusts is to provide for the education, maintenance and up-keep of the
members of the settlor's family and their descendants.
The settlor died on August 22, 1969. During his lifetime, the settlor,
Vikramsinhji was filing returns of his income in India including therein
whole of the income arising from the U.S. trusts. The returns were filed by
him for the assessment years 1964-65 to 1969-70 (both years inclusive).
Since he died in the middle of the accounting year relevant to the assessment year 1970-71, two returns were· filed for the said assessment yeijr, one
upto the date of the death of the scttlor and the other from the date of the
death of settlor to the end of the accounting year. These returns were filed
E
F
by his elder son, Jyotendrasinhji, appellant.in these appeals. In these
returns too, the appellant included whole of the income from the U.S.
trusts in the respective returns. At this stage, the appellant says. he was
advised that the income from U.S. trusts was not taxable in India .either in G
the hands of settlor or in his hands and that inclusion of the said income
in the returns by the settlor and by the appellant was a mistake. Urging the
said contention, the appellant filed appeals against the assessment orders
pertaining to the A.Ys. 1965-66 and 1966-67. Inasmuch as the appeals we~e
barred with respect to other assessment orders, he preferred revisions H
948
SUPREME COURT REPORTS
[1993) 2 S.C.R.
A
before the Commissioner of Income Tax. {It may be mentioned at this stage
itself that the income from U .K. trusts was included in the aforesaid returns
just as the income from U.S. trusts was included. Similarly, the plea of
non-taxability was urged with respect to the income from U .K. trusts on
the same basis as was urged with respect to the income from the U.S.
B
c
D
E
trusts).
The Appellate Assistant Commissioner, Rajkot admitted additional
grounds and allowed the aforesaid aiJpeals by his orders dated April 4,
1975 and August 20, 1975. The Revenue went-up in appeal to Tribunal.
The Tribunal allowed the appeals holding that the A.A.C. acted contrary
to Rule 46(2) of the Income Tax Rules in admitting the additional grounds
and in looking into new material. Accordingly it stt aside his orders and
remitted the appeals back to A.A.C. It is at this stage that the appellant
approached the settlement commission under chapter XIX(A) of the
Income Tax Act, 1961.
We may now notice the relevant clauses in the deeds of settlements
executed in U.K. Under these settlement deeds, one Mr. Robert Hampton
Robertson McGill was designated as the trustee, referred to in the deeds
as "the original trustees". These trusts too were created for the benefit of
the settlor, the members of his family and their descendanis, referred to as
'beneficiaries'. The deeds define the expression "the trustees" to mean and
include the original trustee or the other trustees for the time being appointed in terms of the deeds of settlement. The expression "the
beneficiaries" was defined to mean and include (a) the settlor, (b) the
F
children and remoter issue for the time being in existence of the settlor,
and (c) any person for the time being in existence who is the wife or widow
of the settlor or the wife or widow or husband or widower of any of them,
the children and remoter issue of the settlor. The clauses which are
relevant for our purposes read thus: (We have, for the sake of convenient
G
reference, numbered them as clauses (3) and ( 4)).
"3. THE Settlor hereby directs that the Trustee shall and
accordingly the Trustees shall stand possessed of the Trust
Fund and the income thereof upon the trusts following
H
that it 1 to say :-
....
y
-
-
-
JYOTENDRASINHJI v. S.l. TRIPATIII [REDDY, J.]
949
(1) UPON TRUST to raise and pay out of the capital
thereof any further estate duty which may still be
payable thereon in respect of the death of the Settlor's
father His Late Highness Shri Bhojrajji Maharaja
Saheb of Gonda! who died on the Thirty first day of
July One Thousand nine hundred and fifty two and any
interest payable on such duty and any costs incurred
in connection with the ascertainment or payment of
such duty. and interest.
(2) Subject as aforesaid UPON TRUST for all or such
one more and more exclusively of the others or other
of the Beneficiaries at such age or time or respective
ages or times if more than one in such shares and with
such trusts for their respective benefit and such
provisions for their respective advancement and maintenance and education at the discretion of the Trustees
or of any other person or persons as the person who
for the time being is the Maharaj a or (of the title is
abolished) would have been the Maharaja had the title
not been abolished shall at any time during the
specified period by any deed or deeds revocable or
irrevocable appoint AND in default of and subject to
any such appointment upon he trusts and with and
subject to the powers and provisions hereinafter
declared and contained concerni_ng the same
PROVIDED ALWAYS that the foregoing power of
appointment shall not be capable of being exercised :-
(a) by anyone other than the Settlor or the Elder son or
the Younger Son; or
. (b) in favour of the person making the appointment save
A
B
c
D
E
F
with the consent of the Trustees (being at least two
G
in number or a trust Corporation) such consent to be
testified by their being parties to the deed of appointment and executing the same ...... .
4. SUBJECT aforesaid the Trustees shall stand possessed
of the Trust Fund and the income thereof upon the trusts
H
950
SUPREME COURT REPORTS
[1993] 2 S.C.R.
A
following that is to say :-
B
c
(1) The income of the Trust Fund accruing during the life
of the Settlor shall belong and be paid to the Settlor
{2) Subject as aforesaid the income of the Trust Fund
accruing during the life of the Elder Son shall belong
and be paid to the Elder Son ....... .
(3) Subject as aforesaid the Trust Fund shall be held in
Trust for the person who (being a descendant of the
Elder Son) first during the specified period :
(a) becomes the Maharaja or would become the Maharaja
if his title had not been abolished and
(b) attains the age of eighteen years ......... "
D
It is not necessary to notice the other provisions/clauses of these
E
deeds.
During his lifetime, the settlor, Vikramsinhji, was including the whole
of the income from these trusts in his returns of income just as he was
doing in the case of U.S. trusts. The said income was also included in the
two returns filed by his son for the A.Y.1970-71. Thereafter, however, the
appellant took the stand, as mentioned hereinbefore, that the income from
these trusts is not includible in his income. He also took the stand that the
inclusion of the said income in the returns submitted by his father for the
A.Ys.1964-65 to 1969-70 and by him in the returns relating to A.Y.1970-71
F
was under a mistake. This submission too was the subject matter of the
appeals and the revisions filed before the A.A.C. and the Commissioner of
Income Tax, referred to hereinbefore. When the appellant approached the
settlement commission with an application for settlement, it related to the
income from U .K. trusts as well.
G
The Settlement Commission heard the arguments in extenso spread
over sev.eral days and disposed of the matter under two elaborate orders.
One order relates to A.Ys: 1964-65 to 1970-71 (Vikramsinhji) and the other
to A.Ys.1970-71to1982-83 (Appellant). The findings of the Commission
which constitute the bases for its orders may briefly be stated as the
H folloWing :
y
L
-
r
..
)'
y
-
-~
y
,I._
'
JYOTENDRASINHJI v: S.I. TRIPATiil fREDDY, J,J
951
(i) Though the U.S. settlements are in the nature of discretionary trusts, A
they fall within the mischief of sub-clause (ii) of Clause (a) of Section 63
of the Act. For this reason, the whole of the income arising from the trust
properties was liable to be included and was rightly included in the income
of the settlor/transferor, Sri Vikramsinhji.
(ii) On the death of the settlor, the U.S. settlement deeds ceased to be B
revocable but inasmuch as the entire income thereunder was received by
the appellant, Sri Jyotendrasinhji, it constitutes his income and could be
and was lawfully. taxed in his hands.
(iii) So far as the U.K. trusts are concerned, clause (3) did never come into c
operation inasmuch as no additional trustees were appointed as contemplated by it. If so, clause ( 4) sprang into operation where under the
entire income under the settlements flowed to the settlor during his liftime
and on his death,. to his elder son, the appellant herein. In other words,
these settlements are in the nature of specific trusts. In any event, the entire D
income from these trusts was received by the settlor during his lifetime and
after the settlor's death, by the appellant. Therefore, the said income was
rightly included in the total income of the settlor and the assessee during
the respective assessment years.
On the above bases, the Commission computed the taxable income E
of the settlor under both the sets of trusts for A.Ys.1964-65 to 1970-71
( upto the date of the death of the settlor) as also the income of the
appellant for the A.Ys.1970-71 to 1982-83. The appellant then preferred
these two sets of appeals against the two orders.
At the stage of granting leave, this court ordered (vide the order F
dated March 22, 1991) that the appellant shall not be entitled to question
the jurisdiction of the settlement commission to decide the issues before it
and that he will "confine himself in appeal only to the questions relatjng to
correctness or otherwise of the CommiSsioner's order."
Sri Ashok Desai, learned counsel for the appellant urged the follow- G
ing contentions :
(1) The settlement commission erred in law in holding that the U.S. trusts
are revocable trusts within the meaning of Section 63 of the Act. For
attracting Section 63, the deed of transfer should give the transferor a right H .
952
SUPREME COURT REPORTS
(1993] 2 S.C.R.
A to re-transfer directly or indirectly whole or any part of the income .or
assets to the transferor or it must give him a right to re-assume power
directly or indirectly over the whole or any part of income or assets. In this
case, the relevant clause does not give the transferor such a power. The
power is given to the trustee to be exercised with the concurrence of the
B transferor/senior. Even if, for any reason, the clause is construed as giving
such a power to the settlor/transferor, Section 63 is not attracted inasmuch
as the power. is given not to him as such but jointly to him and the trustee.
Such a power does not attract the mischief of Section 63.
(2) The U.S. trusts are discretionary trusts. In such a case, the assessment
C can be made only upon the trustees and not UP.On the beneficiariesrecipients. The Revenue has no option in such a situation. It must necessarily tax the trustees and trustees alone. The Revenue cannot take
advantage of the mistake of law on the part of the settlor or the appellant.
(3) At any rate, with the death of the settlor, the U.S. trusts ceased to be
D
revocable trusts, assuming that they were so during his lifetime. So far as
the appellant is concerned, he ca11not be taxed on the income recei*'d by
him from the said trust. Only the trustee can be taxed.
(4) So far as U.K. trusts are concerned, the settlement commission has
E committed an error of law in holding that clause (3) could come into
operation only if and when the settlor appointed the additional trustees as
contemplated by it. In fact, the trust had come into existence with the sole
trustee (McGill) and it did not depend upon the appointment of additional
trustees. Clause (3) prevails over clause (4). If so, the U.K. trusts/settlements are also discretionary trusts and not specific trusts as held by the
F Settlement Commission. In such a case again the assessment can be made
only upon the trustees and not upon the beneficiaries recepients.
(5) So far as U .K. trusts are concerned, no income was received by the
settlor or the appellant either in U .K. or in India. So Io·ng as the trustees
decided not to exercise the discretion to distribute the income, no income
G arose to any of the beneficiaries. The deeds do not prescribe a time-limit
y
~.
within which the trustees should exercise their discretion to distribute
~
income. Until the trustees take a decision to distribute and distribute the
income, the beneficiaries have no right to income nor can it be said that
the income accrues to them. The Settlement Commission committed a legal
H error in including the income from the U .K. trusts in the total income of
-
-
JYOTENDRASINHJI v. S.I. TRIPATHI (REDDY, J.)
9S3
the settlor and the appellant even though it was not paid out by the trustee
A.
nor received by the assessees. At any rate, no income was received in India.
( 6} In both the U.S. and U .K., tax bas bei:n levied upon the respective trust
incomes under the laws of those countries. Levying tax over again in this
country on the very same income amounts to double taxation. On this
ground too, the tax levied in India must be waived.
B
On the other band, Dr. Gauri Sbankar, the learned counsel for the
Revenue made the following submissions :
(i) The Settlement Commission is not a regular Tribunal. Its function is C
different from other quasi-judicial authorities created by the Income Tax
Act. Where an offer of settlement has been made, the commission either
accepts it or rejects it subject to such conditions and terms as it thinks fit
to impose in that behalf. As the name itself suggests, it is a settlement - a
sort of composition. It need not even give reasons for its order. Even if any
principles are decided by the Commission, they do not bind the Income D
Tax authorities in proceedings relating to subseql!ent years. The order of
the commission is relevant to and is confined only to the assessment years
to which it relates. The jurisdiction of this court under Article 136 in an
appeal against the orders of settlement commission must be conditioned
by above considerations. This court would not be able to go into the merits. E
of the order. The commission's order cannot be dissected, inasmuch as it
is a package deal. Either it stands or falls as a whole.
(ii) The interpretation placed by the commission on both U.S. and U.K.
trusts is perfectly in order and does not call for any interference by t~
court. Indeed, under the impugned orders, several benefits have been F
conferred upon the settlor and the appellant like waiving of penalties,
interest and other liabilities attaching to the assessees under the Act. While
accepting the same, the appellant cannot be allowed to disown those
features of the order whi~h go against him.
,.
(iii) The argument of not receiving the income from U.K. trusts is a mere G
after-thought and should not be given any credence. During his lifetime,
the settlor had declared that he had received income from both the U .K.
and U.S. trusts and had included the same in bis returns of ineome for
each of the assessment years relevant herein. The appeUant too acted
siniilarly.
H
954
SUPREME COURT REPORTS
(1993) 2 S.C.R.
. ..
A
(iv) A trustee or the trustees, as the case may be, are expected to act
reasonably and in furtherance of the object of the trusts. They must, apply
the income for the purposes specified. They cannot just accumulate it.
Applying the test of reasonableness, it must be held that ordinarily, the
trustee ought to distribute the income each year. As a matter of fact, it was
y
B so distributed. If so, it must be held that the income from these U .K. trusts
has rightly been taken into account by the commission while passing its
orders.
·-
The first question we have to answer is the scope of these appeals
•
preferred under Article 136 of the Constitution against the orders of the
c Settlement Commission. The question is whether all the questions of fact
and law as may have been decided by the commission are open to review
=t
in this appeal. For answering this question one has to have regard to the
scheme of Chapter XIX·A. The said chapter was inserted by the Taxation
Laws (Amendment) Act, 1975 with effect from April 1, 1976. A somewhat
D similar provision was contained sub-sections (lA) to (10) of Section 34 of
the Income Tax Act, 1922, introduced in the year 195¢. The provisions of
Chapter XIX-A are, however, qualitatively different and more elaborate
than the said provisions in the 1922 Act. The proceedings under this
chapter commence by an application made by the assessee as contemplated
~
by Section 245-C.