# SARDAR BAHADUR S. INDRA SINGH TRUST v. COMMISSIONER OF INCOME TAX, BENGAL

- **Citation:** [1972] 1 S.C.R. 392
- **Court:** Supreme Court of India
- **Decided:** 1971-08-25
- **Case number:** Civil Appeals Nos. 1885 of 1968
- **Bench:** K. S. Hegde, A. N. Groyer
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sardar-bahadur-s-indra-singh-trust-v-commissioner-of-income-tax-bengal-5367
- **Pages:** 6

## Headnote

Gift made to charitable trust-If valid.
Income-tax Act, s. 4(.3) (i)-1/ the income of charitable trust arising
from a gift will C<ugment the assessee -trust.
The assessee is a charitable trust created under two trusts deeds. One
of the trustees, gifted certain fully paid up equity shares to the trust. On
the said share~ dividend accrued on w.hich tax was deducted at source. The
trustees claimed that the said income of the assessee was exempt from payment of Income-tax in view of s. 4(3) (i) of the Act and hence they
claimed refund of the tax deducted at source. The Income-tax Officer
refused to grant the refund on the ground that the trust deed did nllt contain any provision for recei~ts of gifts from outsiders and so the gift in
<JUestion was not a valid gift.
Th" Appellate Assistant Commissioner and the Tribunal held the gift
valid and decided against the revenue.
On reference, High Court held
that the gift was a valid gift, but it d"d not have the effect of augmenting
the assessee trust and the assessee was not entitled to get the refund of
the tax.
HELD :
(i)That the gift was a valid gift. The trustees had accepted
the gift. The trust ·deed does not prohibit the trustees from
accepting a
new gift.
The trustees can accept gift from third parties for the purpose
of furthering the objectives of the trust.
So long as the trust deed did not
prohibit from receiving such gifts and so long as the gift made did not in
any manner impinge on the objects intended to be achieved by the Trust.
In the present case, the shares gifted are vested in the appellant trust and
therefore, the trust is entitled to the dividends received in respect of the
gifted shares. Since the dividend is exempt from tax under s. 4(3) (i) the
appellant is entitled to the refuncl claimed. [39'7 A-DJ

## Text

392
SARDAR BAHADUR S. INDRA SINGH TRUST
v.
COMMISSIONER OF INCOME TAX, BENGAL
August 25, 1971
[K. S. HEGDE AND A. N. GROYER, JJ.J
Gift made to charitable trust-If valid.
Income-tax Act, s. 4(.3) (i)-1/ the income of charitable trust arising
from a gift will C<ugment the assessee -trust.
The assessee is a charitable trust created under two trusts deeds. One
of the trustees, gifted certain fully paid up equity shares to the trust. On
the said share~ dividend accrued on w.hich tax was deducted at source. The
trustees claimed that the said income of the assessee was exempt from payment of Income-tax in view of s. 4(3) (i) of the Act and hence they
claimed refund of the tax deducted at source. The Income-tax Officer
refused to grant the refund on the ground that the trust deed did nllt contain any provision for recei~ts of gifts from outsiders and so the gift in
<JUestion was not a valid gift.
Th" Appellate Assistant Commissioner and the Tribunal held the gift
valid and decided against the revenue.
On reference, High Court held
that the gift was a valid gift, but it d"d not have the effect of augmenting
the assessee trust and the assessee was not entitled to get the refund of
the tax.
HELD :
(i)That the gift was a valid gift. The trustees had accepted
the gift. The trust ·deed does not prohibit the trustees from
accepting a
new gift.
The trustees can accept gift from third parties for the purpose
of furthering the objectives of the trust.
So long as the trust deed did not
prohibit from receiving such gifts and so long as the gift made did not in
any manner impinge on the objects intended to be achieved by the Trust.
In the present case, the shares gifted are vested in the appellant trust and
therefore, the trust is entitled to the dividends received in respect of the
gifted shares. Since the dividend is exempt from tax under s. 4(3) (i) the
appellant is entitled to the refuncl claimed. [39'7 A-DJ
CIVIL APPELLATE JURISDICTION :. Civil Appeals Nos. 1885 of
1968 and 1084 of 1971.
Appeals from the judgment and order dated November 7, 1967
of the Calcutta High Coun in Income-tax Reference No. 21 of
1964.
'
A
c
D
E
F
S. R. Banerjee, P. C. Bhartari, for the appellant (in both the
G
appeals).
V. S. Desai, P. L. luneja, R. N. Sachthey and B. D. Sharma,
for the respondemt (in both the appeals).
The Judgment of the Court was delivered by
Begde, J.
Both these appeals arise from the decision of the
Calcutta High Court in a Reference under s. 66( 1) of the Indian
Income-tax Act; 1922 (to be hereinafter referred to as 'the Act').
H
A
B
c
D
E
F
G
H
,
INDRA SINGH TRUST v. C.I.T. (Hegde, J.)
39a
The first of these two appeals was brought by the appellant Trust
on '!he strength of a certificate granted by the High Court under
s. 66(A)(2) of the Act.
In that certificate all that we find is a
bald statement by the High Court that the case is a fit one for
appeal to this Court.
This Court !las ruled that such a certificate
is an invalid one and an appeal brought on the strength of such a
certificate is not maintainbale. It is for that reason, the appellant
filed the Special Leave application No. 2214 of 1971
seeking
special leave from this Court to appeal against the very judgment
which was the subject matter of the appeal in Civil Appeal No.
1885 of 1968.
After hearing the parties, we came to the conclusion that the leave asked for should be granted. That Petition is
now numbered as Civil Appeal No. 1084 of 1971.
The two questions referred to the High Court are :
" ( 1). Whether on the facts and in the circumstances of the case, the Tribunal was right in holding
that the gift made by Sardar Ajaib Singh was valid and
complete in law ?
( 2) If the answer to the first question is in the
affirmative then whether on the facts and in the circumstances of the case, the assessee was entitled to · the
refund of tax deducted at source on the dividends accruing on the shares gifted by Sardar A jaib Singh ?"
The High Court answered these quest1ons as follows :
"l. The gift made by Sardar Ajaib Singh was a
valid and complete gift but did not have the efiect of
augmenting 1the assessee trust, and
2. The assessee was not entitled to the refund of the
tax deducted a1 source on dividends accrued on the
shares gifted by Sardar Ajaib Singh ?"
Now let us turn to the facts a< set out in the Statement of
case.
The assessment years with which we are concernd in these
appeals is 1960-61 for which the relevant previous year ended
on :\'larch 31, 1960
The assessee is a charitable Trust constituted under a Trust Deed dated December 19, 1944.
A supplementary Trust Deed was executed on January 10, 1951. In the
first Trust Deed, the <Jbjects of the trust are mentioned as those
that "Trustees may in their absolute discretion from time 10 time
determine in-and towards the attainment assistance or support of
such charitable purpose or purposes as 1he Trustees may in their
unfettered iudgment deem to be the most deserving of support."
The objects mentioned in the first deed were further elaborated in
the second Deed which requires the Trustees to spend the income
"amongst others for the advancement of learning and education
394
SUPREME COURT REPORTS
[f 972] l S.C.R.
and/ or ameliorations of the sufferings of all citizens of the Indian
·union, irresi;cctive of caste, colour or creed for mair.taining
library or libraries for the free use of •the public 'in general who
are residents of the Indian Union for fostering encouraging and
providing the means of healthy recreation including teaching or
singing classes or choruses for the residents of the Indian Union
and for the purpose of providing music and instruments for the
town and in the premises hereinbefore mentioned for meeting the
expenses wholly or in part of the Khalsa High School and A. V.
Middle SchQS>I~ to the extent and for and during such times as
Jong as the trust continues and/ or to apply such income in similar such objects as the 1trus•tees may in their absolute discretion
from time to time determine in and towards the attainment assistance and support of such charitable purpose or purposes as the
Trus•ieozs may in •their unfettered judgment deem to be the most
deservin,g of support."
Sardar Ajaib Singh one of the Trustees of the appellant Trust
by his letter dated January 23, 1959 transferred 640 fully paid
up equity shares of the face value of Rs. 6,40,000/-
to
the
assessee reserving to himself the right to revoke and recall the
transfer or either the entire 640 shares or any portion thereto but
not until the expiry of clear full seven years from the date of the
delivery of the shares to the Trust.
The Trustees by their letter
dated February 1, 1959 accepted the offer and also the terms and
conditions upon which the offer had been made and ratified the
sam(: by the resolution& of the Trustees dated February 5, 1959
and March 4, 1959. The shares were transferred and given delivery of to the Trustees. On the said shares dividend amounting
to Rs. 1,28,000/- accrued on which tax was deducted at the
source.
The Trustees claimed that the said
income
of the
11ssessee was exempt from payment of income-tax in view of
s. 4 ( 3 )( i) of the Act.
Hence they claimed refund of the
tax
deducted at the source.
The Income-tax Officer refused to grant
the refund asked for on the ground that the Trust Deed under
which the Trust was formed did not .contain any provision for
receipt of donations or gifts from outsiders and therefore the gift
made by Sardar Ajaib Singh of the 640 shares was not a valid
gift.
He also observed that the transfer of the shares was revocable alter seven years .and accordingly was a conditional transfer;
hence the assessee was precluded from claiming the refund of the
tax deducted at the source.
The assessee appealed against that order to
the
Appellat~
Assistant Commissioner.
That Officer
upheld
the
assessee's
right to the refund of tax on the ground that during the relevant
year the shares did belong to the assessee and the dividend income accruing thereon was rthe income of the assessee and therefore refund of the tax deductl!d at the source was· allowable.
A
B
c
D
E
F
H
A
B
c
D
E
F
G
H
INDRA SINGH TRUST v. C.I.T. (Hegde, J.)
3.95
The Department went up in appeal to the Lncome-tax Appellate Tribunal as against that order. Before the Tribunal the
Department contended that the Trust was not competent to receive
gifts from outsiders. There being no clause in 'the Trust Deed
empowering"the receipt ol such gifts. It was further contetded
that the gift being conditional and revonble was invalid in the eye
of law.
The Tribunal fot.nd that the assessee
was
a
public
charitable Trust and it was not limited in its scope of activities
within the four corners of the Trust Deed by which it was created.
A public charitable Trust, the Tribunal held, was entitled as of
right to receive gifts and donations from the public and as such
the gift of the shares made by Sardar Ajaib Singh had been validly
received by the assessee.
The Tribunal accordingly
dismissed
the first contention raised on behalf of the Department. It is not
necessary for us to refer to the facts relating to the second contention as that matter is not in issue before us, now the same having
been held against the Department by the Tribunal.
While dealing with the reference made by the Tribunal, as
mentioned earlier, the High Court upheld the validity of the gift
made by Ajaib Singh but strangely enough after holding that the
gift in question was a valid one, it came to the conclusion that the
said gift did not have the effect of augmenting the assessee's
Trust and therefore the assessee was not entitled to-the refund of
the tax deducted at the source on the dividend accrued on the
shares gifted by Ajaib Singh. To us these findings appear to be
somewhat mutually conflicting. If the gift in question was
a
valid one then the Trust became the owner of the shares gifted.
That being so it also became the owner of the dividends received.
Hence those dividends will have to be considered as the income of
the Trust
The reason which persuaded the learned judges of the High
Court for coming to the above conclusion are set out in their
judgment at pp. 21 and 22 of the printed paper book. We shall
quote that part of the High Court's judgment :
"The question for our consideration, however, is
whether the gift, as accepted by the trustee, had fhe
effecct of augmenting the assessee trust for taxation purposes, or whether the effect of it was that it remained a
separate trust in the hands of the trustees of the assessee
trust, with liberty to them to apply the incor e of the
subsequent trust for the benefit of the assessee trust.
Mr. Banerjee urged that it was not necessary expressly
to empower the trust as of a public trust to ~ccept gifts,
donations or endowments.
That, he subnutted, was a
power inherently vested in ihem.
We have our doubts.
396
SUPREME COURT REPORTS
[1972) 1 S.C.R.
Trust is a confidence reposed in a person or persons,,
with respect to property of which he had or they have
legal possession or over '1hich he or they can exercise
power, to the intent that he or they may hold the property or exercise the power for the benefit of some other
person or object.
Now, this confidence may not necessarily include in itself the liberty that the trustees would
go on accepting donations and try to augment the trust
to such dimensions that the purpose for which the original trust was created may be swamped or modified or
qualified. If a settlor wants' to invest the trustees with
such a power, it is but reasonable to expect that the
power should be conferred by the deed which created
trust.
The trust that we have to consider does
not
appear lo confer upon the trustees the further power to
accept donations gifts or endowments.
We, therefore,
do not think that the trustees have the liberty or· the
right to accept further gifts, in the absence of specific
authorisation, augment the original trust and then claim
the benefit of section 4(3) (i) of the Indian Incometax Act."
It is somewhat difficult to follow the reasoning adpoted by the
learned judges of the High Court.
Either the gift made
by
Ajalb Singh and accepted by the Trustees was a valid gift or it
wa>. not a valid gift.
If it was a valid gift, the shares gifted becam~ the property of the Trust. If it was not a valid gift, the
shaMs still continued to be the property of Ajaib Singh.
It is no
body's case that there was a Trust within '1 Trust.
No such
Tn11>t is put forward either by the Department or pleaded by the
assl)lsee.
The existence of a Trust is a fact and not a fiction. We
fail to see how the learned judges were able to come to the conclusion that Ajaib Singh while gifting the shares created one more
Trust without any writing and without any objective and appointed the Trustees of the assessee Trust to be the Trustees of the new
Trust as well.
These assumption have no basis either in fact or
in law.
At this stage we may mention that the very learned judges
who decided this Reference had held in Wealth Tax Reference
No. 444 of 1963 on the file of the High Court of Calcutta that the
shares gifted by Ajaib Singh did not continue to be his property.
If they are not Ajaib Sing's property, whose property are !hey?
The only answer is that they are the property of the appellant
Trust.
Those shares cannot float in the mid air.
They must be
owned by someone ..
As seen earlier, the appellant is a public Trust.
Its objects
are charitable objects Ajaib Singh made over the shares to that
A
B
c
D
E
F
G
H
A
B
c
D
E
F
INDRl\ SINGH TRUST v. C.I.T. (Hegde, J.)
397
Trust for effectuating the very objects of the Trust.
He did not
stipulate any other object to be attained. The Trustees had
accepted the gift.
The Trust Deed does not prohibit the Trustees
from accepting a new gift.
We fail to see what difficulty was
there for the Trustees to accept gifts from third parties for the purpose of furthering the objectives of the Trust, so long as the Trust
Deed did not prohibit them from receiving such gifts and so long
as the gift made did not in any manner impinge on the obejcts
intended to be achieved by the Trust.
We fail to see why the
Trustees could not accept that gift.
In our opinion the assumption of the High Court that the
Trustees were incompetent to receive the gift made by Ajaib Singh
is an erroneous one.
On the other hand we agree with the Tribunal that the gift made by Ajaib Singh was a valid gift, the
shares gifted are vested in the Trust and therefore the Trust is
entitled to the dividends received in respect of those shares.
In
view of s. 4(3)(i), that dividend is exmept from tax.
Hence the
appellant is entitled to the refund claimed.
In the result we allow Civil Appeal No. 1084 of 1971, discharge the answers given by the High Court and in their place,
we answer the questions referred to the High Court in the affirmative and in favour of the assessee. The appellant is entitled to·
its costs in this appeal.
We revoke the certificate produced in Civil Appeal No. 18 85
of 1968.
In view of our decision in Civil Appeal No. 1084 of
1971, there is no need to send that case back to the High Court
for giving reasons in support of the certificate. That appeal is
accordingly dismissed as being not maintainable--no costs.
s.c.
C.A. 1084 of 71 allowed.
C.A. 1885 of 68 dismissed.
7-L1340SupCl/71