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PETITIONER: COMMISSIONER OF INCOME-TAX, MADHYA PRADESH

       Vs.

RESPONDENT: MAHARAJA BAHADUR SINGH & ORS.

DATE OF JUDGMENT13/10/1986

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1987 AIR  518            1986 SCR  (3)1020  1986 SCC  (4) 512        JT 1986   648  1986 SCALE  (2)591

ACT:      Income Tax  Act, 1961-Income  derived by  beneficiaries under Trust  Deeds-Income derived in individual capacity and not as  representing HUF-Assessment  of Income-Determination of.

HEADNOTE:      One Hukum  Chand Seth,  who constituted  a HUF with the members of  his  family,  owned  extensive  properties.  The properties were  partitioned between him, his wife and their son in  equal shares  by a Deed of Partition dated March 31, 1950. On  the same  date, Hukum  Chand  Seth  and  his  wife executed two  trust deeds  nominating  their  son  and  five grandsons as the beneficiaries in respect of their shares in the aforesaid  properties. The  trust deeds  which contained identical terms inter alia provided (a) that in the event of a beneficiary  dying before  the time of distribution of the properties between  the  beneficiaries,  the  share  of  the beneficiary so  dying would  be used to support and maintain his widow  and his male issue in such manner as the trustees shall "in  their absolute  and uncontrolled  discretion deem proper" and  the surplus,  if any,  of  the  share  of  that beneficiary and  the income  therefrom would  be accumulated and kept  in credit to his account and preserved in order to be  distributed;   (b)  that   upon  the   youngest  of  the beneficiaries attaining  the age  of 30  years, the trustees would divide  and distribute  the trust  properties together with the  accumulated interest  and income thereon among the beneficiaries  according  to  their  respective  rights  and shares; and  (c) that  if at  the time  of the  division and distribution  any   beneficiary  should  have  died  without leaving any  son but  leaving only  a widow, the widow would get half  of the  share of  that beneficiary while the other half would  be distributed among the remaining beneficiaries and the heirs of the beneficiaries entitled to distribution.      With the  passage of  time the  beneficiaries came into possession of  their respective shares of the properties and the income  from those  properties was  returned by them for the purpose of their income tax 1021 assessment in their individual status, but subsequently they

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began to assert that the properties were received by them as the Karta  of their  respective Hindu undivided families and that therefore  the income was liable to be assessed in that status.  The   Income  Tax   Officer,  during  the  relevant assessment years  assessed  the  assessees/beneficiaries  in their individual status and these assessments were confirmed by the  Appellate Assistant  Commissioner and the Income Tax Appellate Tribunal.  However, in a reference at the instance of the  assessees, the  High Court  held that the properties had been  settled with the assessees in their representative capacity as  Kartas  of  their  respective  Hindu  undivided families.      Allowing the appeals by the Revenue to this Court, ^      HELD 1.1  The High Court has erred in the view taken by it of  the two  trust deeds. The question whether the income belongs to  the individuals  or Hindu undivided families has to be  resolved upon  the contents of the trust deeds, their terms and  conditions being  free  from  ambiguity.  [1028D; 1026F]      1.2  Where   the  document   contains  no  clear  words describing the  kind of interest which the donee is to take, the question  is one  of construction  and  the  court  must collect the  intention of the donor from the language of the document taken  along with  the  surrounding  circumstances. There is no presumption one way or the other. Each case must be decided  on its own facts and each document calls for its own particular construction. [1026H; 1027A-B]      C.N. Arunachala  Mudaliar v.  C.A. Muruganatha Mudaliar and Another, [1954] 5 SCR 243, referred to.      In the  instant case,  on the  plain terms of the trust deeds, the  properties  were  intended  to  devolve  on  the beneficiaries in their individual capacity. The circustances surrounding the execution of the two documents indicate that a common  intention inspired  the minds of the two settlors. This has  considerable significance when it is realised that while one  trust deed  was executed  by a male member of the family the  other was  executed by  a female  member of  the family. The  course of  devolution under the Hindu law would be materially different in the two cases and, therefore, the principles of  the Hindu  law governing  the  devolution  of property in  the case  of property  passing from a father to his son  and grandsons  cannot be  invoked in these appeals. [1027B-C] 1022      2. The  terms and  conditions of  the trust  deeds  are wholly inconsistent with the property passing into the hands of the  beneficiaries as  Kartas of  their respective  Hindu undivided families.  There is  clear indication in the trust deeds which  bears this out. In the first place, had it been intended that the beneficiary should receive the property as Karta of  his Hindu  undivided family the document would not have empowered  the trustees,  in clause  1 to  exercise  an absolute and  uncontrolled discretion  on  the  death  of  a beneficiary to  apply his  share to  the maintenance  of his widow and  his male  issue and  to accumulate the surplus to the account of the said beneficiary for distribution. On the contrary, the  trustees would  have been under an obligation to entrust  the income  falling to the share of the deceased beneficiary to the members of his Hindu Undivided family and no discretion  would have  been permissible in regard to the disposal or  otherwise of  any part  thereof. Secondly,  the document would  not have provided that if before the time of division and  distribution a  beneficiay died leaving only a widow, the  widow would get a half of the share belonging to

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the deceased  beneficiary while  the  other  half  would  be liable to  distribution among  the remaining  beneficiaries. These two conditions are sufficient in themselves to lead to the  conclusion   that  it   was  never  intended  that  the properties should  pass to  the beneficiaries  to be held by them for  their respective Hindu undivided families. [1027D- H]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1681-84 of 1974.      From the  Judgment and Order dated 1/6th February, 1974 of the  Madhya Pradesh  High Court  in Civil Cases Nos. 240, 238 and 239 of 1971.      M.K. Banerjee,  Additional Solicitor  General,  Ms.  A. Subhashini and B.B. Ahuja for the Appellant.      S.T. Desai,  A.K. Chitale,  Mrs. S.  Gambhir  and  S.K. Gambhir for the Respondents.      The Judgment of the Court was delivered by      PATHAK, J.  These appeals by special leave are directed against the  common judgment  of the  High Court  of  Madhya Pradesh  disposing   of  four   Income-tax  References   and answering the following identical question of law arising in each Reference  in favour  of the  assessee and  against the Revenue: 1023           "Whether on  the facts and in the circumstances of           the case,  the Tribunal  was justified  in law  in           holding   that   the   income   derived   by   the           beneficiaries under  the two  trust-deeds belonged           to the  beneficiary in individual capacity and not           in  the   capacity  as   representing  the   Hindu           undivided family?"      These appeals  involve the  construction of  two trust- deeds couched in identical terms. To understand their import it is necessary to set out a genealogical table:                 Sir Hukumachand Seth (Karta)                              m                    Lady Kanchanbai (Wife)                   Shri Rajkumarsingh (Son)                              m                 Smt. Premkumari Devi (Wife) ____________________________________________________________ Raj Bahadur   Maharaj Bahadur   Jambukumar   Ch. Kumar  Yesh Singh(son)   Singh (son)       Singh (son)  Singh      Kumar                                                        Singh __________   _______________   ____________   m            m                   m        (Minor)  (Minor) Smt.Indrani   Smt.Sneha Lata   Smt.Urmila Devi (wife)   Devi (wife)      Devi (wife) __________    _____________    ___________ Pravin Dhir- Naina  Sunaina    Pramod Kumar (son) Kumar  rendra Kumari Kumari (son)  (son)    (Daughter)      Sir Hukumchand Seth was the head of a well known family of Indore.  The family  carried on  various  businesses  and owned extensive  properties. Prior  to March  31,  1950  Sir Hukum Chand  and the  members of  his family  constituted  a Hindu Undivided  family. By  a deed of partition dated March 31, 1950  various family properties were partitioned between Sir Hukum  Chand, his wife Lady Kanchanbai and their son Raj Kumar Singh  in equal  shares.  Sir  Hukum  Chand  and  Lady Kanchanbai executed  two trust deeds on the same date, March

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21, 1952  purporting to constitute a trust of the properties respectively belonging  to them.  The trust  deeds contained identical terms  and conditions.  The trustees  in each case were Sir  Hukum Chand,  Lady Kanchanbai, their son Raj Kumar Singh and his wife Prem Kumari 1024 Devi  and  the  eldest  grandson  Raja  Bahadur  Singh.  The beneficiaries named  in the  trust deeds were Rajkumar Singh and his  sons Raja  Bahadur Singh,  Maharaja Bahadur  Singh, Jambukumar Singh,  Chandrakumar Singh  and Yeshkumar  Singh. With the  passage of  time and  in accordance with the terms and conditions  of the  trust deeds  the beneficiaries  came into  possession   of  their   respective  shares   of   the properties. Originally  the income from those properties was returned  by  them  for  the  purpose  of  their  income-tax assessments in  their individual  status,  but  subsequently they began  to assert  that the  properties were received by them as  the  Karta  of  their  respective  Hindu  undivided families and  that, therefore,  the income  was liable to be assessed in that status.      These appeals  arise out of income tax assessments made in the  case of  Raja Bahadur  Singh for the assessment year 1962-63, Maharaja  Bahadur Singh  for  the  assessment  year 1961-62 and  Jambukumar Singh for the assessment years 1961- 62 and  1962-63. The  Income Tax  Officer assessed all three assessees in  their individual  status and  the  assessments were confirmed  in that  status by  the Appellate  Assistant Commissioner on  appeal. On  second appeal  by the assessees the Income  Tax Appellate  Tribunal also  took the view that the income  from the  properties received  by the  assessees under the  two  trust  deeds  fell  to  be  taxed  in  their individual status.  At the  instance of  the  assessees  the Appellate Tribunal  referred the  cases to the High Court of Madhya Pradesh  for its opinion in each case on the question of law  set forth earlier. The High Court understood the two trust deeds  differently from the Appellate Tribunal and the taxing authorities  and held  that the  properties had  been settled with  the assessees in their representative(capacity as Kartas of their respective Hindu undivided families.      It may  be mentioned  at the  outset that  neither  the assessees nor  the Revenue dispute the legality of the trust deeds and we must proceed on the assumption, as did the High Court, the  Appellate Tribunal  and the  taxing authorities, that the authors of the trust deeds were competent to settle the properties  in accordance  with the terms and conditions expressed in those documents.      The sole question before us is whether upon those terms and conditions  it was  intended by  the settlors  that  the beneficiaries  should   receive  the   properties  in  their individual capacity  or  in  a  representative  capacity  as Kartas of the respective Hindu undivided families. It is not necessary to  refer to all the provisions of the trust deeds because the 1025 parties  are   in  common   agreement  that   the  principal provisions calling  for consideration are clauses 1, 3 and 4 of the  trust deeds. Clause 1 empowers the trustees to apply the income  from the  trust properties  to the  rent, rates, taxes  and   other  liabilities  in  respect  of  the  trust properties,  including   the  cost   of   maintenance,   and thereafter to  divide the  balance left over in equal shares between the beneficiaries, so that each beneficiary received one-sixth of  the balance.  In the  event of  a  beneficiary being a  minor, his  share of  the income was payable to his natural guardian  for being  applied towards  his education,

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maintenance and  advancement in  life,  marriage  and  other expenses. It  was also  provided that  in  the  event  of  a beneficiary dying  before the  time of  distribution of  the properties between  the beneficiaries  under clause  4,  the share of  the beneficiary  so dying would be used to support and maintain his widow and his male issue "in such manner as the  trustees  shall  in  their  absolute  and  uncontrolled discretion deem  proper" and  the surplus,  if any,  of  the share of  that beneficiary and the income therefrom would be accumulated and  kept in credit to his account and preserved in order  to be  distributed in accordance with clause 4. In the  event  of  a  beneficiary  dying  before  the  time  of distribution without  leaving any  widow or  male issue  his share was  to be  divided equally  among other beneficiaries then alive  or the  then widow  and male  issue of any other deceased beneficiary,  if any,  entitled  to  share  in  the distribution, subject,  however, to provision being made for the  maintenance   and  education  until  marriage  and  the marriage expenses  of the  daughter or  daughters, if any of the said  beneficiary. Clause  3 declares that if any moneys were required  for meeting  extraordinary expenses of or for the benefit  of any  beneficiary or  his wife or children on special occasions,  such as  the marriage of the beneficiary and of  his children,  the illness  of the beneficiary or of his children,  travelling expenses of the beneficiary and of his family  for going  abroad, their  education in a foreign country or  on such other occasions as the trustees may deem fit for  special treatment,  the trustees  were empowered to pay to  the beneficiary  such amounts  from time  to time as they thought  fit in their absolute discretion. Such amounts could be paid to the beneficiary out of the trust properties either by  way of  advance or loan either on interest or out of his share of the corpus. In the latter event the share of the net  income payable  to the  beneficiary was  liable  to proportionate reduction.  Clause 4  provides that  upon  the youngest of  the beneficiaries attaining the age of 30 years the  trustees   would  divide   and  distribute   the  trust properties together with the accumulated interest and income thereon  among   the  beneficiaries   according   to   their respective rights and shares, that is to say equally, 1026 and in  making such  division the  trustees would  take into consideration the  amount due  by  the  beneficiary  to  the trustees by  way of  loan or  advance made  to him.  It  was further provided  that if  any beneficiary  should have died before the  time of  such division or distribution leaving a widow and  any son  or sons  or only  son or  sons the widow and/or the  sons would  take by substitution the share which the beneficiary would have taken had he been alive, and such share would  be divided  equally between  the widow  and the sons. The  proviso declares  that if  at  the  time  of  the division and  distribution any  beneficiary should have died without leaving  any son but leaving only a widow, the widow would get  half of  the share  of that beneficiary while the other  half   would  be   distributed  among  the  remaining beneficiaries and the heirs of the beneficiaries entitled to distribution. A  further provision  declares that  if at the time of  division and  distribution any  beneficiary  should have died  without leaving a widow or a son his share would, subject to  such adequate provision made for the maintenance and education  until marriage  and the  marriage expenses of the  daughter  or  daughters  of  such  beneficiary  as  the trustees may  in their  discretion think fit, he distributed among the  remaining beneficiaries  and  the  heirs  of  the beneficiaries entitled to distribution.

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    The assesses filed a declaration dated October 19, 1964 that on  and from Diwali 1959 the income accruing to them as beneficiaries from the two trust deeds should be regarded as income belonging to their Hindu undivided families. The High Court and  the Appellate  Tribunal have  rightly  held  that those subsequent  declarations  can  be  of  no  moment  for deciding whether  the income  belonged to the individuals or their Hindu  undivided families.  It is  settled by law that the question  has to  be resolved  upon the  contents of the trust deeds,  their terms  and conditions  being  free  from ambiguity. The  question whether  a gift of self-acquired or separate property  by a father to his son results in the son holding it  as ancestral  property was  considered  by  this Court  in  C.N.  Arunachala  Mudaliar  v.  C.A.  Muruganatha Mudaliar and  Another, [1954]  5 S.C.R. 243, and it was laid down that it was perfectly competent for the father, when he makes a  gift, to  provide expressly  either that  the donee would take it exclusively for himself or that the gift would be for the benefit of the branch of his family, and if there are express provisions to that effect in the deed of gift or will, the interest which the son would take in such property would depend upon the terms of the grant. Where the document contains no  clear words  describing the  kind  of  interest which  the  donee  is  to  take,  the  question  is  one  of construction and the Court must collect the intention of the 1027 donor from the language of the document taken along with the surrounding circumstances.  There is  no presumption one way or the  other. It  is not  necessary for  us to refer to the several cases  cited before  us, because  each case  must be decided on its own facts and each document calls for its own particular construction.      The circumstances  surrounding the execution of the two documents indicate  that a  common  intention  inspired  the minds  of   the  two   settlors.   This   has   considerable significance when  it is  realised that while one trust deed was executed  by a  male member  of the family the other was executed by  a female  member of  the family.  The course of devolution under the Hindu law would be materially different in the two cases and, therefore, the principles of the Hindu law governing  the devolution  of property  in the  case  of property passing  from a  father to  his son  and  grandsons cannot be invoked in these appeals.      Even if  the matter  be looked at in the context of the Hindu law as it obtained at the relevant time, the terms and conditions of  the trust  deeds are wholly inconsistent with the property  passing into the hands of the beneficiaries as Kartas of  their respective  Hindu undivided families. There is clear indication in the trust deeds which bears this out. In  the   first  place,   had  it  been  intended  that  the beneficiary should  receive the  property as  Karta  of  his Hindu undivided family the document would not have empowered the trustees,  in clause  1, to  exercise  an  absolute  and uncontrolled discretion  on the  death of  a beneficiary  to apply his share to the maintenance of his widow and his male issue and  to accumulate  the surplus  to the account of the said beneficiary  for distribution.  On  the  contrary,  the trustees would  have been under an obligation to entrust the income falling  to the  share of the deceased beneficiary to the members  of his Hindu undivided family and no discretion would have  been permissible  in regard  to the  disposal or otherwise of  any part thereof. Secondly, the document would not have  provided that  if before  the time of division and distribution a  beneficiary died  leaving only  a widow, the widow would  get a  half  of  the  share  belonging  to  the

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deceased beneficiary while the other half would be liable to distribution among the remaining beneficiaries and the heirs of other  deceased beneficiaries.  These two  conditions are sufficient in  themselves to  lead to the conclusion that it was never  intended that  the properties  should pass to the beneficiaries to  be held by them for their respective Hindu undivided families.  On the  plain terms of the trust deeds, the properties were intended to devolve on the beneficiaries in their individual capacity. 1028      It is  contended by  learned counsel  for the  assesses that the  settlors intended  under the  two trust  deeds  to protect the  grandsons, and  the scheme  incorporated in the trust deeds must be regarded as akin to a family settlement. We are  unable to  agree. The  interest of the grandsons has been sufficiently  protected by  the terms and conditions of the trust  deeds, and in order to safeguard that interest it is not  necessary  to  conclude  that  the  properties  were intended to  go to  the beneficiaries as Kartas of the Hindu undivided   families.    The   grandsons   themselves   were beneficiaries and  on the  division and  distribution of the properties they  would have  full power  to deal  with  them according to  their will  and discretion. It is only where a beneficiary dies  before division  and distribution  of  the properties without leaving a widow or sons that the trustees are empowered  to intervene and direct, subject to providing for the  maintenance, education and marriage of the deceased beneficiary’s daughters,  that the share of such beneficiary be divided  among the  remaining beneficiaries and the heirs of deceased beneficiaries.      We are  of opinion that the High Court has erred in the view taken  by it  of the  two  trust  deeds  and  that  the Appellate   Tribunal   was   right   in   its   conclusions. Accordingly, we  answer the  question referred  to the  High Court in  each case  in the  affirmative, in  favour of  the Revenue and  against the  assessees. The appeals are allowed with costs. A.P.J.                                      Appeals allowed. 1029