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PETITIONER: W.   O. HOLDSWORTH AND OTHERS

       Vs.

RESPONDENT: THE STATE OF UTTAR PRADESH

DATE OF JUDGMENT: 04/09/1957

BENCH: BHAGWATI, NATWARLAL H. BENCH: BHAGWATI, NATWARLAL H. DAS, S.K. GAJENDRAGADKAR, P.B.

CITATION:  1957 AIR  887            1958 SCR  296

ACT: Agricultural Income-tax-Will--Trust-Annuities--Land held  by trustee, whether on behalf of annuitants-Nature of  interest Of annuitants, whether joint-Indian Trusts Act, 1882 (II  of 1882),S.  3.-  U. P. Agricultural Income-tax Act,  1948  (U. P. III Of 1949), SS. 2(11), 3, 11(1).

HEADNOTE: Section  11(  1) of the U. P. Agricultural  Income-tax  Act, 1948,  provided:  "Where any person holds land,  from  which agricultural   income  is  derived,  as  a  common   manager appointed under any law for the time being in force or under any  agreement or as receiver, administrator or the like  on behalf of persons jointly interested in such land or in  the agricultural income derived therefrom, the aggregate of  the sums  payable as agricultural income-tax by each  person  on the agricultural income derived from such land and  received by him, shall be assessed on such common manager,  receiver, administrator or the like, and he shall be deemed to be  the assessee  in  respect  of  the  agricultural  income-tax  so payable  by each such person and shall be liable to pay  the same." The  appellants  were the trustees of an estate  settled  on trust  under  a  will which inter  alia  provided  that  the trustees were to take possession of the trust properties and to  manage the same with all the powers of  absolute  owners and to pay the annuities to certain persons.  The  assessing authority assessed the appellants to agricultural income-tax upon  the  total  agricultural  income  received  by   them, overruling their contention that the tax should be  computed in accordance with the method of computation laid down in s. 11(1) of the Act and that they should be called upon to  pay the aggregate of the sums payable as agricultural income-tax by each of the annuitants. Held:     (1) that the trustees who were the legal owners of the  trust  property  did  not  hold  the  land  from  which agricultural income was derived, on behalf of the annuitants and   that  each  of  the  annuitants  was   separately   or individually  interested in the agricultural income  derived from the land comprised in the trust estate to the extent of the annuity payable to him.

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(2)  that s. 11(1) of the Act was not applicable to the case and  that  the appellants were liable  to  pay  agricultural income-tax  upon the total agricultural income  received  by them

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No.389 of 1956. 297 Appeal  by special leave from the judgment and  order  dated April 19, 1955, of the Allahabad High Court in  Agricultural Income-tax Miscellaneous Case No. 202 of 1952. G.   S. Pathak and G. C. Mathur, for the appellants. K.   L. Misra, Advocate-General of Uttar Pradesh, and C.   P. Lal, for the respondent. 1957.  September 4. The Judgment of the Court was  delivered by BHAGWATI,  J.-This  appeal with special  leave  against  the judgment of the High Court of Judicature at Allahabad raises a  question  of the interpretation of s. 11(1) of  the  U.P. Agricultural   Income-tax  Act,  1948,  Act  III   of   1949 (hereinafter referred to as "the Act"). The  appellants  are the trustees of the estate  settled  on trust  under the last will and testament dated May  17,1917, of  one J. J. Holdsworth which, inter alia, comprised  of  a certain  zamindari estate known as the Lehra Estate  situate in the District of Gorakhpur, Uttar Pradesh. The clauses of the will so far as they are relevant for  the purpose  of this appeal provided that the trustees  were  to take possession of all real property in the United Provinces of  Agra and Oudh and elsewhere in British India  (including the  houses at Lehra and Gorakhpur and the grounds  thereof) and  all  live  and dead stock in or  about  his  estate  in British  India or any buildings thereon and the contents  of any  houses  or stabling in British India belonging  to  him (which  was  called his estate) and manage the same  in  all respects  and in such manner as they shall deem most  advan. tageous  and  with all the powers of absolute  owners.   The trustees  were  to  stand possessed of  the  net  rents  and profits   of  the  settled  estate  after  payment  of   the Government land revenue tax, and of all management expenses, upon   trust  to  pay  thereout  certain  annuities  to   12 annuitants therein mentioned.  If the net rents and  profits of the said estate were less than seventy thousand rupees in any year or if the said estate or any portion thereof  shall be  sold at less than twenty years purchase of the net  rent of seventy thousand rupees or 298 an   equivalent  proportion  thereof  in  respect   of   the proportion  so sold, the annuities bequeathed as  above  and for  the time being payable except annuities Nos.  (1),  (2) and (3) were to abate proportionately and no such  annuitant was  entitled to have the deficiency of his or  her  annuity made good out of the rents and profits of the said estate in respect  of any subsequent year.  If there was  no  survivor alive then it was to go William Orlando Holdsworth, the  son of  the testator.  Seven of the said annuitants died and  at the relevant   period the following annuities werepayable:        (i) Mrs. J. C. Holdsworthpound 2,500/-      (ii) Mr. W. 0. Holdsworthpound 1,000/-      (iii) Miss Lucy Marion Holdsworthpound 50/- (iv) Lt.  Col.  L. R. J. C. Wilkinsonpound 500/-       (v) Mr. Horace Claud Holdsworthpound 400/ - The  trustees entered upon the trust and managed  the  trust

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properties  in accordance with the terms of the  said  will. The  Act came into force in 1949 and a notice of  assessment of  agricultural income-tax was issued to the  trustees  for the year 1357 Fasli (1949-50). The Additional Collector, Gorakhpur, the assessing authority for  the area in question, by his order dated  December  14, 1950, assessed the’ trustees to agricultural income-tax upon the  total agricultural income received by them,  overruling their  contention  that  the  tax  should  be  computed   in accordance  with the method of computation laid down  in  s. 11(1) of the Act and that they should be called upon to  pay the aggregate of the sums payable as agricultural income-tax by each of the five annuitants. The  trustees  preferred an appeal before  the  Agricultural Income-tax  Commissioner,  Lucknow, who by  an  order  dated November  22,  1951,  upheld the  order  of  the  Additional Collector.  He observed that the beneficiaries were  neither jointly  interested in the land held by the trustees nor  in the  agricultural  income derived therefrom,  and  that  the agricultural  income  of  the Lehra Estate  accrued  to  the trustees  and not to the beneficiaries directly as  it  left the hands of the various tenants who paid rent or from self- cultivation that was done by the trustees themselves., 299 The  trustees then moved an application under a. 24  (2)  of the Act before the Agricultural Income-tax Board, U.P.,  for reference of certain questions of law to the High Court  for its decision.  The said Board however decided to act,  under the third proviso to s. 24(2) of the Act and to  considerthe questions  of  law itself instead of referring them  to  the High Court for its decision.  In the exercise of this  power the Board held inter alia that the entire property vested in the trustees and that the latter could not claim the benefit of s. 11 of the Act and refused to make a reference. The trustees moved an application under s. 24(4) of the  Act before  the  High Court of Judicature at  Allahabad  praying that   the  High  Court  may  be  pleased  to  require   the Agricultural  Income-tax  Board, U.P., Lucknow, to  state  a case and to refer to the High Court certain questions of law arising  in  the case.  The application was allowed  by  the High  Court  on February 5, 1953, and an  order  was  passed directing  the said Board to refer the relevant question  of law to the High Court. Accordingly  a  statement  of  case  was  drawn  up  by  the Agricultural  Income-tax  Board and submitted  to  the  High Court and the following question of law was referred for its decision: " Whether on the facts and in the circumstances of the  case the  trustees  can be said to be holding land on  behalf  of beneficiaries  and  can  the beneficiaries  be  said  to  be jointly interested in the land or in the agricultural income derived  therefrom within the meaning of Section 11  (1)  of the U.P. Agricultural Income-tax Act, 1948 ?" The  said reference was heard by the High Court and  by  its judgment dated April 19, 1955, the High Court held that  the trustees  could  be  said to be holding land  on  behalf  of beneficiaries but the beneficiaries could not be said to  be jointly interested in the land or in the agricultural income derived  therefrom within the meaning of s. 1 1 (1)  of  the Act and accordingly answered the first part of the  question in the affirmative and the latter half in the negative. 300 Thereupon the trustees filed an application before the  High Court  under  Art. 133(1) of the Constitution for  leave  to appeal to this Court which was rejected with the result that

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the  trustees  applied for and obtained on April  16,  1956, special  leave  to appeal against the judgment of  the  High Court. Section 11(1) of the Act which falls to be considered by  us runs as under: "  Where  any  person holds land,  from  which  agricultural income  is derived, as a common manager appointed under  any law for the time being in force or under any agreement or as receiver,  administrator  or the like on behalf  of  persons jointly  interested  in  such land or  in  the  agricultural income derived therefrom, the aggregate of the sums  payable as   agricultural   income-tax  by  each   person   on   the agricultural income derived from such land and, received  by him,  shall  be assessed on such common  manager,  receiver, administrator or the like, and he shall be deemed to be  the assessee  in  respect  of  the  agricultural  income-tax  so payable  by each such person and shall be-liable to pay  the same." This section concerns itself with the mode of computation of agricultural  income-tax  in certain  cases.   The  charging section  is  however  s.  3  of  the  Act  which  talks   of agricultural  income-tax and super-tax at the rate or  rates specified  in  the schedule to be charged for each  year  in accordance  with,  and  subject to  the  provisions  of  the Act......  and rules framed under cls. (a), (b) and  (c)  of sub-s. (2) of s. 44, on the total agricultural income of the previous  year of every -person.  "1 Person " is defined  in s.   2(11)   to  mean  an  individual  or   association   of individuals,  owning or holding property for himself or  for any other, or partly for his own benefit and partly for that of  another,  either as owner, trustee,  receiver,  manager, administrator, or executor or in any capacity recognized  by law, and includes an undivided Hindu family, firm or company but  not  to include a local authority.   According  to  the above definition the trustees before us would be included in the definition of " person " and would as such be liable  to agricultural income-tax under the 301 charging  section.  That liability to pay  income-tax  would however  be on the trustees as a "person"  without  anything more.   Where  however  s. 11(1) comes  into  operation  the agricultural  income-tax  would  be  assessed  not  on   the ordinary  computation  but  on  the  computation   specified therein  which has the effect of reducing the  incidence  of the tax by reason of the person being liable to pay only the aggregate of the sums payable as agricultural income-tax  by each  of the persons jointly interested in such land  or  in the agricultural income derived therefrom. Two conditions are requisite before s. 11 (1) can come  into operation:  (1)  that  the  person  holds  land  from  which agricultural   income  is  derived,  as  a  common   manager appointed under any law for the time being in force or under any  agreement or as receiver, administrator or the like  on behalf  of  other  persons and (2) such  persons  should  be jointly  interested  in  such land or  in  the  agricultural income  derived  therefrom.  If both  these  conditions  are satisfied  the  person  holding such land is  liable  to  be assessed in the manner specified in s. 11(1) of the Act  and the aggregate of the sums payable as agricultural income-tax by each of these persons jointly interested on his share  of the agricultural income derived from such land and  actually received  by him is to be assessed on such  common  manager, receiver, administrator or the like, and the latter is to be deemed  the assessee in respect of the agricultural  income- tax so payable by each such person and is liable to pay  the

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same. It is to be noted that the primary liability for the payment of   agricultural  income-tax  is  on  the  person  who   is interested in the land or in the agricultural income derived therefrom.   The incidence of the tax is on that person  and the  amount  of  tax is determined  with  reference  to  the aggregate  income derived by him.  Inasmuch as however  such land is held by some other person who@ is a common  manager, receiver, administrator or the like on behalf of such person and  others  jointly  interested  in such  land  or  in  the agricultural  income  derived  therefrom,  the  agricultural income-tax is assessed on such common manager, 302 receiver,   administrator  or  the  like  instead   of   the assessment being made on each of such persons who is jointly interested  in  such  land or, in  the  agricultural  income derived  therefrom.   Section 11.(1) prescribes  a  mode  of assessing  such common manager, receiver,  administrator  or the  like and he is deemed to be the assessee in respect  of agricultural  income-tax so payable by each such person  and is liable to pay the same. Such  common  manager, receiver, administrator or  the  like would  certainly  be  covered by the  definition  of  person contained in s. 2(11) of the Act because he would be holding property  for others as receiver, manager, administrator  or the like and would be liable to pay the agricultural income- tax on the agricultural income derived by him from the  land which  he  thus  held.   If  there  was  nothing  more,  the incidence of the tax would be on the total income which  has come to his hands.  But, in so far as he holds the land from which agricultural income is derived as such common manager, receiver, administrator or the like on behalf of the persons jointly  interested  in  such land or  in  the  agricultural income  derived  therefrom, the agricultural  income-tax  is levied  not  on the computation of  the  whole  agricultural income  which has come to his hands but if; limited  to  the aggregate of the sums payable as agricultural income-tax  by each  of the persons jointly interested in such land  or  in the  agricultural income derived therefrom and  received  by him.    The  agricultural  income-tax  in  such   cases   is determined  with  reference to each of the  persons  jointly interested  in  such  land or  in  the  agricultural  income derived  therefrom, and the agricultural income-tax  payable by each of such persons is computed on the actual amount  of the agricultural income derived from such land and  received by him and the aggregate of the sums payable as agricultural income-tax  by  each  of such persons is  assessed  on  such common manager, receiver, administrator or the like with the result  that he pays agricultural income-tax which would  be substantially lower than what he would have otherwise had to pay  if  the  computation  of such  tax  was  on  the  total agricultural income 303 derived  from such land and come to his hands.  Such  common manager,  receiver, administrator or the like would  in  the course of management or administration of such land debit to the  account  of each such person an aliquot  share  of  the whole  of the agricultural income-tax paid by him.  If  such common  manager,  receiver, administrator or the  like  were assessed  on  the total income derived from the  land  which comes to his hands, the amount thus debited to each of  such persons  would  be larger than the amount which  the  latter would  have  to pay by way of  agricultural  income-tax,  if agricultural  income-tax was levied on the actual amount  of agricultural  income derived from such land and received  by

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him  as falling to his share.  This provision  therefore  is designed to lower the incidence of the agricultural  income- tax upon each such person and such common manager, receiver, administrator  or the like by virtue of these provisions  is deemed to be the assessee in respect of agricultural income- tax so payable by each such person and is made liable to pay the same. This position however is not available unless and until such common  manager, receiver, administrator or the like  holds, the land from which agricultural income is derived on behalf of  persons  jointly  interested  in such  land  or  in  the agricultural income derived therefrom.  Such common manager, receiver, administrator or the like should hold the land  on behalf of these persons and not on his own behalf.  The very words  " on behalf of " predicate that the land is  held  by such common manager, receiver, administrator or the like not as  the  owner but as the agent or representative  of  these persons  and  he manages or administers the same  either  in accordance with law or the terms of the agreement arrived at between  the parties.  There is no vestige of  ownership  in him  and  all  that he is entitled to do  is  to  manage  or administer  the  land on behalf of persons who  are  jointly interested  in  the agricultural income  derived  therefrom. This   could   be   predicated   of   receivers    managers, administrators  or  the  like but cannot  be  predicated  of owners or 304 trustees  who  are  equally  with  the  manager,   receiver, administrator or the like included within the definition  of " person "- contained in s. 2(11) of the Act. The case of the owner does not require any elaboration.   He holds  the  land  on his own behalf and  also  for  his  own benefit.  Ho certainly cannot come within the scope of s.  1 1 (1) of the Act.  The position of a trustee is also similar to  that of the owner.  A trust is thus defined  in  English Law: " A trust in the modern and confined sense of the word, is a confidence  reposed in a person with respect to property  of which  he  has possession or over which he  can  exercise  a power  to  the  intent  that he may  hold  the  property  or exercise  the power for the benefit of some other person  or object."  (Vide  Halsbury’s Laws of England,  Hailsham  Ed., Vol. 33, p. 87, para. 140). "  The  property affected by the confidence  is  called  the trust property or trust estate.  It is usually in the  legal ownership  or under the legal control of the  trustee.   The cestui  que trust is said to have a beneficial or  equitable interest in it." (Ibid p. 89 para. 142). A  trustee  is  thus usually the legal owner  of  the  trust property or the trust estate and holds it for the benefit of the certui que trust. Reliance was however placed upon an observation of Sir  John Romilly, M. R., in Lister v. Pickford (1) " A trustee, who is in possession of land is so on behalf of his  cestuis que trust, and his making a mistake as  to  the persons  who are really his cestuis que trust cannot  affect the question." What  the  Court was considering there was the  question  of limitation  and  adverse possession and  these  observations were  made  in that context.  It is significant  however  to note the further observations of the Master of the Rolls  in that very context at p. 583: "  Suppose  that  they  had imagined  bona  fide  that  they themselves  were  personally entitled to the  property,  and that  they  were not trustees of it for  anyone,  it  would,

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nevertheless, have-been certain that they would (1)  (1865)34 Beav. 576, 582; 55 E.R. 757.                           305 have  been trustees for the cestuis que trust, and  no  time would  run  while they were in such possession.   The  legal estate  was  vested  in them, no  other  person  could  have maintained an ejectment against them; they are bound to know the law, they ought to have taken possession as soon as they saw  who were the real beneficiary devisees, and,  being  in possession, they ought to have applied the proper proportion of the rents for the benefit of such residuary devisees." The passage quoted above makes it abundantly clear that  the legal estate is vested in the trustees and they hold it  for the benefit of the beneficiaries.  Whatever be the position in English Law, the Indian  Trusts Act, 1882 (II of 1882) is clear and categoric on this point. Section  3  of  that Act defines a Trust  as  an  obligation annexed  to the ownership of property, and arising out of  a confidence reposed in and accepted by the owner, or declared and  accepted  by  him, for the benefit of  another,  or  of another and the owner: the person who accepts the confidence is  called the "trustee": the person for whose  benefit  the confidence  is  accepted is called the  "beneficiary":  "the beneficial interest" or "interest" of the beneficiary is his right  against the trustee as owner of the  trust  property; the  subject matter of the trust is called "trust  property" or "trust money." These definitions emphasize that the trustee is the owner of the  trust  property and the beneficiary only  has  a  right against  the  trustee as owner of the trust  property.   The trustee  is thus the legal owner of the trust  property  and the  property vests in him as such.  He no doubt  holds  the trust  property for the benefit of the beneficiaries but  he does not hold it on their behalf.  The expressions " for the benefit  of " and " on behalf of " are not  synonymous  with each  other.   They convey different meanings.   The  former connotes a benefit which is enjoyed by another thus bringing in a relationship as between a trustee and a beneficiary  or cestui que trust, the latter connotes an agency which brings about a relationship as between principal and agent  between the  parties,  one of whom is acting on behalf  of  another. Section 11(1) therefore can only 39 306 come  into operation where the land from which  agricultural income is derived is held by such common manager,  receiver, administrator  or the like on behalf of, in other words,  as agent  or representative of, persons jointly  interested  in such  land or in the agricultural income derived  therefrom. Even  though such persons were the beneficiaries cestui  que trust  under  a deed of trust, they would not  be  comprised within the category of persons on whose behalf such land  is held by the trustees and the trustees would not be  included in   the   description   of   common   manager,    receiver, administrator or the like so as to attract the operation  of s.  11(1).   Trustees  do  not  hold  the  land  from  which agricultural  income  is derived on behalf  of  the  benefi- ciaries  but they hold it in their own right though for  the benefit of the beneficiaries. The  beneficiaries are also not necessarily persons who  are jointly  interested  in  such land or  in  the  agricultural income derived therefrom.  The term "jointly interested"  is well-known  in law and predicates an undivided  interest  in the land or in the agricultural income derived therefrom  as distinguished  from  a separate or  an  individual  interest

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therein.  If on a true reading of the provisions of the deed of trust the interest which is created in the  beneficiaries is  a  separate  or  individual  interest  of  each  of  the beneficiaries  in  the land or in  the  agricultural  income derived  therefrom,  merely  because  they  have  a   common interest  therein,  that cannot make that interest  a  joint interest  in the land or in the agricultural income  derived therefrom.   The words "jointly interested" have got  to  be understood  in their legal sense and having been used  in  a statute  are  not capable of being understood in  a  popular sense as meaning a common interest or an interest enjoyed by one person in common with another or others. If  regard  be bad to the above construction  put  upon  the terms  of  s.  11  (1)  of the  Act,  it  follows  that  the appellants  who  were trustees of the deed of trust  in  the present  case did not hold the land from which  agricultural income is derived as common manager, receiver, administrator or the like on behalf of the annuitants 307 and  the annuitants were not jointly interested in the  land or  in  the agricultural income derived therefrom  with  the result that s. 11(1) of the Act did not come into  operation at  all.  The appellants were the legal owners of the  trust estate  and  did not hold the land from  which  agricultural income  was derived "on behalf of" the annuitants.  Each  of the  annuitants,  moreover, was separately  or  individually interested in the agricultural income derived from the  land comprised  in the trust estate to the extent of the  annuity payable  to him under the deed of trust and the interest  of one  annuitant was not affected by whatever happened to  the interest  of  the other.  There was thus  no  fulfilment  of either of the two conditions pre-requisite before s.   11(1) of the Act could come into operation at all.  The  learned  judges of the High Court  were  therefore  in error  in answering the first part of the question  referred to  them  in  the affirmative, though their  answer  to  the latter part in the negative was correct.  We are of  opinion that  both  the  parts  of the  question  should  have  been answered  by  them  in the negative.   The  ultimate  result however  is  the same and this appeal of the  appellants  is therefore bound to fail.  The appeal will accordingly  stand dismissed with costs. Appeal dismissed. 40 308