KOHIYAR A J DR Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-1962-8-9
HIGH COURT OF BOMBAY
Decided on August 21,1962

A.J.KOHIYAR Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents







JUDGEMENT

V.S.DESAI J. - (1.)THIS is a reference under s. 66 (1) of the Indian IT Act, at the instance of the assessee, who are the trustees of the Kohiyar family trust, and arises out of their assessments for the years 1954-55, 1955-56 and 1956-57.
(2.)ON the 16th March, 1953, Dr. A. J. Kohiyar and his wife, Mrs. Amy Kohiyar, as settlors of the one and second part, respectively, executed an indenture of trust, transferring a total sum of Rs. 6,30,000 in cash in equal shares to the trustees for settling that amount upon trust subject to certain powers mentioned in the deed. Under the said deed, they appointed themselves and one Mr. Burjor A. Guzdar as trustees. The amount of Rs. 6,30,000 transferred to the trustees was to be utilised by them to purchase an immovable property known as "Sealand" situated at Colaba Reclamation, Bombay, and the said immovable property was to be held by the trustees for the trust with and subject to the powers, provisions, agreements and declarations contained in the trust deed. The trustees were directed to collect rents, profits, interest and income of the trust property, and after paying out the expenses and after setting apart 5 per cent. of the total accumulations as reserve fund to carry out ordinary repairs, divide the net income remaining thereafter into two equal shares. These two shares were to be called : (1) Dr. Kohiyar's share in the net income of the trust property and (2) Mrs. Amy Kohiyar's share in the net income of the trust property. Directions given to the trustees for dealing with these two shares were different and distinct. So far as Dr. Kohiyar's share of the net income of the trust property was concerned, during the lifetime of Dr. Kohiyar, it was to be divided into seven equal parts, and two of such parts were to be given to each of the two sons of Dr. Kohiyar, and the remaining three parts were to go to the three daughters of Dr. Kohiyar, one to each. After the death of Dr. Kohiyar, the said share of Dr. Kohiyar in the net income of the trust property was to go to his wife, Mrs. Amy Kohiyar, for and during her lifetime if she survived him. As to the other half of the net income, which was called Mrs. Amy Kohiyar's share in the net income of the trust property, the directions were that the trustees were to pay that share to Mrs. Amy Kohiyar for and during her lifetime and on and after her death, to her husband, Dr. Kohiyar, for and during his lifetime, if he survived her. It was provided in the trust deed, by cls. 27 and 28 thereof, that the trusts and powers created and declared by Dr. Kohiyar, the settlor of the one part, concerning the trust property settled by him by the deed of trust were irrevocable, and that the settlor of the second part, i.e., Mrs. Amy Kohiyar, reserved to herself full power and authority at her pleasure at any time to revoke all or any of the trusts created and declared by her concerning the trust property settled by her. In the assessee's assessments for the asst. yrs. 1954-55, 1955-56 and 1956-57, the ITO held that the provisions of s. 16 (1) (c) applied to the trust rendering the income of the trust assessable in the hands of the settlors. In the appeals which the assessee filed against the order of the ITO, the AAC took the view that the trust was revocable so far as the settlements made by the settlor of the one part, Dr. Kohiyar, were concerned. He took the view that the moneys, which formed the trust fund, were owned by the two settlors in their individual capacities and did not constitute a joint fund belonging to them. The trust contained directions given by the two settlors regarding trust funds, which each of them had brought in, and as a matter of fact, although there was a single trust deed, it was an amalgamated deed dealing with two separate and trusts. He accordingly set aside the orders of assessment passed by the ITO and directed the ITO to make fresh assessments in the light of his decision. Against the order of the AAC, the Department took a second appeal to the Tribunal. The Tribunal took the view that the tenor and contents of the indenture showed that there was one consolidated trust with two settlors contributing in equal halves to the initial funds, and not two trusts as held by the AAC. According to the Tribunal, although the trust was described as irrevocable as regards the assets falling to the lot of Dr. Kohiyar, since the income of that half after his death was to pass to Mrs. Kohiyar, who was herself a co-settlor, and since the other half of the assets falling to the lot of Mrs. Kohiyar was made expressly revocable under the trust deed, the entire trust was rendered revocable by reason of the first and second proviso to s. 16 (1) (c). In view that the Tribunal took, it allowed the appeals and restored the orders passed by the ITO. ON an application of the assessee under s. 66 (1), the Tribunal drew up the statement of the case and referred to this Court the following three questions :
"(1) Whether on a true construction of the indenture of trust dt. 16th March, 1953, there was only one trust created thereby ? (2) If the answer to question No. (1) is in affirmative, whether the trust so created is revocable within the meaning of s. 16 (1) (c) ? 3) Whether on the facts and circumstances of the case and on a true construction of the indenture of trust dt. 16th March, 1953, r/w s. 16 (1) of the Indian IT Act the income of the trust created by Dr. Kohiyar, so far as the property settled by him was concerned, should be deemed to be his income ?"

Mr. Kolah, learned counsel for the assessee, has contended that on a true construction of the indenture of trust dt. 16th March, 1953, it comprises two separate trusts one of which is created by Dr. Kohiyar, the settlor of the one part, and the other by Mrs. Amy Kohiyar, the settlor of the second part. The trust created by Dr. Kohiyar is in terms irrevocable. It is also not such as can be deemed to be revocable under the first proviso to s. 16 (1) (c), and, therefore, s. 16 (1) (c) has no application to the income of the said trust. So far as the other trust is concerned, it is created by the settlor of the second part, Mrs. Amy Kohiyar, the said trust is clearly a revocable trust, and there is no quarrel about its income being taxable in the hands of the settlor, Mrs. Kohiyar. We are, however, not concerned with that income in the present case. Mr. Kolah's further argument is that even if we were to hold against him that the trust is a single consolidated trust of the two settlors and that the trust is rendered revocable even as regards the half of the assets of the share of Dr. Kohiyar by reason of the first and the second provisos to s. 16 (1) (c), it is still saved from the operation of s. 16 (1) (c) by reason of the third proviso.

Mr. Joshi, learned counsel for the Revenue, on the other hand, has argued that the Tribunal was right in taking the view that there is a single trust property of the single trust in respect thereof, and not two trusts as held by the AAC. According to him, a declaration of the irrevocability contained in cl. 27 of the trust deed will not avail the assessee for taking the income of the trust out of the provisions of s. 16 (1) (c), firstly, because the trust being a single trust, so far as Mrs. Amy Kohiyar, one of the settlors, is concerned, she has reserved to herself the power of revocation, and secondly, because even with regard to the settlements relating to the share of Dr. Kohiyar, which are declared to be irrevocable, there are directions for retransfer of the income thereof to one of the settlors, namely, Mrs. Amy Kohiyar, after the death of Dr. Kohiyar, and, therefore, the trust must be deemed to be revocable under the first and the second provisos to s. 16 (1) (c). According to Mr. Joshi, the third proviso cannot be availed of by the assessee altogether, because that is a provision which applies only to trust which are revocable and not to trusts which are irrevocable but only deemed to be revocable under the first and the second provisos to s. 16 (1) (c).

(3.)IN our opinion, on a true construction of the trust deed, there are two separate and distinct trust, and not a single consolidated trust as contended by Mr. Joshi. Dr. Kohiyar and his wife, Mrs. Amy Kohiyar, each one of whom was possessed of his or her own fund, desired out of natural love and affection for each other and for their children and for certain other good causes and considerations, to settle on trust an amount of Rs. 3,15,000 each, totaling to an amount of Rs. 6,30,000. This fund they wanted to be utilised in purchasing an immovable property which was to be held as the corpus of the trust settlements contemplated by them. They directed the trustees accordingly to purchase the property known as "Sealand", and collect the net income of the property after paying out the expenses for collection, etc., and after keeping a small reserve for repairs. The net income was then divided into two parts, one part to be regarded as income arising from the fund settled in trust by Dr. Kohiyar, and, therefore, called Dr. Kohiyar's share of net income of the trust property, and the other part was to be regarded similarly as that arising out of the fund settled in trust by Mrs. Amy Kohiyar. Each of the settlors gave his or her own directions for dealing with his or her part of the income from the trust fund brought in by him or her. Dr. Kohiyar, so far as his share was concerned, further directed that he wanted the settlements, which he was making, to be irrevocable. Mrs. Kohiyar, on the other hand, desired that the declarations and dispositions which she was making should be revocable. She accordingly reserved the power of revocation to herself. It seems to us in the circumstances and particularly in view of the language used in cls. 27 and 28 of the trust deed, that by the indenture of trust dt. 16th March, 1953, what was intended was a creation of two separate trusts and not one trust as held by the Tribunal. If our construction of the trust deed is correct, the trust of Dr. Kohiyar being irrevocable will go out of s. 16 (1) (c). Under the said trust, there is no provision of the transfer directly or indirectly of the income or assets to the settlor, nor is there any direction which gives the settlor a right to resume power directly or indirectly over the income or assets. The direction given by Dr. Kohiyar for the income to go to Mrs. Kohiyar after his death will also not amount to a direction for retransfer of the income or assets to the settlor within the meaning of the second proviso if the trust of Dr. Kohiyar is a separate trust of which he alone is the settlor. The first and the second provisos thereof, will not apply, and the trust will not be rendered revocable by reason of the provisions of the said provisos. The question, therefore, whether the assessee could avail of the provisions of the third proviso, in that event, will not arise. On the other hand, if the indenture of trust is taken to comprise only a Kohiyar and Mrs. Kohiyar, the questions will have to be considered whether by reason of the provisions of the first and the second provisos, the trust, even so far as the settlements which are declared to be irrevocable are concerned, is rendered revocable and whether, if such is the position, the assessee is entitled to avail of the provisions of the third proviso to s. 16 (1) (c).
Now, the provision in the first deed which, it is contended, renders the trust revocable within the meaning of the first proviso, is the provision which directs the income of the share Dr. Kohiyar to go to his wife after his death. It is contended that Mrs. Kohiyar, being one of the persons by whom the settlement or disposition was made, was by reason of the second proviso included within the expression "settlor or disponer" occurring in s. 16 (1) (c), and in the first proviso, and, therefore, the direction in the trust deed, directing the income to go to her, although in the event of a certain contingency occurring, was still a direct on for the retransfer of the income to the settlor within the meaning of the first proviso, and the trust therefore must be deemed to be revocable. Mr. Kolah has argued that the expression "any person by whom the settlement or disposition is made" occurring in the second proviso would only mean a person who has made the settlement or disposition, and not someone who is not concerned with the settlement or disposition, although that person may be a co-settlor with the person making the settlement or dispositions, but concerned with entirely different and separate dispositions. According to Mr. Kolah, therefore, the direction in the trust deed for the income to go to Mrs. Kohiyar after the death of Dr. Kohiyar will not amount to a direction for retransfer of the income to the settlor within the meaning of the first proviso. His further argument is that the direction contained in the trust deed, directing the income to go to Mrs. Kohiyar, a contingency, namely, the survival of Mrs. Kohiyar after the death of Dr. Kohiyar, a contingency which may either occur or may not occur, and, therefore, does not amount to a direction for retransfer within the meaning of the first proviso. According to Mr. Kolah, therefore, the first and the second provisions, do not apply to the present case so as to make the settlements and dispositions made in respect of Dr. Kohiyar's share of the income of the trust property a revocable transfer within the meaning of the said proviso. Now so far as the first of these contentions of Mr. Kolah is concerned, it appears to us that the expression "any person by whom the settlement or disposition was made" would include all the settlors where the trust is a single consolidated trust. Under the second proviso a trust is a settlement or disposition and "settlor or disponer" in relation thereto includes any person by whom the trust is made. We agree with Mr. Joshi that a singular would include plural and the expression "settlor" will mean all the persons who have joined in making the trust. The first contention of Mr. Kolah therefore does not appeal to us. As to the second contention, namely, that a direction that the income should go to Mrs. Kohiyar is not a direction of a retransfer within the meaning of the proviso itself, but a direction subject to a contingency, which may or may not occur. It appears that a divergence of view has been expressed in Ramji Keshavji vs. CIT (1945) 13 ITR 105, which is a decision of this Court. In that case, Kania J., as he then was, inclined to take the view that a contingent claim which may arise in a settlement is not covered by the proviso, although he did not express any definite view thereon. Mr. Justice Chagla (as he then was), on the other hand, expressed the opinion that on a plain reading of the section, the words of the section were wide enough to cover even provision for retransfer which is contingent in its nature. In a recent decision of the Patna High Court in CIT vs. Rani Bhuwaneshwari Kuer Tikari Raj (1962) 45 ITR 357, the view has been expressed that the words of the first proviso are wide enough to cover even a provision for retransfer which is contingent in its nature. We are ourselves inclined to agree with the view taken by Chagla J. in the Bombay case, and Ramaswami C.J. of the Patna High Court in the latter case referred to by us, and if we had taken the view that this was a case of a single consolidated trust settled by the two settlors together, we would have been inclined to hold that the trust, so far as the settlements and dispositions relating to Dr. Kohiyar's share of the income of the trust property were concerned, was deemed to be a revocable transfer by reason of the first and the second provisos to s. 16 (1) (c). We do not however propose to express a definite opinion since in our view it is unnecessary to do so, because, even proceeding on the basis that by reason of the provisions of the first and the second provisions to s. 16 (1) (c), the said dispositions and settlements are rendered revocable transfers, in our opinion, the assessee is still entitled to get the benefit of the third proviso to s. 16 (1) (c). Under the third proviso to s. 16 (1) (c), the income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person, and from which income the settlor derives no direct or indirect benefit, is excluded from the operation of s. 16 (1) (c) until such time that the power to revoke arises to the settlor. In the present case, the settlement made with regard to Dr. Kohiyar's share of the income is not revocable during the lifetime of the persons intended to be benefited thereby. Dr. Kohiyar again does not derive any direct or indirect benefit from the said share. Although, therefore, the settlements, so far as Dr. Kohiyar's share of the income of the trust property are concerned, may be deemed to be revocable by reason of the first and the second provisos to s. 16 (1) (c), income from the settlement will be excluded by reason of the third proviso. Mr. Joshi has argued that the third proviso only applies to trusts which are revocable on the terms of the trust deed and not to revocable transfers which are deemed to be revocable by reason of the first and the second provisos to s. 16 (1) (c). According to him, the settlements relating to Dr. Kohiyar's share of the income of the trust property are irrevocable transfers rendered revocable by the provisions of the first two provisos to s. 16 (1) (c), and such settlements do not fall within the third proviso. His argument is that the third proviso only applies to the main provisions of s. 16 (1) (c), and the expression "revocable" contained in the said provision does not include a transfer which is deemed to be revocable by reason of the said two provisos. Now, the scope of the third proviso to s. 16 (1) (c) has been considered by this Court in Ramji Keshavji's case (supra) and the view has been taken that the third proviso applies not only to the substantive provisions of s. 16 (1) (c), but also to the first proviso of the said section. Dealing with the question, Kania J. observed as follows at pages 109-110 :

"The scheme of s. 16 (1) (c) appears to be this. The first stage is that when there is a revocable transfer of assets, the income derived from such assets is still to be considered the income of the settlor. The law next specifies by proviso (1) what would be deemed a revocable transfer, in spite of the deed being apparently irrevocable. The relevant question for that proviso is this : Is this transfer revocable because it fulfills the conditions contained in the proviso ? The answer to that question can be only, it is revocable, or it is not. If the answer is in the negative, no further discussion can arise because, on the face of it, the deed is not revocable and, therefore, it does not come under s. 16 (1) (c). If, however, the answer to the question is in the affirmative, the deed although ostensibly irrevocable, is deemed to be revocable, and thus becomes a revocable transfer of assets, within the meaning of the substantive provisions of s. 16 (1) (c). Having reached that stage, the law proceeds to consider further what is found in proviso (3). The scheme appears to be that although in fact, after reading the provisions of s. 16 (1) (c) with proviso (1), the transfer is revocable, the law will not still consider the income derived from such a settlement the income of the settlor, provided the settlement is not revocable for a period exceeding six years or during the lifetime of the person for whom the income is settled, and, further, from which income the settlor derives no direct or indirect benefit."



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