H.N. Seth, J. - (1.) THIS is a reference under Section 26 of the Gift-tax Act at the instance of the Commissioner of Gift-tax.
(2.) THE assessee in the case was Maharaja Pateshwari Prasad Singh of Balrampur. On the 9th of June, 1957, he executed an instrument purporting to be a trust deed. This instrument was drawn up as an indenture between the assessee, Sri Pateshwari Prasad Singh, referred to as the settlor of the first part, and Sri Pateshwari Prasad Singh, Maharani Raj Lakshmi Kumari Devi and Jagdish Kanhia Lal Munshi, referred to as. trustees of the other part. Towards the end of the document and before the schedule of properties it was stated as follows : "In witness whereof the parties hereunto set and subscribe their respective hand and seal...." However, the document was ultimately signed by the settlor alone. By this document the assessee purported to settle upon trust certain properties, movable and immovable, including his right and title and interest to receive zamindari compensation bonds of the face value of Rs. 25,00,000. In the preamble of the document it was mentioned that the settlor was entitled to obtain from the Government of U.P. compensation in respect of his zamindari and talluqedari. The compensation was to be in the form of bonds which was to be delivered to and received by the settlor under the provisions of the U.P. Zamindari Abolition and Land Reforms Act, 1950. Thereafter, the settlor went on to state that he was desirous of settling the said right and title to receive the compensation bonds from the Government of Uttar Pradesh to the extent of the bonds of the face value of Rs. 25,00,000 for the benefit of his wife. Under Clause 4 of the deed, he purported to assign and transfer unto the trustees all his right, title and interest in the said compensation bonds under the Uttar Pradesh Zamindari Abolition Act, 1958, and other allied laws together with all his interest and other right to instalment or otherwise and the right to acquire the said compensation bond from the Government of U.P. For the assessment year 1958-59, the asseesee filed a return showing his taxable gift as Rs. 39,916. According to him, the total of gift made by him during the relevant year amounted to Rs. 3,84,851 out of which he was entitled to an exemption for sums amounting to Rs. 3,34,835 and Rs. 10,000 under Sections 5(1) and 5(2) of the Gift-tax Act. After examining the case, the Gift-tax Officer by his order dated January 31, 1961, determined the total taxable gift said to have been made by the assessee during the year in question as Rs. 22,42,553. This amount included a sum of Rs. 12,50,000 representing the value of the claim in respect of the zamindari compensation bonds to the extent of Rs. 25,00,000, mentioned in the indenture dated 9th of June, 1957. Before the Gift-tax Officer the assessee claimed that in respect of the zamindari abolition bonds on valid trust ever came into existence and as such the value of compensation bonds could not be taken into consideration for determining the total gift made by the assessee during the year in question. The Gift-tax Officer, however, after considering the provisions of the indenture, came to the conclusion that under that instrument the assessee in effect transferred his claim to receive the zamindari abolition and compensation bonds to the extent of Rs. 25,00,000. The only way in which the assessee could transfer his claim to receive the bonds to the trustees was by making a clear and unequivocal declaration of trust, which had been made in this case. He, therefore, held that a valid trust in respect of the claim to the zamindari abolition bonds came into existence. He computed the total value involved in this gift at 50% of the face value of the compensation bonds.
(3.) THE assessee went up in appeal before the Appellate Assistant Commisioner of Income-tax, and amongst other items questioned the inclusion of the value of the zamindari compensation bonds in the value of total taxable gift for the year in question. THE Appellate Assistant Commissioner upheld the order of the Gift-tax Officer. He held that according to the trust deed what the assessee had transferred to the trustees was his interest in the zamindari abolition compensation bonds and not the bonds themselves, which could be transferred by him. THE trust so created was not invalid on account of uncertainty. It was further held that, since at the material time no zamindari bonds were in existence, the only way in which the assessee's interest in the zamindari land could be transferred to the trustees was by making an unequivocal declaration in the trust deed. Since this had been done, the assessee's interest in the bonds to the extent of Rs. 25,00,000 was rightly assessed to gift-tax for the assessment year 1958-59 and the computation of its value at 50% of the face value was also correct. In second appeal, the Income-tax Appellate Tribunal came to the conclusion that, so far as the claim to receive the zamindari abolition bonds was concerned, the gift in this respect had not been acted upon as even after creating the aforesaid trust, the assessee did not divest himself of the right to obtain those bonds, as evidenced by the fact that he treated them as his own and pledged them with his bankers in his own name and on his personal account as if they belonged to him. Since the gift in regard to the zamindari bonds had not been acted upon, no property was ever conveyed by way of trust to the trustees. Moreover, even subsequently, the assessee did not take any steps to transfer the bonds to the trustees. The Tribunal also appeared to be of the view that the trust in respect of the zamindari abolition bonds would also be hit by the provisions of the Public Debt Act, 1944, and the Indian Securities Act, 1920. In the result it came to the conclusion that no valid trust in respect of zamindari abolition and compensation bonds ever came into existence and, therefore, the valuation of the claim to receive the bonds could not be included in the taxable gift of the assessee and directed its deletion.;