- (1.) THIS is an income-tax reference under Section 256 of the Income-tax Act, 1961, in which the following question has been referred for our opinion : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the assessee was not covered by the proviso to Section 164(1) and was liable to be taxed at the rate of 65 per cent. under that section?"
(2.) THE assessee is a trust and the relevant assessment years are 1971-72, 1972-73 and 1973-74. Part of its income was held to be specifically receivable on behalf of or for the benefit of the beneficiaries whose share was determinate and known. THE remaining income was assessed in the hands of the assessee in the status of an association of persons. THE assessments were made by the Income-tax Officer and the tax was levied treating the income of an association of persons for the respective, years. Subsequently, the Commissioner of Income-tax felt that the orders passed by the Income-tax Officer were erroneous and prejudicial to the interests of the Revenue inasmuch as on the assessee tax should have been levied for all the three years at the rate of 65 per cent. Hence, the Commissioner of Income-tax issued notice under Section 263 of the Act to the assessee. THE assessee claimed that there was no mistake in the assessment order and the Income-tax Officer had rightly charged the tax at the rate applicable to its total income. In support of its contention, the assessee claimed that trust had been created by a will and its case was, therefore, covered by Clause (ii) of the proviso to Section 164(1). In the alternative, the assessee claimed that its case was covered by Clause (iii) of the said proviso inasmuch as the trust had been created bona fide exclusively for the benefit of the relatives of the settlor before March 1, 1970. THE Commissioner of Income-tax rejected both these contentions of the assessee and held that its case was not covered by either Clause (ii) or Clause (iii) of the proviso to Section 164( 1) of the Act, and hence he accordingly held that the Income-tax Officer erred in not applying the rate of 65 per cent. The assessee then filed an appeal before the Income-tax Appellate Tribunal and contended that the document dated July 24, 1924, was a will of the settlor, Shri Chintamani Ghosh, who had subsequently executed another deed dated June 1, 1925, by which he had referred to the deed dated July 24, 1924, as a will. The assessee contended that in the deed dated June 1, 1925, Shri Chintamani Ghosh referred to the deed dated July 24, 1924, as his last will and testament and this confirms that the deed dated July 24, 1924, was the will of the settlor. In the alternative, the assessee also contended that if the above contention was not acceptable, then its case would be covered by Clause (iii) of the proviso to Section 164(1) of the Act. The Income-tax Appellate Tribunal did not accept these contentions of the assessee and held that the document dated July 24, 1924, was not a will since the will takes effect from the date of the death of the testator and is revocable by him in his lifetime, whereas the deed dated July 24, 1924, clearly shows that it was intended to take effect immediately. By this deed, the settlor had endowed the properties mentioned in the schedule in favour of the deity and for the purpose of the carrying out of various objects. It was also held by the Tribunal that reference to this deed dated July 24, 1924, as his will by the settlor in the deed dated June 1, 1925, cannot change the legal position. The Tribunal further held that the submission that the trust came into existence only on the death of the settlor was also not acceptable, because the settlor had appointed himself not only as a shebayat but also as the sole trustee in his lifetime, and it was, therefore, incorrect to say that there was no trustee during the lifetime of the settlor. The Tribunal relied on the decision of this court in the case of Chintamani Ghosh Trust v. CWT [1971] 80 ITR 331, where it was observed as under (at page 340) : "On a reference to the extracts from the deed quoted above, it would appear that the settlor divested himself completely of the property and conveyed the same absolutely to the trustees for the worship and upkeep of the family deity as also to carry out the objects of the trust mentioned in the deed. It is true that the property has been referred to in the deed as 'endowed property' and the settlor also states that the conveyance was made, by way of endowment of religious and charitable trust, to, unto and in favour and on behalf of the said deity . . . .' but these words do not detract from the real tenor of the document. It is a clear case of the creation of a trust conveying the property to the trustees."
(3.) AS regards the alternative contention of the assessee that the case was covered by Clause (iii) of the proviso to Section 164(1), the Tribunal held that the trust had been created not only for the benefit of the relatives of the settlor but also for various other purposes, e.g., worship of the family deity and wages of the servants employed for the deity and for the maintenance of a homoeopathic dispensary and a fund for the maintenance of widows, orphans and students. Thus the trust had not been created exclusively for the relatives of the settlor. Shri Shambhoo Chopra, learned counsel for the assessee, urged before us that the document dated July 24, 1924, was a will and not a trust, He has relied on the decision of the Lahore High Court in Haji Abdul Razak v. S. Ali Bakhsh, AIR 1946 Lahore 200, where it was held that one part of the instrument can operate in praesenti time as a deed and another part can operate in future as a will. We agree with this observation, but so far as the document dated July 24, 1924, is concerned, we are of the opinion that the document is not a will at all because it creates a trust in praesenti as is evident from a perusal of the very first paragraph of the said deed dated July 24, 1924, which states : "from the date of these presents and for the rest of the term of his natural life, he, the said settlor, shall himself be and act as the sole and absolute shebayet of the said deity Sri Sridharjee and will alone exercise and enjoy all and singular the rights, powers, privileges and functions of a shebayet, etc." Paragraph 2 of the said document states that after the death of the said settlor there would be a board of trustees whose names are mentioned therein.;