I.N.MODI, J. - (1.) THIS is a consolidated reference by the Tribunal, Bombay Bench "B", arising out of a group of twelve reference applications under S. 66(1) of the Indian IT Act. The applicant in all these cases is His Highness Maharana Bhagwat Singhji of Udaipur who alleges himself to be the trustee of three funds known as : (i) Raj Kutumba Fund, (ii) Educational and Civil List Reserve Fund No. I and (iii) Educational and Civil List Reserve Fund No. II. The Tribunal has referred to the applicant as the sole trustee, and the three funds, respectively, as the R. K. Fund, No. I Trust Fund and No. II Trust Fund, and we shall adhere to the same nomenclature in the rest of our judgment. These twelve reference applications arose out of the several assessments made in respect of the aforesaid three funds for the asst. yrs. 1953-54, 1954-55, 1955- 56 and 1956-57, the relevant accounting years being the financial years ending 31st March, 1953, 1954, 1955, and 1956 respectively. The facts giving rise to certain questions of law which have been referred to us are, generally speaking, similar, and are identical insofar as they relate to each of the funds mentioned above with respect to the several years of assessment thereof and this is how a consolidated reference has been made by the Tribunal.
(2.) THE questions thus referred to us are as follows : "(1) Whether the appeals preferred by the sole trustee to the AAC against the assessment orders as made by the ITO for the asst. yrs. 1953-54, 1954-55, 1955-56 and 1956-57 in respect of No. I and No. II Trust Funds were incompetent to him and, consequently, the appeals filed to the Tribunal from the AAC's resulting orders were incompetent ? (2) Whether a trust was in existence at any time material to the asst. yrs. 1953-54, 1954-55, 1955-56 and 1956-57 in respect of the sum of Rs. 1,75,000 (referred to in the statement as No. II Trust Fund) ? (3) Whether the provisions of the first proviso to S. 41 (1) were rightly brought into operation in making the assessment upon the sole trustee in respect of the R. K. Fund and No. I Trust Fund and if the answer to question No. (2) is in the affirmative, in the case of that trust as well ?" It appears from the reference that, of these three questions, the second and the third have been referred to this Court at the instance of the applicant and the first at the instance of the Department. It may as well be noted at this place that the Tribunal did not consider it necessary to give any finding on the first question set out above, namely, whether the appeals filed by the sole trustee to the AAC against the orders of the ITO with respect to No. I Trust Fund and No. II Trust Fund were incompetent, and further the appeals filed by him against the orders of the AAC to the Tribunal relating thereto were equally incompetent. Nevertheless, this question has been included in the reference to us. A question, therefore, arises at the very threshold of this case whether the reference made to us is not improper inasmuch as the Tribunal has made it without deciding all the questions raised before it. But before we address ourselves to that question, we may state a few facts which have culminated in the present reference. His late Highness Maharajadhiraj Maharana Shri Sir Bhupalsinghji of Mewar (hereinafter referred to as Maharana Bhupal Singhji for the sake of brevity) as the then ruler of that State promulgated the Constitution of Mewar in May, 1947, which was to come into force from the 1st May, 1948. Clause 15 of art. III of this constitution made the following provision : "15. (1) A Rajkutumba Fund shall be maintained by the State with an initial amount of Rs. 2,00,000 and a sum of Rs. 25,000 shall be added to it annually as also such sum or sums as might be added to it by Shriji from his privy purse. (2) The Fund, its income and the accumulations thereof shall be used by Shriji in his discretion in such manner as he deems proper for or on the occasion of the marriage of his child." The term "Shriji" has been defined by cl. (1) of the same article as follows : "Shriji' as the Dewan of Shri Parameshwarji shall be the temporal Head of the State and his person being sacred shall not be subjected to any process of law." Clause (1) of Art. II defines "Shri Parameshwarji" as the sovereign of Mewar whose sole representative was Shriji who as such shall exercise on His behalf all rights, authority and jurisdiction which appertains to or are incidental to such sovereignty except insofar as may be otherwise provided for by or under this constitution or as may be otherwise directed by Shriji. To implement cl. 15 referred to above, Maharana Bhupalsinghji as the ruler of the State issued an order No. 9165 dt. 23rd April, 1948, by which he directed the Accountant-General of the State to pay Rs. 2,25,000 out of the State treasury to his household (see annexure "A"). By another order No. 9472 dt. 28th April, 1948 (annexure "B"), Maharana Bhupalsinghji directed the Accountant-General to pay a further sum of Rs. 7,75,000 to his household, debiting the same to the State, for the creation of a Civil List Reserve Fund and Education Fund. It appears from annexure "C", O. No. 2 Y 1/3 dt. the 12th July, 1948, that Rs. 10,00,000 as sanctioned by Maharana Bhupalsinghji had been received by his household, and, out of this, a sum of Rs. 3,00,000 was ordered by him to be sent to the present applicant, being his only son and successor, for the education of his three children, namely Maharajkumar Mahendrasinghji, Maharajkumar Arvindkumar Singhji and Baijilal Yogeshwari Kumariji. It is a matter of recent history that after the lapse of the British paramountcy, the princely States of Rajasthan were invited to accede to the Dominion of India on certain specified subjects, which they did, and were eventually persuaded by the Central Government to form themselves into a Union of States, so that the First United State of Rajasthan comprising a few smaller States was inaugurated on the 25th March, 1948; and the second United State including the Mewar State with Maharana Bhupalsinghji as its Rajpramukh came to be inaugurated on the 18th April, 1948. This was soon followed by a still larger Union of States with Maharana Bhupalsinghji as the Maha Rajpramukh thereof in 1949, until the Part B State of Rajasthan was formed under the Constitution on the 26th Jan., 1950, to be climaxed by the present State of Rajasthan under the States Reorganisation Act, 1956. The point to be noted is that under the changing pattern of governance it became necessary to fix the private properties of Maharana Bhupalsinghji as distinguished from the property of the State of Mewar (as indeed of other ruling princes qua their respective States), and in that connection it was agreed between Maharana Bhupalsinghji and the Central Government that out of the sum of Rs. 10,00,000 as set apart above, a sum of Rs. 3,00,000 shall be refunded to the State, and the amount of the fund would stand at Rs. 7,00,000 only; but it was further agreed out of respect for the sentiments of Maharana Bhupalsinghji that the refund may not be effected during his lifetime (see annexure "D"). Maharana Bhupalsinghji died on 4th July, 1955. It has been found by the It authorities that consequent upon his death, estate duty had been paid on the sum of Rs. 1,75,000 [being the amount of (the alleged) Trust No. II] in the course of assessment under the Estate Duty Act, 1953, on the footing that it was included in the personal estate left by Maharana Bhupalsinghji. It has also been found that the income arising from this fund was throughout shown as included in the income of the deceased for purposes of making assessment under the It Act. It may also be mentioned at this place that the recovery of the sum of Rs. 3,00,000 from the applicant being the successor of Maharana Bhupalsinghji was ordered to be waived by the Rajasthan Government in consultation with the Government of India : vide annexure "E" dt. the 13th July, 1956. Thereafter on 22nd April, 1957, the applicant made three distinct declarations, namely, annexures "D", "E" and "F", with respect to the three funds, by which he declared that the various sums which were set apart for the several funds, together with accretions thereof, shall be held on trust and utilised for the education, marriage, maintenance and for the moral and material upliftment of his three children, and that the amount of the said funds shall belong equally to them. The It authorities have found that these declarations do not and cannot have a direct bearing on the questions raised by this reference as they pertain to the period subsequent to the assessment years with which we are concerned. The question of making assessment with respect to the income relating to these three funds came up in the normal course, and this brings us to the asst. yrs. 1953-54, 1954-55, 1955-56 and 1956-57. Voluntary returns were filed in each case by the applicant as the sole trustee of the funds for the several years in question. The position taken up by the Department with respect to each of these funds for all the assessment years in question may now be summarised. As regards the R. K. Fund, it was contended on behalf of the applicant before the ITO that the shares of the three beneficiaries were determinate and known in the material accounting years and therefore it should be taxed equally in the hands of the three beneficiaries. The ITO held that even though a trust had been established with respect to the amount under this head, the individual shares of the beneficiaries were indeterminate and unknown and so the income of this fund was taxable in the hands of the beneficiaries at the maximum rate under the first proviso of S. 41(1) of the IT Act. As regards No. I Fund, it was also claimed by the applicant that the income of this fund was assessable as being in the hands of his three children and that he was merely a trustee of the fund. The ITO held that no trust was created by the late Maharana Bhupalsinghji with respect to the sum of Rs. 3,00,000 comprising this fund, and, therefore, the income accruing therefrom should be taxed in the hands of the applicant in his personal capacity as contra-distinguished from his capacity as a trustee thereof. The ITO, however, made a precautionary assessment with respect to this fund as being in the hands of the three children of the applicant on their one-third share each in the income of the fund. As regards No. II Fund, the ITO held that there was no trust whatever created by Maharana Bhupalsinghji with respect to it and that it had been taxed in the hands of the late Maharana as his own property. Consequently, the submission of the applicant that the assessment with respect to this fund be made in his capacity as the trustee of the alleged trust was turned down, and assessment was made on the basis that it was his personal property.
(3.) APPEALS were filed to the AAC in all the twelve cases. The AAC agreed with the ITO that no trust had at all been created by Maharana Bhupalsinghji with respect to No. II Trust Fund and, therefore, refused to interfere with the order of assessment made by the ITO with respect to that fund and dismissed the appeals relating to it. He, however, found that trusts were validly created with respect to the remaining two funds; yet he rejected the applicant's contention that the individual shares of the three beneficiaries were determinate or known qua these two trusts, and so after giving notice for enhancement under the first proviso to S. 31(3) he eventually held that the income of these two funds should be taxed in the hands of the applicant at the maximum rate of income-tax and in accordance with the proviso under S. 41(1) and directed the ITO to modify the assessments for the four years under appeal accordingly. The applicant then went in appeal from the aforesaid orders to the Tribunal, Bombay Bench B. It was contended before the Tribunal that a trust had been created with respect to No. II Fund also prior to the declaration made on 22nd April, 1957, and that Department itself having accepted that trusts had been so established with respect to the other two funds even before the declarations made by the applicant on the last mentioned date, and as the beneficiaries thereunder were known and their shares determinate, there was no justification for making the assessment in these cases under the proviso to S. 41(1) of the IT Act, and to impose the maximum rate of income-tax under that provision, and it was, therefore, submitted that each beneficiary should have been assessed directly on his share of the trust income and at the rate appropriate to him. It was alternatively prayed before the Tribunal that if an assessment was to be raised upon the sole trustee himself, then the tax should be levied on him in the like manner and to the same extent as it would have been leviable upon each of the three beneficiaries. A further contention seems to have been raised for the first time before the Tribunal that assuming while denying that the shares of the beneficiaries were indeterminate or unknown, still an assessment should be made under S. 40(1) and not under S. 41(1) inasmuch as the beneficiaries in the present case during all relevant accounting years were minors and, therefore, the specific section, namely, S. 40(1), which deals with minors, was applicable, and not the general S. 41(1) which deals with trusts generally, and that as there was no provision for the assessment at the maximum rate under S. 40(1), the trustee should be assessed at the rate appropriate to the income of the trust. The Tribunal repelled all these contentions and upheld the orders of the AAC, as observed by the Tribunal in its appellate order : "On the view that we have taken on merits in all these 12 appeals, we do not find it necessary to go into the contention raised by the Department that the appeals in regard to No. I Trust were incompetent to the AAC and, consequently, the appeals to us arising from the orders of the AAC." Thereupon, the applicant required the Tribunal to state certain points of law, which according to him, arose out of its order to this Court, and this is how the present reference has come before us. We have already set out the questions in the foregoing part of our judgment and need not repeat them here. As already stated, questions Nos. 2 and 3 have been referred at the instance of the applicant, while question No. 1 has been referred at the instance of the Department. Now this first question relates to the competence of the appeals filed by the applicant before the AAC against the orders of the ITO with respect to No. I Trust Fund and No. II Trust Fund for the several years of assessment, that is, 1953-54, 1954-55, 1955-56 and 1956-57, and the consequent incompetence of the appeals filed to the Tribunal against the orders of the AAC relative to them. As it has transpired, the Tribunal has referred this question to us for answer without itself deciding it when the point was admittedly raised before it on behalf of the Department. The first question which, therefore, strikes us in this connection is whether in view of the failure of the Tribunal to decide this question, the present reference is proper and valid. Consequently, we called upon learned counsel for both parties to satisfy us on the point that the present reference was proper in spite of the position that one of the questions raised before us which was likely to go to the root of the matter had been considered and decided by the Tribunal even though it was raised before it in appeal and that was the admitted position in the case. ;