COMMISSIONER OF INCOME-TAX, MADHYA PRADESHversusMAHARAJA BAHADUR SINGH & ORS.

A


       COMMISSIONER OF INCOME-TAX, MADHYA PRADESH
                                          v.
                  MAHARAJA BAHADUR SINGH & ORS.
ll
                               OCTOBER 13, 1986

           [R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.]

            Income Tax Act, 1961-lncome derived by beneficiaries under
      Trust Deeds-Income derived in individual capacity and not as repre-
c     senting HUF-Assessment of Income-Determination of.

             One Hokum Chand Seth, who constituted a HUF with the mem-
      bers of his family, owned extensive properties. The properties were
      partitioned between him, his wife and their son in equal shares by a
ll    Deed of Partition dated March 31, 1950. dn the same date, Hukum               >
      <;_hand Seth and his wife executed two trust.deeds nominating their son
      and five grandsons as the beneficiaries in respect of their shares in the
      aforesaid properties. The trust deeds which contained identical terms
      inter alia provided (a) that in the event of a beneficiary dying before the
      time of distribution of the properties between the beneficiaries, the
      share of the beneficiary so dying would be used to support and maintain
      his widow and his male issue in such ·manner as the trustees shall "in
      their absolute and uncontrolled discretion deem proper" and the sur-
      plus, if any, of the share of that beneficiary and the income therefrom
      would be accumulated and kept in credit to his account and preserved
      in order to be distributed; (b) that upon the youngest of the bene-
      ficiaries attaining the age of 30 years, the trustees would divide and
      distribute the trust properties together with the accumulated interest
      and income thereon among the beneficiaries according to their respec-
      tive rights and shares; and (c) that if at the time of the division and
      distribution any beneficiary should have died without leaving any son
      but leaving only a widow' the widow would get half of the share of that
(i    beneficiary while the other half would be distributed among the remain-
       ing beneficiaries and the heirs of the beneficiaries entitled to distri-
       bution.

            With the passage of time the beneficiaries came into possession of
      their respective shares of the properties and the income from those
 11   properties wa• returned by them for the purpose of their income tax

                                        !020
                       COMM OF INCOME-TAX v. M.B. SINGH                   1021

      assessment in their individual status, but subsequently they began to       A
 ~    assert that the properties were received by them as the Karla of their
      respective Hindu undivided families and that therefore the income was
      liable to be assessed in that status. The Income Tax Officer, during the
      relevant assessipeut years assessed the assessees/beneficiaries in their
      individual status and these assessments were confirmed by the Appel-        B
      late Assistant Commissioner a'ld the Income Tax Appellate Tribunal.
      However, in a reference at the instance of the assessees, the High Court
~     held that the properties had been settled with the assessees in their


~
      representative capacity as Kartas of their respective Hindu undivided
      families.

            Allowing the appeals by the Revenue to this Court,                    c
            HELD 1. I The High Court has erred in the view taken by it of
      the two trust deeds. The question whether the income belongs to the
 ~
      individuals or Hindu undivided families has to be resolved upon the
      contents of the trust deeds, their terms and conditions being free from     D
      ambiguity. I10280; 1026F]

            1.2 Where the document contains no clear words describing the
      kind of interest which the donee is to take, the question is one of con-
      struction and the court must collect the intention of the donor from the
 ).
      language of the document taken along with the surrounding circumst-         E
      ances. There is no presumption one way or the other. Each case must be
      decided on its own facts and each document calls for its own particular
      construction. [1026H; 1027A-B]

           C.N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar and
 r    Another, [1954] 5 SCR 243, referred to.                                     F
            In the instant case, on the plain terms of the tr.us! deeds, the
      prope~ties were intend~ to devolve on the beneficiaries in their indi-
---   vidual capacity. The circustances surrounding the execution of the two
      documents indicate that a common intention inspired the minds of the
      two sdtlors. This has considerable significance when it. is realised that   G
      while one trust deed was executed by a male member of the family the
      other was executed by a female member of the family. The course of
      devolution under the Hindu law would be materially different in the two
-{    cases and, therefore, the principles of the Hindu law governing the
      devolution of property in the case of property passing from a father to
      his son and grandsons cannot be invoked in these appeals. [ 1027B-C I       H
     1022                  SUPREME COURT REPORTS               [198613 S.C.R.

A          2. The terms and conditions of the trust deeds are wholly incon-
     sistent with the property passing into the hands of the beneficiaries as
     Kartas of their respective Hindu undivided families. There is clear
     indication in the trust deeds which bears this out. In the first place, had
     it been intended that the beneficiary should receive the property as
     Karla of his Hindu undivided family the document would not have
13   empowered the trustees, in clause 1 to exercise an absolute and uncon-
     trolled discretion on the death of a beneficiary to apply his share to the
     maintenance of his widow and his male issue and to accumulate the
     surplus to the account of the said beneficiary for distribution. On the
     contrary, the trustees would have been under an obligation to entrust
     the income falling to the share of the deceased beneficiary to the mem-
c    bers of his Hindu Undivided family and no discretion would have been
     permissible in regard to the disposal°or otherwise of any part thereof.
     Secondly, the document would not have provided that if before the time
     of division and distribution a beneficiary died leaving only a widow, the
     widow would get a half of the share belonging to the deceased bene-
     ficiary while the other half would be liable to distribution among the
D    remaining beneficiaries. These two conditions are sufficient in
     themselves to lead to the conclusion that it was never intended that the
     properties should pass to the beneficiaries to be held by them for their
     respective Hindu undivided families. I 10270-H]                          ·

          CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
E    1681-84of1974.

           From the Judgment and Order dated I/6th February, 1974 of the
     Madhya Pradesh High Court in Civil Cases Nos. 240, 238 and 239 of
     1971.

           M.K. Banerjee, Additional Solicitor General, Ms. A. Subha-
     shini and B.B. Ahuja for the Appellant.

           S.T. Desai, A.K. Chitale, Mrs. S. Gambhir and S.K. Gambhir
     for the Respondents.

G           The Judgment of .the Court was delivered by

           PATHAK, J. These appeals by special leave are directed
     against the common judgment of the High Court of Madhya Pradesh
                                                                                   ·,
     disposing of four Income-tax References and answering the following
     identical question of law arising in each Reference in favour of the
fl   assessee and against the Revenue:
               COMM. OF INCOME-TAX v. M.B. SINGH [PA~A.K, J.)           1023

               "Whether on the facts and in the circumstances of the case,         A
               the Tribunal was justified in law in holding that the income
               derived by the beneficiaries under the two trust-deeds be-
               longed to the beneficiary in individual capacity and not in
               the ~ap a city as representing the. Hindu undivided family?''
                                                                                   B
       These appeals involve the:: construction of two trust-deeds
 couched in identical terms. To understand their import it is necessary
 to set out a genealogical table:

                        Sir Hukumchand Seth (Kat;ta)
                                    m
                                                                                   c
                             Lady Kanchanbai (Wife)

                          Shri Rajkumarsingh (Son)
                                        ·m
                        Smt. Premkumari Devi (Wife)                               · D

 Raj B~hadur         Maharaj Bahadilr   Jambukumar      Ch. Kumar   Yesh Kuinar
 Singh (son)         Singh (son)        (Singh (son l   Singh       Singh
                                                        (Minor)     (Minor)
     m                   m                   m
 Smt. lndrani        Smt. Sneha Lata    Smt. Urmila
              '\
 De vi (wife)        Devi (wife)        Devi (wife)                                E


 Pravin Dhirendra    Naina      Sunaina. Pramod Kumar (son)
 Kumar Kumar         Kumari     Kumari
 (son) (son)         (Daughter) (Daughter)

                                                                                   F
        Sir Hukumchand Seth was tlie head of a well known family of
  Indore. The family carried on various businesses and owned extensive
. properties. Prior to March 31, 1950 Sir Hukum Chand and the mem-
  bers of his family constituted a Hindu Undivided family . By a deed of
  partition dated March 31, 1950 various family properties were parti-
  tioned between Sir Hukum Chand, his wife Lady Kanchanbai and
                                                                                   G
  their son· Raj Kumar Siilgh in equal shares. Sir Hukum Chand and
  Lady Kanchanbai executed two trust deeds on the same date, March
  21, 1952 purporting to constitute a trust of the properties respectively
  belonging to them. The trust deeds contained identical terms and con-
  ditions. The trustees in each case were Sir Hukum Chand, Lady
  Kanchanbai, their son Raj Kumar Singh and his wife Prem Kumari .                  H
    1024                  SUPREME COURT REPORTS              [1986) 3 S.C.R.

A   Devi and the eldest grandson Raja Bahadur Singh. The beneficiaries
    named in the trust deeds were Rajkumar Singh and his sons Raja
    Bahadur Singh, Maharaja Bahadur ~ingh, Jambukumar Singh,
    Chandrakumar Singh and Y eshkumar Singh. With the passage of time
    and in accordance with the terms and conditions of the trust deeds the
B   beneficiaries came into possession of their respective shares of the
    properties. Originally the income from those properties was returned
    by them for the purpose of their income-tax assessments in their indi-
    vidual status, but subsequently they began to assert that the properties
    were received by them as the Karta of their respective Hindu undi-
    vided families and that, therefore, the income was liable to be assessed
    in that status.
c
          These appeals arise out of income tax assessments made in the
    case of Raja Bahadur Singh for the assessment year 1962-63, Maharaj a
    Bahadur Singh for the assessment year 1961-62 and Jambukumar
    Singh for the assessment years 1961-62 and 1962-63. The Income Tax
    Officer assessed all three assessees in their individual status and the
D
    assessments were confirmed in that status by the Appellate. Assistant
    Commissioner on appeal. On second appeal by the assessees the In-
    come Tax Appellate Tribunal also took the view that the income from
    the prop(frties received by the assessees under the two trust deeds fell
    to be taxed in their individual status. At the instance.of the assessees i
    the Appellate Tribunal referred the cases to the High Court of Madhya ,
E
    Pradesh for its opinion in each case on the question of law set forth ~
    earlier. The High Court understood the two trust deeds differently
    from the Appellate Tribunal and the taxing authorities and held that
    the properties had been settled with the assessees in their representa-
    tive capacity as Kartas of their respective Hindu undivided families.
F
          It may be mentioned at the outset that neithe r the assessees nor
                                                                                 \
     the Revenue dispute the legality of the trust deeds and we must pro-
    .ceed on the assumption, as did the High Court, the Appellate Tribunal
     and the taxing authorities , that the authors of the trust deeds wer,e
     competent to settle the properties in accordance with. the terms and
     conditions expressed in those documents.
G
           The sole question before us is whether upon those terms and
    conditions it was intended by the settlors that the beneficiaries should
    receive the properties in their individual capacity or in a representative
    capacity as Kartas of the res pective Hindu undivided families. It is not
H   necessary to refer to all the provisions of the trust deeds because the
           COMM. OFINCOME-TAXv. M.B. SINGH (PATHAK,J.J                1025

parties are in common agreement that the principal provisions calling          A
for consideration are clauses 1, 3 and 4 of the trust deeds. Clause 1
empowers the trustees to apply the income from the trust properties to
the rent, rates, taxes and other liabilities in respect of the trust proper-
ties, including the cost of maintenance, and thereafter to divide the
balance left over in equal shares between the beneficiaries, so that
                                                                               B
each beneficiary received one-sixth of the balance. In the event of a
beneficiary being a minor, his share of the income was payable to his
natural guardian for being applied towards his education, maintenance
and advancement in life, marriage and other expenses. It was also
provided that iri the event of a beneficiary dying before the time of
distribution of the properties between the beneficiaries under clause 4,
the share of the beneficiary so dying "would .be used to support and·          c
maintain his widow and his male issue. "in such manner as the trustees
shall in their absolute and uncontrolled discretion deem proper" and
the surplus, if any, of the share of that beneficiary and the income
therefrom would be accumulated and kept in credit to his account and
preserved in order to be distributed in accordance with clause 4. In the       D
event of a beneficiary dying before the time of, distiibution without
leaving any widow or male issue his share wasto be divided equally
among other beneficiaries then alive or the then widow and male issue
of any other deceased beneficiary, if any, entitled to share in the
distribution, subject, however, to provision being made for the
maintenance and education until marriage and the marriage expenses
                                                                               E
of the daughter or ..:~ughters, if any of the said beneficiary. Clause 3
declares that if any moneys were required for meeting extraordinary
expenses of or for the benefit of any beneficiary or his wife or children
on special occasions, such as the marriage of the beneficiary and of his
children, the illness of the beneficiary or of his children, travelling
expenses of the beneficiary and of his family for going abroad, their
                                                                               F
education in a foreign country or on such other occasions as the
trustees may deem fit for special treatment, the trustees were em-
powered to pay to the beneficiary such amounts from time to time as
they thought fit in their absolute discretion. Such amounts could be
paid to the beneficiary out of the trust properties either by way of
advance or loan either on interest or out of his share o.f the corpus. In
                                                                               G
the. latter event the share of the net income payable to the beneficiary
was liable to proportionate reduction. Clause 4 provides that upon the
youngest of the beneficiaries attaining the age of 30 years the trustees
would divide and distribute the trust properties together with the
 accumulated interest and. income thereon ·among the beneficiaries
 according to their respective rights and shares, that is to say equally,      H
      1026                   SUPREME COURT REPORTS              [1986] 3 S.C.R.

A     and in making such division the trustees would take into consideration
      the amount due by the beneficiary to the trustees by way of loan or
      advance made to him. It was further provided that if any beneficiary
      should have died before the time of such division or distribution
      leaving a widow and any son or sons or only son or sons the widow
B     and/or the sons would take by substitution the share which the
      beneficiary would have taken had he been alive, and such share would
      be divided equally between the widow and the sons. The proviso
      declares that if at the time of the division and distribution any
      beneficiary should have died without leaving any son bu.I leaving only
      a widow, the widow would get half of the share of that beneficiary
      while the other half would be distributed among the remaining
c     beneficiaries and the heirs of the beneficiaries entitled to distribution.
      A further provision declares that if at the time of division and distri-
      bution any beneficiary should have died without leaving a widow or a
      son his share would, subject to such adequate provision made for the
      maintenance and education until marriage and the marriage expenses
[)    of the daughter or daughters of such beneficiary as the trustees may in
      their discretion think fit, he distributed among the remaining bene-
      ficiaries and the heirs of the beneficiaries entitled to distribution.

             The assessees filed a declaration dated October 19, 1964 that on
      and from Diwali 1959 the income accruing to them as beneficiaries
      from the two trust deeds should be regarded as income belonging to
E
      their Hindu undivided families. The High Court and the Appellate
      Tribunal have rightly held that those subsequent declarations can be of
      no moment for deciding whether the income belonged to the indi-
      viduals or their Hindu undivided families. It is settled by law that the      ;
      question has to be resolved upon the contents of the trust deeds, their
      terms and conditions being free from ambiguity. The question whether
F
      a gift of self-acquired or separate property by a father to his son results
      in the.son holding it as ancestral property was considered by this Court
      in C.N. Arunacha/a Mudaliar v. C.A. Muruganatha Mudaliar and
      Another, [1954] 5 S.C.R. 243, and it was laid down that it was perfectly
      competent for the father, when he makes a gift, to provide expressly
      either that the donee would take it exclusively for himself or that the
G     gift would be for the benefit of the branch of his family, and if there
      are express provisions to that effect in the deed of gift or will, the
      interest which the son would take in such property would depend upon
       the terms of the grant. Where the document contains no clear words
      describing the kind of interest which the donee is to take, the question
      is one of construction and the Court must collect the intention of the
1-1


                                        .\
                 COMM. OF INCOME-TAX v. M.B. SINGH [PATHAK, J.]              1027

      donor from the language of the document taken along with the sur-              A
      rounding circumstances. There is ilo presumption one way or the
      oiher. It is not necessary for us to refer to the several cases cited before
      us, because each case mnst be decided on its own facts and each
    . document calls for its own particular construction.
                                                                                     B
           The circumstances surrounding the execution of the two docu-
     ments indicate that a common intention inspired the minds of the two
     settlors. This has considerable significance when it is realised that
     while one trust deed was executed by a male member of the family the
     other was executed by a fe;,,ale member of the family. The course of
     devolution under the Hindu law would be materially different in. the
     two cases and, therefore, the principles of the Hindu law governing the         c
     devolution of property in the case of property passing from a father to
     his son and grandsons cannot be invoked in these appeals.

             Even if the matter be looked at in the context of the Hindu law as
      it obtained at the relevant time, the terms and conditions of the trust.
                                                                                     D
      deeds are wholly inconsistent with the property passing into the hands
      of the beneficiaries ·as Kartas .of their respective Hindu undivided
      families. There is clear indication in the trust deeds which bears this
      out. In the first place, had it been intended that the beneficiary should
      receive the property as Karta of his Hindu undivided family the docu-
      ment would not have empowered the trustees, in clause 1, to exercise
                                                                                     E
      an absolute and uncontrolled discretion on the death of a beneficiary
      to apply his share to the maintenance of his widow and his male issue
      and to accumulate the surplus to the account of the said beneficiary for


r
      distribution. On the contrary, the trustees would have been under an
      obligation to entrust the income falling to the share of the deceased
      beneficiary to the members of his Hindu undivided family and no
                                                                                     F
    · discretion would have been permissible in regard to the disposal or
      otherwise of any part thereof. Secondly, the document would not have
     ·provided that if before the time of division and distribution a bene-
      ficiary died l~aving only a widow, the widow would get a half of the
      share belonging to the deceased beneficiary while the other half would
      be liable to distribution among the remaining beneficiaries and the
                                                                                     G
      heirs of other deceased beneficiaries. These two conditions are suffi-
      cient in themselves to lead to the con'clusion that it was never intended
      that the properties should pass to the beneficiaries to be held by them
      for their respective Hindu undivided families. On the plain terms of
      the trust deeds, the properties were intended to devolve on the
      beneficiaries in their individual capacity.                                    H
    1028                   SUPREME COURT REPORTS              [1986] 3 S.C.R.

A          It is contended by learned counsel for the assesses that the set-
    tlors intended under the two trust deeds to protect the grandsons, and
    the scheme incorporated in the trust deeds must be regarded as akin to
    a family settlement. We are unable to agree. The interest of the grand-
    sons has been sufficiently protected by the terms and conditions of the
    trust deeds, and in order to safeguard that interest it is not necessary to
B
    conclude that the properties were intended to go to the beneficiaries as
    Kartas of the Hindu undivided families. The grandsons themselves
    were beneficiaries and on the division and distribution of the proper-
    ties they would have full power to deal with them according to their
    will and discretion. It is only where a beneficiary dies before division
    and distribution of the properties without leaving a widow or sons that
c   the trustees are empowered to intervene and direct, subject to provi-
    ding for the· maintenance, education and marriage of the deceased
    beneficiary's daughters, that the share of such beneficiary be divided
    among the remaining beneficiaries and the heirs of deceased bene-
    ficiaries.
D          We are of opinion that the High Court has erred in the view
    taken by it of the two trust deeds and that the Appellate Tribunal was
    right in its conclusions. Accordingly, we answer the question referred
    to the High Court in each case in the affirmative, in favour of the
    Revenue and against the assessees. The appeals are allowed with
    costs.
E
    A.P.J.                                                  Appeals allowed.
                                                                                  :