Commissioner of Wealth Tax, Bihar and Orissa v. Kirpashankar Dayashankar Worah

Judgment

COMMISSIONER OF WEALm TAX, BIHAR AND ORISSA KIRPASHANKAR DAYASHANKAR WORAH July 29, 1971. [K. S. HEGDE AND A. N. GROVER, JI.] Wealth Tax A.ct (27 of 1957), s. 21(1} & (4'r-Liability of tnH1ce t• be &rttssed to wealth tax-Scope of s. 21(4). The respondent, by means of a trust-deed, transferred certain proper~ ties described in the deed unto himself as a trustee for making pr..>- vision for the maintenance of himself and his wife. for the maintenance. education and marriage expense.s of his unmarried daughters, and for the maintenance and education expenses of his minor sons. For the as~!Wment years 1957 to 1961 the Department assessed the respondent to wealth-tax in respect of the trust properties as a trustee under s. 21 of tho Wealth Tax Act 1957. The respondent contended that: (1)

Since, as a trustee he waa only holding the properties for the benefit of the beneficiaries and not uu behalf of the beneficiaries as laid down in the section he was not asses.sable to wealth-tax. and· (2) as the share of each of the beneficjarjes was ovt indeterminate, he should not be taxed at the maximum rate. The High Court in reference held that respondent Yt·as not a.~~es~abte to wealth tax. HELD: In appeal to this Court, S. 21(1) of the Act specifically refers to uustees. The Leaislature i• competent, in the absence of any restrictions placed on it by the Consticution, to give its own meaning to the words used by it in a statute. In tho Wealth Tax Act, Parliament, while enacting s. 21(1) & (2) of the Act, proceeded on the basis that for the purpose of that Acl a trustee is holding the trust property on behalf of beneficiaries. The mere fact that this conception doea not accord with the provisions of the Trust Act doeo not invalidate the section.

If the construction contended for on behalf of the respondent is accepted then a part of the section wouid bec:op1e otioi;c. While a taxing provision must be strictly construed by courts and lhe benefit of any ambiguity must to go the assessee, if the intention of the Legislature is clear and beyond doubt then the fact that the provision could have been more artistically drafted cannot be a ground for treating any part of a provision as otiose. [9738-F] Therefore a trustee is assessable to wealth tax under the Act even as it then stood. [975B) Suhruhini Karuri v. Wealth Tax Officer, 46 I.T.R. 953, and 1'ru,fte~s of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax, Bombay, 70 l.T.R. 600, approved. Commissioner of lncome·tax v. Puthiya Ponamanichiritakam Wakf, 44 I.T.R. 172 (S.C.), Commissioner of Income-tax, v. Kokila Devi, 77 I.T.R.. 350 (S.C.), The Commissioner of Income-tax v. Manila Bharti, [1962] Supp. 2 S.C.R. 902 and Commissioner of Income-tax v. Manag;ng Trustees Nagor Durgha, 57 I.T.R. 321 (S.C.), referred to.

WEALTH TAX COM!olR., v. K. D, WOl\AH (Htgdt, J.) W.O. Ho/daworth v. State of U.P., 33 I.T.R. 472 (S.C.), explained. (2) In the present case, on the relevant dates, the settlor as well as his wife were alive and had a right to be maintained out of tho trust properties and they bad also a right of residence in a part of the trust property, and two of the sons of the settlor bad a right to be maintained and educated. Therefore the shares of tho beneficiaries were indeterminate, and hence, the trustee had to be assessed under s. 21(4) of the Act as it then stood. [97SH; 976A·Bl OV!L APPELLATE JURISDICTION : Civil Appeals Nos. 1478 to 1481 of 1967. Appeals from the judgment and order dated April 13, 1966 of the Patna Court in Misc. Judicial Cases Nos. SS2 to SSS of 1964. Jagadish Swarup Solicitor-General, A. N. Kirpal, B. D. Sharma and R. N. Sachthey, for the appellant (in all the appeals). M. C. Setalvad, S. K. Mitra and A. K. Nag, for the respondent ~in all the appeals).

The Judgment of the-Court was delivered by Degele J.-This appeal by certificate arises from the decision of the High Court of Patna in a reference under s. 27(1) of the Wealth Tax Act, 19S7 (which we shall hereafter refer to as the Act). The question of la.w arising for decision in these appeals is : "Whether in the facts and circumstances of the case, the trustee under the Trust deed dated 19th July 1949 executed by Kirpashankar D. Worah was assessable to wealth tax under Section 21 of the Wealth Ta·x Act ?" The tribunal upheld the contention of the Revenue that the trustee is liable to be proceeded against under s. 21 of the Act but the High Court disagreeing with the view taken by the tribunal answered the question referred to it in the negative. Hence this appeal. The facts of the case as set out in the statement of the ca;;e submitted to the High Court may now be briefty stated : The respondent Kirpashanker D. Worah by means of a deed of trust dated July 19, 1949 transferred certain shares described in Schedule 7 of the trust deed and cert&in immovable properties and shares in business described in Schedule 8 of that deed unto him- 1elf as the trus!ee for making provision for the maintenance of himself, his wife, for the maintenance, education and the marriage SUPREME COURT Rl!PORTS [1971]

SUPP. s.c.R. expenses of his unmarried di;ughters and for the maintenance and education expenses of his minor sons. The main purpose of the trust ;, ,.ot out in paragraph 3 of the objects of the trust. That para.graph reads : "To apply the income of the Trust Estate for the maintenance and the joint use and benefit of the Settlor u,nd his wife the said Srimati Kanchan Kunver and also for the maintenance, education and marriage expenses of the said two minor daughters Kumari Kumud Bala and Kumari Jyoti and a·lso for the maintenance and education of the Settlor's minor sons Harsukhari Worah and Chanderakant Worah PROVIDED ALWAYS that if the income of the Trust Estate is insufficient for the purpose of meeting any of the said expenses the Trustee shall have full liberty to dispose of or otherwise apply sufficient portion of the corpus of the Trust Estate for the purpose of discharging the trust contained in this clause."

Sub-paragraph 4 of the Trust deed provides that in the event of the Settlor predeceasing his wife, the shares a·nd securities m~ntbned in Schedule 7 was to be made over to his wife to be enjoyed by her as her absolute property, provided fhat if the Settler predeceased his wife before the marriages of the two unmarried daughters had been performed, the trustee was to ret&in out of the shares an~ securities mentioned in the said Schedule sufficient number of shares for the purpose of meeting the marriage expenses of the said two daughters or either of them as the case ma•v be. Sub-paragraph(5) provides that after the marriages of both the daughters and I or after the death of both of such da11.~hters, whiohever happens first and also after the death of the Settlor's wife and the atta'nment of majority of .both the minor sons, the trustee wa~ to hold the Trust Estate for the absolute use a•nd benefit of the two said sons, Harsukhari and Chandrakant.

It was further provided that the intention of the Settlor •f was that subject to the trust thereby created the said two minor sons would take avested interest in the trust estate. Under cl. (4) of tho sa;d deed provision was made for the residence of the Settlor. his wife and the minor children free of rent in a part of the trust properties described in Schedule 8 until the determination of the trust as aforesaid. Even before the first valuation date with which we a.-e concerned in these appeals, both the daughters had been married and the two sons had attained majority. The reference relates to wealth tax assessment of the assessee for the assessment years 1957-58, 1958-59, 1959-60 and 1960-61, the corresponding vafaation dates being 2-11-1956. 23-11-1957, 11-11-1958 and 31-10-1959. WBALTH TAX COl>GIR. \'. K. D. WORAH (Hegde, J.) 9fl' 11he department has assessed the respondent in respect of the wealth tax due in respect of the trust proper\ies as a trustee.

The question for considera.tion is Whether he is liable to, be assessed to wealth tax in respect of the trust properties. The respondent contends \hat as h: is not )joldingthe trust properties on behalf of tile beneficiaries, ·he do~s not come within the s~ope of s. 2'1 of the Act and further as the share of the beneficiaries under the trust is not indeter!Dinate, he cannot be taxed at the maximum -ra.te. We shall first take up the_queslion whether the case of the a•sessee comes within the scope of s. 21 (1) of the Act. At the material time s. 21' read thus : "21(1).

In the case of the assets chargeable to .tax u:ider this Act which are held by a court of wa.rds or an administrator-general or an official trustee or anv receiver or ma\}ager or any other persog., by whatever name called, appointl'd under any order of a court to mana•ge· property· on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, wh.ether testamenta.ry or otherwise including a trustee under a vaiid deed of wakf, the wealth tax shall be levied upon and recoverable from the court of wards, administrator-general, official trljstee, receiver, man:i.ger or trustee, as the case may be in ~he like manner and to the same extent as it would be leviable upon and recove- .rable from the person otl whose behaJf the assets arc held, and the provisibn of this Act shall apply accordingly." Leaving out the u~~necessary words, section 21 to the extent material for our present purpose can be recast thus :

In the case of the assets chargeable to ta.x under this Act which are held by a trustee appointed under a trust deed by a dul~ executed instrumeqt in writing, whether testamentary o~ otherwise, the wealth tax shall be levied upon a0nd recoverable from the tiustee inthe like manner and to the same extent as it would, be leviable upon .and recoverable from the person on whc5se behalf the assets are held and the provision of tJiis Act shall apply accordingly. It is plain from the language of s. 21 (1) that a trustee is also brought within its scope. But tha.t section proceeds on the basis that a trustee is holding the trust property on behalf of one or more beneficiaries. SUPRBMB OOURT RBPORTS (1971] SUPP. s.c.R. The High Court has come to !he conclusion and that conclusion is supported by Mr. M. C. Setalvad, learned counsel for the assessee tha.t it is well established that a trustee does not hold the trust property on behalf of the beneficiaries but he holds it only for their benefit.

Under the Trust Act, ft is indisputable that a trustee is the legal owner of the trust property. He holds the trust property on his own right and not on behalf of someone else though he holds it for the benefit of the beneficiaries The High Court in coming to the conclusion that s. 21(1) is inapplica.ble to the facts of the case heavily relied on the decision of this Court in W. 0. Holdsworth and Ors. v. State of U. P.(1) In that case this Court was considering the scope of s. II(!) of the U.P. Agricultural Income-tax Act, 1948. That section reads:

"Where any person holds land, from which agricultural income is derived, as a common manager appointed under any law for the time being in force or under any agreement or as receiver, administrator or the like on behalf of persons jointly interested in such la.nd or in the agricultural income derived therefrom the aggregate of the sums payable as agricultural income-tax by each person on the agricultural income derived from such land and received by •him, shall be assessed on .such com· mon manager, receiver, administrator or the like, and he shall be deemed to be the assessee in respect of the agri· cultural income tax so payable by each such person and shal! be liable to pay the same." It may be noted tha.t in that provision. there is no reference to trustees. That section speaks of "receiver. administrator or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom".

While interpreting that clause this Court held tha.t a trustee is not a person who can be equated to a receiver or an administrator inasmuch as those persons hold the property on behalf of other persons whereas a trustee is the legal owner of the trust property. In that decision this Court aJso observed that there is a fundamental difference between a property being held on behalf of others and property being held for the benefit of others. In our opinion the ratio of that decision does not bear on the point under consideratien though certain observations found therein may give some assistance to the respondent. Section 11 of the U. P. Agricultural Income-tax Act does not refer to trustees at all whereas s. 21(1) of the Act specifically refers to trustees. It is true that it refers to a trustee as holding a trust property on behalf of other persons. The conception that the trustee is holding the trust property oa (I) 33 I.T.R. 472. WEALTH TAX COMM!\,,, K. D. WORAlll (Hegde, J.) behalf of others may not be in conformity with the legal position as contemplated by the Trust Act but the legislature is competeat in the absence of any restrictions placed on it by the Constitution to give its own meaning to the words used by it in a statute.

There can be hardly any doubt that the parliament while enacting s. 21 (2) of the Act proceeded on the basis that for llb.e purpose of that Act the trustee is holding the trust property on behalf of the beneficiaries. The mere fact that this conception does not accord with the provisions of the Trust Act does not invalidate s. 21 (!) A> seen earlier s. 21 (I) specifically takes in the trustees. It cannot i>e said and it was not said that the parliament had not specificailly brought in the trustee .under s. 21(1). What was urged by Mr. Setalvad was that though the parlia.ment intended to bring in llhe trustees within the scope of that provision, it failed to achieve its purpose because of the inartistic drafting, inasmuch as the section speaks of ilie "trustee holding the trust property on behalf of others".

It is frue thait a taxing provision must receive a strict constr11Ction at the hands of the courts and if there is any ambiguity, the benefit of that ambiguity must go to the assessee. But that is not the same thing as saying that a taxing provision should not receive ai reasonable construction. If the intention of the legislature is clear and beyond doubt then the fact that the provision could have been more ;artistically drafted cannot be a ground to treat any part of a provision a6 otiose. If the. construction contended for on behalf of lhe respondent is accepted then a part of s. 21 (I) would become otiose. So long as the intention of the legislature is cleac and beyond doubt, the court's have to carry out that intention. In our opinion the High Court did not take a proper -·iew of the decision of this Court in Holdworth's case('). Section 21(1) of the Act is analogous to s. 41(1) of the Income-tax Act, 1922.

The only difference between the two sections is diat whereas the former deals with assets, the latter deals with income. Subject to this difference, the two provisions are identically worded. Hence the decisions rendered under s. 41 (!) of the Indian Income-tax Act, 1922 have bearing on the question arising for decision in this case. In Commissioner of Income-tax Kera/a and Coimbatore v. Puthiya Ponamanichintakam Wakf,(') this Court proceeded on the baisis that the income received by a trustee came within the scope of S. 41(1) of the Income-tax Act, 1922. In Commissioner of Income-tax, Calcutta v. Koki/a Devi and Ors.,(') a similar view was taken by this Court. (1) 33 I.T.R. 472. (3) 17 J.T.R. 350. (2) 44 I.T.R. 172. l'JPRBMB COURT REPORTS [1971] SUPP.s.c.a. In The Commissioner of Income-tax, Bombay v. Mantlal Dhanji Bombay,(') this Court again proceeded· on the basis that s. 41 applied to the trustees. In Commissioner of Income-tax, Madras v. Managing Triuiees, Nagore Durgha,(') this Court was called upon to interpret the scope of s.

41(1). Therein the question was whether nattamaigars of Nagore Durgha who are considered as trustees in w born the properties of the Durgba vested would come within the scope of s. 41(!) of the Indian Income-tax Act, 1922. This Court answered tha.t question in the affirmative. Therein also it was contended that as the property is vested in the managing trustee and be received the income in his own right and not on behalf of the beneficiaries though for their benefit, the income in the bands of the managing trustee fell outside the scope of s. 4 l(l) of the Act. Repelling that contention Subba Rao J. (36 be thea was) speaking for the Court, observed : "There are two answers to this contention. The doctrine of vesting is not germane to this contention. In some of the enumerated persons in the <ection the property vests and in others it does not vest, but they only manage the property.

In general law the property does not vest in a receiver or mMlager but it vests in a trustee, but both trustees and receivers are included in section 41 of the Act. The common thread that passes through all of them is that they function legally or factually for others; they manage the property for the benefit of others. That the technical doctrine of vesting is not imported in the section is a.pparent from the fact that a trustee appointed under a trust deed is brought under the section though legally the property vests in him." In G. T. Rajalnannar v. Commissioner of Income-tax, Mysore(') while dealing with the scope of s. 41(!), the High Court of Mysore had to deal with a contention similar to the one advanced in this case. Therein also the assessee relied on the decision of this Court in Holdsworth's case(').

While rejecting the contention of the assessee the High Court held that the observations made by this Court in Holdsworth's case must be understood in the light of the provision that this Court was considering in that c~ The Court held that s. 41(1) of the Income-tax Act, 1922 is applicable to a case where income is derived from the trust property even though the trustee does not strictly speaking receive such (1) [1962] Supp. 2 S.C.R.. 902. (3) Sl I.T.R.. 339. (l) S7 I.T.R.. 321. (4) 33 I.T.R.. 472. WEALTII TAX COMMR. '· K. o. WORAH (Hegde, J.) income "on behalf of" the beneficiaries but is the legal owner of that income; the words "on behalf of" in s. 41 (!) must be construed as being equivalent to "for the benefit of" and· further in the case of a trust where the beneficiaries are indeterminate, the income must be assessed at the maximum rate in the hands of the trustee in view of the first proviso to s. 41 (!). In the course of that judgment it was observed:

"But in the present case if we do not read that expression in the manner I have indicated, then a good portion of section 41 (!) and the first proviso thereto becomes otiose. It is not proper to construe that any portion of a provision in a statute is superfluous. 1.'uch a construction should be avoided except in extreme cases. Though a.s a normal rule the courts should give to tihe words used in the statute its normal meaning, occasions do arise when it becomes necessary to give a special meaning to a word. For the reasons mentioned above, I interpret the words "on behalf of" found in section 41 (I) and the first proviso thereto as eqnivalent to "for the benefit of'. In Suhashini Karuri and anr. v. Wealth Tax Officer, Calcutta and anr.(') the High Court ol Calcutta held that the words "on behalf of' used in s. 21 (I) of the Act a.re synonymous with the expression "for the benefit of".

It further held that notwithstanding that !he trustees hold property for the benefit of beneficiaries and not on their behalf, s. 21 (I) applies to them and they are liable to wealth tax only "in the like manner and to the extent a.s it would be leviable upon and recoverable from any such beneficiary". The Calcutta High Court distinguished the decision of this Court in Holdsworth's case. The Bombay High Court in Trustees of Gordhandas Govindram Family Charity Trust, Bombay v. Commissioner of Income-tax, Central Bombay<:), disagreeing with the decision under a.ppeal and following the decision of the Calcutta High Court in Suhashini Karuri's case (supra) took the view that a trustee also came within the scope of s. 21(1) of the Act. The same view was taken by the Allahabad High Court in Chintamani GhoSh Trust v. Commissioner of Wealth Tax, U. P. We think that the view taken by the Calcutta,' Bombay and Allahabad High Courts is the correct view.

Now coming to the question whether the shares of the beneficiaries under the trust deed on the relevant valuation dates are determinate or indeterminate, we have to bear in mind the fact that on those dates the Settlor as well as his wife were alive. (tr 46 I.T.R. 953. (2) 70 I.T.R. 600. R SUPl\llMB COURT REPORTS [1971] SUPP. s.c.R. They had a right to be maintained out of the income of the trust properties. They had also a right of residence in the house, situate in that property. The two sons of the Settlor had a right to be maintained and educated. 'Phait being so, there is no doubt that on the relevant dates, the shares of the beneficiaries were indeterminate. Hence the trustee had to be assessed under s. 21 (4) as it stood at the relevant time.

In the result these a.ppeals are allowed and the answer given by the High Court is revoked and in its place we answer that question in the affirmative namely that on the facts and circum· stances of the case the trustee under the trust deed dated July 19, 1949 executed by Kirpashanker D. Woraih was assessable to wealth tax under s. 21 of the Wealth Tax Act as it stood at the relevant time. The respondent to pay costs of the department both in this Court and in the High Court-hearing fee one set. V.P.S Appeals al101Veil.