1. Trust created via deed where funds were transferred on behalf of minors; dispute over trust validity and assessment under Section 161, Income Tax Act. (Para 1 , 2 , 3 )
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1999 Supreme(SC) 254
1999(2) Supreme 333
Supreme Court of India
(From Kerala High Court)
S.P. Bharucha, M.B. Shah and N. Santosh Hegde, JJ.
T.A.V. Trust Alleppey etc. -Appellants
versus
The Commissioner of Income Tax, Kerala -Respondent
Civil Appeal Nos. 5958-61 of 1994
With
Civil Appeal Nos. 5947/94, 5954-57/94
Decided on 25-2-1999
Counsel for the Parties :
For the Appellants : S. Narayana Rao, S. Prasad, Advocates.
For the Respondent : V. Gaurishanker, Sr. Advocate, Ms. Neera Gupta, B.K. Prasad, Advocates.
Important Point
Where contributions to trust were made on behalf of minors as nominees but trust was not created with the permission of a principal civil court of original jurisdiction, by or on behalf of a minor, the trust is not valid since the terms of Section 7 of the Trust Act are violated.
Headnote:Income-tax Act, 1961-Sections 160(iv) and 161 read with Section 7 of Trust Act-Trust-Validity of-Trust deed says donations had been made as nominees of minors and contributions made on behalf of minors-Authors and beneficiaries are same persons-Trust not created with permission of principal civil court of original jurisdiction-Section 7 of Trust Act violated-Trust not valid.
Held : The High Court was entirely right in concluding that the validity of the trust had to be determined in the light of what was stated in the trust deed, namely, that the donations had been made by or on behalf of the minors, and that no reference to letters and documents not referred to in the trust deed to arrive at a contrary conclusion was justified. (Para 8)
It will be noted from what has been quoted above that the trust deed speaks of Mary Varghese having “on behalf of her minor daughters.......transferred and assigned to the trustees upon trust the sums...” Again, it recites in four separate clauses that the donations had been made as “nominees” of the minors. It then recites that “all such transfers as aforesaid were made to the trustees as nominees of the respective beneficiaries”. In its operative part, it speaks of the trustees having accepted the trust and acknowledged the receipt of Rs. 3 lacs “from each of the beneficiaries as under”. This is not a case where some word in a document has been torn out of context. All through the trust deed it is stated that the donations have been made for and on behalf of the minors, expressly and by use of the word “nominee”. That is the tenor of the trust deed read as a whole. There is no doubt whatsoever that, therefore, the terms of Section 7 of the Trust Act are violated. The trust was not created “with the permission of a principal civil court of original jurisdiction, by or on behalf of a minor”. The trust is therefore, not valid. (Para 12)
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Table of Contents
2. Assessee argued the Tribunal's factual findings should prevail and the High Court misinterpreted the term nominee by ignoring external evidence. (Para 6 )
3. Validity of a trust is a question of law determined by the deed's terms; external documents cannot contradict the deed's express terms. (Para 7 , 8 , 10 , 12 )
4. A trust created by or on behalf of a minor without prior sanction of a principal civil court of original jurisdiction is invalid under Section 7, Trust Act. (Para 5 , 12 )
5. Appeals dismissed; trust held invalid. (Para 13 )
6. What is the requirement for a valid trust created by or on behalf of a minor?
Under Section 7 of the Trust Act, a trust created by or on behalf of a minor is only valid if it is created with the permission of a principal civil court of original jurisdiction. (Para 5 , 12 )
7. Can external documents be used to contradict the express terms of a trust deed regarding the identity of the trust creators?
No, the validity of a trust must be determined in light of what is stated in the trust deed; external letters or documents cannot be used to reach a conclusion contrary to the deed's terms. (Para 8 , 10 )
8. Is the determination of whether a valid trust came into existence considered a question of fact or law?
The determination of whether a valid trust has come into existence is a question of law. (Para 7 )
Judgment
Bharucha, J.-These appeals are directed against the judgment and order of a Division Bench of the High Court of Kerala. The High Court answered in the negative and in favour of the Revenue the following question:
“Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that a valid trust came into existence in pursuance of the document dated 17.8.1971 and whether the Tribunal was justified in holding that the assessment for the years 1973-74 and 1974-75 on the trustees had to be made in accordance with the provisions of Section 161 of the Income Tax Act 1961?”
The question aforementioned relates to the Assessment Years 1973-74 and 1974-75. (Similar question for subsequent years were answered similarly and are the subject matter of the connected appeals).
2. The facts, briefly stated, are that a trust deed was executed on 17th August, 1971. It records this :
“.......And whereas the beneficiaries, viz., Mary Varghese on behalf of her minor daughters Laizamma Varghese and Rasalin Varghese...... has transferred and assigned to the trustees upon trust the sums referred to in clause 17 against their respective names...... Whereas T.J. Joseph and his mother-in-law have transferred and assigned to the trustees upon trust the sum of Rs. 50,000/- (Rupees fifty thousand only) as nominees of minor T.A. Joseph......... Whereas P.J. Joseph had his brothers have transferred and assigned to the trustees upon trust the sum of Rs. 25,000/- (Rupees twenty five thousand only) as nominees of T.S. Varghese........ Whereas Mary Varghese has transferred and assigned to the trustees upon trust the sums of Rs. 29,000/- (Rupees twenty nine thousand only) and Rs. 21,000/- (Rupees twenty one thousand only) respectively as nominees of minors T.S. Varghese and Daisy..... Whereas Mrs. Ammini Abraham has transferred and assigned to the trustees upon trust the sum of Rs. 54,000/- (Rupees fifty four thousand only) and Rs. 3,000/- (Rupees three thousand only) respectively as nominees of minors T.S. Laly and T.S. Daisy...... Whereas all such transfers as aforesaid were made to the Trustees as nominees of the respective beneficiaries and it was agreed prior to the date of such transfers that the trustees should execute such declarations of trust.”
3. The body of the trust deed states, “The trustees hereby accept this trust and acknowledge the receipt of Rs. 3 lacs received from each of the benficiaries as under which they shall hold for and on behalf of the Trust :
1. Mary Varghese Rs. 6,000/-
2. Laisamma Varghese Rs. 33,000/-
3. Rosalin Varghese Rs. 33,000/-
4. Thankamma Baby Rs. 6,000/-
5. Daisy Scaria Rs. 54,000/-
6. Laly Scaria Rs. 54,000/-
7. Davis alias T.S. Varghese Rs. 54,000/-
8. Ammini Abraham Rs. 6,000/-
9. T.A. George Rs. 54,000/-
Total Rs. 3,00,000/-
(Emphasis supplied)
4. The Income Tax Officer rejected the claim that the assessee should be assessed as a representative assessee within the meaning of Section 161(1) of the Income Tax Act because he found that the trust created by the trust deed was invalid. (Similar assessments were made for subsequent years). The Appellate Assistant Commissioner, allowed the assessee’s appeal and his order was confirmed by the Income Tax Appellate Tribunal. The Tribunal referred to letters and other doucments not mentioned in the Trust Deed to reach the conclusion that the donations to the trust had not been made by minors.
5. From out of the order of the Tribunal, the question aforementioned was referred to the High Court. The High Court, relying upon the provisions of the trust deed which we have quoted, concluded that all contributions to the trust were made by or on behalf
