IMPORTANT POINT
Mere failure to appoint discretion exercisers does not change the character of a Trust from Discretionary to Specific Trust.

JUDGMENT

R.M. Lodha, J.:- Leave granted in the special leave petitions.

2. This is a group of 17 Appeals — 8 arising from the Income Tax Act, 1961 and 9 arising from the Wealth Tax Act, 1957. Of the 9 Wealth Tax appeals, one appeal relates to 'protective assessment' for 18 assessment years, i.e, 1970-71 to 1976-77, 1978-79 to 1979-80, 1981- 82 to 1989-90. The remaining 8 Wealth Tax appeals relate to assessment years 1970-71, 1971-72, 1972-73, 1973-74, 1974-75, 1975-76, 1976-77 and 1978-79. In so far as 8 appeals arising from the assessment orders passed under the Income Tax Act, 1961 are concerned, they relate to assessment years 1984-85, 1985-86, 1986-87, 1987-88, 198889, 1989-90, 1990-91 and 1991-92.

3. The ex-Ruler of Gondal Shri Vikramsinhji executed three deeds of settlements (trust deeds) in the United States of America on December 19, 1963 and two deeds in the United Kingdom on January 1, 1964. The three settlements executed in U.S. are in identical terms. Similarly, the two settlements executed in U.K. are similar.

4. In the course of arguments, it was conceded by the learned counsel for the Revenue that in view of the decision of this Court in Commissioner of Income Tax, Gujarat, Ahmedabad Vs. Kamalini Khatau (Smt.)[1994 (4) SCC 308], the view taken by the High Court in respect of U.S. trusts cannot be faulted and, to that extent, the Revenue accepts the judgment of the High Court.

5. Thus the dispute in these appeals – Income Tax and so also, Wealth Tax – remains about the deeds of settlements executed in U.K. The copies of the deeds of settlements executed in U.K. are on record. Perusal thereof shows that one Mr. Robert Hampton Robertson McGill was designated as the trustee, referred to in the deeds as 'the Original Trustee'. These trusts were created for the benefit of (a) the Settlor, (b) the children and remoter issue for the time being in existence of the Settlor and (c) any person for the time being in existence who is the wife or widow of the Settlor or the wife or widow or husband or widower of any of them, the children and remoter issue of the Settlor. The trust deeds define the expression “the Trustees” to mean and include the Original Trustee or the other trustees for the time being appointed in terms of the deeds of settlement.

6. Clauses 3 and 4 of the Trust Deeds are relevant. They read as under:-

“3. THE Settlor hereby directs that the Trustees shall and accordingly the Trustees shall stand possessed of the Trust Fund and the income thereof upon the trusts following that is to say :-

(1) UPON TRUST to raise and pay out of the capital thereof any further estate duty which may still be payable thereon in respect of the death of the Settlor's father His Late Highness Shri Bhojrajji Maharaja Saheb of Gondal who died on the Thirty- first day of July One thousand nine hundred and fifty-two and any interest payable on such duty and any costs incurred in connection with the ascertainment or payment of such duty and interest.

(2) Subject as aforesaid UPON TRUST for all or such one or more exclusively of the others or other of the Beneficiaries at such age or time or respective ages or times if more than one in such shares and with such trusts for their respective benefit and such provisions for their respective advancement and maintenance and education at the discretion of the Trustees or of any other person or persons as the person who for the time being is the Maharaja or (if the title is abolished) would have been the Maharaja had the title not been abolished shall at any time during the specified period by any deed or deeds revocable or irrevocable appoint AND in default of any subject to any such appointment UPON the trusts and with and subject to the powers and provisions hereinafter declared and contained concerning the same PROVIDED ALWAYS that the foregoing power of appointment shall not be capable of being exercised:-

(a) by anyone other than the Settlor or the Elder Son or the Younger Son; or

(b)