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High Court Of Calcutta
Ajit Kumar Sengupta, K. M. Yusuf
RAJA BALDEODAS BIRLA SANTATIKOSH - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 37 Of 1984
Decided On : 06/29/1990
INCOME TAX - REFERENCE - VALIDITY OF DONATION OF SHARES BY TRUSTEES OF A PRIVATE DISCRETIONARY TRUST TO A PUBLIC CHARITABLE TRUST - WHETHER CONSENT OF ALL BENEFICIARIES WAS NECESSARY - WHETHER INCOME FROM DONATED SHARES WAS INCLUDIBLE IN THE HANDS OF THE DONOR TRUST - WHETHER THE DONATION WAS VOID OR VOIDABLE.
Fact of the Case:
In 1943, a private discretionary trust was created under a deed of settlement. The trust deed gave power to the trustees to select beneficiaries to receive benefits of the trust. In 1964, the trustees of the trust donated certain shares to a public charitable trust. The question arose whether the donation was valid, whether the consent of all the beneficiaries was necessary, and whether the income from the donated shares was includible in the hands of the donor trust.
Finding of the Court:
The Calcutta Bench of the Tribunal held that the donation was not void but voidable and that the income from the donated shares was not includible in the hands of the donor trust. The Revenue challenged this order before the High Court.
Issues: 1. Whether the donation of shares by the trustees of the private discretionary trust to the public charitable trust was valid or void or voidable? 2. Whether the consent of all the beneficiaries was necessary for making the donation? 3. Whether the income from the donated shares was includible in the hands of the donor trust?
Ratio Decidendi: The High Court held that the donation was not void ab initio but was voidable at the instance of the beneficiaries affected by the donation. The court held that the consent of all the beneficiaries was not necessary for making the donation, and that the income from the donated shares was not includible in the hands of the donor trust. The court held that the donation was valid and binding on all parties, and that the income therefrom after the date of donation could not be assessed in the hands of the assessee-trust.
Final Decision: The High Court answered the questions referred to it as follows: 1. The transfer of the shares by the assessee-trust was not void but voidable. 2. The said question is answered in the negative and in favour of the assessee. 3. The said question is answered in the negative and against the assessee inasmuch as the assessee-trust has no implied power of donation of any of its assets. 4. The said question is answered in the affirmative, subject to the observation that absence of the consent of a civil court on behalf of the minor beneficiaries did not render the donation of the said shares void ab initio and in view of the finding of the Tribunal that none of the minor beneficiaries, at any time, later disputed the said donation but acquiesced in the said donation, the absence of consent of a civil court is immaterial so far as the validity of the said donation is concerned. 5. The said question is answered by holding that although the trustees of the assessee-trust had the power and discretion to choose or exclude a particular beneficiary or a class of beneficiaries, there is no evidence on record that, in fact, they have done so. The question is, therefore, answered against the assessee.
( 1 ) BY these references under the Income-tax Act, 1961 (in short referred to as "the Act"), at the instance of both the Commissioner of Income-tax and the assessee arising out of a common order of the Calcutta Bench of the Income-tax Appellate Tribunal for the assessment years 1971-72, 1972-73, 1973-74 and 1974-75, the following questions of law have been referred for the decision of this court: (A) Income-tax Reference No. 313 of 1980--at the instance of the Commissioner of Income-tax under Section 256 (1) of the Act:" (1) Whether, on the facts and in the circumstances of the case and on a proper construction of the deed of settlement dated May 20, 1943, the transfer of the aforesaid shares by the trustees of Raja Baldeodas Birla Santatikosh is valid or void or voidable ? (2) Whether, on the facts and in the circumstances of the case, even assuming that the transfer of the shares was void, the income from the said shares and accretions which were in fact not received by the assessee but by the Birla Jankalyan Trust was assessable in its hands ?" (B) Income-tax Reference No. 313 of 1980--at the instance of the assessee--under Section 256 (1) of the Act :" (1) Whether, on the facts and in the circumstances of the case and on a proper construction of the deed of settlement dated May 20, 1943, the trustees of Raja Baldeodas Birla Santatikosh could make a donation of 3,75,000 ordinary shares in Jiyajeerao Cotton Mills Ltd. and other shares on March 30, 1964, to Birla Jankalyan Trust, a public charitable trust, for its objects ? (2) Whether, on the facts and in the circumstances of the case and on a proper interpretation of the deed of settlement dated May 20, 1943, the Tribunal was right in holding that the consent of minor beneficiaries and/or competent civil court on their behalf was necessary for making a donation of the shares in Jiyajeerao Cotton Mills Ltd. and other shares to the trustees of Birla Jankalyan Trust ? (3) Whether, on the facts and in the circumstances of the case and on a proper interpretation of the deed of trust dated May 20, 1943, and the provisions of the Indian Trusts Act, 1882, the Tribunal was right in holding that the trustees could not exercise their discretion to choose or exclude a particular beneficiary or class of beneficiaries and to dispose of the trust fund in accordance with the directions of the beneficiaries chosen ?" (C) Income-tax Reference No. 37 of 1984--at the instance of the assessee--under Section 256 (2) of the Act:"whether, on the facts and in the circumstances of the case, the finding of the Tribunal that Ujjain General Trading Society Ltd. did not give the shares of Jiyajeerao Cotton Mills Ltd. to the trustees of Raja Baldeodas Birla Santatikosh for useful objects and that there was no trust within trust is vitiated in law having been arrived at without any material and/or evidence and/or by ignoring relevant materials ?"
( 2 ) IN all these references, the assessee is a private discretionary trust constituted under a deed of settlement dated May 20, 1943, and named "raja Baldeodas Birla Santatikosh" (hereinafter referred to as the "asses-see-trust" ).
( 3 ) QUESTION No. 1 raised by the Commissioner of Income-tax and the questions raised by the assessee-trust substantially involve the same issue, that is to say, the validity of donation of certain shares made by the trustees of the assessee-trust on March 30, 1964, to Birla Jankalyan Trust (hereinafter referred to as the "donee-trust" ). Question No. 2 raised by the Commissioner of Income-tax involves the issue of assessability of the income and accretions arising out of the said donated shares in the hands of the assessee-trust after the date of donation.
( 4 ) THE facts relevant for the disposal of these references are shortly as under : by a deed of settlement dated May 20, 1943, Seth Jugal Kishore Birla settled on trust Rs. 10,000 and certain shares to have and hold the same and income and accretions th
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