Judgment:
1. The Tribunal, Allahabad has referred the following question of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding the assessee trust to be a valid one in spite of the fact that the trust, deed did not provide for the eventuality of both the minor beneficiaries expiring before attaining majority ?'
2. The reference relates to the asst. yr. 1983-84.
3. Briefly stated the facts giving rise to the present reference are as follows :
The respondent is a trust which had filed its return of income for the first time for the asst. yr. 1983-84 on 20th Jan., 1986 declaring total income of Rs. 9,105. The return was filed in the status of AOP. The trust was created in the form of a letter dt. 29th March, 1978 which was written by Km. Ranjana Mehra to M/s Mehra Hosiery Factory Sales, Lucknow, whereby a sum of Rs. 8,900 was settled in trust in favour of two minor girls as beneficiaries. In the first paragraph of the letter, it was stated that on both the minor attaining majority, the trustees should have a right to dissolve the trust. It was also stipulated that, in the event of one of the minor beneficiaries expiring before attaining majority, the other should become the sole beneficiary. However, the trust document was silent on the point as to what will happen in the event of both the minors expiring before attaining majority. The ITO had held that the trust was invalid because the trust deed did not provide for the eventuality of both the minor beneficiaries expiring before attaining majority. He also noted that the provisions of Section 15 of the Hindu Succession Act would come into play only when the minors attained majority and became absolute owners of the property. Considering all these facts, the ITO had held that the entire income should be assessed in the hands of the settlor and as the settlor was reported to have already expired, in the hands of legal heirs. However, as the trust had offered the income for taxation, the assessment in that case was completed on a protective basis on the same income as disclosed in the return adopting the same status as shown by the respondent. Feeling aggrieved, the respondent preferred an appeal before the AAC, who had rejected the appeal. He had agreed with the findings given by the ITO. Still feeling aggrieved, the respondent preferred second appeal before the Tribunal. The Tribunal has held that it cannot be said that the trust was invalid for uncertainty because the letter dt. 29th March, 1978 clearly stipulates that both the beneficiaries were to enjoy income equally. The Tribunal has further held that the status of AOP could not be adopted in the case and the income should be taxed in the hands of the beneficiaries.
4. We have heard Sri Shambhoo Chopra, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent-assessee.
5. The learned standing counsel submitted that as the trust deed did not provide for the eventuality of both the minor girls if they die before attaining majority, the trust was invalid. He further submitted that as the trust was invalid the AO has rightly assessed the entire income at the hands of the settlor. In support of his contention, he has relied upon the following decisions :
1. Chiranjilal Shtilal and Ors. v. CIT : [1991]191ITR384(Bom)
2. CIT v. Atreya Trust : [1992]193ITR716(Cal)
3. Dr. D.E. Anklesharia v. CIT : [1994]207ITR1068(Guj)
4. CIT v. Trustee of Keshav Mohta Family Trust : [1998]232ITR875(Cal)
6. He has also referred to the Explanation to Sub-section (3) of Section 164 of the Act and submitted that as the eventuality in case the two minor girls die before attaining majority had not been provided in this deed, it leads to only one conclusion that the trust is not a valid trust and the entire income was liable to tax at the hands of the settlor.
7. After giving anxious consideration to the various submissions made by the learned standing counsel, we find that it is not the case that the beneficiary in the trust deed have not been named. In the event one of the beneficiaries dies before attaining the majority the other minor girl who is the beneficiary would become the sole beneficiary and absolute owner of the property on attaining of majority. So far as the question of taking care of eventuality in case both the minor girls expire before attaining the majority is concerned, that would not render the trust invalid inasmuch as Section 77 of the Indian Trusts Act, 1882 takes care of the said situation. For the ready reference provisions of Section 77 of the Indian Trust Act is reproduced below :
'77. Trust how extinguished.--A trust is extinguished--
(a) when its purpose is completely fulfilled; or
(b) when its purpose becomes unlawful; or
(c) when the fulfilment of its purpose becomes impossible by destruction of the trust-property or otherwise; or
(d) when the trust being revocable, is expressly revoked.'
8. From a perusal of the aforesaid provision, it is seen that under Clause (c) of Section 77 of the Indian Trust Act, 1882, when the fulfilment of the purpose of the trust becomes impossible either by destruction of the trust property or otherwise the trust stands extinguished and the trust property would revert back to the settlor, unless a contrary intention has been expressed in the deed. The word 'otherwise' mentioned in Clause (c) of the aforesaid Act is wide enough to cover the situation where the beneficiaries do not survive before they become the absolute owners under the deed.
9. The respondent is not a public trust and if none of the beneficiaries survives before attaining majority, the property or corpus of the trust would revert back to the settlor or the heirs and legal representative of the settlor in case the settlor is not alive by that time. Thus, the trust cannot be said to be invalid merely because the settlor has not taken care of the eventuality of both the beneficiaries dying before attaining majority. The decisions relied upon by the learned standing counsel are not on the point in issue as they relate to taxability of interest of beneficiaries if the shares are indeterminate which is not the case in hand. Likewise reliance placed on the Explanation to Sub-section (3) of Section 164 of the Act is also misplaced.
10. Thus, in view of the foregoing discussions, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.