1. These six appeals filed by the assessee are directed against the orders of the CIT(A) for asst. yrs. 1984-85 to 1989-90.
2. Since issues involved are common, these appeals have been heard together and are being disposed of by a consolidated order for the sake of convenience. The common issue involved in these appeals for the six assessment years is regarding the inclusion of income from the two UK trusts. For asst. yr. 1987-88, the issue relating to income from the three USA trusts along with income from the UK trusts as above has also been raised by the assessee.
3. Shri K.C. Patel, the learned counsel for the assessee, submitted two paper books during the course of hearing. Paper book No. 1 is running into 288 pages containing, inter alia, copies of the settlement deeds of the five foreign trusts as well as orders of the Settlement Commission. Paper book No. n comprising 14 pages include inter alia, statements of income for the assessment years under appeal enclosed by the assessee along with the returns of income for such years.
4. The relevant facts may be briefly set out at the outset, Late Shri Vikramsinhji, the ex-ruler of erstwhile Princely State of Gondal in Saurashtra, father of the assessee, created the following trusts in USA and UK during the accounting period 1963-64 relevant to the asst. yr.
1964-65 : The three settlements executed in the United States are on identical terms. Similarly, the two settlements executed in the UK are similar.
Both the sets of settlements are meant for the benefit of the settlor and the members of his family. The settlor died on 22nd June, 1969. He was being assessed in the status of an 'individual' from the asst. yr, 1959-60 onwards. His son Shri Jyotindrasinhji, the assessee, filed settlement petitions before the Hon'ble Settlement Commission under the IT Act and also WT Act regarding the taxability of the income and assets of the aforesaid trusts for the asst. yrs. 1964-65 to 1970-71 in the hands of the settlor. Separate petitions were filed by the assessee regarding the taxability of the income of the assets of the aforesaid trusts for asst. yrs. 1970-71 to 1982-83. The Settlement Commission has decided the matter under the IT Act and returned the petition under the WT Act to the Department for appropriate action since the assessee did not cooperate with the Government valuer for valuation of the immovable properties. The Settlement Commission, has held that the US settlements are in the nature of discretionary trusts and they fall within the mischief of Section 63(a)(ii) of the IT Act, . 1961. For this reason, the whole of the income arising from the US trusts was liable to be included in the income of the settlor. According to the Settlement Commission, since the entire income from the US trusts has been received by the assessee after the death of the father, it constitutes his income and is liable to be assessed in his hands. So far as the UK trusts are concerned, the Settlement Commission held that these two trusts are specific trusts in view of operation of Clause 4 whereunder the entire income under the UK settlements flowed to the settlor during his lifetime and on his death, to his elder son, the assessee before us. The Settlement Commission further held that the entire income from the UK trusts was received by the settlor during his lifetime and after the settlor's death, by the assessee and, therefore, on this basis also, the said income is liable to be included in the total income of the settlor and after his death, the assessee before us.
5. On the above basis, the Settlement Commission computed the taxable income of the settlor under both the sets of trusts for the asst. yrs, 1964-65 to 1970-71 (upto the date of death of the settlor) as also the income of the assesses, his son, for the asst. yrs. 1970-71 to 1982-83.
The assessee then preferred separate appeals before the Hon'ble Supreme Court against the two orders of the Settlement Commission. The Hon'ble Supreme Court in its judgment in Jyotindrasinhji v. S.I. Tripathi (1993) 201 ITR 611 (SC) has upheld the order of the Settlement Commission.
6. Insofar as the three settlements executed in the US are concerned, the Hon'ble Supreme Court has held that the US trusts are revocable trusts and income from these trusts has been rightly included in the income of the settlor by virtue of Section 61 r/w Section 63 of the IT Act, 1961.
7. Regarding the two settlements executed in the UK the Hon'ble Supreme Court upheld the inclusion of the trusts income in the hands of the settlor on the ground that the settlor has himself admitted in the returns that the income belongs to him. So, with regard to the interpretation of the various clauses of the UK settlement, the Hon'ble Supreme Court has duly taken note of the reasoning and finding of the UK settlements, However, the Hon'ble Supreme Court, while approving the order of the Settlement Commission, has recorded no express finding regarding the interpretation of these two settlements.
8. In the backdrop of the aforesaid facts, we may now consider the issue of inclusion of the income from UK trusts for asst. yrs. 1984-85 to 1989-90 and income from US trusts for asst. yr. 1987-88 in the hands of the assessee. With a view to appreciate the controversy, we may refer to the relevant clauses in the two settlements executed in the UK in the first instance. Under these settlement deeds, one Mr. Robert Hampton Robertson McGill was designated as the trustee, referred to in the deeds as "the original trustees", These trusts were created for the benefit of the settlor, the members of his family and their descendants, referred to as "beneficiaries". The 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. The expression "the beneficiaries" was defined to mean and include (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 clauses which are relevant for our purposes read thus: (We have, for the sake of convenient reference numbered them as Clauses 3 and 4).
"3. The settlor hereby directs that the trustee shall and accordingly, the trustee 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 end 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 more and more exclusively of the others or other of the beneficiaries at such age or time of 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 appoint and in default of and 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) in favour of the person making the appointment save with the consent of the trustees (being at least two in number or a trust corporation) such consent to be testified by their being parties to the deed of appointment and executing the same....
4. Subject as aforesaid the trustees shall stand possessed of the trust fund and the income thereof upon the trusts following that is to say: (1) The income of the trust fund accruing during the life of the settlor shall belong and be paid to the settlor, (2) Subject as aforesaid the income of the trust fund accruing the life of the elder son shall belong and be paid to the elder son:....
(3) Subject as aforesaid the trust fund shall be held in trust for the person who (being a descendant of the elder son) first during the specified period: (a) becomes the Maharaja or would become the Maharaja if his title had not been abolished; and It is not necessary to notice the other provisions/clauses of these deeds. During his lifetime, the settlor, Vikramsinhji, was including the whole of the income from these trusts in his returns of income just as he was doing in the case of the US trusts. The said income was also included in the two returns filed by his son (who is the assessee before us) for the asst. yr. 1970-71, However, the assessee took the stand before the Settlement Commission that the income from these trusts is not includible in his income and inclusion of such income in the returns submitted by his father for the asst. yrs. 1964-65 to 1969-70 and by him in the return relating to the asst. yr. 1970-71 was under a mistake. We have already indicated above that the Settlement Commission rejected the contentions of the assessee and held that in view of the default on the part of the settlor and thereafter by his son, the assessee, in appointing discretion exercisers who could exercise the discretion of disposing of the trust income, Clause 4 had come into operation and the income of the UK trusts accrued to the settlor during his lifetime and to his elder son, the assessee, after his death.
9. Shri K.C. Patel, the learned counsel for the assessee, argued that the interpretation of Clauses 3 and 4 of the settlement deeds by the Settlement Commission is entirely misconceived. Shri Patel argued that Clause 3 could come into operation only if and when the settlor appointed the additional trustees as contemplated by it. According to Shri Patel, the trust had come into existence with the sole trustee (Mr. McGill) and it did not depend upon the appointment of additional trustees by the Maharaja. He further added that Clause 3 prevails over Clause 4 and UK trusts, like US trusts are also discretionary trusts and not specific trusts as held by the Settlement Commission. According to Shri Patel, no income was received by the settlor or the assessee either in the UK or in India. So long as the trustees decided not to exercise the discretion to distribute the income, no income arose to any of the beneficiaries.
10. Regarding the orders of the Settlement Commission as well as the Hon'ble Supreme Court upholding the income from the UK trusts in the hands of his father as well as in his own case, the learned counsel argued that the said decisions are not binding for the assessment years under appeal before us. Shri Patel submitted that the crucial distinguishing feature of the present appeals before us is that the assessee has not included the income from the UK trusts in his returns of income for the asst. yrs. 1984-85 to 1989-90 under reference whereas in the cases before the Settlement Commission, such income has been included by late Shri Vikramsinhji, father of the assessee as well as by the assessee himself in the returns filed before the Department.
According to Shri Patel, since the income had been included by the assessee himself in the returns, the Settlement Commission as well as the Hon'ble Supreme Court reached the conclusion that such income belongs to the assessee and is liable to be included in his case. The learned counsel very vehemently argued that since the facts are different for the assessment years involved in the present batch of appeals, the decision of the Hon'ble Supreme Court would not apply.
11. Shri Vimal Sah, the learned Sr. Departmental Representative, on the other hand, placed heavy reliance on the decision of the Settlement Commission in the case of the assessee as well as his father which has been upheld by the Hon'ble Supreme Court and argued that the interpretation of Clauses 3 and 4 of the UK trusts made by the Settlement Commission has been impliedly upheld by the Hon'ble Supreme Court while upholding its finding in the judgment of Jyotindrasinhji's case (supra). The learned Departmental Representative argued that inclusion of income from the two UK trusts in the hands of the assessee is directly supported by the decision of the Hon'ble Supreme Court in assessee's own case and there is absolutely no justification for the Tribunal to take a view contrary to the decision of the Hon'ble Supreme Court in assessee's own case, Regarding the distinction sought to be drawn by the learned counsel on facts, the learned Departmental Representative vehemently emphasised that the facts are identical and the income has accrued to the assessee from the same set of trusts as involved in the earlier years. The learned Departmental Representative pointed out that any contrary decision would be violative of constitutional imperative as well as judicial discipline and propriety.
12. We have considered the rival submissions and also gone through the orders of the Settlement Commission placed in the paper book filed by the learned counsel. The orders of the Settlement Commission in the case of the assessee for asst. yrs. 1970-71 to 1982-83 for bringing to tax the income from the US trusts in his assessment have been upheld by the Hon'ble Supreme Court vide its decision in Jyotindrasinhji's case (supra). Since the facts and circumstances of the case as prevailing for the asst, yrs. 1984-85 to 1989-90 involved in the present appeals before us are substantially similar to the earlier assessment years, we see no reason whatsoever to take a contrary view which is not in conformity with the conclusions of the Hon'ble Supreme Court and Settlement Commission for the earlier assessment years. A distinction on facts sought to be drawn by the learned counsel is patently erroneous as we shall presently see. The facts as they emerge from the order of the Settlement Commission dt. 31st March, 1989, in the case of the assessee for asst. yrs. 1970-71 to 1982-83, placed in paper book at pp. 238 to 267 are that the assessee declared the income from UK settlements upto the asst. yr. 1973-74. For some of the years, the statement of account of UK trusts were not available at the time of filing the original return and the assessee, therefore, subsequently filed revised statement of income for such years. While submitting the revised return for asst, yr. 1970-71, the counsel of the assessee filed a letter dt. 20th Feb., 1974, stating as under : "At the time of filing the original return, our above client did not know whether any income falls in. his hand out of India, consequent to the death of late H.H. Vikramsinhji of Gondal in August, 1969. We have, therefore, sent a letter dt. 23rd Aug., 1971, stating this fact and further stating that if the assessee will come to know if any income falls in his hands he will inform accordingly. At the time of assessment the information was not available and hence in the assessment order this income was not taxed.
The figures of income in UK are now available and accordingly we are filing amended return showing the income in U.K. falling in the hands of H.H. Jyotindrasinhji of Gondal consequent to the death of late H.H. Vikramsinhji of Gondal. We have to request your honour to kindly accept the return and assessment be made accordingly.
As regards the income in USA is concerned according to information presently available no income is falling in the hands of the assessee. The trusts were created by late H.H. Vikramsinhji of Gondal in America and they were discretionary trusts. Thus, we are not showing any income of USA. The matter was still not finalised there and hence according to present position, as no information is received, the income is not shown." The same position is obtained upto asst. yr. 1973-74. For asst. yr.
1974-75, the assessee declared the income from UK settlements separately with the following note appended to the return.
"Late Shri H.H. Maharaja Vikramsinhji of Gondal has created the trusts in UK and USA. According to our opinion, UK and USA both trusts are discretionary and no income falls in the hands of beneficiary. UK income is however shown subject to our right for going in appeal as the AAC has decided against us. The income in USA is not shown as the same is held discretionary." 13. A similar note was appended to the return for asst. yr. 1975-76.
From asst. yr. 1976-77 onwards the assessee did not declare the income from UK settlements in the return claiming it to be exempt on the ground that the settlements were discretionary. From the aforesaid facts, it is amply clear that for asst. yrs. 1976-77 to 1982-83 involved in the petition before the Settlement Commission, the assessee had not declared the income from UK settlements in his returns of income. For the immediately preceding asst. yrs. 1974-75 and 1975-76 even though the income was shown separately, the assessee appended a note claiming that the income from UK settlements was exempt. From these facts, it is clearly established that the contention of the assessee that income from the UK trusts has been held assessable in the hands of the assessee by the Settlement Commission as well as the Hon'ble Supreme Court mainly on the ground that such income was declared by the assessee himself in his returns is factually incorrect.
14. Now, let us turn to the statements of income filed by the assessee with the returns for the asst. yrs. 1984-85 to 1989-90 which are the subject-matter of the present appeals before us. Such statements of income are available at pp. 3 to 12 of the paper book No. II filed by the learned counsel. Statement of income for asst. yr. 1984-85, appearing at p. 3 of the paper book shows that the following note has been enclosed with the return : "Notes : (1) The remittance received from the trusts is not included as according to the assessee's opinion the trust being discretionary trust the receipt from trust is not income.
(2) The return is subject to our filing petition before the Settlement Commission." Similar note has been enclosed for asst. yr. 1986-87 indicating in addition income in UK trusts 1,04,473 income in US trusts $1,08,617.
For asst. yr. 1987-88 income computation of Indian income shown loss of Rs. 82,864. The assessee has, however, claimed deductions under Section 80L, etc. along with details of foreign income 'A' and 'B' UK settlements subject to Supreme Court decision 1,20,590 and USA trusts $82,476. For asst. yrs. 1988-89 and 1989-90, the assessee has similarly claimed deduction under Section 80L, etc. even though the Indian income has been shown as loss figure. At p. 12 of the paper book Note 2 forming part of the return is relevant for our purposes which reads as under : "(2) According to the order received from Settlement Commission UK settlement is considered non-discretionary. The income of the trust is to be added. However, as the accounts are not received from UK as such no income is shown." From the aforesaid facts, it would be seen that while filing the returns for assessment years under reference i.e., 1984-85 to 1989-90, the assessee has proceeded on the basis of the admitted position that the assessability of income from UK trusts would be governed by the Hon'ble Supreme Court decision or by the decision of the Settlement Commission obviously because facts and issues are identical in all these years. For these reasons, we are inclined to respectfully follow the findings of the Hon'ble Supreme Court as well as the Settlement Commission in the assessee's own case for the earlier years and hold that income from UK trusts has been rightly held as assessable in the hands of the assesses for the assessment years under appeal before us.
15. We may point out that the Hon'ble Supreme Court has not specifically endorsed the finding of the Settlement Commission that the two UK trusts are specific trusts. The Hon'ble Supreme Court observed that since the income from UK trusts has been received by the settlor and after his death by his son, the assessee, such income is liable to be included under Section 5 of the IT Act, 1961. Since the issue regarding the nature of the UK trusts whether specific or discretionary has been vehemently argued before us by the learned representatives of both sides, we consider it necessary to deal with the same. Clauses 3 and 4 of the UK settlements, extracted by us hereinbefore are of crucial relevance for determination of the issue regarding the nature of the UK trusts : "The Clause 3 settles the trust income and property upon two successive trusts. The first trust in the Settlement 'B' is to pay the premiums in respect of certain specified insurance policies. The second trust is for such beneficiaries, in such shares, etc. at the discretion of the trustees or of any other person or persons as the Maharaja shall at any time during the specified period appoint. It also mentions that in default of and subject to any such appointment, the trust income and property will be settled upon the trusts thereafter declared. The Clause 4 which comes thereafter states that 'subject as aforesaid' the trust fund and its income will be held upon the following trusts and then follows an order of succession in which the income of the trust fund and the trust fund itself shall be held upon trust. First of all the income of the trust fund accruing during the life of the settlor shall belong and be paid to the settlor and subject to this the income of the trust fund accruing during the life of the Maharaja's elder son, namely, Shri Jyotindrasinhji, shall belong and be paid to him, and so on." The Settlement Commission had analysed these crucial clauses vide paras 11.1 to 18.12 of its order dt. 31st March, 1989, in the case of late Shri Vikramsinhji. According to the Settlement Commission, Clause 3(2) gives the power of appointment of discretion exercisers to the Maharaja. As mentioned in the clauses, this appointment has to be "by any deed or deeds revocable or irrevocable". This discretion exercisers would have the discretion of selection of beneficiaries, their shares and conditions of making any grants to them. Now, it is an admitted position that neither the settlor Shri Vikramsinhji nor his son Shri Jyotindrasinhji who is the assessee before us, ever passed any order of appointment in writing in favour of the trustees. For default in the appointment of discretion exercisers, as provided in Clause 3(2) above, Clause 4 clearly comes into operation and the income of the trust would accrue to the settlor and after his death to his elder son. The interpretation placed by the Settlement Commission is, in our opinion, fully in consonance with the language used in the aforesaid clauses of the UK settlements. The learned counsel for the assessee has put forward the argument before us that no formal time-limit has been prescribed for appointment of discretion exercisers and, therefore, it cannot be said that the Maharaja i.e., the settlor or his elder son, the assessee, has committed any default. According to the learned counsel, there can be hundred and one reasons for the delay in the appointment of discretion exercisers inasmuch as the matter involves collection of considerable facts and material and detailed correspondence with the trustees as well as the Maharaja. We are not persuaded to accept the contention of the learned counsel. The UK settlements have been executed in January, 1964 and even after a lapse of about 38 years, no such appointment appears to have been made. There is not even an iota of evidence of any correspondence exchanged on the point between the trustees and the beneficiaries. There is nothing on record to show that the trustees have been engaged in any steps to ascertain any facts in this connection. To a specific query made by the Bench, the learned counsel expressed his inability to enlighten the Bench on the issue. The total inaction on the part of the Maharaja and the trustees in the matter of implementing the provisions of Clause (3) of the settlements, reproduced as above eloquently manifests the true intention of the settlor to treat the trust income and trust funds as his own. The settlor Shri Vikramsinhji had two sons, two daughters and several other members in his family who were all beneficiaries of the trust in question. If the trusts were really intended to be discretionary, the trustees had a duty cast on them to ascertain the relative needs and personal circumstances of all the beneficiaries and to allocate the income of the trusts among them from time to time according to the objects of the trusts. However, the tell-tale facts as indicated above bring out the intention of the settlor to treat the trust property as his own. The settlor and after his death his son, have been showing the income of foreign trusts in the returns of income filed from time to time. Had the trust deeds been really understood by the trustees and the beneficiaries as discretionary by virtue of the operation of Clause 3, one would have expected the state of affairs to have been different, In our considered view, the true intention of the settlor, as reflected in his subsequent conduct in treating the trust property as his own is clearly in conformity with the normal family traditions of princely families whereby trust property and income therefrom were to be treated as belonging to the Maharaja with the beneficiary and the family members not entitled to any share therein.
Apart from the aforesaid facts, it deserves to be noted that the method and manner of maintaining records and accounts separately in respect of capital of the trust funds as well as income thereof further bring out the fact that the trustees were well aware about the requirements of Clause 4. The Settlement Commission has referred to these facts and pointed out that the assessee filed income appropriation account for the year ending 31st March, 1971, which separately indicated income and capital of the settlor Shri Vikramsinhji as well as his son Shri Jyotindrasinhji. The account reproduced at p. 66 of the order of the Settlement Commission in the case of late Shri Vikramsinhji clearly indicated that Clause 4 of the settlement deeds operated and income from UK trusts belonged to the settlor and after his death the income belonged to his elder son Shri Jyotindrasinhji, the assessee. Having regard to the aforesaid discussion, we are inclined to hold that due to failure on the part of the Maharaja to appoint discretion exercisers, as per Clause 3(2), Clause 4 has become operative and the UK trusts are, therefore, specific trusts. Accordingly, we respectfully concur with the express findings reached by the Hon'ble Settlement Commission regarding UK trusts being the specific trusts. The income from these trusts is, therefore, assessable in the hands of the assessee for the asst. yrs. 1984-85 to 1989-90 under appeal.
16. Even on the alternative ground regarding applicability of Section 166 of the IT Act, upheld by the Hon'ble Supreme Court in the aforementioned judgment rendered in the assessee's own case, we feel that the assessee is bound to fail. In the said decision, the Hon'ble Supreme Court referred to the provisions of Section 166 and held that the clear language of the section gave it an overriding effect over the preceding provisions in the Chapter-XV. According to the Hon'ble Supreme Court, that section states in unmistakable terms that nothing contained in the preceding provisions in the Chapter shall preclude the Revenue from making a direct assessment upon the beneficiary and/or from determining the tax payable from such persons. The Revenue has thus been given option to tax the income from a discretionary trust either in the hands of the trustees or in the hands of the beneficiaries. The Hon'ble Supreme Court referred to its earlier decision in C.R. Nagappa v. CIT (1969) 73 ITR 626 (SC) and dissented from the Full Bench decision of the Hon'ble Gujarat High Court in CIT v. Smt. Kamalini Khatau (1978) 112 ITR 652 (Gu])(FB) wherein a contrary view has been taken. Thus, even if UK settlements are to be treated as discretionary trusts as claimed by the assessee, income from such trusts flowing to the assessee, on the basis of the Hon'ble Supreme Court decision, would be liable to be assessed in his hands. In fact, the Hon'ble Supreme Court held that since the income from foreign trusts is assessable in the hands of the assessee by virtue of Section 166, the issue whether such trusts are of the nature of the specific trusts is academic. For the aforesaid reasons, we hold that income from UK trusts has been rightly assessed in the hands of the assessee for the asst. yrs. 1984-85 to 1989-90 under appeal.
17. The only issue which remains to be considered is the taxability of income from the three USA trusts for asst. yr. 1987-88. Since the AO has not included the income from USA trusts for the other assessment years involved in the present appeals before us, no such question has been raised for those assessment years.
18. The AO has assessed the income from the three USA trusts for asst.
yr. 1989-90 on the ground that the same has been shown by the assessee in the enclosure to the return of income at p. 8 of the paper book No.II filed by the assessee. Income from the three USA trusts has been shown as under : The rupees equivalent of the aforesaid income amounting to Rs. 10,43,000 has been included in the total income of the assessee for asst, yr. 1987-88. The CIT(A) has upheld the addition on the basis of the order of the Settlement Commission. The assessee is, however, aggrieved that no distribution of income has been made by the US trustees and, therefore, no income is liable to be assessed in the hands of the assessee.
19. A few facts regarding the three US settlements executed by the father of the assessee may be indicated here. Under the US settlements, the National City Bank, New York, is constituted the sole trustee. The trust is created for the benefit of the grantor/settlor, his wife and children and their spouses and their descendants. The trustee is empowered to collect the income from the trust property and to apply the same among the family members and/or their descendants in such manner as the things appropriate. He is also authorised to terminate the trust for any reason (including tax reasons) and to transfer, convey and pay for the property held thereunder to any person or persons then eligible to receive the income of the trusts. The relevant clause which has been considered by the Hon'ble Supreme Court as well as the Settlement Commission for treating these trusts as discretionary trusts is Clause 1(2) which reads as under : "Anything hereinabove to the contrary notwithstanding, at any time and from time to time the trustee shall transfer, convey and pay over any portion of the income of the trust fund and any portion or all of the principal held in trust to or to the use of such one or more members of a class composed of the grantor, the wife or widow of the grantor, the children of the grantor living from time to time, the spouse of any child of the grantor, then living or deceased (hereinafter referred to as the 'family members'), and the descendants of the family members living from time to time, in such amounts, shares and proportions, either absolutely or in trust, and upon such terms and conditions (including the grant of a further power to appoint) as the trustee and a Maharaja who shall have attained the age of (18 years) shall at any time and from time to time appoint and direct in a written instrument which refers to and specifically exercises this power and which is duly executed by the Maharaja and by the trustee then acting hereunder. The foregoing power to appoint may be released in whole or in part by the Maharaja or by the trustee or by both at any time by one or more written instruments duly executed by the Maharaja or by the trustee or by both and delivered to the trustee then acting hereunder, provided, however, that if either the Maharaja or the trustee, but not both of them, shall release such power, then the party not so releasing shall continue to have the power to appoint hereinbefore provided, acting alone." 20. Clauses 2 and 3 of the deeds confer an absolute discretion upon the trustee to pay over or apply in his discretion, any part or the whole of the income or any part of or the whole of the principal to "any person then eligible to receive the income of this trust" at such time and in such manner, as he may decide in his absolute discretion. Clause 3 says further that "the trustee may omit eligible members of the class from any or all such payments and applications, and no such payment or application or omission of a person from participation therein shall cause a charge against or otherwise affect the future interest or share of any person hereunder". Any determination made by the trustee in good faith in exercising the said discretion is held to be binding and conclusive. It is not necessary to notice the other clauses of these settlements except to say that the object of these trusts is to provide for the education, maintenance and upkeep of the members of the settlor's family and their descendants.
21. The Hon'ble Supreme Court upheld the finding of the Settlement Commission regarding the aforesaid USA trusts being discretionary trusts. The Hon'ble Supreme Court further held that by virtue of Section 166 of the IT Act, the Revenue has an option in the case of a discretionary trust to make an assessment upon trustees or to make an assessment upon the beneficiaries. According to the Supreme Court, the assessments made by the Settlement Commission on the deceased settlor as well as his son, the assessee, are unexceptionable.
22. At this stage, we may refer to the order of the Settlement Commission in the case of the assessee dt. 31st March, 1989, for asst.
yrs. 1970-71 to 1982-83 wherein the Settlement Commission has observed vide para 3.6 that the income of the US trusts has been accumulated upto the date of death of the settlor, viz., Shri Vikramsinhji. After the death of the settlor on 22nd Aug., 1969, disbursement has been made out of the income of the three US trusts every year commencing from 31st March, 1970, upto 31st March, 1982, which comprised the period for consideration before the Settlement Commission as per the settlement application. The assessment of such income in the hands of the assessee, as already pointed out above, has been upheld by the Hon'ble Supreme Court.
23. During the course of hearing before us, the Bench specifically called upon the learned counsel to furnish information regarding the disbursement made by the US trustees during the period relevant for asst. yr. 1987-88 which would be liable to be assessed in the hands of the assessee as his income. The learned counsel, however, claimed that no distribution has been made by the trustees. When called upon to substantiate the claim, the learned counsel expressed his helplessness to furnish any such evidence. The assessee has indicated in the income-tax return for asst, yr. 1987-88 break-up of the income in respect of each of the three US trusts and included such income aggregating to $82,476 (equivalent to Rs. 10,43,321) "subject to Supreme Court decision". Even though the Indian income shown in the return was a loss, the assessee claimed deduction under Section 80L as well as PPF deposit and Unit Trusts with the remark "claimed in case of positive return". So these facts clearly indicate that the assessee has himself admitted that the income from US trusts, as well as UK trusts is liable to be included in his hands in accordance with the Hon'ble Supreme Court decision. Thus, on the basis of assessee's own statement, the decision of the Hon'ble Supreme Court, which sustained the additions on account of income from US and UK trusts in the hands, of the assessee for the earlier assessment years upto asst, yr. 1982-83, would equally apply for asst. yr. 1987-88 under reference also. While discussing the issue concerning taxability of income from UK trusts hereinbefore, we have held that the facts and circumstances of the case for the assessment years before us are substantially identical with the earlier years and, therefore, the finding of the Settlement Commission sustained by the Hon'ble Supreme Court would hold good for the assessment years under appeal also. We would, accordingly, uphold the addition of Rs. 10,43,321 as income from the three USA trusts in the hands of the assessee for asst. yr. 1987-88.
24. No other ground has been argued or pressed before us during the course of hearing. Accordingly, we uphold the orders of the CIT(A) for the asst, yrs. 1984-85 to 1989-90 and dismiss the appeals of the assessee.