The judgment of the Court was delivered by
BHAGWATI, J.--This is an appeal from the judgment and
order of the High Court of Judicature at Calcutta on reference made by the
Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act
(XI of 1922).
The appellant is a banking company carrying on business
at, among other places, Calcutta and Allahabad. On the 15th March, 1946, the
appellant executed a deed by which it purported to create a trust for the
payment of pensions to the members of its staff. The deed declared that a
pension fund had been constituted and established. It then recited that a sum of
Rs. 2,00,000 had already been made over to three persons who were referred to as
the " present trustees " and proceeded to state that the fund would
consist in the first instance of the said sum of Rs. 2,00,000, and that there
would be added to it such further contributions that the bank might make from
time to time, though it would not be bound to make such contributions. In the
course of the accounting year 1946-47, the bank made a further payment of Rs.
2,00,000 to this is fund.
In its assessment for the assessment year 1947-48 the
appellant claimed deduction of that sum of Rs. 2,00,000 under Section 10(2)(xv)
of the Act on the ground that it was an item of expenditure laid out or expended
wholly and exclusively for the purposes of its business. The Income-tax Officer,
the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal
rejected this claim of the appellant and the Income-tax Appellate Tribunal at
the instance of the appellant stated a case and referred for the consideration
of the High Court the following question :--
" Whether in the facts and circumstances of this
case, the Income-tax Appellate Tribunal was right in disallowing Rs. 2,00,000 as
a deduction under Section 10(2)(xv) of the Indian Income-tax Act. "
The High Court answered the question in the affirmative
and hence this appeal.
Though several contentions were sought to be raised by the
appellant as well as the Income-tax authorities before the High Court as arising
from the question, the only contention which was canvassed before the High Court
and was held to be determinative of the enquiry before it was whether the deed
of trust dated the 15th March, 1946, was valid. On the construction of the
several provisions of the deed of trust the High Court held :--
" I am of opinion that in view of these provisions of
the trust deed coupled with the uncertainty as regards the beneficiaries and the
absence of any obligation to grant any pension, no legal and effective trust was
created, and the so-called trust must be held to be void. "
It further held that even if the ownership of the money
had passed over to the trustees, still the further provision regarding the
application of the money to the payment of pensions being entirely ineffective
and void, the money cannot be said to have been expended for the purpose of the
business, and that therefore was not an expenditure or an expenditure for the
purposes of the business within the meaning of Section 10(2)(xv) of the Act.
This was also the only contention urged before us by Shri N. C. Chatterjee
appearing on behalf of the appellant.
Section 3 of the Indian Trusts Act (II of 1882) defines a
trust as an obligation annexed to the ownership of property, and arising out of
a confidence reposed in and accepted by the owner, or declared and accepted by
him, for the benefit of another, or of another and the owner. The person for
whose benefit the confidence is accepted is called the " beneficiary
". Section 5 in so far as it is material for the purpose of this appeal
says that no trust in relation to movable property is valid unless declared as
aforesaid (i.e., by a non-testamentary instrument in writing signed by the
author of the trust or the trustee and registered, or by the will of the author
of the trust or of the trustee) or unless the ownership of the property is
transferred to the trustee. Section 6 of the Act provides that subject to the
provisions of Section 5, a trust is created when the author of the trust
indicates with reasonable certainty by any words or acts........................
(c) the beneficiary..................... The validity or otherwise of the trust
in question has got to be determined with reference to the above sections of the
Indian Trusts Act.
The deed of trust provided in clause 5 that the income of
the fund if sufficient and if the income of the fund shall not be sufficient
then the capital of the fund shall be applied in paying or if insufficient in
contributing towards the Payment of such pensions and in such manner as the bank
or such officers thereof as shall be duly authorised by the bank in that behalf
shall direct to be paid out of the fund. Clause 7 stated that the fund was
established for the benefit of retiring employees on the European and Indian
staff of the bank to whom pensions shall have been granted by the bank. Clause 8
provided that any officer on the European staff of the bank who had been in the
service of the bank for at least twenty five years and any officer or other
employee on the Indian staff of the bank who had been in the service of the bank
for at least thirty years might apply to the bank for a pension, and that in
special circumstances the bank might grant pensions to employees who had not
completed the respective periods of service abovementioned. Clause 9 provided
for the withdrawal, modification or determination by the bank of any pensions
payable thereunder when in its opinion the conduct of the recipient or the
circumstances of the case justified it in so doing and the trustees were bound
forthwith to act upon any directions of the bank or of any officers thereof duly
authorised by the bank in that behalf. Clause 11 invested the bank with
discretion in fixing the amount of each pension and in making any modification
therein but without prejudice to such discretion declared what were the pensions
which it was contemplating would be payable to recipients qualified under the
provisions of clause 8 of the deed. Clause 18 authorised the bank from time to
time by instrument in writing under its common seal with the assent in writing
of the trustees to alter all or any of the regulations contained in the deed for
the time being relating to the fund and make new regulations to the exclusion of
or in addition to all or any of the regulations for the time being relating to
the fund and for the purposes of that clause all the provisions contained in the
deed were deemed to be the regulations in relation to the fund.
On a consideration of the provisions of the deed of trust
above set out it is clear that the bank or its officers duly authorised in that
behalf were constituted the sole authorities to determine what pensions and in
what manner the same should be paid out of the income of the fund. The fund was
declared to have been established for the benefit of the retiring employees to
whom pensions shall have been granted by the bank. Officers of the staff who
were qualified under clause 8 were declared entitled to apply to the bank for a
pension. But there was nothing in the terms of the deed which imposed any
obligation on the bank or its officers duly authorised in that behalf to grant
any pension to any such applicant. The pension if granted could also be
withdrawn, modified or determined under the directions of the bank or any
officer of the bank duly authorised in that behalf and such directions were
binding on the trustees. The regulations in relation to the fund could also be
altered and new regulations could be made to the exclusion of or in addition to
all or any of the regulations contained in the deed of trust. It was open under
the above provisions for the bank or its officers duly authorised in that behalf
to grant no pension at all to any officer of the staff who made an application
to them for a pension and also to withdraw, modify or determine any pension
payable to such officer if in their opinion the conduct of the recipient or the
circumstances of the case should justify them in so doing. The whole scheme of
the deed invested the bank or its officers duly authorised in that behalf with
the sole discretion of granting or of withdrawing, modifying or determining the
pension and it was not at all obligatory on them at any time to grant any
pension or to continue the same for any period whatever. The beneficiaries
therefore could not be said to have been indicated with reasonable certainty.
What is more it could also be validly urged that there being no obligation
imposed upon the trustees no trust in fact was created, even though the moneys
had been transferred to the trustees.
Shri N. C. Chatterjee however urged that the power
conferred upon the bank or its officers duly authorised in that behalf was a
power in the nature of a trust, that there was a general intention in favour of
a class and a particular intention in favour of individuals of a class to be
selected by them and even though the particular intention failed from the
selection not being made the court could carry into effect the general intention
in favour of the class and that therefore the trust was valid. He relied in
support of this contention on Brown v. Higgs and Burrough v. Philcox. The
position in law as it emerges from these authorities is thus summarised by Lewin
on Trusts, Fifteenth Edition, page 324 :--
" Powers, in the sense in which the term is commonly
used, may be distributed into mere powers, and powers in the nature of a trust.
The former are powers in the proper sense of the word--that is not imperative,
but purely discretionary ; powers which the trustee cannot be compelled to
execute, and which, on failure of the trustee, cannot be executed vicariously by
the court. The latter, on the other hand, are not discretionary, but imperative,
have all the nature and substance of a trust, and ought rather, as Lord
Hardwicke observed, to be designated by the name of trusts. 'It is perfectly
clear,' said Lord Eldon, 'that where there is a mere power, and that power is
not executed, the court cannot execute it. It is equally clear, that wherever a
trust is created, and the execution of the trust fails by the death of the
trustee or by accident, this court will execute the trust. But there are not
only a mere trust and a mere power, but there is also known to this court a
power which the party to whom it is given is intrusted with and required to
execute ; and with regard to that species of power, the court considers it as
partaking so much of the nature and qualities of a trust, that if the person who
has the duty imposed upon him does not discharge it, the court will, to a
certain extent, discharge the duty in his room and place.' Thus, if there is a
power to appoint among certain objects but no gift to those objects and no gift
over in default of appointment, the court implies a trust for or gift to those
objects equally if the power be not exercised. But for the principle to operate
there must be a clear indication that the settlor intended the power to be
regarded in the nature of a trust. "
This position however does not avail the appellant. As
already a stated there is no clear indication in the deed of trust that the bank
intended the power to be regarded in the nature of a trust, inasmuch as there
was no obligation imposed on the bank or its officers duly authorised in that
behalf to grant any pension to any applicant. There was no duty to grant any
pension at all and the pension, if granted, could be withdrawn, modified or
determined by the bank or its officers duly authorised in that behalf as therein
mentioned. Under the circumstances it could not be said that there was a power
in the nature of a trust which could be exercised by the court if the donee of
the power for some reason or other did not exercise the same. It will be
appropriate at this stage to consider whether any beneficiary claiming to be
entitled to a pension under the terms of the deed could approach the court for
the enforcement of any provision purporting to have been made for his benefit.
Even though he may be qualified under clause 8 to apply for the grant of a
pension he could not certainly enforce that provision because there was no
obligation imposed at all on the bank or its officers duly authorised in that
behalf to grant any pension to him and in the absence of any such obligation
imposed upon anybody it would be futile to urge that a valid trust was created
in the manner contended on behalf of the appellant.
In our opinion therefore the High Court was right in the
conclusion to which it came that there was uncertainty as regards the
beneficiaries and there was an absence of any obligation to grant any pension
with the result that no legal and effective trust could be said to have been
created and further that the provision of Rs. 2,00,000 in the accounting year
1946-47 was not an expenditure or an expenditure for the purposes of the
business within the meaning of Section 10(2)(xv)of the Indian Income-tax Act.
In view of the above we do not think it necessary to go
into the interesting questions which were sought to be raised by the appellant,
viz.. what was the scope of the reference, and by the respondent, viz., whether
the expenditure was a capital expenditure or revenue expenditure and if the
latter whether the deduction could still not be allowed in view of the
provisions of Section 10(4)(c) of the Act.
The result therefore is that the appeal fails and must be
dismissed with costs.
Appeal dismissed.
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