H. H. Maharaja Shri Jyotindrasinhji V. Asst. Commissioner of Income-Tax

TAXAP/224/2002

AI Insights

The case involves multiple tax appeals filed by H. H. Maharaja Shri Jyotindrasinhji against the Assistant Commissioner of Income-Tax concerning the assessment years 1984-85 to 1991-92. The primary legal issue was whether the income from trusts established in the U.K. and U.S. should be taxed in the hands of the appellant. The Income Tax Appellate Tribunal had earlier ruled that these were specific trusts, leading to tax liability in the hands of the appellant. However, the High Court, after examining the nature of the trusts and the applicable legal provisions, concluded that the trusts were discretionary and thus, the income should not be taxed in the appellant's hands.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 691136 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 12-09-2008
• Assessment Year: misc
• Other Referred Cases: 201 ITR 611 (SC), 57 ITR 632 (SC), 26 ITR 27 (SC), 46 ITR 144 (SC), 224 ITR 746 (SC), 236 ITR 315 (SC), 122 ITR 1006 (Patna), 145 ITR 128 (Patna), 249 ITR 125 (Gujarat)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MANISH BHATT; PRANAV DESAI
• Assessee Lawyers: K C PATEL; R K PATEL
• Keywords: Discretionary Trusts; Double taxation; Specific trusts; Income not distributed; Trust income retention
• Section: 260A; 166

Judgement Text

"TAXAP/224/2002 1/69 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 224 of 2002 WITH TAX APPEAL No. 225 of 2002 TO TAX APPEAL No. 229 of 2002 WITH TAX APPEAL No. 1317 of 2005 WITH TAX APPEAL No. 1318 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ HONOURABLE MR.JUSTICE BANKIM.N.MEHTA ==================================== 1. Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2. To be referred to the Reporter or not ? YES 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO TAXAP/224/2002 2/69 JUDGMENT ==================================== H. H. MAHARAJA SHRI JYOTINDRASINHJI - Appellant Versus ASST. COMMISSIONER OF INCOME- TAX. - Opponent ==================================== Appearance : MR KC PATEL WITH MR RK PATEL for Appellant. MR MANISH R BHATT for Opponent. MR PRANAV G DESAI for Opponent. ==================================== CORAM : HONOURABLE MR.JUSTICE K.A.PUJ and HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 12/09/2008 COMMON CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE K.A.PUJ) 1. The assessee / appellant has filed the above tax appeals under Section 260A of the Income-tax Act, 1961 (for short 'the Act') proposing to formulate the substantial questions of law for the determination and consideration of this Court. Tax Appeal Nos.224 to 228 of 2002 are pertaining to A.Y. 1984 – 85, 1985 – 86, 1986 – 87, 1988 – 89 & 1989 – 90. Tax Appeal No.229 of 2002 pertains to A.Y. 1987 – 88. Tax Appeal Nos. 1317 & 1318 of 2005 pertain to A.Y. 1990 – 91 & 1991 – 92. 2. Tax Appeal Nos.224 to 228 of 2002 were admitted by TAXAP/224/2002 3/69 JUDGMENT this Court on 24.07.2002 formulating the following substantial questions of law :- i. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has erred in law in its interpretation and/or application of clauses 3(2) and 4 of the U.K. Trusts in holding that the same are specific trusts and not discretionary Trusts ? ii. Whether on the facts and circumstances of the case, the Tribunal has erred in holding that even if U.K. settlements are to be treated as discretionary Trusts, assessee shall be liable to be taxed u/s.166 of the I.T. Act for the income not distributed or receivable on his behalf, entire income of the Trust having been retained by the trustees ? iii. Whether on the facts and in the circumstances of the case, the Tribunal has erred in law in following the order of Settlement Commission as well as the Hon'ble Supreme Court for earlier assessment years in spite of the fact that the appellant has not received any income from any of the trusts for the year under appeals ? 3. Tax Appeal No.229 of 2002 was admitted by this Court on 24.07.2002 formulating the following substantial questions of law :- TAXAP/224/2002 4/69 JUDGMENT 1. Whether, on the facts and in the circumstances of the case, the Tribunal has erred in law in its interpretation and/or application of clause 3[2] and clause 4 of U.K. Trusts to hold that the same are specific trusts ? 2. Whether on the facts and in the circumstances of the case, the Tribunal has erred in law in following the order of Settlement Commission as well as the Hon'ble Supreme Court for earlier assessment years inspite of the admitted fact that the appellant has not received any income from any of the trusts for the year under appeals ? 3. Whether on the facts and in the circumstances of the case, the Tribunal has erred in law in confirming the addition of income from U.S. Trusts for the A.Y. 1987­88 though admittedly no distribution has been made by the trustees for the A.Y.1987­88 and no such income has been added in the earlier assessment years by the Assessing Officer himself on the ground that no distribution has been made by the trustees and that the appellant has not received any income from U.S.A. Trusts ? 4. Whether on the facts and circumstances of the case, the Tribunal has erred in law in holding that even if U.K. TAXAP/224/2002 5/69 JUDGMENT settlements are to be treated as discretionary Trusts, assessee shall be liable to be taxed under Section 166 of the I.T. Act for the income not distributed or receivable on his behalf, entire income of the Trust having been retained by trustees ? 4. Tax Appeal Nos. 1317 & 1318 of 2005 were admitted by this Court on 04.07.2006 formulating the following substantial questions of law :- (1)Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal has erred in law in its interpretation and/or application of clause 3(2) and 4 of the U.K. Trusts in holding that the same are specific trusts and not discretionary trusts ? (2)Whether on the facts and in the circumstance of the case, the Tribunal has erred in holding that even if U.K. Settlements are to be treated as discretionary trusts, assessee shall be liable to be taxed u/s. 166 of the I.T. Act for the income not distributed or receivable on his behalf, entire income of the Trust having been retained by the Trustees ? (3)Whether on the facts and in the circumstances of the case, the Tribunal has erred in law in following the order TAXAP/224/2002 6/69 JUDGMENT of Settlement Commission as well as the Hon'ble Supreme Court for earlier assessment years inspite of the fact that the appellant has not received any income from any of the Trusts for the year under Appeals ? 5. During the course of hearing of these appeals, Mr. K. C. Patel, learned advocate appearing for the appellant in all these appeals has proposed to formulate one more question of law for all these years which is as under :- Whether on the facts and circumstances of the case, the Tribunal has erred in law in ignoring that the income in question having been taxed in U.K., the same income could not have been taxed again in India resulting in double taxation ? 6. From the perusal of the above, it is clear that 8 appeals are preferred by the appellant and in all the 8 appeals, three substantial questions of law are formulated by this Court, while in Tax Appeal No.229 of 2002 for A.Y. 1987 – 88, one more question is raised in relation to inclusion of income from U.S. Trusts along with income from U.K. Trusts. TAXAP/224/2002 7/69 JUDGMENT 7. The brief facts giving rise to these appeals are that the appellant is the eldest son of late Shri Vikramsinhji, Ex. Ruler of Gondal State. Shri Vikramsinhji executed three Trust Deeds in United States of America and two Trust Deeds in United Kingdom. The Trust Deeds executed on 19.12.1963 in United States of America, are identical in terms and the Trust Deeds executed on 01.01.1964 in United Kingdom are also identical in terms. However, Trusts of the Trust Deeds executed in U.S.A. & U.K. differ from each other in certain particulars, though both the sets are meant for the benefit of the settlor and the members of his family. In U.K. Trusts, one Mr. Robert Hampton Robertson McGill was designated as the Trustee and he was 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 Trust Deeds define the expression 'the Trustees' to mean and to include the original Trustee or the other Trustees for the time being appointed in terms of the Deeds of TAXAP/224/2002 8/69 JUDGMENT Settlement. The relevant clause of the Trust Deeds are Clause 3 & 4. 8. The settlor of these two Trusts, namely, Shri Vikramsinhji, Ex. Ruler of Gondal, died on 22.08.1969. During his life time, returns were filed showing his income in India including therein the whole of the income arising from the U.S. Trusts and U.K. Trusts for the assessment years 1964 – 65 to 1970 – 71. Thereafter, the appellant filed the returns of income including the whole of the income from the above Trusts in respective returns for A.Y. 1970 – 71. The appellant thereafter was advised that the income from U.S. Trusts and U.K. Trusts was not taxable in India either in the hands of the settlor or in his hands and that inclusion of the said income in the returns by the settlor and by the appellant was a mistake. 9. The appellant therefore preferred appeals being aggrieved by the assessment orders. By admitting additional grounds, the appeals were allowed by the orders dated 04.04.1975 & 20.08.1975. The appellant TAXAP/224/2002 9/69 JUDGMENT also filed appeals against the assessment order pertaining to A.Y. 1965 – 66 & 1966 – 67. However, as the appeals were barred by limitation with respect to other assessment orders, Revision Applications before the Commissioner of Income Tax were preferred. 10.The revenue went in appeal to the Tribunal and the Tribunal allowed the appeals of the revenue and set aside the orders of the Appellate Assistant Commissioner and remanded the appeals back. 11.The appellant, thereafter, approached the Settlement Commission under Chapter XIX-A of the Income-tax Act, 1961. The Settlement Commission passed two orders one relating to A.Y. 1964 – 65 to 1970 – 71 (in case of Vikramsinhji) and the other for the A.Y. 1970 – 71 to 1982 – 83 (in case of the appellant). 12.The appellant being aggrieved by the aforesaid findings preferred two appeals before the Hon'ble Supreme Court. After hearing both the parties, the Hon'ble Supreme Court vide order dated 02.04.1993 TAXAP/224/2002 10/69 JUDGMENT which is reported in 201 ITR 611 confirmed the orders of the Settlement Commission holding that U.S. Trusts are discretionary Trusts whereas the findings of the Settlement Commission that the U.K. Trusts are specific trusts was not disturbed being academic as the income arising from U.K. Trusts was shown in the return of income upto the A.Y. 1970 – 71. 13.For the A.Y. 1984 – 85 to 1989 – 90, the appellant has not shown the income of U.S. Trusts and U.K. Trusts. The statement of income for the A.Y. 1984 – 85, 1985 – 86, 1986 – 87, 1987 – 88, 1988 – 89 & 1989 – 90 are produced before the Tribunal. On perusal of the statement of income, it can be noticed that a note was put to the effect that U.S. Trusts & U.K. Trusts being discretionary trusts, the income of the said Trust is not included in the total income. A separate note to the effect that no remittance was received from U.S.A. and U.K. was also put below the statement of income. The appellant has also produced the statement of funds and income account of the two U.K. Trusts signed by the Trustees received from U.K. wherein it is TAXAP/224/2002 11/69 JUDGMENT specifically stated that the net income for the year is retained. The Assessing Officer took the same amount as stated in the statement of funds equivalent to Indian Rupees as income of the appellant. The Assessing Officer made addition of income from U.K. Trusts in the hands of the appellant for the aforesaid assessment years adopting the same figures as stated by the appellant. 14.Being aggrieved by the order of the Assessing Officer, the assessee preferred appeals before CIT (Appeals) who has confirmed the additions made by the Assessing Officer and dismissed the appeals. The appellant, being aggrieved by the order of the learned CIT (Appeals), preferred second appeals before the Income Tax Appellate Tribunal and the appeals were also dismissed by the Tribunal. 15.In the above referred background, appeals were filed before this Court under Section 260A of the Act and the above referred questions were formulated as substantial questions of law. TAXAP/224/2002 12/69 JUDGMENT 16.Mr. K. C. Patel, learned advocate appearing for the appellant has raised two major issues for determination and consideration of all these appeals :- I. Whether, on the true construction and effect of the settlements made in U.K., the real nature and character of the Trusts created thereunder is a discretionary, or they are specific Trusts ? II. Whether the order of the Settlement Commission dated 31.03.1979 will estop the assessee from contending, inter alia, that the Trusts created by the settlements in U.K. are discretionary in nature ? 17.So far as the first issue, namely, whether the Trusts are discretionary or specific Trusts is concerned, Mr. Patel has contended that there are various reasons for establishing that the U.K. Trusts are discretionary Trusts rather than specific Trusts. Apart from the tax planning, the settlor may be actuated to establish discretionary Trust with a view to protect the beneficiary against Creditors, or to continue to exercise control over, improvident beneficiaries or to TAXAP/224/2002 13/69 JUDGMENT react to changes in the circumstances. It is often considered unwise to put large sums of money at the disposal of beneficiaries, if they are young or extravagant. The common experience is that a rich young beneficiary may become idle and indulge in overspending and wasting the inheritance. Under the discretionary Trust, each member of the class of beneficiary is entitled only to that amount of money which the Trustees think fit to allocate him in exercise of their discretion. 18.Mr. Patel has further submitted that some of the purposes the Grantor has in mind in the establishment of this Trust are the education of the family members and their descendants in any country outside India, the medical treatment of the family members and their descendants, travelling expenses of the family members and their descendants, ceremonial expenses of the family members and their descendants for performing ceremonies as per the traditions of the house of Gondal, and the maintenance and welfare of the family members and their descendants. These TAXAP/224/2002 14/69 JUDGMENT purposes are meant to be merely illustrative and not restrictive of the Trustee hereunder in any way. This is clear from Clause 1 of the Trust Deed which says that the Trust in consideration of natural love and affection of the settlor for members of his family....................... and Clause 3 (2) for advancement, maintenance and education of beneficiaries defined in Clause 2 of the Trust Deed. 19.Mr. Patel has invited our attention to the relevant Clauses of the Trust Deed of U.K. Trusts executed by late Shri Vikramsinhji on 01.01.1964. These Trusts are executed by and between late Shri Vikramsinhji who happened to be the ruling Prince of the erstwhile State of Gondal and one R.H.R. McGill who happened to be the Company Director in London and appointed as original Trustee under the Deed of Settlement. 20.Mr. Patel has further submitted that the Settlement Commission has in effect held that having regard to Sub-clause (2) of Clause 3, even the Trustees have to be appointed as discretion exercisers and they could TAXAP/224/2002 15/69 JUDGMENT not come on the scene and start functioning unless there is a formal appointment in their favour in writing by the Maharaja and since admittedly, neither the original settlor nor his son Jyotindrasinhji ever exercised this power of appointment and, therefore, the Trustees were not entitled to exercise the discretion under the Trust Deed. The Settlement Commission further held that for all intents and purposes, there was default of appointment by the Maharaja and, therefore, Clause 4 came into operation. The Commission was of the opinion that it was not the default of appointment of property by the Trustees but default in appointment of discretion exerciser by the Maharaja that Clause 4 comes into operation. The Commission alternatively considered on an assumption that Trustees had the power to act as discretion exercisers and hence, it cannot be said that there was no default of appointment of income or property by the Trustee. The Commission held in the facts and circumstances before it that any delay in appointment of the discretion exerciser beyond one year should be normally treated as a default unless TAXAP/224/2002 16/69 JUDGMENT otherwise explained. The Commission held that having regard to the language of Clause 3 (2) of the U.K. Trust Deed, there was no scope for contending that Clause 4 can came into operation only if the power to make appointment under the said Clause has been abdicated, renounced or in any manner disowned. The Commission, therefore, concluded that total inaction on the part of the Trustees and the beneficiaries during the last 25 years is more in keeping with the understanding of the provisions of the Trust Deeds by the Trustees and beneficiaries as specific rather than discretionary. Shri Vikramsinhji during his life time and Shri Jyotindrasinhji after the former's death had ample resources and so asked for no funds from the Trustees. The other beneficiaries knew that they were entitled to nothing so far as Clause 4 operated and the Trustees had no occasion to allocate any income because they knew that as per Clause 4 which operated the entire income belonged to Shri Vikramsinhji and after his death to Shri Jyotindrasinhji. Hence, unless these two beneficiaries asked for any payment, no action was called for except to go on TAXAP/224/2002 17/69 JUDGMENT accumulating that income. It appears, therefore, more reasonable to infer that all the persons concerned, namely, the Maharaja, the Trustees and the beneficiaries themselves understood and interpreted the Trust Deed so creating specific trust by virtue of operation of Clause 4. 21.Mr. Patel has submitted that reading Sub-clause (2) of Clause 3 closely, the view of the Commission that unless the Trustees are appointed by the Maharaja as discretion exerciser, they would not be competent to act as Trustees, is misconceived for the simple reason that Trustees have been defined to mean and include the original Trustee or other Trustees or Trustee for the time being of the Settlement. He has further submitted that Mr. R. H. R. McGill was constituted and described as the original Trustee in the Settlement Deed. If it is to be interpreted otherwise, as has been done by the Commission, the intention of the settlor while executing the deed of settlement in constituting and describing R. H. R. McGill as the original Trustee for the purpose of execution of the deed would be TAXAP/224/2002 18/69 JUDGMENT completely frustrated for the obvious reason that in view of the commission since the Maharaja has not appointed the Trustees, they would not be competent to act. It would be interpreting the document contrary to the well accepted and well recognized principles of interpretation of documents for one cannot interpret the document so as to frustrate the entire scheme envisaged under the document. On the interpretation of the Commission, one would reach an absurd situation where, assuming that interpretation to be valid, there would be no Trustees for execution of the Trust contemplated as per Clause 4. 22.Mr. Patel has further submitted that the interpretation which has commended to the Commission also does not appear to be well founded, for the obvious reason that it would decide the role of the Trustees and their rights and powers and would render the definition of Trustee as virtually redundant, because the definition is exhaustive since the term Trustee has been defined as meaning and including the original Trustee or other Trustee or Trustee for the time being of the TAXAP/224/2002 19/69 JUDGMENT Settlement. The power granted to the Maharaja under Sub-clause (2) of Clause 3 for appointment of discretion exerciser is for appointment of discretion exercisers. 23.Mr. Patel has further submitted that the definition clause contained in Clause 2 defines “Trustees” to mean and include the original Trustee also. If, therefore, the interpretation, which has commended to the Commission, is accepted to be correct, there would be clear frustration of the Trust which on recognized principles of interpretation of documents, should be avoided. 24.Mr. Patel has further submitted that the conclusion of the Commission is in contradiction of its terms. On one hand, it holds that in view of the admitted position that the power of appointment was not exercised by the Maharaja, there were neither competent Trustees nor any discretion exercisers and on the other hand, it holds that in that view of the matter, the Trust was a specific Trust. TAXAP/224/2002 20/69 JUDGMENT 25.Mr. Patel has further submitted that if the property was settled upon the original Trustee, as provided in the opening part of the Deed of Settlement, it would be fair and reasonable to take the view that the question of appointment of Trustees was kept open till the Maharaja exercised the power. The only reasonable view on principle of harmonious interpretation of such clauses in a document is that this power invested into the Maharaja did not relate to the power of appointment of the original Trustee but related to the power of appointing discretion exerciser. In that view of the matter, Mr. Patel has submitted that U.K. Trusts is the discretionary Trust and not a specific Trust. 26.So far as the second issue regarding estoppel is concerned, Mr. Patel has submitted that the order of the Commission so far as the income-tax liability of the appellant is concerned, will not estop the appellant from canvassing the view that U.K. Trusts are discretionary Trusts and the income from the said Trusts is liable to be subjected to tax in the hands of TAXAP/224/2002 21/69 JUDGMENT the Trustees only and not in the hands of the beneficiaries. Firstly, there cannot be any estoppel on the question of law, and secondly, there cannot be any bar of res judicata of such decision which is final and binding to the Income-tax Officer who is an original statutory authority for the purposes of assessing an assessee before him. It is well recognized that assessments of one year never operate as res judicata for assessment of subsequent years. 27.Mr. Patel has further submitted that so far as Commission is concerned, its function is different from those of other quasi judicial authorities created by the Income-tax Act. As the name itself suggests, it is a settlement – a sort of composition. Even if any principles are decided by the Commission, they do not bind the income-tax authorities as well as assessee in proceedings relating to subsequent years. In these Tax Appeals filed under Section 260A of the Act arising out of the judgment and order passed by the Tribunal, this Court has jurisdiction to examine whether the interpretation put up by the Tribunal based on decision TAXAP/224/2002 22/69 JUDGMENT of Commission is correct or not and whether the same is in consonance with law and the same cannot be said to be a violation of the provisions of the Income-tax Act. All these substantial questions of law raised and formulated by this Court are, therefore, required to be decided irrespective of the order of the Settlement Commission. 28.Apart from the above issues, Mr. Patel raised following issues in support of prayers made in these appeals :- a) The order of the Settlement Commission passed under Section 245D of the Act is not bonding in regular proceedings of Income-Tax Act with special reference to assessment order, appeals to CIT (A) and appeal preferred by the assessee under Section 260A of the Act raising substantial questions of law. The Settlement Commission is not a regular Tribunal. Its function is different from those of other quasi judicial authorities created by the Income-tax Act. As the name itself suggests, it is a settlement – a sort of composition. The order of the Commission is relevant to and is confined only to the assessment years to which it relates. It is a package deal for those years only. TAXAP/224/2002 23/69 JUDGMENT b) The Tribunal in its order having considered irrelevant facts and ignored relevant facts and materials on record, its finding is vitiated in law and is perverse. c) Sections 3 & 4 of the Income-tax Act, 1961 impose general liability to tax upon all income in all cases in which receipt is sought to be taxed as income. The burden lies on the Department to prove that it is within the taxing provision. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Parimisetti Seetharamamma V/s. CIT, 57 ITR 632 (SC). d) The income from U.K. Trusts neither arose, accrued, received or earned in India and hence, it is not liable to tax. On facts of the case, alleged income is not taxable because it has neither accrued, arisen or received by the assessee in absence of any right to receive established. The character of the income is more or less inchoate. In support of this submission, reliance is placed on the decision of the Hon'ble Supreme Court in the case of E. D. Sassoon & Company Limited and others V/s. CIT, 26 ITR 27 (SC) which says that “the words arising or accruing are general words descriptive of a right to receive profit.” e) The theory of real income does not warrant the income TAXAP/224/2002 24/69 JUDGMENT from U.K. Trusts to be taxed in assessee's hands. The Income-tax is a levy on income. If the income does not result at all, there cannot be a tax, even though in book keeping an entry is made about a “hypothetical income”, which does not materialize. In support of this submission, reliance is placed on the decisions of the Hon'ble Supreme Court in the case of CIT V/s. Messrs. Shoorji Vallabhdas and Company, 46 ITR 144 (SC) and in the case of Godhra Electricity Company V/s. CIT, 224 ITR 746 (SC) & CIT V/s. Bokaro Steel Limited, 236 ITR 315 (SC). f) The income was neither received nor accrued in India and the assessee is not liable to tax and to prove negative facts. The assessee, if required to prove negative facts, needs only to show that his plea stands the test of preponderance of probability. Reliance is placed on the decisions of the Patna High Court in the case of CIT V/s. Lal Babu, 122 ITR 1006 (Patna) and in the case of CIT V/s. Nipani Tobacco Stores, 145 ITR 128 (Patna). g) The assessee's explanation was not properly considered by any of the authorities. Before the department rejects assessee's explanation or evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation, convert good proof TAXAP/224/2002 25/69 JUDGMENT into no proof. Reliance is placed on the decision of Hon'ble Supreme Court in the case of Shreelekha Banerjee, 49 ITR 112 (SC) and on the decision of this Court in the case of National Textiles V/s. CIT, 249 ITR 125 (Gujarat). h) The Trustees have exercised their discretion by retention. The U.K. Trusts are discretionary Trusts and not specific Trusts as the net income of the Trusts by positive act retained by the Trustees and carried forward and brought forward from year to year. This positive act taken by the Trustees sufficiently establish that the Trusts are discretionary Trusts. i) The dictionary meaning of word 'retain' is relevant to decide the issue. International Webster New Encyclopedic Dictionary defines the word 'retain' as hold back, keep, to keep possession of; to continue to use or practice; as, to retain a system; to continue to hold or have; as, to retain heat or moisture; to keep in mind; remember; to hold in place or position; to engage, esp. by the payment of a preliminary fee, as a lawyer. More or less same meanings are assigned to the word 'retain' in Chambers Twentieth Century Dictionary, The Random House Dictionary, The New Oxford Illustrated Dictionary, Black's Law Dictionary, Bouvier's Law Dictionary and Webster's New World Dictionary. j) Nothing is receivable in these years by any of the TAXAP/224/2002 26/69 JUDGMENT beneficiaries and hence, option under Section 166 is not available to Revenue. For this purpose, reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT V/s. Kamalini Khatau, 209 ITR 101 (SC) wherein it is held that Section 166 of the Act is not applicable as the word used in Section 166 of the Act is 'receivable' which cannot be applied to discretionary Trust. k) The income in question having been taxed in U.K., additions in case of beneficiaries will result in taxing same income twice. This aspect was also considered by the Hon'ble Supreme Court in the case of the assessee as well as his predecessors reported in 201 ITR 611 (SC) wherein it is held that income having been taxed in U.K., the same income cannot be taxed over again in India which results in double taxation. l) If Trust fails for want of Trustees, Clause 3 as well as Clause 4 cannot be operative and it will give rise to resulting Trust. As held by the Settlement Commission, the Trust fails and is void, for want of any Trustee, the income cannot be taxed in the hands of the assessee as it would give rise to resulting Trust in favour of settlor or legal representatives. m)Clause 4 of the Trust Deed is subject to Clause 3 and Clause 3 will be in operation till the original Trustee is in-charge of the Trust. Power to appoint the discretion exerciser is available during specified period, till the TAXAP/224/2002 27/69 JUDGMENT same is not abandoned, renounced, disowned or till the death of the last surviving power holder. Elder son and younger son are still alive and time to exercise the said power is not abandoned, renounced or disowned and the last surviving power holder is still survive. n) No time limit is fixed or prescribed within which the Trustee decided to distribute the income among the beneficiaries. Similarly, Clause 3 (2) thereof does not limit the period during which the appointment of a discretion exerciser can be made. On the contrary, Clause 3 (2) provides in terms that the power of appointment can be exercised at any time during the “specific period”. In absence of additional Trustees, the Trust had already come into existence with appointment of sole Trustee Mr. Robert Hampton Robertson McGill termed as original Trustee. The Trust did not depend upon appointment of additional Trustees. Both parties had understood same thing in the same sense. 29.Considering all these contentions and settled legal position as well as further considering the distinguishing features of the present matters, Mr. Patel has strongly urged that all these appeals are required to be decided in favour of the assessee and against the revenue. TAXAP/224/2002 28/69 JUDGMENT 30.Mr. Pranav G. Desai, learned Standing Counsel appearing for the revenue in Tax Appeals for A.Y. 1984 – 85 to 1989 – 90 submitted that the appellant earlier approached the Settlement Commission for the same subject matter relating to A.Y. 1964 – 65 to 1982 – 83. The Settlement Commission passed order dated 31.03.1989. Being aggrieved by the order of the Settlement Commission, the appellant preferred appeals before the Hon'ble Supreme Court and the Hon'ble Supreme Court after considering the facts and circumstances of the case as well as the questions of law, passed a detailed judgment and order dated 02.04.1993 which is reported in 201 ITR 611. He has, therefore, placed heavy reliance upon the decision of the Settlement Commission dated 31.03.1989 as well as the judgment and order of the Hon'ble Supreme Court. 31.Mr. Desai has further submitted that the Hon'ble Supreme Court has observed in its judgment that the main issue in the matter is assessability of income TAXAP/224/2002 29/69 JUDGMENT from 5 foreign Trusts created by the appellant's father. Out of the five Trusts, three Trusts are executed in U.S.A. and two Trusts are executed in U.K. The Settlement Commission computed taxable income of appellant's father who died on 22.08.1969 and thereafter of the appellant. The Hon'ble Supreme Court has observed that U.K. Trusts are created for the benefit of the Settlor, the members of their family and their descendants. During his life time, the Settlor was including the whole of income from the Trusts in his return of income and the said income was also included in the returns filed by the present appellant for A.Y. 1970 – 71 and thereafter, took a stand that income from these Trusts is not includible in his income and inclusion of income in prior years was under a mistake. This very submission was also subject matter of the appeals and also the subject matter before the Settlement Commission. The Apex Court noted the findings of the Settlement Commission so far as U.K. Trusts are concerned that Clause 3 did not come into operation as no additional Trustees were appointed as contemplated by it and if that is so, TAXAP/224/2002 30/69 JUDGMENT Clause 4 sprang into operation whereunder the entire income under the Settlement flowed to the Settlor during his life time and on his death to his elder son, the appellant and that the settlements are in the nature of specific Trusts. The Hon'ble Apex Court noted that at the stage of granting leave, the Court ordered that the appellant shall be confined himself in appeal only to the question relating to the correctness or otherwise of the Commission's order. 32.Mr. Desai has further submitted that the Hon'ble Supreme Court has noted amongst others the contentions raised on behalf of the appellant that so far as U.K. Trusts are concerned, the Settlement Commission has committed an error of law in holding that Clause 3 came into operation only if and when the Settlor appoints additional Trustees as contemplated by it and that in view of the sole Trustee, Clause 3 will prevail over Clause 4 and thus, the U.K. Trusts are discretionary Trusts and not specific Trusts as held by the Settlement Commission and, therefore, assessment can be made only upon Trustees and not upon the TAXAP/224/2002 31/69 JUDGMENT beneficiary. It was also contended that so far as U.K. Trusts are concerned, no income was received by the Settlor or the appellant and so long as the Trustees have not decided to exercise power of distribution of income earned in favour of any of the beneficiaries, it cannot be taxed in their hands. The Settlement Commission committed legal error in including the income from U.K. Trusts in the taxable income of the Settlor or the appellant, even though it was not paid out by the Trusts nor it was received by the assessee. Mr. Desai has further submitted that the Hon'ble Supreme Court, after noting the submissions on facts and law by both the sides observed that the question to be examined whether the order of the Commission is contrary to the provisions of the Act and whether the order of the Commission is vitiated by any such wrong interpretation of the deeds. So far as U.K. Trusts are concerned, the Hon'ble Supreme Court noted the contentions of the appellant that the Commission wrongly construed Clause 3 with respect to U.K. Trusts and that Clause 3 creates a discretionary Trust and that Clause No.4 has not and had never came into TAXAP/224/2002 32/69 JUDGMENT operation and that no income ever earned or accrued to the settlor or the appellant under Clause 4 and that Clause 4 comes into operation only where the Trustees decide not to distribute the income among the specified beneficiary and only then does the Trust income belong to and has to be paid over to the Settlor and after death of the Settlor to his elder son, the appellant and also noted contention of the appellant that the Commission was wrong in law in treating these Trusts as specific Trusts. Thereafter, the Hon'ble Apex Court held that both the Settlor and appellant have been receiving income from these Trusts and the Settlor had voluntarily included the entire income from the U.K. Trusts in his return filed by him and observed that the Commission has treated those declarations as proof of the Settlor's real intention as well as the Commission also relied upon certain other circumstances including the manner in which the accounts of these Trusts were maintained as well as that of concerning that the Trusts acted on the basis that Trusts' income flowing to the Settlor and after his death to the appellant and a similar TAXAP/224/2002 33/69 JUDGMENT declaration was also made by the appellant in his return. After considering the letter of the appellant and the note, the Hon'ble Apex Court observed that this explanation has not been accepted by the Commission and the Hon'ble Court goes by the finding of the Commission and held that Section 5 of the Act is wide enough to bring all such income to tax. The Hon'ble Apex Court dismissed all the appeals, however, observing that so far as the plea of double taxation is concerned, if the appellant proves that the same income shall not be taxable over again in India. 33.Mr. Desai further submitted that so far as the present appeals are concerned, the Tribunal after going through all the relevant facts and law, dismissed the appeals filed by the appellant and also relied on the decision of the Settlement Commission as well as the Hon'ble Apex Court. The Tribunal which is the final fact finding authority has held that the facts and circumstances of the case as prevalent for the A.Y. before the Tribunal, are substantially similar to the earlier A.Y. before the Settlement Commission as well TAXAP/224/2002 34/69 JUDGMENT as before the Hon'ble Apex Court and the distinction on facts sought to be drawn on behalf of the appellant is patently erroneous and factually found that even in the A.Ys. 1976 – 77 to 1982 – 83 before the Settlement Commission, the assessee had not declared the income from U.K. Trusts. The Tribunal also arrived at the finding of fact that in the present A.Ys. 1984 – 85 to 1989 – 90, a note is written by the appellant that the remittance received from the Trust is not included as according to assessee's opinion, the Trust being discretionary Trusts, the receipt is not income and further stated by the appellant in the said note that the return is subject to filing petition before the Settlement Commission. The said note was filed in the return of A.Y. 1984 – 85 and similar note has been filed in A.Y. 1986 – 87. The Tribunal also found that the assessee has shown less figure of Trust income, after claiming deduction under Section 80L of the Act. The Tribunal has come to the final decision on facts by noting that for assessment years under reference, the assessee has proceeded on the basis of the admitted position that the assessability of the income from U.K. TAXAP/224/2002 35/69 JUDGMENT Trusts would be governed by the decision of the Hon'ble Supreme Court and / or by the decision of the Settlement Commission, obviously the facts and issues are identical in all the years. The Tribunal after examining all the facts and circumstances as well as law and Clause Nos.3 & 4 came to the conclusion that the Tribunal is concurring with the finding of the Settlement Commission regarding U.K. Trusts being specific Trusts and, therefore, income received or accrued therefrom is assessable in the hands of the assessee. 34.Mr. Desai has further submitted that the Tribunal has considered the provisions of Section 166 of the I.T. Act and after referring to the judgment and order of the Hon'ble Supreme Court, in the case of the appellant himself and noting that in view of the decision of the Hon'ble Supreme Court, since the income from foreign trust is assessable in the hands of the assessee by virtue of Section 166, the issue whether such Trusts are in the nature of specific Trusts is academic and held that the income from U.K. Trusts is rightly TAXAP/224/2002 36/69 JUDGMENT assessed in the hands of the assessee. 35.Mr. Desai has further submitted that the nature of the U.K. Trusts once determined by the Settlement Commission as a specific Trust which is confirmed by the Hon'ble Supreme Court and that considering Clause Nos.3 & 4 among other Clauses of U.K. Trusts as well as the intention of the Settlor, the Trust cannot now be permitted to contend that it is a discretionary Trust and that the income is not received by the appellant. He has, therefore, submitted that no interference of this Court be called for in the order of the Tribunal. 36.Mr. Desai has further submitted that the appellant's contention that since no appointment is made by the Settlor or the appellant as provided in Clause 3 of the Trust Deed, Clause 4 will not come into operation is thoroughly misconceived, untenable and not bonafide and as such, the interpretation will run counter to the Settlor's intention as well as counter to the other Clauses of the Trust Deed. A duty has been cast upon TAXAP/224/2002 37/69 JUDGMENT the Settlor, the appellant etc. to make appointment as can be seen from Clause 3 of the Trust Deed. The contention of the appellant that since the Settlor and the appellant have not performed the duty ever since the date of creation of the Trust in 1964 till today, the Clause 4 of the Trust Deeds would not come into operation is illegal, improper and untenable. Non- performance of the duty cast upon the Settlor and the appellant by themselves can not enure benefit on them and will not make the Trust which has already been declared a specific Trust as discretionary Trust. The appellant cannot take advantage of non-performance of the duty by the Settlor and the appellant. If for the period of about 44 years, the duty is not fulfilled by the Settlor and the appellant, the appellant cannot take any advantage from his own default in performance of duty by contending that Clause 4 will not come into operation. He has further submitted that on any default of not making appointment, the original Trustee who has been appointed has to fulfill his duty to apply the income of the Trust accruing during the life of the Settlor to the Settlor and thereafter to the TAXAP/224/2002 38/69 JUDGMENT appellant as provided in Clause 4 and Clause 4 cannot be made nugatory because of non-performance of the duty by the Settlor and the appellant. 37.Mr. Desai has further submitted that the contention of the appellant that since the opening words of Clause 4 of the Trust Deed indicates 'subject to aforesaid', Clause 4 will not come into operation unless and until the appointment is made by the appellant is misconceived, untenable and devoid of any substance. The words 'subject to aforesaid' in Clause 4 has to be considered from reading of the Trust Deed as a whole. If no appointment is made by the Settlor or the appellant inspite of the duty cast upon them, then as per Clause 3, the Trustee i.e. original Trustee will be possessed with the Trust funds and the income thereof be applied as per Clause 4 by the original Trustee. The interpretation contended by the appellant that in such case, Clause 4 will not apply is contrary to the provisions of the Trust Deed, the intention of the Settlor which has already been adjudged by the Settlement Commission as well as the Hon'ble TAXAP/224/2002 39/69 JUDGMENT Supreme Court in the above referred judgment and also runs contrary to the objects and purpose of the Trust. 'Subject to aforesaid' as indicated in Clause 4 is required to be considered as if there are more than one Trustees who are appointed as per Clause 3, then the said Trustee will possess with the Trust funds and carry out the directions as contained in Clause 4. If no appointment is made, then the original Trustee has to carry out the directions as per Clause 4. In this regard, the definition of the Trustees is required to be considered as indicated in para 2 of the Trust Deed. The Trustees are defined as means and include the original Trustee or other Trustee or Trustee for the time being of the settlement. Therefore, duty cast upon the Trustee as per Clause 4 is required to be fulfilled and the words 'subject to aforesaid' indicated in Clause 4 is to be considered that if any additional appointment is made in Clause 3 then such Trustees or in the alternative the original Trustee has to apply the income and make payment. Clause 4 also casts duty that the income shall belong and be paid to the Settlor during the life time of the Settlor and thereafter to the TAXAP/224/2002 40/69 JUDGMENT appellant during the life of the appellant be paid and it will belong to the appellant the income of the trust funds etc. The said interpretation is in consonance with the objects and purpose of the Trust, the provisions of the Trust Deed, the decision arrived at by the Settlement Commission on the said Trust Deed and the decision of the Hon'ble Supreme Court considering the said Trust Deed, particularly in paragraph 3 & 4 as set out by the Hon'ble Supreme Court in the judgment. 38.Mr. Desai has further submitted that the purpose and object of the Trust is advancement, maintenance and education of the beneficiary and the appellant had no adequate means to maintain his family which can be seen from the statement of income submitted showing either meager income or loss. If the object is to advancement, maintenance and education and if the contention of the appellant is accepted then it will tantamount to Trustee abdicating the duties whereby the object and purpose of the Trust is defeated which could never be the intention of the Settlor in any view of the matter. TAXAP/224/2002 41/69 JUDGMENT 39.Mr. Desai has further submitted that for the assessment years in question, details of income from U.K. Trusts have been filed by the assessee where the income from U.K. Trusts were declared. This is borne out from the paper books submitted by the appellant as well as the fact duly recorded by the fact finding authorities. In view of this decision, where the appellant has filed the statement of income showing the income falling into the hands of the appellant, the contention in the present appeal is misconceived and devoid of any substance. Mr. Desai has, therefore, submitted that in view of the finality arrived at with regard to interpretation of the U.K. Trusts as well as U.S. Trusts by the decision of the Settlement Commission, duly approved by the Hon'ble Supreme Court, the appeals filed by the appellant before this Court deserve to be dismissed and the questions formulated by this Court are required to be answered in favour of the department and against the appellant. 40.Mr. M. R. Bhatt, learned Senior Standing Counsel TAXAP/224/2002 42/69 JUDGMENT appearing for the revenue in appeals for A.Y. 1990 – 91 & 1991 – 92 submitted that the Hon'ble Supreme Court has clearly held that whether these Trusts are specific Trusts or not is an academic question in the facts and circumstances of the case. As a matter of fact, both the Settlor and the appellant have been receiving the income from these Trusts during the several assessment years. Shri Vikramsinhji had voluntarily included the entire income from the U.K. Trusts in his income in the returns filed by him for A.Ys. 1964 – 65 to 1969 – 70. It is unlikely that he would have so included unless he really received it. The Settlement Commission treated those declarations as proof of the Settlor's real intention. The Hon'ble Supreme Court noted that the ground of non-taxability put forward by the assessee did not say that he did not receive the income. All he said was, since it is a discretionary Trust, its income is not taxable in his hands. It was also observed by the Hon'ble Supreme Court that it is not brought to the notice of Hon'ble Supreme Court that, during any of the years concerned, the assessee did ever say that he did not TAXAP/224/2002 43/69 JUDGMENT receive the income from these Trusts. Accordingly, it was held that question of law urged is of mere academic interest and need not be dealt with by the Hon'ble Court. The Hon'ble Supreme Court has held that Section 5 of the Act is wide enough to bring all such income to tax. He has, therefore, submitted that it is clear from the above that the Hon'ble Supreme Court was in disagreement with the argument that in as much as this Trusts are discretionary Trusts, the income therefrom must necessarily be taxed and can only be taxed in the hands of the Trustees and not in the hands of the beneficiary. In the same decision, while dealing with the income from the U.S. Trusts, the Hon'ble Supreme Court held that by virtue of Section 166, the Revenue has an option in the case of a discretionary Trust either to make an assessment upon the Trustees or to make an assessment upon the beneficiaries. It was held by the Hon'ble Supreme Court that the revenue has thus been given an option to tax the income from a discretionary trust either in the hands of the Trustees or in the hands of beneficiaries. Hence, it was held that even in a case of TAXAP/224/2002 44/69 JUDGMENT discretionary Trust, the income can either be taxed in the hands of the Trustees or beneficiary. Thus, the nature of the U.K. Trusts, whether specific or discretionary has no relevance in view of above observation of the Hon'ble Supreme Court in respect of U.S. Trusts. 41.Mr. Bhatt has further submitted that regarding assessee's contention that he has neither received any income from U.K. Trusts nor has shown any income received from U.K. Trusts in his return, it is factually incorrect. In his return of income for A.Ys. 1990 – 91 & 1991 – 92, the assessee has appended a note forming part of the income-tax return. The relevant part of the said note states that the assessee has not shown the income from U.K. Trust and U.S. Trust for the year ended 31.03.1990 for the reason that the Settlement Commission has given their findings about the tax liability of the income of Trusts. The assessee has moved the matter before the Hon'ble Supreme Court and the matter is now pending before the Hon'ble Supreme Court. As the issue involved is sub- TAXAP/224/2002 45/69 JUDGMENT judice, the assessee has not shown any income from U.S. Trust and from U.K. Trust. The income tax returns will be revised on the basis of decision of the Hon'ble Supreme Court. Further, during the course of assessment proceedings, the assessee submitted copy of income account for the year ending 31.03.1990 and 31.03.1991 from U.K. Settlements A & B. The assessee had shown income 1,57,638.43 & 58,768.94 US $ respectively for the year ending 31.03.1990 and 31.03.1991. Hence, it is clear that the assessee had in fact received the income from these Trusts but had not shown as matter was sub judice. The assessee had himself given binding to the effect that the income tax returns will be revised on the basis of decision of the Hon'ble Supreme Court. Instead of respecting the decision of the Hon'ble Supreme Court and fulfilling the binding given by him, the assessee is dragging the matter in litigation. 42.Mr. Bhatt has further submitted that even otherwise, whether the assessee has received the income or not has no relevance in view of provisions of Section 5 of TAXAP/224/2002 46/69 JUDGMENT the I.T. Act as held by the Hon'ble Supreme Court in the case of Shri Jyotindrasinhji V/s. S.I. Tripathi and others, 201 ITR 611. Further, it is worth mentioning that the Hon'ble Supreme Court took note of the views expressed by Shri Nani Palkhivala in his submission before the Settlement Commission. Mr. Bhatt has further submitted that the returns of Income-tax and Wealth-tax of late Shri Vikramsinhji are being filed by the legal heir Shri Jyotindrasinhji in the name of estate of late Shri Vikramsinhji even after 36 years of the death of Shri Vikramsinhji. Thus, it can be inferred that the legal heirs of Shri Vikramsinhji have intentionally not settled the issue of inheritance of estate and distribution thereof amongst the legal heirs of his wealth to exploit the provisions of law so as to evade the legitimate taxability of the income and wealth of the foreign Trusts. The department has to protectively assess the income and wealth in the hands of late Shri Vikramsinhji in view of the fact that the assessee has continued to file the return in the name of late Shri Vikramsinhji even after 36 years of his death and in view of the fact that Shri Jyotindrasinhji is TAXAP/224/2002 47/69 JUDGMENT admittedly the sole legal successor of the wealth of the deceased Shri Vikramsinhji and still he is not showing the income and wealth of his father late Shri Vikramsinhji in his individual returns and has not offered the same to tax. The income and wealth of the foreign Trusts has to be taxed somewhere. It cannot be made subject to exemption from all the hands which appears to be the intention of the assessee's legal heir. 43.Mr. Bhatt has further submitted that Clauses 3 & 4 of the settlement have already been interpreted by the Settlement Commission and thereafter by the Hon'ble Supreme Court. Clause 4 uses the phrase “the specified period”. Clause 9 specifically uses the word “only during the period allowed by law ............. only be exercisable during the specified period and during such further period if any (whether definite or indefinite) as in the case of the particular power in question the law may allow....” The settlement were executed during Accounting Year 1963 – 64. Part VIII of the Limitation Act, containing Article Nos.92 to 96 deals with suits relating to Trust and Trust property TAXAP/224/2002 48/69 JUDGMENT where maximum period is of 12 years. Thus, in any view of the matter, irrespective of the above, after a lapse of 12 years, i.e. on and with effect from A.Y. 1977-78 onwards, the Settlor / Sole Trustee lost the right to appoint another Trustee and, therefore also, only Clause 4 came into operation due to default. 44.Mr. Bhatt has further submitted that the Assessing Officer as well as two Appellate Authorities have arrived at a finding of fact that the facts for the present year are similar to those for A.Y. 1964 – 65 to 1969 – 70 & 1970 – 71 to 1982 – 83. For the present year also, similar note to the return has been filed by the assessee. Further, the said findings not being perverse, this Court under Section 260A would be slow in taking the different view on admitted facts. He has, therefore, submitted that all the appeals filed by the assessee deserve to be dismissed. 45.So far as A.Y. 1987 – 88 is concerned, over and above the three substantial questions of law which are common for all other assessment years, one more TAXAP/224/2002 49/69 JUDGMENT substantial question of law is formulated for this year. The appellant's grievance is against the order of the Tribunal confirming the addition of income from U.S. Trusts for this year, though admittedly no distribution has been made by the Trustees nor any income has been received by the appellant from U.S. Trusts. Even the Assessing Officer has also not made any addition in the earlier assessment years on the ground that no distribution has been made by the Trustees and that the appellant has not received any income from U.S. Trusts. 46.Mr. Patel has submitted that the Tribunal has confirmed the addition only on the ground that the appellant could not substantiate the claim at the time of hearing though the same was not disputed by the learned departmental representative that no distribution of income of U.S. Trusts have been made for A.Y. 1987 – 88. He has further submitted that in the statement of income for this year, the appellant has specifically stated that no distribution has been made by the Trustees. The income from U.S. Trusts TAXAP/224/2002 50/69 JUDGMENT for A.Y. 1987 – 88 was not liable to be added in the hands of the appellant as for earlier years i.e. to say for A.Y. 1984 – 85 to 1986 – 87 and subsequent years being A.Y. 1988 – 89 & 1989 – 90, no income from U.S. Trusts was added in the hands of the appellant. He has, therefore, submitted that the income from U.S. Trusts in any case cannot be taxed in the hands of the appellant for A.Y. 1987 – 88. 47.Mr. P. G. Desai, learned Standing Counsel appearing for the revenue has relied on the orders of the authorities below on this issue and submitted that the Tribunal has specifically discussed this issue in paragraph 23 of its order wherein it is observed that during the course of hearing, the Bench specifically called upon the learned Counsel to furnish information regarding the disbursement made by the U.S. Trusts to beneficiaries during the period relevant for A.Y. 1987 – 88 which would be liable to be assessed in the hands of the assessee as his income. The Tribunal has also referred to the contention raised on behalf of the assessee that no distribution has been made by the TAXAP/224/2002 51/69 JUDGMENT Trustee. When called upon to substantiate the claim, the learned Counsel expressed his helplessness to furnish any such evidence. The Tribunal has also observed that the assessee has indicated in the income tax return for A.Y. 1987 – 88 the break-up of the income in respect of each of the U.S. Trusts and included such income subject to Supreme Court decision. Even though the Indian income shown in the return was loss, the assessee claimed deduction under Section 80 L as well as PPF deposit and Unit Trust with the remark “claimed in case of positive return”. On this basis, the Tribunal had come to the conclusion that the assessee has himself admitted that the income from U.S. Trusts as well as U.K. Trusts was liable to be included in his hands in accordance with the decision of the Hon'ble Supreme Court. He has, therefore, submitted that this being finding of fact arrived at by the Tribunal, no interference is called for in the order of the Tribunal. 48.Having heard learned counsels appearing for the parties and having considered the orders of the TAXAP/224/2002 52/69 JUDGMENT authorities below as well as the order of the Settlement Commission and the decision of the Hon'ble Supreme Court rendered in earlier round of litigation, we are of the view that the present appeals cannot be decided merely on the premises that the issues are covered by the decision of the Hon'ble Supreme Court. All the authorities have proceeded on the footing that the facts are identical to the facts of earlier years and since the Settlement Commission has interpreted the relevant Clauses of the Trust Deed of U.K. Trusts and the ultimate finding of the Settlement Commission was upheld by the Hon'ble Supreme Court, there is no scope for any further argument so far as the present appeals are concerned. Hence, the orders passed by the authorities below cannot be disturbed by this Court. We express our inability to endorse this view of the authorities below in view of the distinguishing features brought to our notice by the learned Counsel of the appellant. The distinguishing features are that for years under appeal, previous order of the Settlement Commission or the Hon'ble Supreme Court are not applicable there TAXAP/224/2002 53/69 JUDGMENT being no bar of res judicata on different set of facts. Even otherwise, on true interpretation of U.K. Trusts, Settlement Commission's order is not binding on the Tribunal nor on this Court especially when the Hon'ble Supreme Court having treated the same as mere academic. Converse to facts found by Settlement Commission and Hon'ble Supreme Court :- i. The appellant has not admitted having received the income. ii. The appellant has not received the said income. iii.The appellant has not shown as taxable in the returns of all the years under appeal. iv.On the contrary, the Trusts have exercised their discretion in retaining the net income of the Trusts by further carry forward and brought forward from year to year under appeal. v. The appellant, as against the admitted position in the preceding years before the Settlement Commission and Hon'ble Supreme Court, has seriously objected the additions in question before the Income-tax Officer, CIT (A) and Tribunal and having lost in the said TAXAP/224/2002 54/69 JUDGMENT proceedings, regular appeals are filed and admitted by this Court under Section 260A raising three substantial questions in all the 8 years and one more question in Tax Appeal No.229 of 2002 against the addition of U.S. Income for the first time and this Court has raised the said question as substantial question of law. vi.So far as Tax Appeal No.229 of 2002 is concerned, one more addition of U.S. Trusts No.1, 2 & 3 income is made, despite the fact that it is not returned and it is distinctly stated that no distribution was made by the Trustees. It was also stated that the appellant has not received the income of the said U.S. Trusts. The income from U.S. Trusts was not taxed in the preceding two years under appeal and succeeding four years under appeal by the Assessing Officer himself. vii.On the basis of the facts, circumstances and evidence on record, the two main contentions that on the true construction and effect of the settlement made in U.K., the real nature and character of the Trusts created there under is discretionary and that the order of the Settlement Commission dated 31.03.1979 does not estop the appellant from contending, inter alia, that the Trusts created by the settlements in U.K. Are discretionary in nature and other contentions regarding ambit and width of Settlement Commission's order, consideration of all irrelevant facts and ignoring TAXAP/224/2002 55/69 JUDGMENT relevant facts and materials on record by the Tribunal, burden of proof, concept of income arising, accruing, received or earned, concept of real income, negative facts how proved, consideration of an explanation, burden of proof, discretion exercised by the Trustees by retention, nothing is receivable in these years by any of the beneficiaries and hence, option under Section 166 is not available to revenue, income in question having been taxed in U.K., additions in case of beneficiaries will result in taxing the same income twice, if Trusts fails for want of Trustees Clause 3 as well as Clause 4 cannot be operative and it will give rise to resulting Trust, power to appoint discretion exerciser and no time limit for Trustees for distributing the income / appointing additional Trustees by power holders, raised by the appellant are capable enough to establish and to persuade the Court to consider the whole issue independently and in light of the submissions made and facts found on record. 49.In light of the above, the judgment of the Hon'ble Supreme Court in the case of Shri Jyotindrasinhji V/s. S.I. Tripathi and others, (1993) 201 ITR 611, requires close scrutiny. The Hon'ble Supreme Court has recorded the contentions raised on behalf of the assessee as under :- TAXAP/224/2002 56/69 JUDGMENT i. So far as U.K. trusts are concerned, the settlement commission has committed an error of law in holding that clause (3) could come into operation only if and when the settlor appointed the additional trustees as contemplated by it. In fact, the trust had come into existence with the sole trustee (McGill) and it did not depend upon the appointment of additional trustees. Clause (3) prevails over clause (4). If so, the U.K. trusts/settlements are also discretionary trusts and not specific trusts as held by the Settlement Commission. In such a case again the assessment can be made only upon the trustees and not upon the beneficiaries- recipients. ii. So far as U.K. trusts are concerned, no income was received by the settlor or the appellant either in U.K. 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. The deeds do not prescribe a time-limit within which the trustees should exercise their discretion to distribute income. Until the trustees take a decision to distribute and distribute the income, the beneficiaries have no right to income nor can it be said that the income accrues to them. The Settlement Commission committed a legal error in including the income from the U.K. trusts in the total income of the settlor and the appellant even though it was not paid out by the trustee nor received by the assessees. At any rate, no income was received TAXAP/224/2002 57/69 JUDGMENT in India. iii.In both the U.S. and U.K., tax has been levied upon the respective trust incomes under the laws of those countries. Levying tax over again in this country on the very same income amounts to double taxation. On this ground too, the tax levied in India must be waived. After recording the rival contentions, the Hon'ble Supreme Court has observed that the main controversy in these appeals relates to the interpretation of the settlement deeds - though it is true, some contentions of law are also raised. The commission has interpreted the trust deeds in a particular manner. Even if the interpretation placed by the commission on the said deeds is not correct, it would not be a ground for interference in these appeals, since a wrong interpretation of a deed of trust cannot be said to be a violation of the provisions of the Income-tax Act. It is equally clear that the interpretation placed upon the said deeds by the Commission does not bind the authorities under the Act in proceedings relating to other assessment years (emphasis supplied). TAXAP/224/2002 58/69 JUDGMENT While discussing about the applicability of Section 166 of the Income-tax Act, 1961, in relation to the income from U.S. Trusts being discretionary Trust, the Hon'ble Supreme Court has referred to the Full Bench decision of this Court in the case of C.I.T. V/s. Kamalini Khatau, 112 ITR 652 and since the appeal against this judgment was pending before the Hon'ble Supreme Court, at that time, the Hon'ble Supreme Court had not dealt with the said issue in detail except saying that the Hon'ble Supreme Court was inclined to agree with the dissenting view of P.D. Desai, J. and it was not concerned with the reasoning of the majority. So far as the income from U.K. Trusts is concerned, after narrating the rival contentions, the Hon'ble Supreme Court has observed that the question urged is academic in the facts and circumstances of the case. As a matter of fact, both the settlor and the appellant have been receiving the income from these trusts during the several assessment years. Sri Vikramsinhji had voluntarily included the entire income from the TAXAP/224/2002 59/69 JUDGMENT U.K. trusts in his income in the returns filed by him for the assessment years 1964-65 to 1969-70. It is unlikely that he would have so included unless he really received it. The Hon'ble Supreme Court has further observed that if the assessee had not received the income, he would have put forward that fact in the forefront. It was further observed that it was not brought to the notice of the Hon'ble Supreme Court that, during any of the years concerned, the appellant did ever say that he did not receive the income from these Trusts. If so, the question of law urged is of mere academic interest and need not be dealt with by the Hon'ble Supreme Court. Section 5 of the Act is wide enough to bring all such income to tax. So far as the plea of double taxation is concerned, the Hon'ble Supreme Court has observed that the observation made by the Commission in that behalf is quite adequate. It has stated that in case the appellant proves that any income has been taxed in the U.S. or the U.K., the same income shall not be taxable over again in India. The present appeals are to be decided TAXAP/224/2002 60/69 JUDGMENT in light of the above observations of the Hon'ble Supreme Court. 50.In CIT V/s. Kamalini Khatau, (1994) 209 ITR 101 (SC), the Hon'ble Supreme Court has held that Section 166 is clarificatory. It does not empower any assessment or recovery by itself. It only makes it clear that Sections 160 to 165 do not bar the direct assessment of the person on whose behalf or for whose benefit the income is receivable or the recovery from such person of the tax payable thereon, provided that is permissible under any other provisions of the Act. Even so, since the word used in Section 166 is “receivable”, it cannot apply to a discretionary trust, for it cannot be said that the income thereon is “receivable” for one or more beneficiaries, it being left to the discretion of the trustees whether or not the income should be distributed to one or more of the beneficiaries or not at all. But that is not to say that the beneficiary of a discretionary trust, because he does not fall within the ambit of Section 166, may not be assessed upon income received by him and tax TAXAP/224/2002 61/69 JUDGMENT recovered from him thereon if that is permissible under any other provisions of the Act for Section 166 is merely clarificatory. The Hon'ble Supreme Court has further observed in this decision that Section 5 of the Act defines the total income of any person to include income received by him or received on his behalf or which accrues or arises to him. A person may be directly assessed in respect of such income. The income of a discretionary trust which is within the accounting year distributed to and received by the beneficiary would, therefore, be subject to assessment in his hands and tax thereon would be recoverable from him. Such income would squarely fall within the broad sweep of total income under Section 5 and the beneficiary would be liable to assessment and recovery of tax thereon under Section 4. 51.In CIT V/s. Nipani Tobacco Stores, 145 ITR 128 (Patna), the Patna High Court has held that the initial burden of proof which lay upon the assessee to prove a TAXAP/224/2002 62/69 JUDGMENT negative fact could be said to have been discharged by merely placing a preponderance of probabilities by the assessee. The facts relating to the explanation offered by the assessee with regard to the cash credits in question and the evidence adduced in that behalf were considered by the Tribunal. The Tribunal was right in holding that the onus shifted back to the revenue and it had not been discharged. In the present case also, the facts relating to the explanation offered by the assessee with regard to the taxability of income from U.K. Trusts and the evidence adduced in that behalf were not properly considered by the Tribunal. Though the onus shifted back to the revenue, the said onus had not been discharged by the revenue. The Tribunal was, therefore, not right in holding that the income from U.K. Trusts was taxable in the hands of the assessee. 52.In Godhra Electricity Company V/s. CIT, 224 ITR 746 (SC), the Hon'ble Supreme Court has held that income tax is a levy on income. No doubt, the Income- tax Act takes into account two points of time at which TAXAP/224/2002 63/69 JUDGMENT the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If the income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialize. Similarly in the present case, no income was accrued or received by the assessee from the U.K. Trusts. The note put up in the statement of income was conditional one. It nowhere suggests that the income has been received by the assessee. The deduction under Section 80-L was claimed only in case of a positive income. Despite the fact that the income was not received nor it was accrued to the assessee, simply on the basis of the note or similarity of facts, or on assumption of similarity of facts, which are not in effect, the income cannot be taxed in the hands of the assessee. 53.In CIT, Bombay City, 1 V/s. Messrs. Shoorji Vallabhdas and Company, 46 ITR 144 (SC), the Hon'ble Supreme Court has held that the income has, in fact, been received and is subsequently given up in TAXAP/224/2002 64/69 JUDGMENT such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. Here in assessee's case also, there is neither accrual nor receipt of income as the Trustees have not exercised their discretion to distribute the income of the Trust and hence, it cannot be said to have accrued or received by the assessee. 54.In light of the above legal and factual position, simply because the authorities below have erroneously come to the conclusion that the facts are identical with the facts of earlier years, it cannot be believed on close verification and proper examination of those facts that the same were identical. The statement of income of all these years are on record. The notes which were placed in these statements of income are also taken into consideration. At the time when the returns were filed, the decision of the Hon'ble Supreme Court was TAXAP/224/2002 65/69 JUDGMENT not available. The assessee was hopeful that he would succeed before the Hon'ble Supreme Court. Hence, such note was put stating that it was subject to the outcome of the decision of the Hon'ble Supreme Court. As far as income from U.K. Trusts is concerned, the Hon'ble Supreme Court has not given any specific finding in view of the fact that the assessee's father as well as the assessee have shown the income from U.K. Trusts in their income-tax returns. The Hon'ble Supreme Court has not gone into the aspect of the interpretation of Clause 3 & 4 of the Trust Deed. On the contrary, at more than one places, the issue was kept open. Simply because the Settlement Commission has interpreted the said clause, it would not be binding on the Tribunal nor on this Court. So far as the years under appeals are concerned, the assessee has been seriously challenging inclusion of income from U.K. Trusts in his hands stating therein that neither distribution has been taken place nor the same has been received by him. The assessee has also produced the accounts of the Trusts wherein it is specifically stated that the income has been retained by the TAXAP/224/2002 66/69 JUDGMENT Trustees and it was brought forward to the next years. It was also stated in such statement of accounts that the tax has been paid by the Trustees of the U.K. Trusts on the income so earned in U.K. It appears that any of the authorities below, including the Tribunal has not considered this vital aspect of the matter and proceeded on the footing that the facts are identical and that the notes are similar to the notes of earlier years. If the income were retained by the Trustees and it has not been distributed, nor it has been received by the assessee and no evidence has been brought by the department to show that the same has been received by the assessee in India, such income cannot be taxed in the hands of the assessee. Section 5 of the Act has also no application. When the income has neither accrued nor received by the assessee, nor it has been received or accrued on his behalf either in India or outside India, such income cannot be taxed under Section 166 of the Act as it is not the income receivable. Section 166 of the Act can be invoked only when the income is received by the assessee. Unless and until the Trustees exercise the discretion and TAXAP/224/2002 67/69 JUDGMENT distribute the income in favour of any of the beneficiaries, i.e. the assessee, such income cannot be said to be received by the assessee. Taking any view of the matter, it cannot be said that the income has been either received by or accrued to the assessee. 55.So far as the interpretation of Clauses 3 & 4 of the U.K. Trusts is concerned, it is an admitted position that neither the Settlor nor the present appellant has appointed any additional Trustee. It is also an admitted position that the sole Trustee appointed under the Trust at the time of its creation, is competent enough to take decision with regard to distribution of the income of the Trusts. It is nobody's case that the sole Trustee has exercised such discretion and distributed the income in favour of the beneficiary. Merely on the basis of presumption, the interpretation of any Clause of Trust Deed cannot be made that under the Trust Deed, the Trustees are bound to exercise the discretion. Non-exercise of discretion is a matter of fact and an inference drawn by the possible interpretation of Clauses 3 & 4 of the TAXAP/224/2002 68/69 JUDGMENT Trust Deeds that the distribution has taken place and assessee received an income, is not sustainable. On the basis of such presumption, income cannot be taxed in the hands of the assessee. Clause 4 of the Trust Deed starts with the opening words “subject as aforesaid” meaning thereby its operation is subject to the conditions precedent enumerated therein or the eventualities envisaged therein. All the authorities have proceeded on the footing that Clause 4 had come into operation and that on that ground, income was taxed in the hands of the assessee irrespective of the fact whether such income was received by the assessee or not. We are, therefore, of the view that a close and combine reading of Clause 3 & 4 of the Trust Deed makes it abundantly clear that the sole Trustee has every power or authority to take decision with regard to the trust property and since it has been decided by the Trustee to retain the income of the Trust, it cannot be said that such income is being received by the assessee. We are also of the view that the applicability of Clause 4 is subject to the conditions of Clause 3 (2) and since sole trustee is administering TAXAP/224/2002 69/69 JUDGMENT the trust property and income and neither the late Maharaja nor the present appellant made appointment of discretion exerciser and the specified period is still not over, there is no question of invoking Clause 4 of the Trust and thereby taxing the income in the hands of the assessee. It is also important to note that the Trustees have paid the tax on the income earned by them in U.K. and hence, the same cannot be taxed twice over. 56.In the above view of the matter, the questions formulated by this Court in all these appeals are decided in favour of the assessee and against the revenue. All these appeals are accordingly allowed without any order as to costs. Sd/- [K. A. PUJ, J.] Sd/- [BANKIM N. MEHTA, J.] Savariya "