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Judgment
Sikri, J.—These appeals by special leave are directed against the judgment of the Mysore High Court in a reference u/s 27(1) of the Wealth-tax Act, 1957 (XXVII of 1957) - hereinafter referred to as the Act - answering the question "whether the sums of Rs. 4,30,684 and Rs. 4,13,353 being the value of the shares transferred by the assessee to the Sandur Ruler's Family (Second) Trust could be included in the net wealth of the assessee for the assessment years 1958-59 and 1959-60 under the provisions of section 4(1)(a)(iii) of the Wealth-tax Act" in favour of the revenue.
The question arose in the following circumstances : The appellant, His Highness Yeshwant Rao Ghorpade, hereinafter referred to as "the assessee," held 12,750 shares in Sandur Manganese & Iron Ores Ltd. on March 31, 1957. On August 24, 1957, he created two trusts; one may be called "the Charitable Trust" and the other, the Sandur Ruler's Family (Second) Trust, may hereinafter be referred to as "the Second Trust". The assessee transferred some shares to the Second Trust under conditions contained in the trust deed. The Wealth-tax Officer and the Appellate Assistant Commissioner, in computing the net wealth of the assessee on March 31, 1958, and March 31, 1959, the valuation dates respectively for the assessment years 1958-59 and 1959-60, included the value of these shares held by the trustees under the Second Trust. On appeal, the Appellate Tribunal reversed the decisions of the authorities below and came to the conclusion that the value of the shares could not be taken into consideration in computing the net net wealth of the assessee. The Tribunal, however, at the instance of the Department referred the question of law already set out above for the opinion of the High Court. The High Court, as mentioned earlier, answered the question against the assessee. The assessee having obtained special leave, the appeals are now before us.
The short question that arises is whether the shares in question held by the trustees under the Second Trust are held for the benefit of the three minor children mentioned in the Second Trust deed. The answer to this question depends, first, on the interpretation of the words "for the benefit of... minor child" in section 4(1)(a)(iii) of the Act, and, Secondly, on whether, on the true interpretation of the Second Trust, these assets are held for the benefit of the minor children. Section 4(a)(iii) reads as follows :
"4. (1) In computing the net wealth of an individual, there shall be included, as belonging to him -
(a) the value of assets which on the valuation date are held - ...
(iii) by a person or association of persons to whom such assets have been transferred by the individual otherwise than for adequate consideration for the benefit of the individual or his wife or minor child or..."
The learned Solicitor-General, Mr. Gupte, on behalf of the revenue, contends that the word "benefit" in this section means immediate or deferred benefit. He says that the amendment of the section made by the Wealth-tax (Amendment) Act, 1964 (46 of 1964), which came into force on April 1, 1965, is in effect declaratory. Section 4 of the Amending Act substituted a new clause for the clause set out above. The new clause is :
"(iii) by a person or association of persons to whom such assets have been transferred by the individual otherwise than for adequate consideration for the immediate or deferred benefit of the individual, his or her spouse or minor child (not being a married daughter) or both, or...."
We are unable to regard the new amendment as declaratory. The amendment makes a deliberate change and the addition of the word "the immediate or deferred benefit" before the words "of the individual", apart from other changes, cannot be called mere declaratory legislation, and we must construe the word "benefit" apart from the amendments made by Act 46 of 1964.
It seems to us that the word "benefit" in the context means for the immediate benefit of the individual or his wife or minor child. If a property is transferred to trustees to hold in trust for the life of A and then for B, we cannot hold that the property is held for the benefit of B during the lifetime of A. As will appear later, under the Second Trust, the trustees hold the trust property for the benefit of the charitable trust for a number of years before they start holding it for the benefit of the minor children. It is difficult to say that the while the property is being held for the benefit of the charitable trust, it is also being held for the benefit of the minor children.
Coming to the second point, namely, whether the trust property is held for the benefit of the minor children within section 4(1)(a)(ii), it is necessary to carefully consider the terms of the Second Trust deed, because the High Court has differed from the interpretation placed upon it by the income tax Appellate Tribunal.
It is common ground that the trust deed must be considered as a whole. The preamble to the deed reads as follows :
"This Deed of Settlement and Trust is made this 24th day of August, 1957, between His Highness Maharaj Shri Yeshwant Rao Hindu Rao Ghorpade, Ruler of Sandur, now residing at Sandur House, Palace Road, Bangalore, hereinafter called the SETTLOR, of the one part, and His Highness Maharaj Shri Yeshwant Rao Hindu Rao Ghorpade, Ruler of Sandur, and Captain Sardar Dattaji Rao Chander Rao Ranavare, both of whom are hereinafter collectively called the TRUSTEES, of the other part :
Whereas the SETTLOR is absolutely entitled to the share, set out and and described in Schedules A, B and C hereto as sole and absolute owner thereof;
Whereas the SETTLOR had been and is desirous of making a settlement on his two minor sons, namely, Rajkumar Shri Shivarao Yeshwantrao Ghorpade, aged 16 years, and Rajkumar Shri Venkatrao Yeshwntrao Ghorpade, aged 6 years, hereinafter referee to as the First and the Second Beneficiary, and on his minor daughter, Rajkumar Shri Vijayadevi Yeshwantrao Ghorpade, aged 10 years, hereinafter referred to as the Third Beneficiary, out of natural love and affection towards them of the share set out in Schedules A, B and C hereto respectively, and with a view to make provision for them;
Whereas the SETTLOR intends and desires to give to his aforesaid minor sons and minor daughter, from time to time, further share for other assets, with the intention that such further shares of other assets be given, should be held in trust for the said minor sons and minor daughter in the manner in which they have respectively taken the share set out and described in Schedules A, B and C hereto, as if the further shares or other assets had formed part of the said Schedules."
It is not necessary to set out the last paragraph in that preamble. The learned Solicitor-General attaches importance to the recitals in the preamble, but, in our view, the recitals do not assist us in any manner. There is no doubt that the intention of the settlor was to make a settlement on his minor children, but the whole question which arises in this case is whether the settlement made by him is for the benefit of the minor children within section 4(1)(a)(iii). The word "settlement" is neutral, and the question is what has been settled on the minor children. But there is no doubt that the assessee out of natural over and affection for his minor children created the trust in question, and that the minor children are the beneficiaries under the trust.
Clauses 1, 2, and 3 of the trust deed grant, transfer and convey the share mentioned in the Schedules A, B, and C to the trustees. Clause 1 deals with the share settled for the ultimate benefit of the first beneficiary; clause 2 deals with the shares settled for the ultimate benefit of the second beneficiary, and clause 3 dealt with the share settled for the ultimate benefit of the third beneficiary. These clauses are couched in the same language and it is only necessary to set out clause 1, which is in the following terms :
"The Settlor doth hereby grant, transfer and convey unto the trustees the shares set out and described in Schedule A hereto, to have and to held the same in trust, both as to the corpus and income therefrom, for a period of two years from the date of this Indenture for the benefits of Shri Yeshwantrao Maharaj Charitable Trust and on the expiry of the said prior of two years, to have and to hold the shares set out and described in Schedule A hereto in trust both as to the corpus and income received after expiry of the aforesaid period of two years from the date of this Indenture, for the benefit of Rajakumar Shri Shivarao Yeshwantrao Ghorpade, the first beneficiary herein, as the full absolute and beneficial owner thereof, but subject to the terms and conditions hereinafter set forth."
Clause 1 thus purports to vest the share in the trustees and directs, first, that they shall hold the same in trust, both as to corpus and income therefrom for a period of two years from August 24, 1957, for the benefit of the Charitable Trust, and secondly, that on the expiry of the said period of two years to hold the shares in trust, both as to corpus and income received after the expiry of the aforesaid period of two year from August 24, 1957, for the benefit of the first beneficiary. It seems to us clear from reading this clause in isolation from the other clauses, which will be referred to later, that for the first two years the beneficiary is the Charitable Trust and not the Rajkumar, the first beneficiary. For the first two years there is an express direction that the corpus and the income should be held for the benefit of the Charitable Trust. There was some discussion as to why both the corpus and income are mentioned. The word "income" has been defined in clause 31 of the deed as follows :
"In these presents, the expression 'income' with reference to any beneficiary shall mean the income derived from the shares set out and described in the Schedule appropriate to such beneficiary and any income that may be derived from the investment of such income including any income that may be derived from any further shares or other assets that may be transferred either by the Settlor or by any other persons for the benefit of any such beneficiary, including bonus shares, if any."
It appears to us that in view of this definition it was perhaps necessary to mention the word "income" in clause 1 because the idea of the settlor was that income accruing in the first year should be invested and further returns secured from it. But it is manifest that the Rajkumar, the first beneficiary, had no interest whatsoever in the income accruing during the first two years from the trust properties. It is true that clause 1 does not direct that the income during the first two years should be handed over to the Charitable Trust, but this is made clear in clause 21, which we shall presently consider.
The next relevant clause is 9, which reads as under :
"This Settlement and trust is hereby declared to be irrevocable and shall take effect immediately and all trusts, settlement and interests granted or created by these presents shall vest in the respective Beneficiaries immediately."
Mr. Gupte relied on this clause to show that the interest of the minor children was a vested interest and not a contingent interest. Assuming that it is so, it still does not assist as in answering the question which we have posed above. Assuming the interest to be vested we still have to consider whether trustees hold the share for the benefit of the minor children as on the valuation dates, i.e., March, 31, 1958, and March, 31, 1959.
Clause 21, to which reference was made a short while ago, and the proviso thereto, are as follows. We may mention that the High Court thought that the provisos were irrelevant but in our view they throw a great deal of light on the question before us.
"21. The Trustees may, in their absolute discretion, accumulate the income accruing under this settlement to the benefit of Shri Yeshwantrao Maharaj Charitable Trust for a period of two years from the date of this Indenture as respects the share set out and described in Schedule A hereto and for a period of twelve years from the date of this Indendture as respects the share set out and described in Schedule B hereto and for a period of eight years from the date of this Indenture as respects the shares set out and described in Schedule C hereto.
Provided that :
(a) The Trustees may, at any time and from time to time, during the aforesaid period of two years from the date of this Indenture, pay to the trustees of Shri Yeshwantrao Maharaj Charitable Trustee the whole or any part of the income accruing under this settlement in respect of shares set out and described in Schedule A hereto, during the said period of two years as the trustees may, from time to time, deem fit and on the expiry of the said period of two years, the trustees shall pay over to the trustees of the said Shri Yeshwantrao Maharaj Charitable Trust the whole or the balance of the said income, as the case may be, and thereupon the Trustees shall stand discharged of all their obligations to the aforesaid Charitable Trust and thereafter the said Charitable Trust shall have no right or claim whatsoever either to the income or the corpus of the said shares set out and described in Schedule A hereto."
Provisos (b) and (c) and in similar terms and deal with the share set out in Schedule B and Schedule C, respectively, the only difference being about the period during which the income accruing could be paid to the Charitable Trust and the prior after which the Trustees were under an obligation to pay to the Charitable Trust the whole or the balance of the said income. It seems to us quite clear from clause 21 that the intention of the settlor was that the income from the shares mentioned in Schedule A should be either paid over to the Charitable Trust during the period of two years, or if it is not paid over during the two years, it should be paid over to the Charitable Trust on the expiry of the said two years.
Now reading clause 1 and clause 21 with proviso (a) it seems to us that it is the Charitable Trust which is entitled to the income of the share in Schedule A during the first two years. Reading clause 2 and clause 21 with proviso (b) it is equally clear that it is the Charitable Trust which is entitled to the income from the shares set out in Schedule B for a period of 12 years. Further it is manifest that reading clause 3 and clause 21 with proviso (c), it is the Charitable Trust which is entitled to the income from the share set out in Schedule C during the first eight years. During these period the first, second and third beneficiary had no interest whatsoever in that income.
The learned Solicitor-General says that this may be so if we only consider clause up to 21, but if we consider clause 22, 23, 24, 25, and 26, they override the intention manifested uptill now. Clauses 22, 23, and 24 enable the trustees to accumulate the income accruing under the settlement to the first, second and the third beneficiary respectively till July, 31, 1975. We may only set out clause 22 which deals with the first beneficiary. Clause 22 reads as follow :
"The Trustees may in their absolute discretion accumulate the income accruing under this Settlement and Trust to the First Beneficiary herein until the 31st July, 1975, and on the aforesaid date shall make over to him all the trust funds in the possession of the Trustees as may belong to the said Beneficiary."
In our view, clause 22 enables the trustees to accumulate only the income accruing to the first beneficiary; it does not say what income accrues to the first beneficiary. For that we have to took to the other clauses. It is only under the latter part of clause 1 of the trust deed that income accrues to the first beneficiary. Clause 25 deals with the eventuality of the first, second or the third beneficiary dying before July 31, 1975. It does not really throw much light on the question. The next clause, clause 26, is important, and Mr. Gupte strongly relies on this clause. This clause reads as follows :
"Notwithstanding anything contained in clause 21 to 25 supra, the Trustees shall have full power during the currency of this Settlement and Trust to expend out of the income accruing under this Settlement to each of the Beneficiaries herein such amount as the Trustees may be their direction deem fit for the maintenance, education, health, marriage and advancement of each of the Beneficiaries herein."
Mr. Gupte says that this clause shows that all the previous clauses are a smoke-screen to enable the trustees to spend the money for the benefit of the beneficiaries even during the aforementioned period of 2, 12 and 8 years, and he says that the non-obstante clause overrides everything contained in clause 21 to 25. There is no doubt that clause 21 is mentioned in the non-obstante clause, but we agree with Mr. Venkataraman, the learned counsel for the assessee, that the mention of clause 21 seems to be a typographical mistake, for the meaning of the clause is quite clear that the trustees cannot under this clause expend from out of the income accruing under the settlement to the Charitable Trust, for their power to spend is limited to the income accruing under the settlement to each of the beneficiaries, and as we have mentioned before while dealing with clause 21, the only income that accrues to the three beneficiaries under the settlement is after it ceases to be accumulated for or given to the Charitable Trust. If we were to accept Mr. Gupte's argument we would have to omit the words "to each of the Beneficiaries herein" occurring in the clause. Mr. Gupte contends that the word 'beneficiary' would include the Charitable Trust. We are unable to agree because the latter portion of the clause deals with education, marriage, etc., and these can have reference only to the first, second and the third beneficiary, i.e., his minor children. Mr. Gupte urges that it would be natural on the part of the settlor to provide for the maintenance, education, health, marriage and advancement of each of the beneficiaries during there minority, and it would be unnatural to at tribute intention to him to leave them without any means of sustenance during their minority. There is no force in this contention. The settlor may well have thought that he would look after the minor children during their minority, and what he wanted to provide was for their expenses after they had attained the age of about 18. It would be recalled that the effect of the earlier provisions is that income starts accruing under the settlement to each of the minor children when they reached the age of about 18. We are accordingly of the opinion that Clause 26 does not cut down the interest which had been settled on the Charitable Trust.
We may mention that in this connection Mr. Venkataraman drew out attention to the rule of construction laid down by this court in Sahebzada Mohammad Kamgar Shah v. Jagdish Chandra Deo Dhabal Deo and Ramkishore Lal v. Kamal Narain. In the latter case, Das Gupta J. speaking for the court, observed as follows :
"Sometimes it happens in the case of documents as regard disposition of properties, whether they are testamentary or non-testamentary instruments, that there is a clear conflict between what is said in own part of the document and in another. A familiar instance of this is where in an earlier part of the document some property is given absolutely to one person but later on other directions about the same the same property given which conflict with and take away from the absolute title given in the earlier portion. What is to be done where this happens ? It is well settled that in case of such a conflict the earlier disposition of absolute title should prevail and the later directions of disposition should be disregarded as unsuccessful attempts to restrict the title already given (see Sahebazada Mohd. Kamgar Shah v. Jagdish Chandra Deo Dhabai Deo). It is clear, however, that an attempt should always be made to read the two parts of the document harmoniously, if possible. It is only when this is not possible,
In our opinion these observations would apply to the facts of this case if it is held that there is conflict between clauses 1 and 21 on the one hands and clause 26 on the other. But, in our view, all these clauses can be read harmoniously by holding that the mention of clause 21 in clause 26 is a typographical mistake, and clause 26 deals only with the income which accrues to the first, second and third beneficiary after the interest of Charitable Trust has ceased.
In conclusion we hold, that considering the document as a whole the shares were not held for the benefit of the three minor children as on March 31, 1958, and March 31, 1959. Accordingly the answer to the question referred by the Appellate Tribunal and set out above must be against the revenue.
The appeals are accordingly allowed, the judgment of the High Court set aside and the question referred to the High Court answered in the negative. The assessee will be entitled to costs here and in the High Court. One hearing fee.
SHAH J.
The High Court of Mysore answered the following question referred u/s 27(1) of the Wealth-tax Act, 1957 (27 of 1957), in the affirmative :
"Whether the sums of Rs. 4,30,684 and Rs. 4,13,353 being the value of the shares transferred by the assessee to the Sandur Ruler's family (Second) Trust could be included in the net wealth of the assessed for the assessment years 1958-59 and 1959-60 under the provisions of section 4(1)(a)(iii) of the Wealth-tax Act ?"
The Wealth-tax Bill was moved before the Parliament on May 15, 1957, and was enacted a slaw after receiving the assent of the president on September 12, 1957. The two trust deeds which falls to be construed these appeals were executed on August 24, 1957. The object of the settlor of the two deeds of trust was to evade the charge of wealth- tax on the properties covered thereby. It was so found by the High Court, and that was not denied before us. But it is open to a taxpayer to so order his affirms that incidence of tax may lewdly be avoided. Attempts at evading incidence of taxation, though not commendable, are not illegal. In each case the court must take the taxing statute as it stands, subject to all its imperfection : if a transaction does not fairly fall with in the letter of the law the law, the court will not seek to put a strained construction to bring it within the law. The court will not also stretch a point in favour of the taxpayer to enable him to get by his astuteness the benefit which other taxpayers do not obtain.
The two trust deeds were executed on August 24, 1957. One is a trust deed styled "Shri Yeshwant Rao Maharaj Charitable Trust" - hereinafter called "the charitable Trust" - and the other is styled "The Sandur Ruler's Family (Second) Trust" - hereinafter called "the Family Trust." Of both these trusts, Yeshwant Rao Ghorpade, Ruler of Sandure, is the settlor and the trustees are the settlor and Caption Sardar Dattaji Rao Chender Rao Ranavare. Under the Charitable Trust the income and all the assets of the trust founds are liable to be utilised for advancement of knowledge, education, health, safety or say other object of general public utility or beneficial to mankind. The settler is to be the chairman of the board of trustees during his lifetimes and he has power to fill up the vacancy in the office of a trustee. In case of his death, the Ruler of Sandur for the time being is entitled to fill the vacancy of the office of trustee. Under this deed no property is settled for the trust. By clause 3 the assets and the funds of the Trust are to be such sums as the Founder Trustees may contribute or in any manner provide to the Trust, such sums or assets as may be contributed, gifted or donated by any person or company to the Trust, all interest or income arising out of the said sums and assets, all assets, that may be purchased or acquired from out of the said funds or otherwise acquired for the Trust, all investments and realisations therefrom out of the said funds, and assets, and all sums and assets which have by any means become the property of the Trust. By Clause 4 the trustees are authorised to accept any donation or other sums of money or other assets from any person or company subject to any special conditions as may be agreed upon, but not so as to be inconsistent with the intent and purposes of the Trust.
Simultaneously, with the charitable trust, the family trust was executed. Initially the settlement was to operate in respect of 30 ordinary shares of the Sandur Managenese and Iron Ores (Private) Ltd., ten shares described in Schedule A to be held in trust for the benefit of Rajkumar Shivarao, the first beneficiary, ten shares disrobed in Schedule B to be held in trust for the benefit of Rajkumar Venkatrao, the second beneficiary, and the remaining ten shares described in Schedule C to be held in trust for the benefit of Rajkumari Vijayadevi, the third beneficiary. By paragraph 2 of the preamble it is declared that the settlor was desirous of making a settlement "on his two minor sons, namely, Rajkumar Shri Shrivrao Yeshwantrao Ghorpade, aged 16 years, and Rajkumar Shri Venkatrao Yeshwantrao Ghorpade, aged 6 years...... and on his minor daughter Rajkumar, Shri Vijayadevi Yeshwantrao Ghorpade, aged 10 years,....... out of natural love and affection towards them.... and with a view to make provision for them." and by the third paragraph of the preamble it was declared that the settlor intended and desired to give to his minor sons and daughter from time to time further shares or other assets, with the intention that such further shares or other assets should be held in trust for the minor sons and daughter to be taken by them as set out and described in Schedules A, B & C. as if such shares or other assets had formed part of the said Schedules. The primary intention disclosed by the preamble of the deed of trust was that the settlor settled properties described in Schedules A, B & C and declared his intention to settle other properties in future with the object of making provision for his three named children. The quantum of the estate settled must undoubtedly be determined by the habendum clause, but the preamble may in case of ambiguity be resorted to for ascertaining the object of the deed and the intention of the executants. By the first clause the settlor conveyed to the trustees the shares described in Sch. A, and to hold the same in trust "both as to the corpus and income therefrom for a period of two years from the date of this Indenture for the benefit of" the Charitable Trust "and con the expiry of the said period of two years, to have and to hold the shares set out and described in Schedule A in Trust both as to the corpus and income received after the expiry of the period of two years for the benefit of" the First Beneficiary "as the full, absolute and beneficial owner thereof, but subject to the terms and conditions hereinafter set-forth". Similarly the shares described in Sch. B were conveyed for twelve years for the benefit of the Charitable Trust and thereafter for the benefit of the Second Beneficiary, and by Clause 3 the settlor conveyed the shares described in Sch. C for a period of eight years for the benefit of the Charitable Trust and thereafter to the Third Beneficiary By Clause 4 it is declared that other shares or assets given to all or any of the beneficiaries and transferred to the trustees will be held in trust for all or any of the beneficiaries as may in accordance with the settlement and trust be specified, and subject to the same limitations, interests and conditions as relate to the shares specified in Schedules A, B & C, as if those other shares or assets so transferred had formed part of the Schedule A, B & C as may be specified by the settlor or such other person. Clause 31 of the deed of trust dens tie expression "income" with reference to any beneficiary as meaning income derived from the shares set but and described in the Schedule appropriate to such beneficiary and any income that may be derived from the investment of such income including any income that may be derived from any further shares or other assets that may be transferred for the benefit of any such beneficiary.
The scheme of clauses 1, 2, 3, and 4 of the family trust may be first be examined. The shares initially settled and any other fort assets sub-subsequently settled for the befit of the banditries or any of then are by clause 4 top be death with as if they formed part of the three Schedules. The charitable trust is to obtain the benefit of the property in Schedules A, B and C both as to the corpus and income, approximately for the periods during which the three beneficiaries do not attain their respective ages of eighteen years, and income therefrom is to be held for the benefit of the charitable trust and on the expiry of the periods mentioned, the shares and the assets are to be held in trust both as to the corpus and income therefrom for the benefit of the first, second or the third beneficiary. The scheme devised by the settlor is that during the minority of each beneficiary the property is Schedules A, B and C qua each beneficiary is to remain vested in the trustees for the benefit of the charitable trust and on the expiry of the periods mentioned, the shares and the assets are to be held in trust both as to the corpus and income therefrom for the benefit of the First, Second or the Third Beneficiary. The scheme devised by the settlor is that during the minority of each beneficiary the property in Schedules A, B & C qua each beneficiary is to remain vested in the trustees for the benefit of the Charitable Trust, and after expiry of the period specified the corpus and income is to be held for the full, absolute and beneficial ownership of the respective beneficiaries. By cls. 6, 7 & 8 provision is made for appointment of trustees. It may suffice to mention that the settlor during his lifetime is to be the trustee and has in case of vacancy power to appoint new trustee by writing or by will, and by Clause 10 the custody of the Trust assets and every portion thereof is to remain with the settlor and the trustees have full power to alter the investments in their absolute discretion. Clause 9 reads as follows:-
"This settlement and Trust is hereby declared to be irrevocable and shall be take effect immediately and all trusts, settlements and interest granted or credited by these presents shall vest in the respective beneficiaries immediately."
It is not clear whether in clause 9 the charity is intended to be designated as a beneficiary. From the Schedules and clauses 1, 2 and 3 it appears that the beneficiaries were to be the three children of the settlor. Even granting that charity was intended to be a beneficiary with in the meaning of clause 9, the instrument vests the interests granted or credited in the respective beneficiaries immediately on execution, and therefore the interest which ensures to the three children of the settlor under the instrument vests in them immediately. By clause 21 it is directed that the trustees may, in their absolute discretion, accumulate the income accruing under the settlement for the benefit of the charitable trust for a period of two years from the date of the indenture as respects the shares set out and described in Schedule A, for a period of twelve years as respects the share set out and described in Schedule B, and for a period of eight years as respects the shares set out and described in Schedule C. The t in respect of shares set out in Schedule A, and on the expiry of the said period the trustees are enjoined to pay over to the trustees of the charity the whole or the balance of the income as the case may be, and thereupon the trustees stand discharged of all their obligations to the charity. Similar provisions is made by provisions (b) and (c) with regard to payment of income from the shares during the period of eight years in respect of shares set out in Schedule B and during the period of eight years in respect of shares described in Schedule C. Prima facie, this may indicate that the income to the received from the shares is to be applied for the benefit of charity in respect of the shares set out in Schedules A, B and C during the specified periods and that the children of the settlor are not have any interested in that income. By clauses 22, 23 and 24 an absolute discretion is conferred upon the trustees to accumulate the income until July 31, 1975, in respect of the shares mentioned in each of the Schedules and on the expiry of that period to make over to the Trust funds as may belong to the beneficiaries. This is clearly intended to maintain the control of the settlor over the properties settled in trust till July 31, 1975. By Clause 25 it is directed that the trustees shall have control over the trust funds and the income, even if any of the beneficiary dies before July 31, 1975. Clause 26 provides:-
"Notwithstanding anything contained in clauses 21 to 25, supra, the Trustees shall have full power during the currency of this Settlement and Trust to expend from out of the income accruing under this settlement to each of the Beneficiaries herein such amount as the Trustees may in their discretion deem fit for the maintenance, education, health, marriage and advancement of each of the Beneficiaries herein."
Clause 26 confers upon the trustees full power during the currency of the settlement and trust to expend the income accruing under the settlement to each of the beneficiaries therein for the maintenance, education, health, marriage and advancement of the beneficiaries. This power is exercisable notwithstanding any provisions to the contrary made in clause 21 to 25. It may be recalled that clause 21 confers upon the trustees power either to use the income accruing under the trust for the benefit of trust during the period prescribed, or to accumulate the income and deliver it on the expiry of the period specified to the trustees of the charitable trust. But by clause 26 the trustees under this trust are competent to expend the income not for charity, not to pay it over to the trustees of the charitable thrust but for maintenance, education, health, marriage and advancement of the beneficiaries.
The relevant provisions of the Wealth-tax Act may now be summarised. By section 3, wealth-tax is charged for every financial year commencing on and from April 1, 1957, on the net wealth on the corresponding valuation date, of every individual, Hindu undivided family and company. By section 4, net wealth is to include certain assets. Clauses (1)(a)(iii) of section 4 provided that :
"In computing the net wealth of an individual, there shall be included, be belonging to him -
(a) the value of asset which on the valuation date are held -....
(iii) by a opinion or association of persons to whom such assets have been transferred by the individual a otherwise than for adequate consideration for the benefit of the individual of his wife or minor child......"
Section 5 provides for exemptions of certain assets in the computation of net wealth. It provides in so far as it is material that :
"Wealth-tax Shall not be payable by an assessee in respect of the following assets and such assets shall be note included in the net wealth of the assessee -
(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India."
Under the instrument of family trust or other legal obligation Schedules A, B and C were on the vacation date held by an association of person and those assets were transferred by the settlor otherwise than for adequate consideration. But say that settlor, on the valuation date the assets were not held for the benefit of himself, his wife or minor children, since they were held both as to corpus and income for the benefit of charity during the minority of his children. If on a true interpretation of the deed this plea be correct, the assets are not liable to be included in the net wealth of the settlor for the levy of wealth-tax.
I agree with counsel for the settlor that the amendment made in section 4(1)(a)(iii) by Act 46 of 1964 which sought to include in the computation of net wealth, assets transferred for "the immediate or deferred benefit of the individual, his or her spouse, or minor child" is not declaratory pre-existing law. Under the clause as originally enacted, assets transferred for the immediate benefits of the individual, his wife or minor children alone may be included in the wealth of the individual, and the liability of the settlor must be determined under the provisions as it stood enacted in 1957. The question then is : Are the assets transferred by the settlor under the family trust instrument for the immediate benefit of his minor children ? That question can only be answered on a determination of the total effect of the instrument in the light of the diverse clauses.
By the family trust the primary intention of the settlor as disclosed in the preamble is to make provision for his children, and for the purpose property is set part by the Schedule read with clauses 1, 2 and 3. By clause 4 it is contemplated that other property will also be settled for the benefit of the children of the settlor. By clause 9 the interest created under the deed vests immediately in the beneficiaries and by clause 26 notwithstanding the provisions made in clauses 21 to 25 directing application of the income from property set out in schedule A, B and C for limited period in favour of charity, the trustees have the power during the currency of the settlement to expend from out of the income accruing under settlement to each of beneficiaries such amount as the trustees may in their discretion deem fit for their maintenance, education, health, marriage and advancement of each of the beneficiaries therein. If by this clause power is conferred upon the trustees to direct the income of the property in Schedules A, B, & C for the benefit of the children even during the periods specified in cls. 1, 2 & 3 the assets are unquestionably transferred for the immediate benefit of the children. But it was urged that the inclusion of figure "21" in cl 26 is the result of a typographical error and it should have read as Clause 22. But even Clause 25 refers to the application of the income for limited periods in the event of death of any of the beneficiaries and thereafter for the heirs of the beneficiary, and that is not said to be an efforts- typographical or otherwise. Again the argument that reference to Clause 21 was due to an error was never raised before the High Court:- if there was any substance in that agreement, the settlor would have executed a deed of rectification correcting the error after setting out the circumstances in which that error came to be made.
It was urged that the power which the trustees could exercise is to expend the income accuring under the settlement for each of the beneficiaries under the trust, and since no income accrued to the beneficiaries during the periods for which the income was to be applied or accumulate for the benefit of charity, reference to clause 21 in clause 26 had no meaning. It is implicit in this submission that the settler intended that the settlor intended that the income arising from the trust property was to be utilized after the children attained the age of majority for their maintenance, education, health, marriage and advancement, and not during their minority. The children stood in greater need of provision for maintenance, education, health and advancement during their minority than after they attain their majority, but but it is said contrary to the plain terms of clause 26 that the interest was intended to be given to them after they attained the age of majority, and not during their minority.
In the deed of settlement charity is not directly mentioned as one of the beneficiaries, and the income is directed to be given for limited periods to charity and thereafter to the beneficiaries named therein. Clause 26 in terms confers power upon the trustees to expend from out of the income accuring under the settlement to each of the beneficiaries, such amounts for the maintenance, education, health, marriage and advancement of the beneficiaries or any of them as the trustees deem fit, and there is nothing in that clause which implies that this power is to be exercised after expiry of the periods specified in clauses 1, 2 and 3. The expression "beneficiary" in clause 26 clearly refers not be charity, but to the three children of settlor, because the trustees are invested with power to expend from out of the income accuring under the settlement for the maintenance, education, health, marriage and advancement of each of the beneficiaries therein.
Reading clauses 9 and 26 together, it appears that the settlor intended that the trustees shall have power, notwithstanding other provisions in the deed of trust, to apply the income of the property settled during the currency of the settlement for the benefit of the beneficiaries, named therein, and, in the event of death of any of the beneficiaries, for the benefit of his or her heirs. There was, therefore, a vested interest immediately arising on the execution of the instrument, and the children of the settlor were the real beneficiaries. In seeking to evade the application of the Wealth-tax Act, clumsy and inconsistent directions are made in the income is not so applied during the periods the accumulate income is directed to be handed over to charity, and if the income is not so applied during the periods the accumulated income is directed to be handed over to charity, but the direction is immediately followed by the clause that the trustees may apply the income, notwithstanding the provision relating to the application of the income in favour of charity, for the benefit of the minor children of the settlor. The High Court has held that the case fell clearly within s. 4(1) (a) (iii) of the Wealth Tax Act and during the periods specified in cls. 1, 2 & 3 the property mentioned in Schedules A, B & C was liable to be included in the computation of wealth tax of the appellant, and in my view the High Court is right in so holding.
The appeals fail and are dismissed with costs.
ORDER
In accordance with the opinion of the majority, the appeals are allowed with costs here and in the High Court. One hearing fee.
Appeals allowed.
We are here not concerned with sub-section (3) as admittedly all the partners of the firm are resident within the meaning of the Act. It is the argument of Mr. Joshi that having regard to the provisions of sub- section (1) of section 182 of the Act, the assessment of the assessment of the partners of the firm are the integral parts of an assessment as a whole. In respect of the income of the firm assessment proceedings had been taken and that makes the firm an "assessee" within the meaning of section 2(7) of the Act. Under the scheme of the Act, the income of the firm is taxed in the hands of its partners and those assessment orders have also been made in the individual assessment of the various partners including the partner, Bajranglal, but nothing could be recovered from Bajaranglal. therefore, by reason of the provisions of section 187 of the Act, the tax liability of Bajranglal has become recoverable from the firm. u/s 156, to enable the income tax Officer to serve a notice of demand, only two ions of this section, the above mischief which was sought to be remedied will have to be borne in mind.
Turning now to be interpretation of the relevant provisions of section 40A, it is clear that sub-section (1), which contains a non-obstante clause, is an overriding provision which operates to set aside as no longer valid anything to the contrary contained in any other provision of the Act relating to the computation of income under the head "Profits and gains fo business or profession". In other words, the legislature has made it clear that the provisions of section 40A will apply in supersession of the other contrary provisions of the Act relating to the computation of income under the aforesaid head. Sub- section (3) deals with one of the cases in which an expenditure incurred by an assessee has to be disallowed even if it is allwoable under the other provisions of the Act. The said sub-section, in effect, provides that where any expenditure is incurred by the assessee in respect of which payment is made after March 31, 1969, in a sum exceeding Rs. 2,500 otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction. This is a mandatory directive given by the legislature to the taxing authoryt and, so its plain terms, it commands such authority to disallow all expdenditure, even if it is otherwise admissible, if the payment in respect of such expenditure, in case when it exceeds Rs. 2,500, is made otherwise than in the manner specified. There is no discertain left with the taxing authority under this sub-section to allow such expenditure. The rigour of the rule contianed in this sub-section to allow such expenditure. The rigour of the rule contained in this sub-section is, however, relaxed to some extent by the second proviso to the said sub-section which provides that no disallowance under the said sub-section shall be made where any such payment is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. As pointed out by hte Finance Minister in his speech in the Lok Sabha while introducing the Finance Bill of 1968, this proviso was introduced in order to obviate any difficulteis in payment by cheques or bank drafts in rurla areas and in certain other cases and circumstances. For that prupose, power was cocferred to enact rules ot prescribe cases and circumstnces in which no disallowance under sub-section (3) shall be made where any payment in a sum exceeding Rs. 2,500 is made otherwise than by a a crossed cheque drawn on a bank or by a crossed bank draft. Be it noted that while construing the provisions of the said proviso as well as the rules enacted thereunder, this object, which the legislature had in mind, will have to eb borne in mind and that any interpretation of those provisions will have to be guided by the consideration that the legislature was thereunder enacting a relaxation to the rigour of the rule contained in sub-section (3) in order to obviate harassment and hardship in genuine and bona fide cases. There was some debate before us on the question whether the concluding words of the second proviso to sub-section (3), namely, "having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors" govern the first part of the said proviso and, accordingly, it is for the taxing authority to consider whether payment otherwise than by a crossed cheque or a crossed bank draft, exceedign Rs. 2, 500, should not be disallowed, having regard to the factors mentioned therein, or whether the concluding portion was enacted with a view to providing a guideline to the rule-making authority, who had to prescribe cases and circumstances, bearing in mind the said factors. It is unnecessary for us in the present case to resolve this controversy, because, in our opinion, whichever way one looks at the matter, it cannot be gainsaid that the legislature has indicated the factors which must weigh in not disallowing any expenditure in a sum exceeding Rs. 2, 500 when payment is made otherwise than by a crossed cheque or a crossed bank draft. Even if it is held that the relevatn expression is a mere guideline to the rule-framing authority, then also those guidelines will have to be borne in mind while interpreting the provisions of the relevant rules enacted by the competent authority, so that by a constricted or artificial construction of these rules, the very object of the legislature is not frustrated. It is pertient to note in this connection that the consideration of business expediency is brought in by the second proviso to sub-section (3) of section 40A and if any such payment is made otherwise than by a crossed cheque or a crossed bank draft on considerations of business expediency, the legislature thought that such payment should not be disalllowed.
Turning now to the relevant provisions of rule 6DD against the aforesaid background, it would appear that clause (j), which is the material provision, is in the nature of a residuary clause. It provides that if in a case covered by section 40A(3), the assessee satisfies the income tax Officer that the payment could not be made accordingly, (1) due to exceptional or unavoidable circumstances, or (2) because payment in the said manner was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes to the satisfaction of the income tax Officer evidence as to the genuineness of the payment and the identity of the payee, no disallowance under sub- section (3) of the section 40A shall be made. An analysis of clause (j) of rule 6DD would reveal that it sets out four circumstances in which the rigour of hte rule contained in sub-section (3) has to be relaxed, namely, where the assessee satisfies the income tax Officer that the payment could not be made by a crossed cheque or by a crossed bank draft due to, (1) exceptionla circumstances, (2) unavoidable circumstances, (3) because it was not practicable, having regard to the nature of the transaction and the necessity for expeditions settlement thereof, and (4) because it would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. Be it noted that even if these four conditions are satisfied, the rigour of the rule contaiend in sub-section (3) is not automatically relaxed. The assessee is still required to furnish evidence to the satisfaction of the income tax Officer as to the genuineness of the payment and the identity of the payee. It is only in such class of cases that the rule provides for no disallowacne beign made if any of the four conditions above-mentioned is satisfied. The first two conditions prescriebd in the rule deal with the inability of the assessee to make payment by a crossed cheque or by a crossed bank draft due to exceptional or unavoidable circumstances. When clause (j) to rule 6DD was originally enacted these were the only conditions prescribed. However, having regard to the experience gained after the enactment of the section and rule, the other two ocnditions were introduced in the rule on November 18, 1970. Those two conditions have obviously been introduced to cover cases where on account of business expediency or other relevant factors, payment by a crossed cheque or by a crossed bank draft is not practicable or causes genuine difficulty to the payee. We are concerned in the presnt case with the third condition, namely, where payment in the manner provided in section 40A(3) is not practicable and the question which arises is as to what is the scope and ambit of the word "practicabel" as used in rule 6DD(j)(2).
In Shorter Oxford English Dictionary, third edition, at page 1560, the following meaning is ascribed to the word "practicable" : (1) capable of being carried out in action; feasible; (2) capable of being used or traversed, as a road, ford, etc. The first meaning is appropriate so far as present case is concerned and it would thus appear that the word "practicable", in its etymological meaning, signifies that which is capable of being carried out in action or feasible.
In Corpus Juris Secundum,volume 72, at page 467, is has been pointed out that the word "practicable" has a number of significations and that it is variously defined as meaning : (1) capable of being put into practice, done, or accomplished; capable of being done or accomplished with available means or resources; (2) capable of being performed or effected; (3) feasible; (4) feasible, fair, and convenient; (5) possible of execution or performance. It has been further pointed out that whether a thing is practicable depends on the acutalities, the very facts and circumstances of the case, and that an act is practicable if conditions and circumstances are such as to permit its performance or to render it feasible; but a thing is nto practicable if some element essential to its accomplishment is lacking.
The meaning assigned as aforesaid to the word "practicable" in the ordinary parlance must prevail even in the context of rule 6DD(j), because there is nothing in the subject or context which detracts from it and justifies the giving of a constricted meaning to the said word. In fact, as earlier stated, if the object of the enactment, namely, to relax the rigour of sub- section (3) of section 40A in genuine and bona fide cases to avoid hardship and harassment, is borne in mind, the adoption of the ordinary meaning of the word which is so wide would be justified, because it would advance the cause rather than defeat it. Accordingly, the word "practicable" in rule 6DD(j) (2) must be held to signify that which is feasible, that is to say, capable of being put into practice, done, or accomplished with the available means and resoruces. Besides, in determining practicability for the purposes of rule 6DD(j) (2), regard will have to be had to the facts and circumstances of each case, for, in the ultimate analysis, it is the actuality which must be the decisive factor. It is in this light that the taxing authority must approach a case which falls to be decided under rule 6DD(j) (2).
On more thing which requires to be borne in mind is that practicability for the purposes of rule 6DD(j) (2) must be judged from the point of view of the businessman and not of the revenue. As earlier pointed out, the provision of section 40A is made with a view to disallowing expenditure, which is otherwise deductible, incurred by a businessman or a professional person in specified circumstances. The second proviso has, however, been enacted to relax the rigour of the rule contained in the substantive provision and while enacting the said proviso, the legislature has indicated its mind by laying down certain guidelines for the relaxation of the rigour. Now, payment by a crossed cheque or crossed draft may, under certain circumstances, be difficult or even impossible and such a case has been taken care of by the rule-framing authority by providing in rule 6DD(j) (1) that if payment could not be made in tha manner due to exceptional or unavoidable circumstances, no disallowance should be made. However, for the purposes of carrying on his business, a businessman may have to make payment otherwise than by crossed cheque or draft in certain circumstacnes voluntarily and not out of sheer necessity. The legislature was conscious of this factor and it, therefore, gave this express guideline in the second proviso to section 40A(3) prescribing business expediency as one of the relevant factors. Taking clue from this statutory provision, the rule-framing authority inserted by a subsequenty amendment in rule 6DD(j) (2) the two other categories of cases, namely, where payment in the manner prescribed was not pracaticable or it would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. If the relevant provision is read in the aforesiad light, it would be clear that practicability for the purposes of rule 6DD(j)(2) has to be adjudged from the angle of the businessman and not of the revenue.
We may mention that it was strenuously contended on behalf of the revenue that the word "practicable" is governed by the expression "having regard to the nature of the transaction and the necessity for expeditions settlement thereof" and that, therefoer, it is only from these two points of view that the practicability or otherwise of payment by a crossed cheque or a crossed bank draft has to be adjudged. We are unable to agree. It is not possible to hold, though the expression on which emphasis has been placed on behalf of the revenue does lend itself to such suggestion, that regard should be had only to the tow matters mentioned therein, isolated from other relevant factors. Such interpretation is not warranted by the statutory language which does not say "having regard only" nor is it warranted by hte guideline contained in section 40A(3), second proviso. In Commissioner of Income Tax, West Bengal Vs. Gangadhar Banerjee and Co. (Private) Ltd., , a similar contention advanced in the context of section 23A of the Indian income tax Act, 1966, before amendment in 1955, which also used a similar expression, namely, "having regard to losses incurred by the company in earlier years or to the smallness of the profit made" was negatived by the Surpeme Court. The Supreme Court observed that though the object of the section was to prevent evasion of tax, the provision was required to be worked not from the standpoint of the tax collector but from that of a bsinessman and that it was not posible to accept the argument that the income tax Officer could not take into consideration any circumstnaces other than losses and smallness of profits. We are, therefore, not prepard to unduly restrict the scope of sub-clause (2) of claus (j) of rule 6DD by holding that in considering the practicability or otherwise of payment by a crossed cheque or a crossed bank draft, only the two circumstances enumerated therein can be taken into consideration. The correct interpretation, in our opinion, would be to give to the word "practicable" a wide and liberal meaning as we have done above and to leave it to the income tax Officer to judge in each case whether or not from the standpoint of the business or professional man it was practicable to make payment by a crossed cheque or a crossed bank draft.
Against the background of the aforesaid statutory provisions, let us now turn to the facts of the present case. Be it noted at the outset that it is not in dispute in this case that the assessee has, in fact, made the payment of the disputed amounts to the co-operative societies in question against the purchases of sugar at auctions held from time to time. In other words, this is a case in which the last condition prescribed in clause (j) of rule 6DD is satisfied inasmuch as the assessee has furnished evidence to the satisfaction of the income tax Officer as to the genuineness of the payment and the identity of the payee. Be it noted also that though the income tax Officer disallowed all the payments exceeding Rs. 2,500 made individually totalling up to Rs. 3,57,675, the Appellate Assistant Commissioner granted partial relief to the extent of Rs. 1,26,909 holding that payments totalling up to that amount were made in cash by the assessee in exceptional or unavoidable circumstances. The Tribunal granted a further relief when it allowed the payment made in cash by the assessee towards 10% deposit which it had to make immiediately after the auction, holding that payment in cash to that extent was unavoidable inasmuch as the assessee did not know in advance the exact amount which it would be required to pay as and by way of deposit and the payment was to be made on the spot and after the bank was closed. The dispute now survies, therefore, in respect of only the balance of the purchase price.
The assessee, as earlier pointed out, pleaded three circumstances to invoke the benefit of clause (j) of rule 6DD. The assessee contended that, under those circumstances, it was not practicable to make payments by crossed bank drafts. In this connection, it requires to be noted that under the terms of auction the co-operative societies in question accepted either cash or bank draft drawn only on the Girgadhad Road branch of the Junagdh District Co-operative Bank Ltd. The assessee, therefore, had no option to make the payment by crossed cheque or draft drawn on any other bank. The assessee produced evidence, which is no controverted, to show that at the factory of one of the co-operative societies in question, namely, Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd., there was no branch of any bank and that the factory was situate at a distance of 2 kilometers from the nearest town. The payments which are disallowed pertain mostly to the said co-operative society. The assessee also produced evidence to show that he had to cover a distance of about 183 kiloimeters from Bantwa to Una and a distance of about 146 kilometers from Bantwa to Kodinar and that it used to take him about 8 hours to reach Una and about 7 hours to reach Kodinar by a bus from Bantwa. In order to reach the place of auction in time he had to leave early in the morning from Bantwa when the banks would not be open and when he reached either Una or Kodinar, the banks would have closed. The question is whether under these circumstances it could be said thta it was not practicable for the assessee to make payment either by crossed cheque or crossed draft.
When we look at the order to the Tribunal, we find that it merely recited the four conditions enacted in clause (j) of rule 6DD and it has, without assigning any reasons, held that none of these conditions are satisfied, so far as the balance of the purchase price was concerned. The Tribunal dealt with only one specific plea raised by the assessee, namely, that he used to go to the price of auction with truck and immediately on conclusion of the auction he used to take delivery and transport the goods by truck and, under such circumstances, it was not practicable for him to make the payment by a bank draft and it found that if the assessee took the truck for his convenience and wanted to transport the goods on the same day, it could not be said that the expenditure was unavoidable. The other facts which the Assessee pleaded and in respect of which he produced evidence before the authorities are, however, not held to be not proved by the Tribunal. Besides, the Tribunal did not apply the test which it had to apply nor did it consider the matter from the point of view of a businessman which it was required to do. In our opinion, if all the factors which the assessee has pleaded and which are established are borne in mind and if the matter is adjudged from the point of view of a businessman, no conclusion other than that it was not practicable to make payment by a crossed bank draft is possible in the facts and circumstances of the case. The assessee made purchases at the auction which was announced only one or two days in advance and its representative had to travel a long distance to reach the place of auction. It was not possible for him to obtain the bank draft drawn on a particular bank before he left or after he reached the place of aucitn because of the time factor and absence of the branch of any bank in the factory or near about. On some of the occasions, owing to pauciyt of bank balance and short notice, the assessee had to collect cash from its customers only on the previous day in order to make payment at the auction. If a businessman wants to carry the goods purchased by him at the auction with him and to rech his usual place of business as expeditiously as possible and if he could not do so unless he made payment in cash, having regard to the circumstances mentioned above, his conduct would be justified on the ground of business expediency. It would thus appear that in the present case with the available means and resoureces it was not practicable for the assessee to make payment of the balance of purchase price otherwise than in cash which would be known only after the auction was held and the highest bid was accepted. Once the Tribunal accepted the plea of the assessee with regard to 10% amount which had to be paid by way of deposit, it could not possibly have rejected the assessees contention with regard to the balacne of purchase price, for, in both the circumstances, the conditions governing the payment in cash were identical.
In our opinion, therefore, the Tribunal erred in law in not giving to the assessee, in the facts and circumstances of the present case, the benefit of rule 6DD(j) and in holding that the disallowance of payments to the two co-operative societies in question in addition to the 10% amount paid as and by way of deposit was proper.
As a result of the foregoing discussion, we answer the questions referred to us for our opinion as follows :
Question No. 1. - No answer is required to be given since the question is academic in the facts and circumstances of the case.
Question No. 2. - In the negative, i.e., in favour of the assessee and against the revenue.
Question No. 3. - In the negative, i.e., in favour of the assessee and against the revenue.
The Commissioner will pay the costs of this reference to the assessee.
assessee cases to behree following additions :
(i) Unaccounted for woollen yarn and stock pledged with the bank Rs. 2,45,600 (ii) Unaccounted for bank deposits in the Union Bank of India, Bombay Rs. 65,695 (iii) Extra profit on woll-tops. Rs. 42,230
The addition of Rs. 65,695 was deleted by the Commissioner of Income- tax by an order u/s 264 of the Act. The other addition of Rs. 42,230 was knocked out by the Tribunal's decision in the quantum appeal of the assessee in ITA No. 603 of 1973-74 decided on July 31, 1975. As regards the addition of RS. 2,45,600, it may be mentioned that the income tax Officer had prepared a chart in respect of yarn for the period of three months, i.e., from January to March, 1967, and worked out a shortage of 4,712 kg. of yarn, the cost of which calculated at Rs. 50 per kg. worked out to Rs. 2,35,600. To this amount, a sum of Rs. 10,000.