P L D 1961 (W (PLP)

QADEERUDDIN AHMED, J.

The Income-tax Appellate Tribunal has dismissed 4 appeals preferred by the Founder and Mutawalli of Hooseni Fund, concurring in the view taken by the Appellate Assistant Commissioner of Income-tax, that most of the income of the Trust was to be taxed at the maximum rate in virtue of the second limb of the first proviso to section 41 of the Income tax Act. The proviso is as follows:- "Provided that where any such income profits or gains or any part thereof are not specifically receivable on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate, but, where such persons have no other personal income charge able under this Act and none of them is an artificial juridical person, as if such income, profits or gains or such part thereof were the total income of an association of persons."

2. The assessee was dissatisfied with the decision of the Appellate Tribunal and applied for a reference under section 66 (1) of the Income-tax Act.

3. The question that has been referred to us is as follows:- "Whether, in the facts and circumstances of the case, the assessable income of the trust property was taxable at the maximum rate as envisaged in the first proviso to section 41 (1) of the Income-tax Act."

4. It is common ground that there are 4 trust deeds out of which the provisions of the second deed only are applicable in the present case. The provisions of the deed which were examined by the Appellate Tribunal are a part of clause (2) of the deed relating to mutawalliship generally and six sub-clauses of clause

8. But counsel for the assessee has not disputed the conclu sions of the Appellate Tribunal relating to sub-clauses (1) to (5) of clause 8 of the deed and has further conceded that the amount that remains divisible or may remain divisible among the beneficiaries mentioned in sub-clause (6) of clause 8 of the deed must be indefinite and uncertain. He has contended that the decision of the Appellate Tribunal that the amount divisible under sub-clause 6 is taxable at the maximum rate is erroneous, because the divisible surplus is necessarily to be distributed equally among the beneficiaries. This certainly, according to counsel, is enough to exclude for purposes of sub-clause 6 the application of the second limb of the first proviso to section 41.

5. The provisions of the deed necessary for appreciating the present dispute are as follows:-- "Clause 2: .. Now, therefore, I shall carry on the Vahivat (manage ment) of the said Fund as its Manager during my life time and after my death, four persons who are eldest of all from among all the sons and daughters begotten by me and the family created by the sons and daughters begotten by them or even if their number be less than four such members, should carry on the management and Vahivat of the said Husseni Vakaf Fund as trustees in a manner hereinafter provided . . ." "Sub-clause (6) of clause 8: After providing for the expenses mentioned in sub-clauses 1, 2, 3, 4 and 5 of clause 8 of these presents, if there be any balance every year, a sum of rupees two to three thousand from it should be kept as deposit with any person who may be found fit and proper in my family in order to give to the persons mentioned in clause 4 where the income accruing is found to be deficient and in case if the same be in excess every year, the trustees for the time being should equally distribute in that year among all the surviving major and minor sons and daughters belonging to my family as above stated. But whenever necessity may arise to do new masonry work after getting any immovable property belonging to this fund pulled down, the persons mentioned in sub-clause 6 of these presents should not be paid any sum but such sum should be spent after it (after masonry work)."

6. The main ground of the contention of counsel for the assessee was that the words italicised by us in the following part of the first proviso to section 41 have been misconstrued; "Where the individual shares of persons in whose behalf they are receivable are indeterminate or unknown." The word "shares", according to counsel, does not in the context refer to the actual amount of money receivable on behalf of the beneficiaries but to the ratio in which available fund may be receivable. The trustees may have the liberty of spending the income in exercise of their discretion so as to leave no amount in surplus that may be divisible under sub-clause 6; but when ever there is a surplus that is governed by the sub-clause, it must be distributed equally and therefore the individual shares of the beneficiaries are known. We think that the counsel has rightly pin-pointed the essential question which is involved in this reference.

7. The Income-tax Assistant Commissioner, the Appellate Assistant Commissioner as well as the Appellate Tribunal appear to have been impressed by the fact that the amount distributable under the sub-clause is subject to variation and, therefore, uncertain. Emphasis has, therefore, been laid by the Appellate Tribunal on the variability and consequential uncertainty of the surplus amount that is distributable under the sub-clause.

8. The following passages reproduced by the Appellate Tribunal from the order of the Appellate Assistant Commissioner are noteworthy "If the quantum of the amount receivable by each beneficiary is dependent on certain contingencies or is to vary on the happening or non-happening of these likely or unlikely events, the shares cannot be said to be determinate or known." "If the amount which is to be shared is uncertain and unknown then shares cannot be determinate and known." The same view has been taken by the Appellate Tribunal as disclos ed by the following passage which occurs in their order:- "It is obvious that when no particular amount is provided in the trust for any specified person and when the entire dis bursement is in the absolute discretion of the trustee as provided in the trust deed, and when the emergence of the surplus is dependent on the exercise of discretion of the trustee, the individual shares of the beneficiaries on whose behalf the income is receivable, cannot be said to be determinate or known." We have, therefore, to decide whether uncertainty of the amount which may be available for distribution under sub-clause (6) has the effect of making the shares of the beneficiaries indetermi nate or unknown in terms of the second limb of the first proviso to subsection (1) of section 41 of the Income-tax Act or not.

9. A distinction has been drawn by Stone, C. J., in Yaqub Verseylaijee and another v. Commissioner of Income-tax ((1946) 14 I T R 548 at p. 552) between the expression "shares" and "individual shares". He has observed as follows:- "If the word `individual' did not appear before the word `shares' I think there would be little doubt that it would be quantum of the shares and not the identity of the beneficiary to which reference was being made. But the words of the statute are `individual shares' and in my judgment that imposes a consideration of the subject-matter as well as the quantum. So that it has to be determined not only what is the quantum of the shares but also who is the beneficiary who is entitled to it, and the test must in my opinion be whether both the shares and the beneficiaries who are to take the same are not indefinite or unknown."

10. In this case there is no dispute regarding the identity of the beneficiaries. We have therefore to examine the word 'quantum" used in the above passage. It does not receive its full import if it is understood to refer to the amounts or quantities of shares only. It must refer to their ratio also. We are of this view for two reasons. Firstly, the learned Judge was not thinking of the distinction between amounts of shares and their proportions, but was drawing a distinction between the identity of the beneficiaries and their shares. The word "quantum" when used with the word "shares" as in the above quoted passage, is capable of conveying two different senses. It may refer to the amounts or quantities of the shares or to their proportions or to both. It is not correct, in the context, to take the word "shares" as referring only to the actual amounts or quantities which they may represent. Stone, C. J., was certainly referring to their amounts as well as proportion, if not to proportion alone.

11. Secondly, the word "share" by itself conveys the sense of a part or parcel. It may convey the sense of the amount or~ quantity of a share when the whole out of which a part is to be received is in existence. But with reference to the shares of accruing income a distinction is pertinent between a "share" and an "accrued share." The definiteness of an accrued share is not pertinent with reference to a provision made for the distribution of accruing income. If the quantity that a share may represent, as distinguished from the proportion that it represents, was regarded to be the only meaning of the word "share", then it is likely that in those cases in which accruing income is to be shared or distributed, there would be uncertainty attached to it almost always, because there is hardly any source of income which may with certainty yield the same amount every year. This is apparently why certainty of proportion has been held in more judgments than one to be sufficient to make individual shares determinate and known. Attention in this respect is invited to Dr. Sri Jyotishwari Kalimata and others v. Commissioner of Income-tax, Bihar and Orissa (1946 I T R 703) and Commissioner of Income-tax, West Bengal v. Pulin Behari Dey ((1951) 20 I T R 314).

12. In the first case there were 3 groups of Deities and 3 sets of properties were dedicated to them. The shares of the Deities were not specified. Moreover, public charges, cost of litigation, expenditure for preserving and improving the trust properties, and remuneration of the trustee was to be paid first. The trustee had full discretion as to the manner and extent in which he was to spend the whole or part of the income of a particular year. On these facts, income-tax was levied as at the maximum rate on the income dedicated to the 3 groups of Deities, taking them to be 3 associations of persons. The learned Judges of the Patna High Court held on a reference of the case under section 66 of the Income-tax Act, that according to Hindu Law each Deity was entitled to an equal share and that, therefore, there was no uncertainty as to their shares. The control of the trustee over the income and expenditure of the properties was distinguished from ownership and the decision was that owing to the certainty of proportion the income was not taxable at the maximum rate.

13. This view was approved in the latter case by the Judges of the Calcutta High Court.

14. The Appellate Tribunal has rightly pointed out that the facts of the cases that were cited at the Bar were mostly distinguishable. We find, after hearing learned counsel for the parties, that the remark of the Tribunal is apt with reference to the cases cited before us also. We agree with the Appellate Tribunal that where a trust deed, taken in conjunction with the established principles of law like the shares of Deities, still leaves the shares of beneficiary indeterminate and unknown, they cannot be considered to be determinate and known, even if definite amounts are actually paid as shares, or amounts or proportions are specified by the trustees during the administration of trust property. This proposition is supported by the observations made in D. V. Arur v. Commissioner of Income-tax, Bombay ((1945)13 I T R 565 at p. 480) and B. P. Mahalaxmiwala v. Commissioner of Income-tax, Bombay City ((1954) 26 I T R 177 at p. 184). We should, however, point out that this is not a pro position which affects the present case. Here sub-clause 6 provides that the beneficiaries should get equal shares, but un certainty has been deemed by the Appellate Tribunal to be existing because "no particular amount is provided in the trust for any specified person" and because "the entire disbursement (except the proportion of shares) in the absolute discretion of the trustee, as provided in the trust deed." Emphasis has been laid by the Appellate Tribunal on the uncertainty of the amount that may be available for distribution, and importance has not been attached to the ratio in which it is necessarily distributable.

15. The Tribunal appears to have taken the observations made in B. P. Mahalaxmiwala v. Commissioner of Income-tax, Bombay City, in connection with an unreported Income-tax Reference No. 15 of 1946, which was decided by the same learned Judges to support its view. The facts of that reference are not fully set out in the judgment. There are references in it to the "residue of the income" and the "balance of the income". Neither the amount nor ratio of the amount payable to Kokila out of the residue of the income appears to have been specified in the will. The balance of the income was distributable when the younger son attained majority and the shares which the bene ficiaries were to get at that time were indeterminate because the situation depended upon whether Kokila survived the period or not. The amount of shares and ratio were both therefore unknown. If we are right in this understanding of the facts, then obser vation made in relation to them do not support the view taken by the Appellate Tribunal.

16. In our view, the crux of the problem is whether the expression "individual shares" should be taken to have exclusive reference to the amount of money available for distribution, or also to the ratio and proportion in which it may be distributable. If the reference is not exclusively to the amount, then determinate or known ratio can be sufficient to make individual shares deter minate and known, with respect to the amount of shares in a given " case; because the ratio or proportion is the principle, and calculation of the amounts of shares is a consequential detail Uncertainties regarding the availability of distributable amount, which has impressed the Appellate Tribunal, appear to us to be immaterial where ratio or proportion is known as well as binding.)

17. Our answer to the question is that on the facts and in the circumstances of the case, the assessable income of the trust property under sub-clause 6 of clause 8 of the Trust Deed dated the 8th of July 1915 is not hit by the second limb of the first' proviso to subsection (1) of section 41 of the Income-tax Act. The Department is to pay the cost of this reference. Answered in negative.