1

Introduction
Origin of Trusts

Though the law of trusts has developed its own specialised

vocabulary, there is no satisfactory definition of a trust. In
essence, it is an arrangement by which property is transferred
to one person for the benefit of another. The trust concept
which has been acclaimed as a valuable British contribution to'
jurisprudence, is not commercial in its origin like the company
or partnership. It started as a device for getting round the
restraints which the Crown placed on transfers of property
to the Church and also as a method of effecting family settle
ments.

In the 16th century, the Church in England had acquired

extensive properties, which it held in perpetuity, making it
impossible for the feudal superior to get them back. The
Statutes of Mortmain tried to curb further expansion by in
sisting that a licence in mortmain should be obtained when
ever any land was proposed to be transferred to a religious
body. There was a second problem. The law did not
provide for a testamentary transfer of land. Only movable
property could pass by will. When a vassal died, his lord was
entitled to various benefits called "relief", "wardship", and so
on, if the heir happened to be a minor. In the absence of an
heir by blood, the property went to the lord by escheat. These
difficulties were by-passed by transfer of land to a friend for
the "use" or benefit of the Church or any one else in whom
the donor was interested.
Since such "uses" were not enforceable under the common
law, litigation arising from them was taken to the Court of
2 TAX TREATMENT OF PRIVATE TRUSTS

Chancery. It was in protecting the interest of the beneficiary

(the cestui que) that the distinction between the equitable
ownership and the legal ownership of property was drawn.
The legal concept of trust evolved from this distinction.
An attempt was made to abolish "uses" through the
Statute of Uses 1536, but it did not succeed because its
operation was limited to the first "use" of a property. People
got round the Act through the method of "use upon use",
e g by conveying free-hold land to "A" to the use of "B" to
the use of "C". The Property Act of 1925 repealed the
Statute of Uses, enabling the conveyance of land to "A" in
trust for "B".

Utility

Though the trust originated as a strategy for resisting

autocratic attempts to prevent gift of land-for avoiding
feudal dues and the restraints of the mortmain Statutes in
settling land—it has served a variety of social and personal
purposes. The following are among such uses of the trust in

recent times : „
i It has emerged as a very convenient instrument tor
running religious and charitable organisations,
ii Another welcome development is the evolution of
trusts for the benefit of employees-provident funds,
pension schemes, gratuity funds, benevolent funds
etc. The Unit Trust has also enlarged the sphere ot
trust services, by enabling a small investor to get the
advantages of a varied portfolio.
in.
A trust is the best possible arrangement for managing
funds for those who are incapable of doing so them-
selves_e.g., minors, lunatics and the mentally
retarded.
iv.
A trust provides the means to carve out separate
benefits in the same property for different persons in
whom one is interested. It ensures that the persons
entitled to succeed to a property eventually do get the
benefit, which may be difficult to secure through out
right gifts, e.g., life-interest for the spouse with
remainder to the children, facilitating comfort for the
 INTRODUCTION 3

spouse for her life-time, without detriment to the

children's long-term interest,
v. A trust can prevent dissipation of a profligate's
inheritance.
vi. The most attractive feature of a trust is that it helps
to reduce the liability to the different direct taxes
within the framework of the law.
The concept of dual ownership, i.e., equitable and legal
ownership, was unknown to the Hindu and Muslim laws
which had, however, recognised the practice of charging
the ownership of property with specific obligations, e.g.,
provisions for the maintenance of a daughter or daughter-
in law or minor children.1 The position of the karta or
manager of a Hindu undivided family and also the benami*
system illustrate the variety of forms in which fiduciary rela
tions have exhibited themselves in India from ancient times.
Similarly, while trusts as such have not had any special part
to play in the sphere of religion in India, endowments of the
nature of trusts for religious and charitable purposes have
been noticed from the beginning of the country's recorded
history. In recent years, however, charities have preferred the
form of trusts to endowments.
The Indian Trusts Act, 1882, does not affect the mutual
relations of the members of a Hindu undivided family or the
rules of the Muslim law as to waqfs or private and public
religious endowments or public charitable endowments.
Apart
from Parsis, Christians and also Hindus and Muslims, who
had no legal compulsion to conform to their personal law in
this regard, there was a large body of Englishmen and Anglo-
Indians who were taking advantage of the English trust law in
India. The English law of trusts was being applied by the
Indian courts, depending upon the necessities and circum
stances of the cases coming up before them. The need for
codification of the scattered provisions in the Indian Trustee
Act, XXVII of 1866, the Statute of Frauds, the Specific Relief
Act and other statutes having a bearing on trusts, resulted in
the Act of 1882. It is noteworthy that though trusts have
become increasingly popular, wealthy and sophisticated, the
Act has undergone little change. The subject, "trust ancl
4 TAX TREATMENT OF PRIVATE TRUSTS

trustees", is in the concurrent list (item 10 in List III) of the

Seventh Schedule to the Constitu tion of India but it has not
evoked much interest at the Centre while the States have so
far left it alone.

Law Governing Private Trusts

The Indian Trusts Act, 1882, deals with private trusts alone
and many of its provisions are based on the law of trusts
administered in the equity courts in England. Section 1 of the
Act specifically excludes public and private religious trusts and
charitable endowments from the purview of the Act. Section
3 defines a trust as "an obligation annexed to the ownership
of property and arising out of a confidence reposed in and
accepted by the owner or declared and accepted by him, for
the benefit of another, or of another and the owner." A
trustee holds trust property not on behalf but for the benefit
of the beneficiary.3
A trust may be created for any "lawful purpose". That is
to say, it cannot be utilised to defeat the law, e.g., frustrate
creditors,4 or carry out any purpose which is repugnant to
public policy, e.g., separating parents from children or restra
ining marriage.6 It is distinguishable from bailment, contract,
agency, or a fiduciary power.6 A trust can be created inter
vivos or through a will. When a trust is set up by a living
person, the following are the requirements7 :
i. The intention should be declared unambiguously. A
mere expression of desire will not do8 ;
ii. The trust property should be set apart and the settlor
should divest himself of its ownership.9 Effective
conveyance is essential.10 If the property is immovable,
the trust instrument has to be in writing11 and the
registration of the property in the trustee's name is
essential to complete the transfer of ownership.12 If it
is a movable, delivery of its possession to the trustee
will suffice.13 If the author of the trust has appointed
himself as the trustee, registration becomes un
necessary >14
in.
The objects of the trust should be clearly stated—the
purposes to which the trust income and corpus should
 INTRODUCTION 5

be applied and the persons or classes of persons for

whom the benefits are meant.15 There can be no trust
without one or more beneficiaries who can enforce it
through courts : where a trust is for a public purpose
and not for specific individuals, it can be enforced by
the Advocate General of a state.
Conditions (i) and (iii) are equally applicable to a testa
mentary trust. Death, which brings the trust into existence,
automatically strips the testator of the ownership of his pro
perty and, therefore, dispenses also with the need for regis
tration of the property in the trustee's name as a condition
precedent to the completion of the trust. When an inter vivos
or testamentary trust is to take effect will depend on the terms
of the instrument. It will be a "contingent trust" if its opera
tion is subject to a future event.16 A trust does not have to
be couched in any technical words,17 but a mere resolution by
a trading association to hold any property in trust will not
become an instrument of trust.18 If the ownership of land or
other immovable property is charged with any obligation, that
should be made clear.19 What is important is that the identity
of the beneficiaries and the subject matter of the trust should
not be uncertain. The intention of the author of a trust will
prevail, as long as it does not involve any fraud or contra
vention of any law. For instance, a direction for accumula
tion of income is valid as long as it does not offend the rule
of perpetuity.20 There can also be no objection to additions
to the corpus of a trust through gifts by the trustees or third
parties, unless it is expressly prohibited in the trust instru
ment.21 A trust may conduct a business either independently
or in partnership with others through its trustees.22

Author and Beneficiaries23

A trust may be created by any person competent to

contract. It may be brought into existence even by a minor,
provided the permission of the court is obtained by his
guardian for this purpose.24 Two or more persons can also
jointly set up a single trust. The subject matter of a trust
must be transferable property : it precludes mere beneficial
interest under a subsisting trust.25 A single instrument can
6 TAX TREATMENT OF PRIVATE TRUSTS

create more than one trust.26 Any person capable of holding

property may be a beneficiary. There can be no trust without
at least one existing beneficiary.27 There can also be no trust
only for the spouse of a person who is still unmarried, or
unborn children, or persons who become ascertainable only on
the happening of a contingency.-8 Any such trust would be
ab initio void under Sections 3 and 6 of the Indian Trusts A$
and Section 13 of the Transfer of Property Act. It would not,
however, be void if an existing beneficiary is given an
immediate limited interest, and an unborn person an absolute
interest in the settled property at the end of the limited
interest.29 A beneficiary is not a party to a contract with the
author of the trust and may, therefore, renounce his interest
under the trust by a disclaimer addressed to the trustee, if he
is so inclined. After a trust is set up its author cannot alter
it or meddle with its working. It is possible, however, to
augment the original trust funds ; and where two trusts are set
up for the same beneficiaries on identical terms, with the same
trustees, their coalescence is not barred.30 Rescission of an
inter vixos trust is feasible with a court's approval, only if there
has been a genuine mistake in regard to its objects.31 As for
a testamentary trust, the grip of the "dead hand" and court
supervision are even more rigid. The court's jurisdiction over
it is a continuous one, from the time a will is "proved".

Trustee32
A trust will not fail if its author has not designated a
trustee : it is an omission which can be made good by a
court.33 A person can be a trustee if he can hold property, is
competent to contract and is not an insolvent : a bank or a
company can also, therefore, be a trustee. The author of the
trust may also be a beneficiary. A trustee may also be a
beneficiary in the trust. No one is bound to accept a trust.34
But, after having accepted it, he cannot relinquish it except
with the prior permission of the court, or at the instance and
with the unanimous concurrence of all the beneficiaries.35 A
trustee's responsibilities are onerous. He is bound to implement
the purpose of the trust. He has to stick to the directions of its
author given at the time of its creation,36 except as modified
INTRODUCTION '

with the consent of all the beneficiaries. It is his duty to

acquaint himself with the true state of the trust properties and
take all the action necessary for the assertion or protection of
the title of the properties and also their preservation.37 He is
required to deal with the trust properties as carefully as a
man of ordinary prudence would deal with them if they were
his own.38 He must be impartial among the beneficiaries and
refrain from exercising his discretion to the advantage of one
of them at the expense of the others. He should keep clear
and accurate accounts and invest the trust funds in the
securities prescribed in section 20 of the Indian Trusts Act,
subject to any direction contained in the instrument of trust.
He cannot delegate his powers to anyone else or act singly
when there are more trustees than one.39 He is liable to
compensate the loss which the trust property may suffer as a
result of any negligence or breach of trust on his part.40 He
is not entitled to any remuneration for his services unless the
trust deed provides for it or the court sanctions it.41 The
remuneration, if any, that he gets will not be treated as
salary, since there is no employer-employee relationship, nor
as professional fee, for trusteeship cannot be a profession.42
Profits, if any, made by him by virtue of his trusteeship43 and
all improvements to the trust property effected by him, enure
to the advantage of the beneficiaries. He cannot buy, lease
or acquire any interest in the trust property : even a loan to
him out of the trust funds may amount to a benefit.44 He
cannot put himself in a position where his interests may clash
with his duties. He has a right to apply to the court for its
opinion, advice or direction on questions of importance
arising from the management of the trust property.45 Any of
the beneficiaries can prefer a compensation claim against him
before a court for whatever is believed to have been done by
him to the prejudice of the trust. Abuse of power or any
other transgression by a trustee will not, however, render the
trust invalid.46 A trustee may be removed by a court under its
inherent jurisdiction.47
The Official Trustee, who is required to have the prescribed
minimum experience as an advocate or attorney of a High
Court or a member of the judicial service of the State, may
8 TAX TREATMENT OF PRIVATE TRUSTS

be appointed as the sole trustee under the Official Trustee Act,

1915 either by a court or by the author of a private trust,
with his prior concurrence. He is prohibited from accepting
a trust for the benefit of the author's creditors or for a
religious purpose. He cannot also accept any trust which
involves the management or carrying on of any business. He
may be appointed as a trustee by a will provided his prior
consent has been obtained and his appointment is recited in
the instrument.
The Public Trustee who is appointed by the Central
Government under Section 153A of the Companies Act (I of
1956), discharges his functions and exercises the rights and
powers conferred on him under that Act. Where any shares or
debentures of a company exceeding Rs. 1 lakh in value or 25
per cent of the company's paid up share capital, are held in
a public or private trust, the trustees of the trust are required
to make a declaration of their holdings to the Public Trustee
under Section 153B of the Companies Act. In such cases the
Public Trustee may exercise the rights and powers of the
trustees who are shareholders, including the right to vote by
proxy at any meeting of the company and of any class of
members of the company. The object of this provision is to
ensure that the trusts are not used by any group of persons
for augmenting their own voting rights in the company, and
strengthening their control over the company for furthering
their own business interest, to the detriment of the interests
of the trust.

Classification of Trusts

A trust can be classified with reference to the manner in

which it is created, or the nature of the duties it casts on the
trustees, or its objects. It may be constituted through the
express declaration of the settlor,48 in which case it is known
as an "express trust". It may follow the unexpressed but
presumed intention of the settlor as an "implied trust". It
may also be imposed by the operation of law as a "construc
tive trust" to cover, for example, fraudulently acquired
property, or the advantage gained by a stranger to a trust
receiving trust property, or even part payments made in a
 INTRODUCTION a

purchase transaction.49 There may be court intervention

wherever unconscionable conduct is noticed in any inter vivos
transaction. A trust is "executed" when it is complete and
"executory" when it needs to be supplemented by a further
instrument setting out the terms in detail. It fastens itself on
the conscience of the legatee when a testator has communicated
a secret obligation to him that has not been recorded in the
will : such a "secret trust" is discovered from the facts and
circumstances of the case.50
Considered from the point of view of the trustee's
functions, where he has a merely passive role, the trust is a
"simple" one and the trustee is a "bare trustee." If he is
required to discharge any significant duties in accordance with
the trust deed, he is an "active trustee" in a "special trust". A
trust is "specific" when the beneficiaries and their respective
shares are known, and "discretionary" when the settlor has
vested the trustee with the discretion to determine how much
benefit should be conferred on whom, among a group of
beneficiaries indicated by him, during any particular year.51 It
is to the trust document that one must turn for finding out
whether a settlor intended that a beneficiary should have an
immediate vested interest or a contingent interest in the
income or corpus of the trust or whether the extent of the
interest had been left to the discretion of the trustees.52
A trust is private when its benefits are limited to one or
more identifiable persons. In a public trust, the rights to the
benefits are not confined to any specific individuals but are
available to a fluctuating body of persons—the public at large
or a cross-section of the public—answering a particular
description.53 A public trust may be charitable or religious
while a private trust may be religious but cannot be
charitable.54 A private trust, which provides for charitable
purposes may turn public when the private beneficiaries
renounce their rights.55 Though the terms "charity" and "reli
gion" have a much wider connotation in India than in the UK,
the USA and several other countries, there is no comprehensive
statutory definition of a public trust or institution as distinct
from a private one. Tests have, however, been deduced from
court decisions, which make the distinction reasonably clear.56
1Q TAX TREATMENT OF PRIVATE TRUSTS

The name borne by an institution cannot determine its

character." Easy accessibility to the public and equal treat
ment to all devotees are, for example, among the decisive
™ teria in the case of a temple or a mosque» A trust for the
Imily deity does not become "public" merely because
arlgements have been made for feeding the poor or
celcbrating some festivals or maintaining a hospital.- An
akhara (i.e., an establishment for training wrestlers) cannot
claim to be a public religious trust only by reason of the
ns "lation of some idols.- Similarly, a trust for a pet dog or
cat is not a trust for a charitable purpose but a gaushala or
ntrapole is61 There are, however, a few grey areas where
controversies arise : for example, gifts to enable poor persons
to get married- or financial assistance to give a person a good
start in life «3 The following are some of the purposes which
have not been found charitable in the Indian courts :
(i) provision of employment ;64
fti trusts for the benefit of employees, including provident
funds, gratuity funds and pension funds ;
(iii) political education ;66
(iv) worship at tombs ;67 8
(v) advancement of cricket or other sports or gymnastics,"
and

WheLh^pphcatoofthe income of a trust depends on

I trustee-s'discretion and some of the purposes o t£> rust
are not charitable, the trust is not considered charitable,
but a specified part of the income or corpus of a trust may be
l,d for non-charitable purposes, without the chantable part
^f the trust being vitiated for tax purposes.7
"mr« estate or an endowment for the mamtenance
of worthip of a family deity is of the nature of a pnvate n^
though the Indian Trusts Act is not apphcable o t ™*°g*£
of property to a deity may be absolute or partial," but i s
not revocable." It is only in a figurative sense that an ido .
Z Tner of any propertyy which
which it cannot enjoy,
it can jy pro ect o
off an endowment to a deity is
INTRODUCTION 1J

temple. The shebait of a debuttar estate is not a trustee

because the trust property vests in the deity and not in him.
He is not, however, a mere holder of an office because he may
have a share in the usufruct, depending on the terms of the
grant or custom or usage. His duties and his personal interests
are blended.75
The position in the case of a waqf-alal-aulad™ is analogous.
The property is dedicated to and permanently detained in
God, but the income is applied to the benefit of the members
of the settlor's family : the usufruct is available for enjoyment
by the descendants of the settlor, while the corpus is tied up
in perpetuity.77 Under the Musalman Waqf Validating Act of
1913, such a waqf™ is valid, if there is an ultimate gift to
charity. The Hanafi law, which the Sunnis follow, prevents
the creation of a waqf for the benefit of the settlor and for the
payment of the settlor's debts. Under the Shia law, a waqf
will not be valid, unless the settlor divests himself of the
ownership of the waqf property : he must not "eat out of the
waqf".™ There is no bar, however, to the aggrandisement of
the settlor's family, as long as there is a provision for making
the property available for pious or charitable purposes in the
long run. An imambara (i.e., a place where Muharam
ceremonies are performed) is a private waqf unless proved
otherwise80, while a takia or a khanqa (monastery) and a
dargah or an astana or ziayarat (shrine) are public waqfs. A
mosque may be either.81 The mutawalli™ who manages the
waqf's property, is like the shebait of a debuttar estate, for all
practical purposes. He is the amin (bailee) of God's property
and is expected to conduct himself accordingly. The waqf may
remunerate him and in the absence of a provision in the waqf
deed the court may also allow him remuneration not exceeding
one-tenth of the waqfs income.83 He cannot transfer his office
to anyone else.84

Failure of a trust—"Resulting Trust"

An imperfect or incomplete trust is not valid,85 but a trust
may be partly valid and partly void.86 When an express public
trust fails, it is saved in certain circumstances by the cy presss
doctrine. The courts permit the resources of the trust, which
12 TAX TREATMENT OF PRIVATE TRUSTS

has become impracticable, to be applied to some other

charitable purpose which is allied to or which closely resembles
the purpose of the frustrated trust. If an express private trust
is invalidated either for failure of consideration, illegality,
perpetuity,88 uncertainty, lapse, disclaimer or any other reason,
a trust in favour of the settlor ordinarily results.89 If the trust
has been created by a will, the trust property devolves upon
the legal heirs and successors of the testator. It is a logical
inference that the settled property should revert to the settlor
or his legal heirs and successors if the settlement is vitiated or
does not materialise for any reason. A private religious
endowment governed by the Hindu law, may have a similar
treatment, if voided on any ground. As for a waqf-alal-aulad,
the property will revert to the waqif if the ultimate dedication
for a religious, pious or charitable purpose is not bona fide. If,
however, only one of the purposes of a waqf has been invalidat
ed, the waqf will not be voided. There will only be accelera
tion of the application of the waqf income to other purposes.90

Termination of a Trust
The beneficiary of a trust is entitled to have the mistakes,
if any, in a trust instrument rectified by the court and the
intention of its author specifically executed to the extent of his
(i.e., beneficiary's) interest, though the powers of a trustee
cannot be curtailed by him.91 Where there is only one
beneficiary and he is competent to contract or where there are
several beneficiaries and all of them are sui juris, absolutely
entitled, and of one mind, he or they may bring the trust to
an end, taking over the capital or dividing it among them
selves, irrespective of the intention of the author of the trust.
If any of the beneficiaries is not of full age or capacity and,
therefore, not in a position to give a valid discharge, the
court's concurrence may be required for ending the trust.92
It is debatable whether a private debuttar estate can be given
a secular turn or terminated through a family consensus.93 A
waqf-alal-auldid may become ineffectual through a ceaseless
increase in the number of its beneficiaries from generation to
generation but they have no authority to put an end to it.
INTRODUCTION 13

Tax Implications of a Trust

Since a trust holds property and derives income for the
benefit of either the public at large or individuals, it is
inevitable that it should have tax ramifications.
Almost every country with a system of direct taxation
encourages religious and charitable institutions by oflfering tax
immunity, if they use their income entirely for the purposes
for which they have been set up and if they do not venture
into any competitive trade. They are also permitted to
accumulate a part of their annual income in the ordinary
course. If a religious or charitable trust wants to accumulate
more of its income than is normally allowed, it will have to
intimate the purpose of the accumulation to the Income-tax
Officer and invest the money in the specified modes. If any
part of the money is used for any purpose other than the one
intimated or if it ceases to remain invested in the prescribed
form, it will be deemed to be the income of the trust in the
year in which such deviation occurs.94 A trust may also con
duct a business subject to the condition that the business sub
serves its primary object,95 and the work is mainly done by the
beneficiaries.
Provident fund and other employees' welfare trusts are
basically private trusts but they are given tax exemption where
they are specifically approved or "recognised" by the revenue
authorities and also strictly conform to the requirements of the
rules framed in this regard.96 Tax liability results only when a
trust does not observe the conditions laid down by the Govern
ment for its recognition.97 The tax liability of the trustees, the
employer or the employees for the profits of any business in
which the employees are offered some kind of a participatory
interest will depend on the precise nature of the interest, i.e.,
whether it is immediately vested or deferred or contingent98.
As for family trusts, they are as complex as the tax laws,
necessitating special provisions for their treatment. The
problems posed by religious and charitable trusts and trusts
for employees are proposed to be considered separately. The
following chapters are confined to a study of the taxation of
private trusts other than trusts for employees, debenture
holders and unit holders.99
14 TAX TREATMENT OF PRIVATE TRUSTS

NOTES

1. Smt. Krishna Ramani Dasi v Ananda Krishna Bose, 4 BLR 231

O.C. 278 ; Ganendra Mohan Tagore v Upendra Mohan Tagore,
4BLRO.C. 134.
2. Literally, "without a name." In a benami transaction, a person
acquires property with his own money, but in the name of
another person. The transaction is also called furzee. Recourse
to it may be due to various reasons, e.g,, anxiety to hide one's
personal affairs from the public eye. Effect is not given to a
benami deal if it is opposed to public policy or designed to
defraud the real owner's creditors : Mulla, Principles of Hindu
Law, 12th Ed., N.M. Tripathi (Pvt.) Ltd., Bombay, articles
604-611.
Vide also, the observation of Sir George Farwell in the Judicial
Committee's judgment in Bilas Kunwar v Desraj Ranjit Singh
(1915) 42 IA 202 ; 37 All 557 ; 19 CWN 1207 : "It is quite
unobjectionable and has a curious resemblance to the doctrine of
English law, that the trust of the legal estate results to the man
who pays the purchase-money, and again follows the analogy of
our common law, that where feoffment is made without considera
tion, the use results to the feoffer."
As for the practice among Muslims, see Uzhar Ali v Ultaf
Fatima 13 MIA 346 ; Abid Ali v Asgar Ali 7 NLR 159. However,
it has been held in Gosia Begum v Mohmd. Ghaziuddin, AIR
1956 Hyd 52 that the benami law is not a branch of Hindu or
Muslim law but merely an application of the equitable general
rule laid down in sections 81 and 82 of the Indian Trusts Act,
1882.
3 Suhasini Karuri v WTO (1962) 46 ITR 953 (Cal) ; Chintamani
Ghosh Trust v CWT (1971) 80 ITR 331 (All) ; CWT v Phirozsha
Pestanji (1974) 96 ITR 185 (Guj).
4. Illustration (c), section 4, Indian Trusts Act. Also, Elliot,
Official Receiver, Cuddappah v Subbiah, 50 Mad 815. But a
wagf to defraud the waqif's creditors cannot be revoked by the
waqif or his heirs though the court may strike it down : Zafrul
Hussan v Farid-ud-din AIR 1946 PC 177; Har Prasad v
Mohammed Usman AIR 1943 All 2.
5. For trusts interfering with parental duties, Re. Sandbrook (1912)
2 Ch. 471; Re. Boulter (1922) 1 Ch. 75 ; Re. Piper, Dodd v
Piper (1946) 2 All ER 503. For a trust voided on the ground of
restraint of marriage, Lloyd v Lloyd (1852)2 Sim. (N.S.) 255 ;
White and Tudor, Leading Cases in Equity, 9th Ed, Vol. 1,
p. 487. Curiously, requirement of consent to marriage will be
INTRODUCTION

valid : Re. Whiting's Settlement, Whiting v De Rutzen (1905) 1

Ch. 96. So also, a limitation of property until marriage, Re.
Lovell Sparks v Southall (1920) 1 Ch. 122.
6, McPhailvDoulton (1971) AC 424, (1970) 2 All ER 228; Re
Gulbenkian's Settlement Trusts (1968) 3 All ER 785.
7 The three conditions commonly known as the "three certainties"
required in a trust have been spelt out by Lord Langdale MR in
Knight v Knight (1840) 3 Beav 148, 173. They are covered in
section 6 of the Indian Trusts Act, 1882.
8 CITvManilal Dhanji (1962) 44 ITR 876, 885-6 (SC); CIT v
Mrs. Jayalakshmi Duraiswamy (1964) 53 ITR 525 (Mad); CIT
v Sardar Bahadur Sardar Inder Singh Trust (1956) 29 ITR 781
(Cal); Ram Ran Vijay Prasad Singh v Province of Bihar AIR
1942 Pat 435 (FB), (1942) 10 ITR 446 (Pat); Zafar Hussain v
M. Ghiasuddin AIR 1937 Lah 552 (regarding a waqf);
Chambers v Chambers AIR 1944 PC 78; Krishnamurthi v
Anjayya AIR 1936 Mad 635 ; Chotabhai v Jnan Chandra, AIR
1935 PC 97 ; Re. Kayford Ltd. (1975) 1 All ER 604, (1975) 1
WLR 279 ; Re. Williams (1897) 2 Ch. 12 ; In re. Booth : Booth
v Booth (1894) 2 Ch. 282 ; Jones v Lock (1865) 1 Ch. App. 25 ;
Raikes v Ward (1842) 66 ER 1106; Woods v Woods (1836) 40
ER 429, 43 RR 214.

94 Retention of any powers over the trust property may be inconsis

tent with the divestiture that is required : The Allahabad Bank
Ltd. v CIT (1953) 24 ITR 519 (SC). There is neither a trust nor
a gift if the author of the trust merely executes an instrument,
but does not transfer the purported trust property to the trustees :
CGT v Maharaja Pateshwari Prasad Singh (1971) 82 ITR 654
(All).
10. Richards v Delbridge (1874) LR 18 Eq. 11.
11. Jang Bahadur v Rana Umanath Baksh Singh AIR 1937 Oudh
99 ; Anant Ram v Ishri Prasad AIR 1925 Oudh 201 ; Kesheo v
Laxminarayan AIR 1926 Nag. 46; Kumuruddeen v Noor
Mohammed 28 Mad LJ 251.
12. Smt. Pankumari Kochar v CED (1969) 73 ITR 373 (AP). If the
value of an immovable property that is transferred to a trust
exceeds Rs. 100, the law of registration cannot be avoided.
Religious endowments are, however, outside its purview.

13. Pachaiyappa Chetty v Shivakami Ammal AIR 1926 Mad 109 ;

Chambers v Chambers AIR 1940 PC 78. In order to render a
settlement of shares valid and effective, the transfer of the shares
will have to be executed in accordance with the articles of the
company: Milroy v Lord (1862) 2 De GF & J. 264, (1861-73)
All ER Rep 783 ; Re Rose (1952) 1 All ER 1217.
 TAX TREATMENT OF PRIVATE TRUSTS

14. Richard v Delbridge LR 18 Eq. ll;Gharib Das v Munshi A

Hamid AIR 1970 SC 1035 ; Tulsidas Kilachand v CIT (1961)
42 ITR 1,6 (SC) ; Smt. Pankumari Kochar v CED (1969) 73 ITR
373 (AP).

15. Mcphail v Doulton (1971) AC 424, (1970) 2 All ER 228 ;

Gulbenkian's Settlements, Re (1970) AC 508 ; Baden's Deed
Trusts (No. 2) (1972) 2 All ER 1034 ; Burrough v Philcox (1840)
MYL & Cr 72.

16. Re. Turner's Will Trusts (1937) Ch. 15 ; Re. Watt's Will Trusts
(1936) 2 All ER 1555 ; Re. Ransome (1957) 1 All ER 690 : Re.
Holford (1894) 3 Ch. 30.

17. CIT v Tollyganj Club Ltd. (1977) 107 ITR 776 (SC) ; CIT v
Thakurdas Bhargava (1960) 40 ITR 301 (SC) ; CIT v Lad
Parishad Karyalaya (1974) 94 ITR 359, 360 (Bom); CIT v
Cutchi Lohana Panchtade Mahajan Trust (1975) 98 ITR 448
(Bom) ; CIT v Pramod Jain Trust (1971) 81 ITR 604 (Del.);
A.J. Patel v CIT (1974) 97 ITR 683 (Bom.); S. Devaraj v CWT
(1973) 90 ITR 400 (Mad) ; Keshava Panickar v Damodara
Panicker AIR 1970 Kerala 86, 88 (FB).

18. Joint Committee of B. Group Msrchants, Bombay v CIT (1963)

48 ITR 427 (Bom.)

19. Maharaja Bahadur Ram Ran Vijay Prasad Singh v Province of

Bihar (1942) 10 ITR 446, 451 (Pat).

20. Thellusson v Woodford (1798) 4 Ves Jun 227 ; on appeal,

(1803-13) All ER Rep 30, which led to the Thellusson Act in
1800 ; Re. Jefferies (1936) 2 All ER 626 ; Re Maber (1928) Ch. 88.
The following is section 114 of the Indian Succession Act, 1925,
which lays down the rule'against perpetuity :
"114 No bequest is valid whereby the vesting of the thing
bequeathed may be delayed beyond the life-time of one or more
persons living at the testator's death and the minority of some
person who shall be in existence at the expiration of that period,
and to whom if he attains full age, the thing bequeathed is to
belong.

Illustrations

(i) A fund is bequeathed to A for his life and after his death to
B for his life : and after B's death to such of the sons of B as
shall first attain the age of 25. A and B survive the testator.
Here the son of B who shall first attain the age of 25 may be a
son born after the death of the testator ; such son may not attain
25 until more than 18 years have elapsed from the death of the
longer liver of A and B ; and the vesting of the fund may thus be
delayed beyond the life-time of A and B and the minority of the
sons of B. The bequest after B's death is void."
 INTRODUCTION
17

For the principle on which this provision is founded, see Stanley

v Leigh (J732) All ER 917, 918:
"For the law does abhor what is called perpetuity ... the reason
of which is the mischief that would arise to the public from
estates remaining for ever inalienable or untransferable from one
hand to another, being a damp to industry and a prejudice to
trade, to which may be added the inconvenience and distress that
would be brought on families whose estates are so fettered."
21. Sardar Bahadur Indra Singh Trust v CIT (1971) 82 ITR 561
(SO.

22. K.T. Doctor v CIT (1980) 124 ITR 501 (Guj); CIT v Juggilal
Kamlapat (1967) 63 ITR 292 (SC) ; Addl. CIT v Ram Krishna
Gupta (1979) 117 ITR 218 (All).
23. Sections 7 and 9 of the Indian Trusts Act.
24. Sub-clause (b) of section 7 of the Indian Trusts Act. While a
minor cannot create a testamentary trust, since he is incompe
tent to leave a will under section 59 of the Indian Succession
Act, 1925, he can set up a trust inter vivos.
In the UK a minor cannot hold land but can have an equitable
interest in land. If a trust is created by him, it is voidable by
him snortly after he attains majority; Edwards v Carter (1893)
AC 360, (1891-94) All ER Rep 1259. The guardian of a minor
cannot create a waqf on his behalf: Commissioner of Waqfs,
v West Bengal v Mohsin in 48 WBN 252.
25. Section 8 of the Indian Trusts Act. Salary and pension are inalien
able and cannot be the subjects of a trust. There can also be no
transfer of the right of the beneficiary to proceed against a trustee.
26. CIT vManilal Dhanji (1962) 44 ITR 876 (SC); CIT v HEH the
Nizam's Supplemental and Religious Endowment Trust (1973) 89
ITR 80, 84, 85, (AP) ; Dr. A J. Kohiyar, v CIT (1964) 51 ITR
221 (Bom).

27. Vide sections 5 and 13 of the Transfer of Property Act, 1882. Sopher
v Administrator-General of Bengal 71 IA 93 : 46 Bom LR 86 (PC).
28. T.C. Hornby v E.T. Farmer AIR 1960 Cal 36 ; Sopher v Admini
strator-General of Bengal 71 IA 93 : 46 Bom LR 86 (PC).
29. That an unborn child can be one of the beneficiaries is assumed in
several cases : Addl. CIT v Ram Krishna Gupta (1979) 117 ITR
218 (All); CWT v Trustees of HEH the Nizam's Family (Remainder)
Wealth Trust (1977) 108 ITR 155 (SC); Trustees of Putlibai R.F.
Mulla Trust v CWT (1967) 66 ITR 653. For a different view, vide
Nirmala Bala Sirkar v CIT (1969) 74 ITR 268 (Cal). The ITAT,
Calcutta (Special Bench) has expressed the view that where a trust
provided for payment of 5 per cent of the income to a lady and for the
accumulation of the balance for her unborn son for 21 years, the
g TAX TREATMENT OF PRIVATE TRUSTS

trust was a valid one, not liable to tax at the maximum rate : ITO
vCL Sadani Family Trust, ITA 2573 (Cal) of 1979, reported in
Selected Orders of ITAT (Vol I), 1982, New Delhi : Taxman, pp.
484-93.
30. Re. Rydon (1955) Ch. 1 ; Re. Curteis (1872) LR 14. Eq. 217.
The settlor's intention has to be established. Merger may be open to
question where the settlors or/and trustees are different or there «
any variation in the terms of the trusts : Re. Campbell 922 Ch.
551 • Re. Eykyn (1877) 6 Ch. D 115 ; Re. Marke Wood (1913) 2 Ch.
574'• Re Beaumont (1913) 1 Ch. 325 ; Hart (Inspector of Taxes) v
Briscoe (1978) 2 WLR 832, (1978) 1 All ER 791. Where there is a
disposition of a limited interest in a settlemem, two f^™f™*
result • Midland Bank Executor and Trustee Co. Ltd. v IR (1959)
Ch 277 For the effects of variation of trust arrangements with the
court's approval: Re. Ball's Settlement Trusts (1968) 1 WLR 899,
(1968) 2 All ER 438 ; Re. Holt's Settlement (1969) 1 Ch. 100 , (1968)
1 All ER 470.
31. For the grounds of rescission, vide Pettit Equity and the L^ of
Trusts Second Ed. (1970), Butterwcrths, pp. 445-50 , G.WKeeton
and LA Sheridan,, The Law of Trusts, 20th Ed. 1974, Professional
Books Ltd., pp. 117-24. Also section 89 of the Indian Trusts Act.
32 Sections 11 to 30 of the Indian Trusts Act set out the duties and
liabilities of trustees, sections 31 to 45 their rights and powers and
sections 46 to 54 their disabilities.
33 Re Gibbon's Trusts Ch. (1882) 30 WR 287; Re. Tempest (1886)
1 Ch. App 485 ; A.G. v Lady Downing (1767) Wilm. 1 ; Re.
Wrightson (1908) 1 Ch. 789.
34. A disclaimer cannot be partial. The trustees must either accept the
trust as a whole or decline the trusteeship : Re. Lord and Fullerton s
Contract 1896 1 Ch. 228.
The disclaimer may be oral or made evident by conduct. It may
also be intimated to the court through counsel : Bingham v
Clanmorris 1828 2 Moll, 253 ; Stacey v Elph 1833 1I Myl1 & K
195, (1824-34) All ER Rep 97 , Re. Birchall 1889 40 Ch D 436
Re Clout andFrewer's Contract 1924 2 Ch. 230, (1924) All ER
Rep 798 ; Landbroke v Bleaden (1852) 16 Jur (0.S) 630 ; Foster v
Dawber 1860 8WR646.
35 Section 46 of the Indian Trusts Act : Raja of Kovilagon v Kottayath.
' 7 MH CR 210 ; Vrandavan v Parshottam AIR 1927 Bom 75 ; 28
Bom LR 1481 ; Mst. Kiishan Bai v Dhondo Ramchandra AIR 1924
Nag 129 ; Krishandas v Ratanbai AIR 1941 Bom 41.
36 For the consequence of failure to follow the directions of the settlor :
' Kernerv George 321 111. App. 150. 52 NE (2d) 3001 (1943). Brief
details of the case are furnished by Eleanor K. Taylor, Public Account-
 INTRODUCTION 19

ability of Foundations and Charitable Trusts, 1953, New York : Russel

Sage Foundation, p. 42.

37. Harvey v Olliver (1887) 57 LT 239 ; Bennet v Burgis (1846) 5 Hare

295 ; Re. Strahan (1856) 4 WR 536, 44 ER 402 ; Hallows v Lloyd
(1888) 59 LT 603 ; 37 WR 12.
38. Learoyd v Whitely (1887) 12 App case 727, 733 ; Lucking's Will
Trusts v Lucking (1967) 3 All ER 726.
39. Sections 47 and 48 of the Indian Trusts Act. On the question of
delegation, Atmaram Ranchhod v Ghulam Hussain Ghulam (1972),
13 GLR 828 ; Abdul Kayum v Alibhai AIR 1963 SC 309 ; Mahadev
Jew v Balkrishna Vyas AIR 1952 Cal 763 ; Marimuthu Pillai v
Narayanavadian Bhagavathy 1949 TCLR 70; Sir Dinshah v Sir
Jamshedji 2 IC 701 ; Sankaran Nambi v Devki Antherjenam AIR
1922 Mad 269 ; Parasurama Udayar v Vedaji Bhaskar Thirumal Rao
Sahib AIR 1921 Mad 623 ; Gopal Sridhar Mahadev v Sahai Bbushan
Sarkar AIR 1933 Cal 109 ; Sridhar v Dharamdas 3 IC 549 ; Gopala-
swami v Subramania AIR 1942 Mad 397.
On the requirement of joint action of trustees, vide Shyam Rangini
Ray Chaudhurani v Ajindranath Tagore (1949) 1 ILR 165;
Jankirama Ayyar v Nilakanta Ayyar (1954), Mad LJ 486 ; Commis
sioner for Hindu Religious and Charitable Endowments, Madras v
A.P.S. Sethurama Pillai (1960) Mad LJ 157 ; Manmohandas v Janki
Prasad AIR 1945 PC 23 ; Narendra Kumar v Atul Chandra Bando-
padhyaya AIR 1918 Cal 810 ; Vedakannu v Annadana Chetram
AIR 1938 Mad 982 ; Vavuttu Naicken v Venkata Sesha Aiyar AIR
1914 Mad 119(1); S.V.Daniels v G.W. Friendly Trust AIR 1959
All 579 ; Board of Trustees, Shri Hindu Kanya Pathasala v Nandoo
Lai 1958 Pat LR 383.

40. Bartlett v Barclay's Bank (1979) 1 All ER 139.

41. Re. Duke of Norfolk's Settlement (1978) 3 WLR 655 ; Protheroe v
Protheroe (1968) 1 All ER 1111 ; Bannister v Bannister (1948) 2 All
ER 133 ; Re. Macadam (1945) 2 All ER 664 ; Dale v IR (1953) 2 All
ER671.
42. Baxendale v Murphy 9 TC 76 ; Dale v IR 34 TC 468 (HL).
43. For a situation in which the profit assjmes the form of a bribe, see
suggestion in Lister and Co. v Stubbs (1886-90) All ER Rep 797.
44. Sections 51 and 54 of the Indian Trusts Act : Nagappa v Official
Assignee AIR 1931 Mad 251(2); Krishnajee v Sadasiva AIR 1927
Mad 249; Krishnamurthy v Chetty Punyam Devanadhaswamy
Devasthanam (1957) 2 Mad LJ 411; Manickavasagam Chettiar v
CIT (1964) 53 ITR 292 (Mad) ; CIT v Jayantilal Amratlal (1968) 67
ITR 1 (SC); Re. Lacey Exp. (1802) 6 Ves 625.
45. Section 34 of the Indian Trusts Act : Avoch Thevar v Chammar AIR
1956 Ker 381 ; In re. Mohamed Hashim Gazdar AIR 1945 Sind 81
20 TAX TREATMENT OF PRIVATE TRUSTS

(FB) ; Amina Bee v Mariam Bee AIR 1939 Rang 347 ; In re. Madras
Devotom Trust Fund ILR 18 Mad 443; Talbot v Talbot (1967) 1
All ER 604.
46. Sections 23 and 59 of the Indian Trusts Act : Thanthi Trust v 1TO
(1973)91 ITR 261. 285 (Mad) ; CIT v Gopal Krishna Kone (1965)
57 ITR 569 (Mad); Attorney General v Lady Downing (1767) Wilm 1,
97 ERI. See also Krishnaswami Pillai Kothandarama Naicker (1914)
27 MLJ 582 ; Gokuldass Jamnadass and Co. v Lakshminarasimhulu
Chetty AIR' 1940 Mad 920; Sunder Singh Malla Singh Sanatan
Dharam High School Trust Indaura v Managing Committee, Sunder
Singh Malla Singh Rajput High School Indaura AIR 1938 PC 73 ;
Managing Shebaits of Bhukailash Debuttar Estate v WTO (1977)
106 ITR 904 (Cal) ; Rash Mohan Chatterjee and others v CED (1964)
52 ITR EDI (Cal) ; Lang v Webb (1912) 13 CLR 503 ; Clifford John
Check v Commissioner of Stamp Duties of New South Wales 37 ITR
ED 89.

47. LetterstedtvBroeis(1894)9App. Cas. 371; (1881-5) All ER Rep

822 ; Millard v Eyie (1793) 2 Ves 94.
48. While every trust is a settlement, the term "settlement" is wider in
its scope. It includes any disposition, covenant, arrangement or
transfer of assets which may or may not involve a trust.
49 Cooke v Head (1972) 2 All ER 38 ; Hussey v Palmer (1972) 2 All
ER 744; Heseltine v Heseltine (1971) 1 All ER 952 ; Bannister v
Bannister (1948) 2 All ER 133 ; Boardman v Phipps (1965) 3 All ER
721 ; Industrial Development Consultants Ltd. v Cooley (1972) 2 All
ER 86 ; Keech v Sandford (1558-1774) All ER Rep 230; Re. Diplock
(1948) Ch. 465, (1948) 2 All ER 318 ; (1950) 2 All ER 1137 ; Nelson v
Larholt (1947) 2 All ER 751 ; Williams-Ashman v Price and
Williams (1942) 1 All ER 310 ; Belmont Finance Corporation Ltd.
v Williams Furniture Ltd. (1979) 1 All ER 118.
50. Blackwell v Blackwell (1929) All ER Rep 71 ; Re. Keen's Estates
(1937) 1 All ER 452 ; Re. Bateman's Will Trusts (1970) 3 All ER 817 ;
Re. Stead (1900) 1 Ch. 237 ; Re. Tyler's Fund Trusts (1967) 3 All ER
389 ; Wallgrave v Tebbs (1855) 4 WR 194 ; Moss v Cooper (1861) 4
LT790.
51 CIT v Manila! Dhanji (1962) 44 ITR 876 (SC) ; CIT v Puthiya
Ponmanichintakam Waqf (1962) 44 ITR 172 (SC) ; CIT v Lady
Ratanbai Mathuradas (1968) 67 ITR 504 (Bom) ; D.V. Arur v CIT
(1945) 13 ITR 465, 480 (Bom) ; CIT v Arvind Narottam (1972) 102
ITR 232 (Guj) ; CIT v Arvind Narottam (1969) 73 ITR 490 (Guj) ;
Lokmanya Tilak Jubilee National Trust Fund, In re. (1942) 10 ITR 26
(Bom) ; 1TAT v Managing Trustee, Sree Radha Madho Trust (1946)
14 ITR 470 (Nag); Trustees of Sahebzadas of Sarf-e-khas Trust v
CIT (1962) 44 ITR 332 (AP) ; V.E.A. Vairavan Chettiar v CIT (1973)
92 ITR 474 (Mad); Bankim Chandra Dutta v CIT (1966) 62 ITR
Introduction 21

239 (Cal); Nirmala Bala Sarkar v CIT (1969) 74 ITR 268 (Call ;
CIT v Trust Estate of Tarun Kumar Roy (1974) 94 ITR 361 (Cal).

52. CWT v Bhogilal Maganlal Shah (1968) 68 ITR 288 (Guj) ; CWT v
Kum. Manna G. Sarabhai (1972) 86 ITR 153 (Guj); CWT v N.D.
Petit (1981) 128 ITR 650 (Bom) ; CWT v Anarkali Sarabhai (1971)
81 ITR 375 (Guj); CWT v Ashok Kumar Ratanlal (1967) 63 ITR 133
(Guj); CWT v Master Jehangir H.C. Jehangir (1982) 137 ITR 48
(Bom).

53. Deokinandan v Murlidhar AIR 1957 SC 133 ; Ram Saroop Dasji v

S.P. Sahi AIR 1959 SC 951 ; Chintamani Ghosh Trust v CWT (1971)
80 ITR 331 (All) ; Farman Ali Khan v Md. Raza Khan AIR 1950 All
62, 66 ; Trustees of Gordhandas Govindram Family Charity Trust v
CWT (1968) 70 ITR 600, affirmed in 88 ITR 47 (SC); Trustees of
KBMH Bhiwaniwala v CWT 1977 106 ITR 709 (Bom) ; CWT v
J.P. Pardiwala Charity Trust (1965) 56 ITR 46 (Bom) ; S.K. David
Sassoon v CIT (1959) 36 ITR 512 (SC) ; CWT v Trustees of HEH the
Nizam's Supplemental and Religious Endowments Trusts (1973) 89
ITR 80 (AP) ; Bai Hirbai and Kesarbai Charitable and Religious
Trust v CIT (1968) 68 ITR 821 (Bom); CIT v Dwarka Dheesh Temple
(1951) 19 ITR 440 (All) ; CWT v Hyderabad Race Club (1978) 115
ITR 453 (AP); Kedia Jatiya Sahayak Sabha and Fund v CIT (1963) 49
ITR 74 (Cal) ; The Guru Estate v CIT (1958) 34 ITR 656, 662, 663
(Orissa), affirmed in (1963) 48 ITR 53 (SC) ; CIT v ASHM Sait
Dharma Stapanam v Commr. of Agl. IT (1973) 91 ITR 5 (SC); In re.
Smt. Charusila Dassi (1946) 14 ITR 362 (Cal); Official Trustee of
West Bengal v CIT (1968)67 ITR 218 (Cal); Sri Jyotishwari
Kalimara v CIT (1946) 14 ITR 703 (Pat) ; Bisvvaranjan Bysack v CIT
(1967) 66 ITR 452 (SC) ; Smt. Ganeshi Devi Rami Devi Charity
Trust v CIT (1969) 71 ITR 696 (Cal).

A trust for religious purposes has been held 10 be exempt from the
gift tax notwithstanding the fact that the wife of its author was given
the right to reside for life in a portion of the settlei property : CGT
v Sri Sahaji the Chatrapati Maharajasaheb of Kolhapur (1965) 58
ITR 140 (Bom).

54. CIT v Jamal Mohammad Sahib (1941) 9 ITR 375 (Mad).

55. CIT v Smt. Kasturbai Walchand Trust (1 67) 63 ITR 656 (SC) ; CIT
v Trustees of Sri Kikabai Premchar J Trust (1967) 65 ITR 213
(Bom).

56. See 53 supra.

57. CWT v HEH The Nizam's Supplemental and Religious Endowment

Trust (1973) 89 ITR 80, 83 (AP). The name may, however, be a
pointer : Trustees of Gordhandas Govindram Family Charity Trust v
CIT (1973) 88 ITR 47, 52 (SC).

58. Radhakanta Deb v Commissioner of Hindu Religious Endowments,

Orissa AIR 1981 SC 798 ; T.D. Gopalan v Commissioner of Hindu
22 TAX TREATMENT OF PRIVATE TRUSTS

Religious Endowments, Madras AIR 1972 SC 1716 ; Goswami Shri

Mahalaxmi Vahuji v Shah Ranchhoddas Kalidas AIR 1970 SC 2025 ;
Amardas Mangaldas v Harmanbhai Jethabhai AIR 1942 Bom 291 ;
Ramsarandas v Jairam AIR 1943 Pat 135 ; Parmanand v Nihalchand
AIR 1938 PC 195 ; Laxmanrao Umajirao v Govind Rao Madho Rao
AIR 1950 Nag 215 ; Prakash Chandra v Subodh Chandra AIR 1937
Cal 67 ; Bhagwandin v. Gir Harswaroop AIR 1940 PC 7 ; State of
Bihar v Smt. Charusila Devi AIR 1959 SC 1002 ; Bihar Board of
Religious Trust v Palai Lai AIR 1972 SC 57 ; Shri Govindlalji v
State of Rajasthan AIR 1963 SC 1638 ; State of Bihar v Biseshwar
Das AIR 1971 SC 2057 ; Bhagwan Sitaram Khasale v Namdeo
Narayan Gore AIR 1957 Bom 168 ; Martand Pandharinath Harkare
v Charity Commissioner, Bombay, 63 Bom IR 274 ; Rudrappa v
Kandappa AIR 1967 Mysore 239 ; Gurcharan Prasad v Krishnanand
AIR 1968 SC 1032 ; Smt. Ganeshi Devi Rami Devi Charity Trust v
C1T(1969)71 ITR 696, 706 (Cal) ; C1T v Shri Dwarka Dheesh
Temple (1946) 14 ITR 440 (All) ; CIT v Shri Thakurji Lakshminath-
ji (1947) 15 ITR 215 (All).
59. CIT v Administrator-General of Bengal (1952) 21 ITR 241 (Cal) ;
Estate of Harendra Kumar Roy v CIT (1944) 12 ITR 68 (Cal) ; The
Guru Estate v CIT (1958) 34 ITR 656 (Orissa), affirmed in (1963) 48
ITR 53 (SC) ; Smt. Charusila Dassi, in re. (1946) 14 ITR 362 (Cal)
60. Ramchandra Shukla v Shree Mahadeoji AIR 1970 SC 458.
61. Trust for the testator's mare : Pettingall v Pettingall (1842) 11 LJ Ch.
176.

Trust for the testator's hounds, ponies and horses : Re. Dean (1889)
41 Ch.652 ; 60 LT 813.
Welfare of animals : Trustees of the Charity Fund v CIT (1959) 36
ITR 513 (SC) ; CIT v Sri Jagannath Jew (1977) 107 ITR 9 (SC) ; CIT
v. Swastik Textile Trading Co. Pvt. Ltd. (1978) 113 ITR 852 (Guj) ;
Satya Vijay Patel Hindu Dharmshala Trust v CIT (1972) 86 ITR 683
(Guj) ; Vallabhdas Karsondas Naha v CIT (1947) 15 ITR 32 (Bom);
Pradhan v Bombay State Federation of Gaushalas and Pinjrapoles
(1957) 59 Bom LR 890 ; Lalita Prasad v Brahmanand AIR 1953 All
449.

62. The object was held to be charitable in the following cases :

Dwarka Nath Bysack v Burroda Prasad Bysack (1878) 1LR 4 Cal

443 ; Advocate General of Bombay v Yusuf Ali Ebrahim AIR 1921,
Bern 338 ; CIT v Trustees of Abdul Kadar Ebrahim (1975) 100 ITR
85 (Bom);Addl. CIT v A.A. Bibijiwala Trust (1975) 100 ITR 516
(Guj).
The contrary view is expressed in the following :
Trustees of Gordhandas Govindram Family Charity Trust v CIT
(1952) 21 ITR 231 (Bom) ; Kedia Jatiya Sahayak Sabha and Fund v
INTRODUCTION 23

CIT (1963) 49 1TR 74 (Cal) ; C1T v Karim Bros. Chanty Fund (1943)
11 ITR603 (Bom).

63. D.V. Arur v CIT Bombay (1949) 13 ITR 465 ; Taw Chew v Taw
Kock AIR 1939 Rang 203 ; Trustees of Gordhandas Govindram
Family Charity Trust v CIT (1952) 21 ITR 231 (Bom). The contrary
view is found in Ramaswami v Aiyasami AIR 1960 Mad 467.
64. Yogiraj Charity Trust v CIT (1976) 103 ITR 777 (SC) ; CIT v Karim
Bros. Charity Fund (1943) 11 ITR 603 (Bom).

65. Special provisions are made for tax exemption for approved/
recognised gratuity, provident and superannuation funds in sub
section (25) of section 10 of the Income-tax Act while proviso
(iv) to section 164 (1) of the Act indicates the tax treatment of
unrecognised funds. For employee welfare trusts in general, vide
Baker v National Trust Co. Ltd. 2 All ER 550.

66. Re. Lokmanya Tilak Jubilee National Trust Fund (1942) 10 ITR 26
(Bom) ; Subhash Chandra Bose v Gordhandas J. Patel AIR 1940
Bom 76; Laxman Balwant Bhopatkar v Charity Commissioner,
Bombay AIR 1962 SC 1589 ; Bonar Law Memorial Trust v IR (1933)
17 TC 508.

67. Saraswathi Ammal v Rajagopal Ammal AIR 1953 SC 491. A trust

for the performance of ceremonies for the peace of the departed soul
is charitable : CWT v Trustees of J.P. Pardiwala Charity Trust (1965)
58 ITR 46 (Bom).

68. Cricket Association of Bengal v CIT (1959) 37 ITR 277 (Cal). The
Madras High Court has taken a different view : CIT v Ootacamund
Gymkhana Club (1977) 110 ITR 392 (Mad) ; South Indian Athletic
Association Ltd. v CIT C1977) 107 ITR 108 (Mad). The insertion
of a specific provision for exemption of the income tax in section 10
(23) of the Income-tax Act has raised doubts on the question whether
a sports association can claim to be a charitable trust under sections
11 to 13 and donations to it will qualify for deduction from the tax
able income under section 80 G.

69. Bangalore Race Club Ltd. v CIT (1970) 77 ITR 435 (Mys).

70. Mohammed Ibrahim Riza v CIT AIR 1930 PC 226 ; East India
Industries (Madras) Pvt. Ltd. v CIT (1967) 65 ITR 611 (SC) ; Sri
Agastyar Trust v CIT (1963) 48 ITR 673 (Mad) ; In re. Probynabad
Stud Farm (1936) 4 ITR 114 (Lah) ; G.K. Hosiery Factory v CIT
(1971) 81 ITR 557 (All) ; CIT v Jaipur Charitable Trust (1971) 81
ITR 1 (Del); Dharmadeepti v CIT (1978) 114 ITR 454, 463, (SC),
reversing CIT v Dharmadeepti (1975) 100 ITR 375 (FB) (Ker) ;
Dharmaposhanam Co. v CIT (1978) 114 ITR 463, 471 (SC), affirming
(1975) 100 ITR 351 (FB) (Ker); Moulana Malak v CIT, AIR 1930
PC 226, affirming AIR 1928 Nag 10; CIT v Ahmadabad Mill
Owners' Association (1977) 106 ITR 725 (Guj). Also see CIT v
Andhra Chamber of Commerce (1965) 53 ITR 722 (SC).
24 TAX TREATMENT OF PRIVATE TRUSTS

71. CIT v Jamal Mohammad (1941) 9 1TR 375 (FB) (Mad).

72. "Debuttar" means "belonging to the deity." A dedication of
immovable property to a deity is an endowment which assumes the
character of a private trust and not a "settlement" : Bhupatinath v
Basanta Kumar AIR 1936 Cal 556.
73. CIT v Sri Jagannath Jew (1977) 107 1TR 9 (SC); Sree Sree Ishwar
Sridhar Jew v Mst. Sushila Bala Dasi AIR 1954 SC 69 ; Sri Sridhar
Jiu v Manindra Kumar Mitra AIR 1941 Cal 272 ; CIT v P. Krishna
Warrier (1964) 53 1TR 176 (SC) ; Sappani Mohamed Mohideen v
R.V. Sethu Subramania Pillai AIR 1974 SC 740. Partial dedication
is not debuttar : there is partial dedication when the entire beneficial
interest is not conveyed to the deity,

74. Kunwar Doorganath Roy v Ramchandra Sen (1876-77) 4 1A 52 (PC).

For scope of revocation of a charitable trust, see CED v Bhagwandas
Velji Joshi (1981) 6 Taxman 202 (Bom) ; (1983) 131 ITR 326 (Bom).

75. Commissioner, Hindu Religious Endowment v Swamiyar AIR 954

SC 282 ; Moti Das v S.P. Sahi AIR (1959) SC 942 ; Smt. Angurbala
Mullick'v Dcbabrata Mullick AIR 1951 SC 293 ; CIT v Pulin
Chandra Daw (1967) 63 ITR 179 (Cal) ; Sri Sri Sridhar Jiu v ITO
(1967) 63 ITR 192, 223 (Cal) ; Nirmala Bala Ghosh v Balai Chand
Ghosh AIR 1965 SC 1874 ; a shebait is entitled to minister to the idol
(deity) owning the endowed estate. Power to remove shebaits has
been held to make a debuttar settlement revocable : Panchanan Dey
(deed.) v CIT (1983) 142 ITR 762 (Cal).

76. In essence, a private trust, as distinct from waqf-fisabiliHah, a public

trust. A waqf-alal-au'.ad ordinarily turns into a public waqf when
the family benefiting from it becomes extinct. Family waqfs have
been abolished in Egypt and some other Muslim countries, vide
Tahir Mahmood, Progressive Codification of Muslim Personal Law,
p. 87, Islamic Law in Modern India, (1972) Delhi : the Indian Law
Institute.
77. Bibi Siddique Fatima v Saiycd Mohammed Mahmood Hasan AIR
1978 SC 1362.
78. A family settlement. See S. Khalid Rashid, Administration of
Waqfs in India : Some suggestions, pp. 237-38, Islamic Lav in
Modern India (1972), Delhi : The Indian Law Institute.
The Mussalman Waqf Validating Act of 1913 was necessitated by the
decision of the Privy Council in Abdul Fata Mahomed Ishak v
Rassamay Dhur Chowdhury (1894) ILR 22 Cal 619 (PC). Family
settlements in which the benefits to charity or religion were either
illusory or postponed idefinitely while the property so dedicated could
be enjoyed from generation to generation by the family of the waqif
were regarded as opposed to the rule against perpetuity in the Indian
Succession Act and the Transfer of Property Act : Fazlul Rabbi
INTRODUCTION 25

Pradhan v State of West Bengal AIR 1965 SC 1722; Mahant Sri

Srinivas Ramanuj Das v Agl. 1TO (1978) 115 1TR 153 (SC). Section
3 of the Mussalman Waqf Validating Act 1913, validates such
private waqfs which, expressly or by implication, reserve the
ultimate benefit for charitable or religious purposes. But waqfs in
which the ultimate benefaction is uncertain will be void : Abdul
Karim Adenwala v Rahimbai AIR 1946 Bom 342 ; Faqir Mohd v
Abda Khatoon AIR 1952 All 127.

79. Abadi Begum v Kaniz Zainab (1927) 54 IA 33 ; see also Mulla,

Principles of Mahomedan Law, 18th Ed. p. 210, notes under sec. 192.
80. Mundaria v Shyam AIR 1963 Pat 93 ; Mohammad Yusuf v Shaft
AIR 1934 All 1013.

81. Imdad Ali Khan v Sardar Khan AIR 1954 Orissa 15 ; Shri Ghasi
v Waqf-alal-aulad (1969) All LJ 923.

82. A mutawalli is not a trustee in the technical sense. He is a

procurator, superintendent or manager : CWT v Puthiya Ponmani
Chintakam Waqf (1967) 63 ITR 787 (Ker) ; Vidya Varuthi Thirtha V
Balusami Ayyar AIR 1922 PC 123, 128 ; Alia Rakhi v Mohammad
Abdul Rahim (1933) LR 61 IA 50; CIT v Puthiya Ponmani
Chintakam Waqf (1962) 44 ITR 172 (SC) .; CIT v Managing Trustees
Nagore Durgah (1965) 57 ITR 321, 325 (SC), regarding nattanmaigars
who manage the Durgah and kasupangudavs v/ho have beneficial
interests ; vide Tahir Mahmood (1980): The Muslim Law of India,
Law Book Company, pp. 288-291 ; also, Hafiz Mohammed Zafar
Ahmad v U.P. Sunni Central Board of Waqf AIR 1965 All 333 •
CED v K.A. Kader (1974) 96 ITR 289 (Mad); CED v Kamaluddin
Fakri (1980) 124 ITR 98 (Mad).
83. Mumtaz Qadar v A.G. AIR 1946 Oudh 244.
84. Khalil Ahmed Khan v Siddiq Ahmed Khan AIR 1974 All 382.

85. Milroy v Lord (1862) 4 De G.F. & J 264 ; Ida Chambers v K.H.
Chambers (1940) 2 MLJ 963.

86. CIT v Hamdard Dawakhana (1960) 39 ITR 144 (Pun); Amiya

Krishna Khan v Debendra Lai Khan 46 CWN 865 ; Kayastha
Pathasala v Mst Bhagwati AIR 1937 PC 4 ; Re. Pcrtei 19^5 All
ER Rep. 179.

87. The law of charities does not allow property gifted for charitable
purposes to revert to the donor or his legal heirs and successors if
tneie is difficulty in implementing the exact purpose he had in view.
The cy pres doctrine enables the Court to direct the application of
the gift to an object as close as possible to that indicated by the
donor. Sec 92(3) of the Code of Civil Procedure, 1908 incorporates
the doctrine with effect from February 1, 1977 : Thanthi Trust v CIT
(1981) 23 CTR (Mad) 155 ; State of U.P. v Bansidhar AIR 1974 SC
1084, 1090-1 ; Ratilal Panachand Gandhi v State of Bombay, AIR
26 TAX TREATMENT OF PRIVATE TRUSTS

1954 SC 388 ; Commissioner, Lucknow Division v Dy Commissioner,

Pratapgarh AIR 1937 PC 240 ; In re. Ulverston & District New
Hospital Building Trust (1956) 3 All ER 164.
88 The principle is that the right of sale or alienation should not be
' suspended for an unreasonable period. The terms of a private trust
must specify its life.
89 Section 83 of the Indian Trusts Act : Sir Fazalbhoy Currimbhoy v
' Official Trustee AIR 1979 SC 687, 691 ; Re Vandervel's Trusts (No. 2)
(1974)1 [All ER 47; Vandervel v IR (1967) 1 All ER 1 ; Re.
Vinogradoff(1935)W.N. 68 ; Essery v Cowland (1884) 26 Ch. D.
191 • Shephard v Cartwright (1954) 3 All ER 649 ; Gissing v Gissing
(1970) 2 All ER 780 ; Peitit v Pettit (1969) 2 All ER 385 ; Smith v
Cooke (1891) 40 WR 67, (1891) A.C. 317.
90 Abdul Karim v Rahimbhai AIR 1948 Bom 342, (1946) 48 Bon, LR
67-Sattar Ismael v Hamid Sait AIR 1944 Mad 504 ; Mt. Ruqia
Begum v Surajmal AIR 1936 All 404.
91 DaeduvBhara ILR 28 Bom 20 ; Thanthi Trust v CIT (1981)23
CTR(Mad)155;Jagadamba Charity Trust v CIT (1981) 128 1TR
377 (Del)- Kamla Town Trust v CIT (1975) Tax LR 829 (All).
Hahbury's'Lam of England, Third ed. Vol. 26. para 1709, 920. The
author cannot alter the objects of the trust : CIT v S. Ramaswami
Iyer (1977) HO 1TR 364 (Mad). He cannot also change the trustees
unless this power has been retained by him in the original instru
ment • CED v K.A. Kadar (1974) 96 ITR 289, 294 (Mad). Where a
trust deed has been rectified, a decision on the revocability of the
trust will depend on the rectified deed. Where, however, a tax
assessment has been completed before rectification of the deed, there
is no scope for amending the assessment : Smt. Durga Sundan Dey
v CIT (1979) Tax LR 223 (Cal).
92 Sec 56 of the Indian Trusts Act, 1882. Saunders v Vautier (1835-42)
' All ER 58. Also, Wharton v Masterman (1895-99) All ER Rep. 687 ;
Dawson v Hern IR & M 605 ; Magrath v Morehead (1871) LR 12
Eq 491- Josselyn v Josselyn (1837) 9 Sim 63; Gosling v Gosling (1859)
123 RR107 ; Re. Lord Nunburholme (1911) 2 Ch. 510 ; Berry v Geen
(1938) 2 All ER 362 ; Re. Marshal (1911-13) All ER Rep 671 ; Re.
Sandeman's Will Trusts (1937) 1 All ER 368 ; Tomlinson v Glyns
Executor and Trustee Co. (1970) 1 All ER 381 ; Re. Brockbank
Ward (1948) 1 All ER 287; Stephenson v Barclays Bank Trust Co.
Ltd. (1975) 1 All ER 625. For the Court's inherent powers to make
good any want of capacity on the part of the beneficiary, vide IR v
Holmden (1968) 1 All ER 148. In the UK, any variation of a trust
can be effected only with the approval of the Court, under the
Variation of Trusts Act, 1958, where the beneficiaries are unascertain
ed or they include an infant or the unborn. One of the odd features of
the trust law in India, as in the UK, is that the beneficiaries cannot
INTRODUCTION 2l

control the trustees, though they can end the trust or call for the
conveyance of any of the trust assets to them.

93. An obiter dictum of Sir Montague Smith in a judgment of the

Judicial committee in Kunwar Doorga Nath v Ram Chandra (1877) 2
Cal 341 ; (1876-77) 4 IA 52 that a family consensus may give a
different direction to the estate of the family idol has been followed
by the Calcutta High Court in Gobinda Kumar v Debendra Kumar
(1907) 12 CWN 98, but this view has not been accepted by the same
High Court in Chandi Charan v Dulal ILR 54 Cal 30, CWN 930 ;
Surendra Krishna v Sri Bhuwaneswari, ILR 60 Cal 54 ; and Sukumar
Bose v Abani Kumar AIR 1956 Cal 308. See paras 4.52, 4.53 and
4.54, pp. 196-198, B.K. Mukherjee on The Hindu Law of Religious and
Charitable Trusts, Fourth ed., edited by P.B. Gajendragadkar and
P.M. Bakshi, Eastern Law House, Calcutta, 1979.
94. Subsecs. (2) and (3) of sec. 11 of the Income-tax Act, 1961.
95. Subsec. (1) (bb) of sec 13, Ibid.

96. Ibid., sees. 2 (38) and 10 (25) and Sch IV Part A for provident funds,
and sees. 2 (5), 2 (6), 10 (25) (iv) and 10 (25) (iii) and Sch IV Parts C
and B for gratuity and superannuation funds.
97. Ibid., proviso (iv) to sec. 164 (1)

98. Walker v Reith 1906-8 F 381 ; 43 SC LR 245 ; Edwards v Roberts

19 TC 618 (CA) ; Smyth v Stretton 5 TC 36 ; IR v Parsons 13 TC 700
(CA).

99. Trust accounts under the Married Women's Property Act 1874 are
also proposed to be considered separately along with employee
welfare trusts, etc.