B.P Jeevan Reddy and N. Venkatachala, JJ.

1. These appeals are preferred against the orders of the Settlement Commission dated March 31, 1989 in pursuance of the offers of the settlement made by the appellant. Civil Appeals No. 130-07 of 1991 relate to the assessment years 1970-71 while Civil Appeals No. 1288-1300 of 1991 relate to the assessment years 1970-71 to 1982-83. Under its orders, the Settlement Commission computed the taxable income of the appellants father (who died on August 22, 1969) and of the appellant for the aforesaid assessment years and gave certain directions, applying which the ITO was directed to compute the total income for each of the said assessment years and raise demand for the tax due. The main issue in all these matters is the assessability of income from five foreign trusts by the appellants father, Shri Vikramsinhji

2. Shri Vikramsinhji, Ex-Ruler of Gondal executed three deeds of the settlements (trusts deeds) in the United States of America on December 19, 1963 and two deeds in the United Kingdom on January 1, 1964. The three settlements executed in U. K. are similar. The two sets of settlements, however, differ from each other in certain particulars, though both the sets are meant for the benefit of the settlor and the members of his family. We may refer to the relevant clauses in the settlements executed in U. S. in the first instance

3. Under the U. S. settlements, the National City Bank, New York is constituted the sole trustee. The trust is created for the benefit of the grantor/settlor, his wife and children and their spouses (referred to as family members) and their descendants. The trustee is empowered to collect the income from the trust properties and to apply the same among the family members and/or their descendants in such manner as he thinks appropriate. He is also authorised to terminate the trusts for any reason (including tax reasons) and to transfer, convey and pay off the property held thereunder to any person or persons then eligible to receive the income of the trusts. On such termination, the entire assets in the hands of the trustee are to be paid over to the then Maharaja (Ruler) or to his living male descendants in equal shares per stripes. The clause which relevant herein, which according to the Revenue, makes the trusts revocable ones - we may refer to it as Para 1 (2) for the sake of convenience-reads thus;"Anything hereinabove to the contrary notwithstanding, at any time and from time to time the Trustee shall transfer, convey and pay over any portion of the income of the income of the trust fund and any portion or all of the principal held in trust to or to the use of such one or more members of a class composed of the Grantor, the wife or widow of the Grantor, the children of the Grantor living from time to time, the spouse of any child of the Grantor then living or deceased (hereinafter referred to as the "Family Members

") and the descendants of the Family Members living from time to time, in such amounts, shares and proportions, either absolutely or in trust, and upon such terms and conditions (including the grant of a further power to appoint) as the Trustee and a Maharaja who shall have attained the age of eighteen (18 years) shall at any time and from time to time appoint and direct in a written instrument which refers to and specifically exercises this power and which is duly executed by the Maharaja and by the Trustee then acting hereunder. The foregoing power to appoint may be released in whole or in part by the Maharaja or by the Trustee or by both at any time by one or more written instruments duly executed by the Maharaja or by the Trustee or by the Trustee or by both and delivered to the trustee then acting hereunder, provided, however, that if either the Maharaja or the Trustee, but not both of them, shall release such power, then the party not so releasing shall continue top have the power to appointment hereinbefore provided, acting alone." *

4. Clauses (2) and (3) of the deeds confer an absolute discretion upon the trustee to pay over or apply in his discretion, any part or whole of income or any part of or whole of principal to "any person then eligible to receive the income of trust" at such time and in such manner, as he may decide in his absolute discretion. Clause (3) says further that "the Trustee may omit eligible members of the class from any and all such payments and applications, and no such payment or application or omission of a person from participation therein shall cause a charge against or otherwise affect the future interest of shares of any person hereunder". Any determination made by the trustee in goods faith in exercise the said discretion is held to be binding and conclusive. It is not necessary to notice other clauses of these settlement except of say that the object of these trusts is to trusts is to provide for the education, maintenance and upkeep of the members of the settlors family and their descendants

5. The settlor died on August 22, 1969. During his lifetime, the settlor Vikramsinhji was filing returns of his income in India including therein whole of the income arising from the U. S. trusts. The returns were filed by him for the assessment year 1964-65 to 1969-70 (both years assessment year), one up to the date of the death of the settlor and the other from the date of the death of the settlor to the end of the accounting year. These returns were filed by his elder son, Jyotendrasinhji, appellant in these appeals. In these returns too, the appellant included whole of the income from the U. S. trusts in the respective returns. At this stage, the appellant says, he was advised that the income from U. S. trusts was not taxable in India either in the hands of settlor or in his hands and that inclusion of the said income in the returns by the settlor and by the appellant was a mistake. Urging the said contention, the appellant filed appeals against the assessment orders pertaining to the A. Ys. 1965-66 and 1966-67. Inasmuch as the appeals were barred with respect to other assessment orders, he preferred revisions before the Commissioner of Income Tax. (It may be mentioned at this stage itself that the income from U. K. trusts was included in the aforesaid returns just as the income from U. S. trusts was included. Similarly, the plea of non-taxability was urged with respect to the income from U. K. trusts on the same basis as was urged with respect to the income from the U. S. trusts)

6. The Appellate Assistant Commissioner, Rajkot admitted additional grounds and allowed the aforesaid appeals by his orders dated April 4, 1975 and August 20, 1975. The Revenue went up in appeal to Tribunal. The Tribunal allowed the appeals holding that the A. A. C. acted contrary to Rule 46 (2) of the Income Tax Rules in admitting the additional grounds and in looking into new material. Accordingly it set aside his orders and remitted the appeals back to A. A. C. It is at this stage that the appellant approached the Settlement Commission under Chapter XIX (A) of the Income Tax Act, 1961

7. We may now notice the relevant clauses in the deeds of settlements executed in U. K. Under these settlement deeds, one Mr. Robert Hampton Robertson McGill was designated as the trustee, referred to in the deeds as "the original trustees". These trusts too were created for the benefit of the settlor, the members of his family and their descendants, referred to as beneficiaries. The deeds define the expression "the trustees" to mean and include the original trustee or the other trustees for the time being appointed in terms of the deeds of settlement. The expression "the beneficiaries" was defined to mean and include (a) the settlor, (b) the children and remoter issue for the time being in existence who is the wife or widow of the settlor or the wife or widow or husband or widower of any of them, the children and remoter issue of the settlor. The clauses which are relevant for our purposes read thus : [We have, for the sake of convenient reference, numbered them as clauses (3) and (4)]

"3. The Settlor hereby directs that the Trustee shall and accordingly the Trustees shall stand possessed of the Trust Fund and the income thereof upon the trusts following that is to say

(1) UPON TRUST to raise and pay out of the capital thereof any further estate duty which may still be payable thereon in respect of the death of the Settlors father His Late Highness Shri Bhojrajji Maharaja Saheb of Gondal who died on the Thirty-first July One Thousand nine hundred and fifty two and any interest payable on such duty and any costs incurred in connection with the ascertainment or payment of such duty and interest

(2) Subject as aforesaid UPON TRUST for all or such one more and more exclusively of the others or other of the beneficiaries at such age or time or respective ages or times if more than one in such shares and with such trusts for their respective benefit and such provisions for their respective advancement and maintenance and education at the discretion of the Trustees or of any other person or persons as the person who for the time being is the Maharaja or (if the title is abolished) would have been the Maharaja had the title not been abolished shall at any time during the specified AND in default of and subject to any such appointment upon the trusts and with and subject to the powers and provisions hereinafter declared and contained concerning the same PROVIDED ALWAYS that the foregoing power of appointment shall not be capable of being exercised(a) by anyone other than the settlor or the elder son or the younger son; or

(b) in favour of the person making the appointment save with the consent of the Trustees (being at least two in number or a Trust Corporation) such consent to be testified by their being parties to the deed of appointment and executing the same

4. SUBJECT aforesaid the Trustees shall stand possessed of the Trust Fund and the income thereof upon the trusts following that is to say

(1) The income of the Trust Fund accruing during the life of the settlor shall being and be paid to the settlor

(2) Subject as aforesaid the income of the Trust Fund accruing during the life of the elder son shall belong and he paid to the elder son

(3) Subject as aforesaid the Trust Fund shall be held in Trust for the person who (being a descendant of the elder son) first during the specified period

(a) becomes the Maharaja or would become the Maharaja if his title had not been abolished and

(b) attains the age of eighteen years"

8. It is not necessary to notice the other provisions/clauses of these deeds

9. During his lifetime, the settlor, Vikramsinhji, was including the whole of the income from these trusts in his returns of income just as he was doing in the case of U. S. trusts. The said income was also included in the two returns filed by his son for the A. Y. 1970-71. Thereafter, however, the appellant took the stand, as mentioned hereinbefore, that the income from these trusts is not includible in his income. He also took the stand that the inclusion of the said income in the returns submitted by his father for the A. Ys. 1964-65 to 1969-70 and by him in the returns relating subject-matter of the appeals and the revisions filed before the A. A. C. and the Commissioner of Income Tax, referred to hereinbefore. When the appellant approached the Settlement Commission with an application for settlement, it related to the income from U. K. trusts as well

10. The Settlement Commission heard the arguments in extenso spread over several days and disposed of the matter under two elaborate orders. One order relates to A. Ys. 1964-65 to 1970-71 (Vikramsinhji) and the other to A. Ys. 1970-71 to 1982-83 (Appellant). The findings of the Commission which constitute the bases for its orders may briefly be stated as the following

(i) Though the U. S. settlements are in the nature of discretionary trusts, they fall within the mischief of sub-clause (ii) of clause (a) of Section 63 of the Act. For this reason, the whole of the income arising from the trust properties was liable to be included and was rightly included in the income of the settlor/transferor, Shri Vikramsinhji

(ii) On the death of the settlor, the U. S. settlement deeds ceased to be revocable but inasmuch as the entire income thereunder was received by the appellant, Shri Jyotendrasinhji, it constitutes his income and could be and was lawfully taxed in his hands

(iii) So far as the U. K. trusts are concerned, clause (3) did never come into operation inasmuch as no additional trustees were appointed as contemplated by it. If so, clause (4) sprang into operation whereunder the entire income under the settlements flowed to the settlor during his lifetime and on his death, to his elder son, the appellant herein. In other words, these settlements are in the nature of specific trusts. In any event, the entire income from these trusts was received by the settlor during his lifetime and after the settlors death, by the appellant. Therefore, the said income was rightly included in the total income of the settlor and the assessee during the respective assessment years

11. On the above bases, the Commission computed the taxable income of the settlor under both the sets of trusts for the A. Ys. 1964-65 to 1970-71 (up to the date of the death of the settlor) as also the income of the appellant for the A. Ys. 1970-71 to 1982-83. The appellant then preferred these two sets of appeals against the two orders

12. At the stage of granting leave, this Court ordered (vide the order dated March 22, 1991) that the appellant shall not be entitled to question the jurisdiction of the Settlement Commission to decide the issues before it and that he will "confine himself in appeal only to the question relating to correctness or otherwise of the Commissioners order"