2004 (11) TMI 90 - HC - Wealth-tax

Trust - beneficial interest - (i) Whether Tribunal was justified in law in holding that the beneficial interest held by the assessee in two trusts was only a limited interest in spite of the judgment of the Supreme Court in the assessee s own case holding that the beneficial interest was held by him as individual and the assessee was not competent to throw his beneficial interest to common hotchpotch of the HUF by executing an unequivocal declaration on October 19, 1964? (ii) Whether Tribunal was right in law in construing clause 4 of the trust deed limiting the beneficial interest of the beneficiary so as to debar him from disposing of his beneficial interest during his lifetime? - we answer the questions referred to this court in favour of the Revenue and against the assessee.

Issues Involved:
1. Whether the Tribunal was justified in holding that the beneficial interest held by the assessee in two trusts was only a limited interest.
2. Whether the Tribunal was right in construing clause 4 of the trust deed to limit the beneficial interest of the beneficiary, thereby debarring him from disposing of his beneficial interest during his lifetime.

Issue-wise Detailed Analysis:

Issue 1: Limited Interest in Trusts

The Tribunal held that the beneficial interest of the assessee in the two trusts was a limited interest. This decision was challenged based on a Supreme Court judgment in the assessee's own case, which had held that the beneficial interest was held by him as an individual. The assessee argued that he had executed an unequivocal declaration on October 19, 1964, to throw his beneficial interest into the common hotchpotch of his Hindu undivided family (HUF). The Assessing Officer, Commissioner of Wealth-tax (Appeals), and the Tribunal rejected this contention, holding that the 1/6th share in the trust belonged to the assessee in his individual capacity.

The High Court upheld these findings, emphasizing that the Supreme Court had already ruled that the properties were held by the assessee in his individual capacity. The intention of the settlors, as interpreted by the Supreme Court, was to limit the rights of the beneficiaries and not to allow them to transfer their interest in the trust properties. Therefore, the assessee could not change the nature of the property held by him as a beneficiary by executing a declaration.

Issue 2: Construction of Clause 4 of the Trust Deed

Clause 4 of the trust deed was interpreted by the Tribunal to limit the beneficial interest of the beneficiary, preventing him from disposing of his interest during his lifetime. The High Court agreed with this interpretation, noting that the settlors intended to restrict the powers of the beneficiaries in dealing with the trust properties. The relevant clauses of the trust deed (1, 3, and 4) were extensively discussed, showing that the settlors did not intend to confer absolute power upon the beneficiaries to divest themselves of their interest in the trust properties.

The High Court further noted that the Supreme Court had already determined that the properties were intended to devolve on the beneficiaries in their individual capacity, not as representatives of their HUF. This interpretation was binding and could not be altered by the subsequent declaration made by the assessee.

Conclusion:

The High Court answered both questions in favor of the Revenue and against the assessee. It held that the beneficial interest held by the assessee in the trusts was a limited interest and that clause 4 of the trust deed correctly limited the beneficiary's power to dispose of his interest. The court emphasized the importance of adhering to the settlors' intentions and the restrictions placed on the beneficiaries' powers as outlined in the trust deeds.

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