1994 (7) TMI 12 - HC - Wealth-tax

Summary

Issues:
Interpretation of provisions of section 21(1) and section 21(4) of the Wealth-tax Act, 1957 in relation to the determination of shares of beneficiaries in a trust income.

Analysis:
The High Court of Rajasthan deliberated on the question of law referred by the Income-tax Appellate Tribunal concerning the application of section 21(1) or section 21(4) of the Wealth-tax Act, 1957 for the assessment year 1975-76. The dispute revolved around whether the shares of beneficiaries in the trust income were determinate, leading to the application of section 21(1) as contended by the assessee, or indeterminate, warranting the application of section 21(4) as argued by the Revenue.

The trust deed in question, executed by Pusalal Mansinghka, provided for the distribution of three-fourths of the net income of the trust to Smt. Jinia Bai, with provisions for further payments based on necessity and discretion of the trustees. Upon her death, the trust property was to benefit the settlor's descendants or, in the absence of male heirs, could be utilized for charitable purposes. The Revenue argued that the shares of beneficiaries were indeterminate due to the discretionary nature of payments and contingent beneficiaries.

The court referred to the precedent set by the Supreme Court in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555, which established that section 21(1) applies when individual shares of beneficiaries are determinate and known, while section 21(4) applies when shares are indeterminate. The court emphasized that specific directions for payments to beneficiaries at intervals render their interests determinate, as seen in the present case where the lady beneficiary's share was ascertainable.

Consequently, the court concluded that the shares of Smt. Jinia Bai and subsequent beneficiaries were determinate and known, aligning with the provisions of section 21(1) of the Wealth-tax Act, 1957. The judgment favored the assessee, rejecting the Revenue's argument for the application of section 21(4) and upholding the decision of the Income-tax Appellate Tribunal.

In summary, the court's analysis centered on the clarity and determinacy of beneficiaries' shares in the trust income, drawing on legal precedents to interpret the relevant provisions of the Wealth-tax Act, 1957 and ultimately ruling in favor of the assessee based on the specific terms outlined in the trust deed and the identifiable nature of the beneficiaries' interests.