2010 (1) TMI 722 - HC - Wealth-tax

Assessment of trust - assessment u/s 21(1) or u/s 21(4) of the wealth tax act - Shares of the beneficiaries of the trust - shares are held by trustees appointed under a Trust - held that - shares of the beneficiaries of the trust were known and determinate - hence the provisions of Section 21(1) of the Wealth Tax Act would be attracted and not Section 21(4) of the Wealth Tax Act.

Summary

Issues:
1. Applicability of assessment under Wealth Tax Act regarding shares of beneficiaries of a trust.
2. Validity of assessment made in the status of AOP.
3. Validity of assessment made under section 21(4) of the Wealth Tax Act.

Analysis:
1. The case involved questions regarding the assessment year 1983-84 and 1984-85, focusing on the determination of shares of beneficiaries of a trust on the relevant valuation date. The Tribunal had to decide if the shares were known and determinate, leading to the applicability of Section 21(1) or Section 21(4) of the Wealth Tax Act. The Trust deed outlined the distribution of income and corpus among primary and secondary beneficiaries, with provisions for termination of the Trust based on certain events. The Tribunal found that until payment to primary beneficiaries, the shares were indeterminate, warranting assessment under Section 21(4) rather than Section 21(1).

2. The assessment was made by the Assessing Officer in the status of Association of Persons (AOP) under Section 21(4) of the Wealth Tax Act. The appellant contended that the assessment should have been under Section 21(1) instead. The Commissioner of Income Tax (Appeals) upheld the assessment under Section 21(4), leading to an appeal before the Income Tax Appellate Tribunal. The Tribunal affirmed the assessment under Section 21(4), considering the indeterminate shares of beneficiaries until payment to primary beneficiaries, thus justifying the assessment as an AOP.

3. The critical issue was whether the assessment under Section 21(4) of the Wealth Tax Act was valid, given the nature of the trust and the determination of beneficiaries' shares. The appellant argued that since the shares of beneficiaries were known and determinate, Section 21(1) should apply, referencing legal precedents. The Kerala High Court's judgment emphasized determining beneficiaries on the relevant valuation date as if the Trust had terminated, leading to determinate shares. The Court agreed that in this case, where the shares were known and determinate, Section 21(1) should be applied, overturning the assessment under Section 21(4) and ruling in favor of the petitioner against the revenue.