1987 (12) TMI 5 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the value of the interest of the beneficiary in the trust should be included in the net wealth instead of the value of the corpus of the trust.

Detailed Analysis:

Issue 1: Inclusion of Beneficiary's Interest vs. Corpus in Net Wealth

Facts:
The case involves four trusts created by a settlor for his three grandchildren and a daughter. The trusts were created on different dates and for different beneficiaries, with the corpus to be handed over to the beneficiaries upon reaching a certain age (25 years for the grandchildren and 45 years for the daughter). The Wealth-tax Officer assessed the value of the entire trust fund held by the trustee, while the Appellate Assistant Commissioner directed that only the beneficial interest of the beneficiaries should be taxed.

Tribunal's Decision:
The Tribunal upheld the Appellate Assistant Commissioner's decision, stating that only the interest of the beneficiary in the trust should be included in the net wealth, not the corpus of the trust itself. The Tribunal concluded that the interest of the beneficiaries was contingent until they reached the stipulated age, and therefore, what could be included in the hands of the assessee would be the interest of the beneficiary in terms of the trust deed and not the corpus of the trust.

Revenue's Contention:
The Revenue argued that the Wealth-tax Officer assessed the entire trust fund on the trustee under section 21(4) of the Wealth-tax Act, as the beneficiaries did not possess any enforceable interest in the trust fund on the valuation dates. The Revenue claimed that the assessments were made on the trustee as such on the entire trust fund, and the Appellate Assistant Commissioner was in error in directing the assessment of the beneficial interest of the beneficiary.

Respondent's Contention:
The respondent-assessee argued that the interest of the beneficiaries was contingent and that only the value of such contingent interest could be assessed. The respondent contended that the share of the beneficiary was determinate and known, and hence, the assessment should be made under section 21(1) of the Act, not under section 21(4).

Court's Analysis:
The court referred to the provisions of section 21 of the Wealth-tax Act and the terms of the trust deeds. It was noted that the beneficiaries had no enforceable right against the trustee for the trust fund on the valuation dates, making their interest contingent. The court cited several judicial pronouncements, including the Supreme Court's observations in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust, which clarified that assessments on trustees must be made under section 21.

The court concluded that on the valuation dates, the trustee was not holding the trust fund on behalf of the beneficiaries whose shares were determinate and known. Therefore, the provisions of section 21(4) were applicable, and the trustee had to be assessed on the entire value of the trust fund in the status of an "individual."

Conclusion:
The court held that the assessments made by the Wealth-tax Officer on the entire trust fund were correct. The question referred for consideration was answered in the negative, in favor of the Revenue and against the assessee. The parties were directed to bear their own costs.