1987 (2) TMI 32 - HC - Wealth-tax

Summary

Issues Involved:
1. Validity of double assessment under section 21(1) and 21(2) of the Wealth-tax Act.
2. Taxability of the corpus of the trust.
3. Scope and interpretation of sections 21(1) and 21(2) of the Wealth-tax Act.

Detailed Analysis:

1. Validity of Double Assessment under Section 21(1) and 21(2) of the Wealth-tax Act:

The primary issue was whether the Wealth-tax Officer's subsequent assessment under section 21(1) on the trustees, after having already assessed the beneficiaries directly under section 21(2), constituted double assessment. The court observed that the Wealth-tax Officer initially assessed the beneficiaries directly under section 21(2) for the assessment years 1970-71 and 1971-72. Subsequently, the Officer made an assessment on the trustees under section 21(1). The Income-tax Appellate Tribunal held that this constituted double assessment, which is impermissible under law. The court upheld this view, stating that once the Wealth-tax Officer exercised the power under section 21(2), the corresponding power under section 21(1) was taken away by necessary implication. The court concluded that the Tribunal's decision to cancel the assessments made on the trustees under section 21(1) was correct and lawful.

2. Taxability of the Corpus of the Trust:

The assessee argued that only the beneficial interest, not the corpus, is liable to be taxed. The court referred to the Supreme Court's decision in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust, which held that the interest of the beneficiary in the trust properties, not the corpus, is subject to tax. The court elucidated that the beneficial interest vested in the grandchildren of H.E.H. the Nizam, derived from the corpus, was directed to be paid in specific proportions. The court emphasized that the Wealth-tax Officer, having assessed the beneficial interest under section 21(2), had no authority to assess the corpus under section 21(1). Therefore, the Appellate Assistant Commissioner's action of computing the corpus for assessment was erroneous and illegal.

3. Scope and Interpretation of Sections 21(1) and 21(2) of the Wealth-tax Act:

The court analyzed the provisions of section 21 of the Wealth-tax Act, which allows for two modes of assessment: directly on the beneficiaries under section 21(2) or on the trustees under section 21(1). The court clarified that when the assessing authority opts to assess the beneficiary directly under section 21(2), the corresponding power under section 21(1) is implicitly taken away. The court reiterated that the assessment should be on the beneficial interest and not the corpus. The court cited the Supreme Court's interpretation that the trustee can be assessed only in accordance with section 21 and that no part of the corpus value in excess of the aggregate value of the beneficial interests can be taxed.

Conclusion:

The court concluded that the Wealth-tax Officer's subsequent assessment under section 21(1) after having assessed under section 21(2) was invalid as it constituted double assessment. The corpus of the trust is not liable to be taxed; only the beneficial interest is. The court upheld the Tribunal's decision and answered the reference in favor of the assessee and against the Revenue. Each party was directed to bear its own costs.