1990 (7) TMI 380 - HC - Wealth-tax

Summary

Issues:
Interpretation of whether the right of the assessee to claim sums from two trusts should be included in her net wealth for wealth tax assessment.

Analysis:
The judgment pertains to a Wealth Tax Reference under Section 27(1) of the Wealth Tax Act, 1957, involving a question regarding the inclusion of specific sums in the assessee's net wealth for eight assessment years from 1965-66 to 1972-73. The primary issue was whether the sums of Rs. 35,000/- and Rs. 25,000/-, which the assessee was entitled to demand from two trusts, should be considered part of her net wealth on the relevant valuation date.

The respondent, an individual, was a beneficiary under two trusts established in 1949 and 1953. The trusts granted her the right to claim sums from the trust funds, with specific clauses outlining the conditions for such withdrawals. Despite having the right to claim Rs. 25,000/- and Rs. 10,000/- from the trusts, the assessee did not exercise this right until 1970 when she withdrew Rs. 10,000/- from the second trust.

The Wealth Tax Officer included the right to receive these sums in the wealth tax assessments for all eight years, valuing it at Rs. 35,000. However, the Appellate Assistant Commissioner disagreed, stating that the value of the right should not be included in the assessments. The Tribunal concurred, asserting that the right to withdraw amounts from the trusts did not constitute an asset under the Wealth Tax Act unless exercised, likening it to a power of appointment.

The court supported the Tribunal's findings, emphasizing that a mere right to withdraw funds from a trust did not qualify as property until exercised. Citing legal precedents, the court highlighted that a power or option, such as the right to renew a lease, does not constitute property until exercised. The court's decision was based on the merit of the case, independent of previous decisions concerning the same assessee.

Ultimately, the court ruled in favor of the assessee, holding that the right to claim sums from the trusts should not be included in her net wealth for wealth tax assessment. No costs were awarded in the case.