1978 (2) TMI 11 - HC - Wealth-tax

Summary

Issues Involved:
1. Applicability of Section 21(1) vs. Section 21(4) of the Wealth-tax Act, 1957.
2. Determination of beneficiaries' interests in the trust fund.
3. Separate assessments under Sections 21(1) and 21(4).

Detailed Analysis:

1. Applicability of Section 21(1) vs. Section 21(4) of the Wealth-tax Act, 1957:
The primary issue was whether the trust fund should be assessed under Section 21(1) or Section 21(4) of the Wealth-tax Act, 1957. The revenue argued that except for a sum of Rs. 8 lakhs earmarked for the settlor's eight sons, the rest of the trust fund should be assessed under Section 21(4). The revenue contended that the beneficiaries receiving fixed monthly payments had no interest in the corpus of the fund, making their shares indeterminate.

Conversely, the assessee argued that Section 21(1) should apply to the annuities payable to the beneficiaries under specific clauses of the trust deed. The Tribunal, after considering differing opinions, concluded that the corpus held under the trust for the respective beneficiaries was liable to be taxed under Section 21(1) and not Section 21(4). The court upheld this view, stating that separate assessments must be made under Section 21(1) for the actuarial valuation of the monthly sums paid to each beneficiary and under Section 21(4) for the actuarial valuation of the totality of the beneficial interests of the remaindermen.

2. Determination of Beneficiaries' Interests in the Trust Fund:
The court examined whether the beneficiaries' interests in the trust fund were determinate or indeterminate. The trust deed specified fixed amounts payable to various beneficiaries, which were to be drawn from the income of the corpus. The court noted that the amounts payable to the beneficiaries were definite and known, and therefore, the beneficiaries' interests were determinate. The court referenced several precedents, including the Supreme Court's decision in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust, which clarified that where the shares of beneficiaries are determinate and known, assessments should be made under Section 21(1).

3. Separate Assessments under Sections 21(1) and 21(4):
The court emphasized the need for separate assessments under Sections 21(1) and 21(4). It clarified that the actuarial valuation of the life interest of each beneficiary should be assessed under Section 21(1), while the actuarial valuation of the totality of the beneficial interests of the remaindermen should be assessed under Section 21(4). The Tribunal's order, which outlined the method of excluding portions of the trust fund proportionate to the annuities payable to the beneficiaries and assessing the remaining corpus under Section 21(4), was upheld.

Conclusion:
The court concluded that the trustees should be assessed under Section 21(1) for the actuarial valuation of the monthly sums paid to each beneficiary and under Section 21(4) for the actuarial valuation of the totality of the beneficial interests of the remaindermen. The questions referred to the court were answered accordingly, with no costs awarded. The advocate's fee was set at Rs. 250 in each case.