1985 (4) TMI 95 - AT - Income Tax

Summary

Issues Involved:
1. Justification of assessing the value of trust assets in the hands of trustees.
2. Determination of the value of the interest of the beneficiaries.
3. Application of discounted value for assessment purposes.
4. Validity of the actuary's valuation.
5. Applicability of section 21 of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Justification of assessing the value of trust assets in the hands of trustees:
The main issue was whether the department was justified in assessing the value of the assets held by the trust in the hands of the trustees instead of assessing a highly discounted value as returned by the assessee. The trustees were assessed based on the present value of the shares, which the WTO determined to be significantly higher than the discounted value provided by the actuary.

2. Determination of the value of the interest of the beneficiaries:
The assessees, trustees of a private trust, argued that only the interest of the beneficiaries should be assessed, not the entire corpus value of the properties. The AAC accepted that what was assessable was only the interest of the beneficiaries but did not accept the discounted value for assessment purposes. The trustees had absolute discretion in applying the net income of the trust fund every year, and the vesting date could be preponed, making the discounted value irrelevant.

3. Application of discounted value for assessment purposes:
The actuary calculated the present value of the corpus at Rs. 19,608 for the assessment year 1978-79, based on the assumption that the property would vest only after 31 years. The WTO rejected this discounted value, fixing the value at Rs. 7,62,335. The AAC upheld the WTO's decision, stating that the vesting date was not fixed and could be preponed, thus there was no justification for discounting the value of the corpus.

4. Validity of the actuary's valuation:
The actuary's valuation was based on the assumption that the properties would vest in the beneficiary only after 31 years, which was contrary to the trust provisions. The trustees had discretion over both income and corpus, meaning the fictional beneficiary under section 21(4) was entitled to both income and corpus. The actuary's failure to account for the income interest invalidated the valuation.

5. Applicability of section 21 of the Wealth-tax Act, 1957:
The trustees argued that under section 21(4), the valuation should be based on the beneficial interest, not the corpus. The Supreme Court's decision in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust supported this, stating that the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries. However, the tribunal found that in a discretionary trust where both income and corpus are at the trustees' discretion, the fictional beneficiary's interest cannot be less than the full value of the property.

Conclusion:
The tribunal dismissed the appeals, concluding that the trustees were assessable on the entire value of the corpus of the trust as on the valuation dates. The actuary's valuation was not accepted because it did not account for the income interest of the fictional beneficiary. The tribunal upheld the WTO's method of assessment, which considered the full value of the trust properties.