1971 (7) TMI 4 - SC - Income Tax

Trustee held the trust properties on behalf of others within the meaning of section 21(1) - assessee was assessable to WT u/s 21 in respect of the trust properties - beneficiary had a right to be maintained out of the income of the trust and some other beneficiaries had right to residence - shares of the beneficiaries were indeterminate and the assessee had to be assessed u/s 21(4)

Issues Involved:
1. Whether the trustee under the trust deed dated July 19, 1949, executed by Kirpashanker D. Worah, was assessable to wealth-tax under section 21 of the Wealth-tax Act.
2. Whether the shares of the beneficiaries under the trust deed on the relevant valuation dates were determinate or indeterminate.

Detailed Analysis:

Issue 1: Assessability of Trustee under Section 21 of the Wealth-tax Act
The primary question was whether the trustee under the trust deed dated July 19, 1949, executed by Kirpashanker D. Worah, was assessable to wealth-tax under section 21 of the Wealth-tax Act. The Tribunal had upheld the revenue's contention that the trustee was liable under section 21, but the High Court disagreed, prompting this appeal.

- Section 21(1) Interpretation: The court analyzed the language of section 21(1), which states that wealth-tax shall be levied upon and recoverable from the trustee in the same manner and to the same extent as it would be from the person on whose behalf the assets are held. The court noted that the section includes trustees specifically, indicating legislative intent to include trustees within its scope.

- Legal Ownership vs. Beneficial Ownership: The High Court had concluded that a trustee holds property for the benefit of the beneficiaries, not on their behalf, relying on the decision in W. O. Holdsworth v. State of U. P. However, the Supreme Court clarified that while the Trusts Act establishes that trustees are legal owners, section 21(1) of the Wealth-tax Act is designed to treat trustees as holding property on behalf of beneficiaries for tax purposes.

- Legislative Intent: The court emphasized that the legislature's intention was clear in including trustees within section 21(1), even if the drafting was not perfect. The court rejected the argument that the section's wording rendered it inapplicable to trustees, asserting that the intention of Parliament was paramount.

- Analogous Provisions: The court noted that section 21(1) of the Wealth-tax Act is analogous to section 41(1) of the Income-tax Act, 1922, which has been interpreted to include trustees. Previous decisions under section 41(1) supported the inclusion of trustees within section 21(1).

Issue 2: Determinacy of Beneficiaries' Shares
The second issue was whether the shares of the beneficiaries under the trust deed were determinate or indeterminate on the relevant valuation dates.

- Trust Deed Provisions: The trust deed provided for the maintenance of the settlor, his wife, and their minor children, with the income of the trust estate being applied for these purposes. The deed also allowed the trustee to dispose of the corpus if the income was insufficient.

- Relevant Valuation Dates: On the relevant valuation dates, both daughters had been married, and the sons had attained majority. However, the settlor and his wife were still alive, and they had rights to maintenance and residence from the trust property.

- Indeterminate Shares: Given that the settlor and his wife had ongoing rights to maintenance and residence, and the sons had rights to maintenance and education, the court concluded that the shares of the beneficiaries were indeterminate on the relevant dates. Consequently, the trustee had to be assessed under section 21(4) of the Act as it stood at the relevant time.

Conclusion:
The Supreme Court allowed the appeals, overturning the High Court's decision. The court held that the trustee under the trust deed dated July 19, 1949, was assessable to wealth-tax under section 21 of the Wealth-tax Act. Additionally, the court determined that the shares of the beneficiaries were indeterminate on the relevant valuation dates, necessitating assessment under section 21(4). The respondent was ordered to pay the costs of the department in both the Supreme Court and the High Court. Appeals allowed.

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