1965 (11) TMI 8 - HC - Wealth-tax

Net Wealth - Interest of the assessee in the corpus is neither a spes successionis nor a contingent interest dependent on the assessee being alive on March 31 1987 but is a vested interest and therefore capable of valuation and should be valued as such.

Summary

Issues Involved:

1. Taxability of the assessee's interest under the trust deeds.
2. Nature of the assessee's interest in the corpus of the trust fund.
3. Applicability of the Exception to section 21 of the Transfer of Property Act.
4. Interpretation of the trust deed provisions regarding vested versus contingent interest.

Detailed Analysis:

1. Taxability of the Assessee's Interest Under the Trust Deeds:

The primary issue was whether the assessee was taxable on his interest under the trust deeds for the assessment years 1958-59 and 1959-60. The Wealth-tax Officer concluded that the assessee had an interest in both the income and the corpus of the trust fund. The valuation of the interest in the income was accepted based on the average marriageable age being 25, but the interest in the corpus was contested. The Appellate Assistant Commissioner and the Tribunal had differing views on whether the interest in the corpus was vested or contingent, leading to the present reference.

2. Nature of the Assessee's Interest in the Corpus of the Trust Fund:

The Tribunal held that the interest of the assessee in the corpus was not a vested interest but was contingent on his survival up to 31st March, 1987. It was deemed a spes successionis (a chance of obtaining property) and thus valued at nil. However, the court had to determine whether this characterization was correct. The court concluded that even if the gift to the assessee was contingent on his survival, it would be a contingent interest rather than a spes successionis, which is non-transferable under section 6(a) of the Transfer of Property Act.

3. Applicability of the Exception to Section 21 of the Transfer of Property Act:

The court examined whether the Exception to section 21 applied, which would make the interest vested rather than contingent. The Exception states that if a person is entitled to an interest upon attaining a particular age and the income is directed to be applied for their benefit before that age, the interest is vested. The court found that the trust deed directed the trustees to apply the net income for the benefit of the assessee and his wife, satisfying the Exception's requirements. The court also noted that the provision for the benefit of the assessee's wife was essentially for the benefit of the assessee, thus making the whole intermediate income available for the assessee's benefit.

4. Interpretation of the Trust Deed Provisions Regarding Vested Versus Contingent Interest:

The court emphasized that the intention of the settlor should be gathered from the entire trust deed. Several provisions indicated that the interest was intended to be vested. The trust deed recited that the trust was for the benefit of the assessee, and the whole intermediate income was directed to be applied for his benefit. The conferment of a general power of appointment on the assessee and the provision that the corpus would go to the heirs if the assessee died without exercising the power also pointed towards a vested interest. Additionally, the accumulation of the income was not disposed of along with the corpus under other sub-clauses, indicating that the interest in the corpus was vested.

Conclusion:

The court concluded that the interest of the assessee in the corpus was neither a spes successionis nor a contingent interest dependent on his being alive on 31st March, 1987, but was a vested interest. Therefore, it was capable of valuation and should be valued as such. The assessee was directed to pay the costs of the reference to the Commissioner.