1966 (4) TMI 10 - HC - Wealth-tax

Change in constitution of firm - expression on behalf of as used in s. 21 of the WT Act was not synonymous with the expression for the benefit of - That a trustee does not hold the trust property on behalf of the beneficiary, but he holds that only for their benefit. Therefore trustee was not assessable u/s 21

Issues Involved:
1. Assessability of the trustee under Section 21 of the Wealth-tax Act.
2. Interpretation of the terms "on behalf of" and "for the benefit of" in the context of trust law.
3. Applicability of the Supreme Court's decision in W.O. Holdsworth v. State of Uttar Pradesh.
4. Impact of the 1964 amendment to Section 21 of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Assessability of the Trustee under Section 21 of the Wealth-tax Act:
The core issue was whether the trustee, under the trust deed dated 19th July 1949, executed by the settlor, was assessable to wealth-tax under Section 21 of the Wealth-tax Act. The Wealth-tax Officer had assessed the trustee on behalf of the two younger sons of the settlor, who were considered to have a vested interest in the trust property. The Appellate Assistant Commissioner annulled this assessment, but the Income-tax Appellate Tribunal restored it. The court had to determine if the trustee could be assessed under Section 21, which provides 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.

2. Interpretation of the Terms "on behalf of" and "for the benefit of" in the Context of Trust Law:
The court emphasized the legal distinction between "on behalf of" and "for the benefit of." The trustee holds the trust property as the legal owner for the benefit of the beneficiaries, not on their behalf. This distinction is crucial because Section 21 uses the term "on behalf of," which implies a representative capacity rather than the legal ownership held by the trustee. The trustee holds the property for the beneficiaries' benefit but is not merely a representative of the beneficiaries.

3. Applicability of the Supreme Court's Decision in W.O. Holdsworth v. State of Uttar Pradesh:
The court relied on the Supreme Court's interpretation in W.O. Holdsworth v. State of Uttar Pradesh, where it was held that a trustee holds the trust property in their own right, though for the benefit of the beneficiaries. The Supreme Court had distinguished between "on behalf of" and "for the benefit of," concluding that trustees are legal owners and do not hold the property on behalf of the beneficiaries. This precedent was pivotal in deciding that the trustee in the present case could not be assessed under Section 21 of the Wealth-tax Act.

4. Impact of the 1964 Amendment to Section 21 of the Wealth-tax Act:
The court noted the 1964 amendment to Section 21, which included the expression "for the benefit of" in relation to trustees. However, this amendment did not apply to the assessment years in question. The amendment was seen as a response to clarify the law in light of the Supreme Court's decision in W.O. Holdsworth. The court concluded that without the amended expression, the trustee holding the property for the beneficiaries' benefit could not be assessed under Section 21.

Conclusion:
The court concluded that the trustee under the trust deed dated 19th July 1949 was not assessable to wealth-tax under Section 21 of the Wealth-tax Act. The trustee held the property as the legal owner for the benefit of the beneficiaries, not on their behalf. Therefore, the assessment made by the Wealth-tax Officer was invalid. The reference was answered in the negative, with no order for costs.

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