1990 (10) TMI 162 - AT - Wealth-tax

Summary

Issues Involved:
1. Validity of the trust deeds.
2. Whether the four deeds constitute one trust or several trusts.
3. Determinability and identity of beneficiaries and their shares.
4. Applicability of Section 21(1) or Section 21(4) of the Wealth-tax Act.
5. Valuation of properties and the applicability of Rule 1BB of the Wealth-tax Rules.
6. Application of maximum marginal rate under Section 21(4) of the Wealth-tax Act.

Detailed Analysis:

1. Validity of the Trust Deeds:
The Tribunal examined whether the insertion of clause 2(a) in the trust deed dated 3-3-1971 invalidated the trust. Clause 2(a) stated that in the event of any beneficiary becoming indebted or insolvent, their share would pass to their children. The Tribunal concluded that this condition did not invalidate the trust according to the law of trusts, which allows for limitations on interests but not conditions for forfeiture. Therefore, all four trust deeds were deemed valid.

2. Whether the Four Deeds Constitute One Trust or Several Trusts:
The Tribunal determined that all four deeds constituted one trust, known as the "M.M. Marican Trust." This conclusion was based on the fact that the founder and trustee were the same in all deeds, and the properties conveyed were intended to form part of the same trust. The Tribunal emphasized that the common clauses and the intention to add properties to an existing trust indicated that only one trust was created.

3. Determinability and Identity of Beneficiaries and Their Shares:
The Tribunal found that the beneficiaries entitled to the income or corpus of the trust were not determinate or known on each valuation date relevant to the assessment years in question. Although the beneficiaries had a vested right to the income, they did not have a present right to demand payment from the trustee. The ultimate beneficiaries entitled to the corpus of the trust could only be determined after the founder's death, which had not occurred by the relevant valuation dates. Therefore, the shares of the beneficiaries were indeterminate.

4. Applicability of Section 21(1) or Section 21(4) of the Wealth-tax Act:
The Tribunal held that the correct provision for assessment was Section 21(4) of the Wealth-tax Act, as the beneficiaries were indeterminate or unknown on the relevant valuation dates. This conclusion was drawn from the fact that the founder was still alive during the assessment years, and the ultimate beneficiaries could not be ascertained until his death. Consequently, the assessments were to be made under Section 21(4) rather than Section 21(1).

5. Valuation of Properties and the Applicability of Rule 1BB of the Wealth-tax Rules:
The Deputy Commissioner (Appeals) directed the Wealth-tax Officer to reconsider and re-examine the valuation of all properties for the nine assessment years and to make a reference to the valuation cell of the department under Section 16A(1) of the Wealth-tax Act. The Tribunal confirmed this direction and emphasized that the valuation cell should consider that the trustee represented only the totality of the beneficial interests, which falls short of the total value of the corpus for the assessment years 1973-74 to 1979-80. For the assessment years 1980-81 and 1981-82, due to the insertion of Section 21(1A), the trustee should be assessed on the total value of the corpus.

6. Application of Maximum Marginal Rate under Section 21(4) of the Wealth-tax Act:
The Tribunal referred to the decision in the case of "Pradeep D. Kothari Trust," which held that basic exemption applicable to an individual should also apply when a trust is assessed under Section 21(4). The Tribunal agreed with this ratio and directed that if the net wealth of the assessee trust is below the basic exemption limit, the trust should not be assessed for those years.

Conclusion:
The appeals were allowed for statistical purposes, with directions for fresh assessments considering the total beneficial interest and applying the basic exemption limits where applicable. The Tribunal confirmed the directions of the Deputy Commissioner (Appeals) regarding the valuation of properties and the applicability of Rule 1BB of the Wealth-tax Rules.