1983 (1) TMI 170 - AT - Wealth-tax

Summary

Issues:
- Whether the income of a trust distributed among beneficiaries should be deducted as a liability while computing the net wealth of the trust under the Wealth-tax Act, 1957.

Analysis:
1. The appeals before the Appellate Tribunal ITAT NAGPUR related to the assessment years 1978-79 to 1980-81 and challenged the order of the AAC, B-Range, Nagpur. The revenue contested that the income distributed among beneficiaries by a trust should not be deducted as a liability while calculating the net wealth of the trust.

2. The Wealth-tax Officer (WTO) had taxed the net wealth of the trust, a private discretionary trust, under section 21(4) of the Wealth-tax Act, 1957. The WTO did not exclude the amounts distributed to beneficiaries from the assets held by the trust on the valuation date, citing that the liability could not be allowed if the beneficiaries were assessed directly.

3. The assessee argued before the AAC that the amounts credited to beneficiaries' accounts before the valuation date should not be considered part of the trust's corpus. The AAC allowed the appeals, stating that under section 21, beneficiaries are assessed through the trustee, and section 21(4) applies when beneficiaries' shares in the trust are unknown.

4. The revenue appealed the AAC's decision, contending that section 21(1) should be applied instead of section 21(4). The departmental representative argued for applying section 21(1), while the assessee relied on the AAC's order.

5. The Tribunal analyzed the provisions of section 21(1) and section 21(4), highlighting that section 21(1) applies to trusts with known beneficiaries and determinate shares, whereas section 21(4) pertains to discretionary trusts. Under section 21(4), wealth-tax is levied on the trustee as if the assets belong to an individual when beneficiaries' shares are unknown.

6. The Tribunal concluded that in the case of a discretionary trust, the income distributed to beneficiaries should be treated as liabilities deductible from the net wealth of the trust. Unlike income tax assessments, where distributed income is not deductible, in wealth tax assessments, such amounts are considered liabilities. Therefore, the appeals filed by the revenue were dismissed, upholding the AAC's decision.