1968 (9) TMI 38 - HC - Wealth-tax

By means of Trust deeds jewellery was settled on the Trustees for the purpose of meeting the marriage expenses of two brothers and the sister of the settlor - trust deed contained a clause that after meeting the expenses of the marriage, the balance, was to be handed over to the wives of the brothers or the sister - said trust deeds were revocable after a period of six years - Can the jewellery so settled be treated as the wealth of the settlor - Held, No

Issues Involved:
1. Whether the assessee had any interest in the trust deed includible in their net wealth.
2. Justification of the Tribunal in valuing the assessee's interest at the total value of the trust corpus.

Detailed Analysis:

Issue 1: Interest in the Trust Deed
The court examined whether the interest of the assessees in the trust fund was includible in their net wealth under the Wealth-tax Act. The trust deeds, executed on February 28, 1958, were created to provide for the marriage expenses of the settlor's siblings. The clauses of the trust deeds were largely identical, save for a specific clause that differed in the trust deed concerning the sister, Lalita Raje.

The Wealth-tax Officer initially included the value of the jewellery in the net wealth of the assessees, concluding they had a beneficial interest in the trust property. The Appellate Assistant Commissioner, however, found that the brothers' beneficial interest was indeterminate and unknown, while the sister's interest was determinate and includible in her net wealth. The Tribunal later held that an absolute interest was created in favor of each assessee upon the execution of the trust deed, and thus, the value of the jewellery was includible in their net wealth.

Upon reviewing the clauses of the trust deeds, the court concluded that the interest of the assessees was contingent. Clauses 3(f) and 3(g) of the trust deeds indicated that the interest in the corpus of the trust fund was contingent upon the assessees remaining unmarried until the age of 50 or dying before marriage. Therefore, the interest was not vested but contingent, and thus, not includible in their net wealth.

Issue 2: Valuation of the Assessee's Interest
The Tribunal had valued the assessee's interest at the total value of the trust corpus. However, the court found that this was incorrect. The interest of the assessees was contingent and not vested, and thus, the valuation of their interest should not be based on the total value of the trust corpus.

For the sister, Lalita Raje, the court noted that her interest in the trust fund was vested and includible in her net wealth. However, the valuation of her interest had to be done under the provisions of section 7 of the Wealth-tax Act, not merely by including the entire corpus value.

Conclusion:
1. Wealth-tax Reference No. 3 of 1965 (Brothers):
- Question 1: Answered in the negative.
- Question 2: Does not arise.
- Costs to be paid by the Commissioner to the assessees.

2. Wealth-tax Reference No. 5 of 1965 (Sister):
- Question 1: Answered in the affirmative.
- Question 2: Answered in the negative; valuation to be carried out under section 7 of the Wealth-tax Act.
- Costs to be paid by the assessee to the Commissioner.

Post-Judgment Reconsideration:
After the judgment was delivered, the court reconsidered its decision in light of the Supreme Court's judgment in Commissioner of Wealth-tax v. Smt. Muthukrishna Ammal. The Supreme Court held that an interest in property available to the assessee for a period not exceeding six years from the valuation date was not an asset within the meaning of section 2(e) of the Wealth-tax Act.

Given the irrevocability clause in the trust deeds, the interest of the assessees was precarious and not available for a period exceeding six years from the relevant valuation dates. Thus, the interest in the trust fund was not includible in the net wealth of the assessees for the financial years relevant to those valuation dates.

Final Conclusion:
1. Wealth-tax Reference No. 3 of 1965:
- Question 1: Answered in the negative.
- Question 2: Does not arise.
- Costs to be paid by the Commissioner to the assessees.

2. Wealth-tax Reference No. 5 of 1965:
- Question 1: Answered in the negative.
- Question 2: Does not arise.
- Costs to be paid by the Commissioner to the assessee.

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