1970 (7) TMI 14 - HC - Wealth-tax

Wealth Tax Act, 1957 - assessment of net wealth of the applicant, trust - transfer of properties to trustees for charity and worship of family deity - assessment may have to be made under section 21(1)

Issues Involved:
1. Whether the trustees held the assets assessed to wealth-tax on behalf of any beneficiaries.
2. Whether the shares of the beneficiaries under the trust deed are known or determinate, attracting assessment under section 21(1) of the Wealth-tax Act.
3. Whether section 21(4) of the Wealth-tax Act governs the assessments.
4. Whether the assessee is eligible for any exemption based on section 5(1)(i) of the Wealth-tax Act.

Detailed Analysis:

Issue 1: Trustees Holding Assets on Behalf of Beneficiaries
The court examined whether the trustees held the assets on behalf of the beneficiaries. The trust deed created by the settlor transferred the property to the trustees for the benefit of various beneficiaries, including the deity, charitable institutions, and family members. The court concluded that the trustees held the assets "on behalf of" the beneficiaries, interpreting this phrase to mean "for the benefit of" the beneficiaries. Therefore, the trustees were indeed holding the assets on behalf of the beneficiaries.

Issue 2: Determinate or Known Shares of Beneficiaries
The court analyzed whether the shares of the beneficiaries were known or determinate to attract assessment under section 21(1) of the Wealth-tax Act. The court examined various sub-clauses of the trust deed:

- Sub-clause (1): 15% of the net income was to be reinvested, not held by any beneficiary, thus assessed under section 21(4).
- Sub-clause (2): 15% of the net income was allocated among the deity and two charitable institutions, but the exact shares were indeterminate, thus assessed under section 21(4).
- Sub-clauses (3) and (4): 10% of the net income was for specified allowances to named relatives, whose shares were determinate. The remaining amount was for a "Relatives' Allowances Fund" with indeterminate beneficiaries, thus partially assessed under section 21(1) and section 21(4).
- Sub-clause (5): 60% of the net income was divided into "A" and "B" allowances. "A" allowance (15%) was for the sebayets equally, and "B" allowance (45%) was for the maintenance of their families. The court concluded that the sebayets were the direct beneficiaries of the "B" allowance, making their shares determinate, thus assessed under section 21(1).

Issue 3: Applicability of Section 21(4)
The Tribunal initially concluded that section 21(4) applied because the beneficiaries' shares were indeterminate. However, the court found this reasoning fallacious. If section 21(1) did not apply because the trustees did not hold the assets "on behalf of" anyone, section 21(4) would also be excluded for the same reason. The court held that section 21(1) applied to the known shares of the beneficiaries, while section 21(4) applied to the indeterminate shares.

Issue 4: Eligibility for Exemption under Section 5(1)(i)
The court examined whether the trust was eligible for any exemption under section 5(1)(i) of the Wealth-tax Act. The religious endowment under sub-clause (2)(a) was secular, and the fund for charitable institutions was indeterminate. Therefore, the court concluded that no specific property was held for any public purpose of a charitable or religious nature, denying the exemption.

Final Judgments:
1. Question No. 1: The trustees held the assets on behalf of the beneficiaries named in the deed of trust.
2. Question No. 2: The shares of the beneficiaries referred to in sub-clauses (3) and (5) of clause 7 are known or determinate and attract assessment under section 21(1) of the Act.
3. Question No. 3: The Tribunal's conclusion is partially right, as indicated in the judgment.
4. Question No. 4: The question is answered in the negative, denying any exemption under section 5(1)(i).

No order as to costs was made, and counsel's fee was assessed at Rs. 200.

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