Determinate beneficial interest in trusts. - Income Tax - 1276/CBDT

INSTRUCTION NO. 1276/CBDT Dated : September 11, 1979 Section(s) Referred: 21(1) Statute: Wealth Tax Act, 1957 The Board have considered the question as to the manner of assessment in case in which the assessee has a known and determinate beneficial interest in trusts. 2. Section 21(1) of the Wealth-tax Act provides that in the case of assets which are held by a court of wards or an administrator general or an official trustee or any receiver or manager or any other person appointed under a trust declared by a duly executed instrument in writing, the Wealth-tax shall be levied upon these persons in the like manner and to the same extent as it would be leviable upon and recoverable from the persons on whose behalf or for whose benefit the assets are held and the provisions of the Wealth-tax Act shall apply accordingly. Thus, liability of the trustees under section 21(1) is co-extensive with that of the beneficiary on whose behalf or for whose benefit the assets are held by the trustees. 3. The Board have been advised that, in view of the foregoing, when the assessment is made on the trustees in regard to beneficiary's interest in the trust, they shall have to be subjected to the same tax which would be relatable to the beneficiary's interest in the trust if the assessments were made on his total net wealth inclusive of interest in the trust. In practical terms, it would mean that the beneficiary's interest in the trust shall have to be taken as constituting the top slab of the wealth of the beneficiary and charged to tax accordingly. 4. Once the assessment is made in the hands of the trustees in respect of the interest of the beneficiary in the trust, the same cannot be included even for rate purposes in the total wealth of the beneficiary when the assessment is made in respect of wealth other than the interest in the trust, in the absence of any specific provisions in this regard in the Wealth-tax Act. It would, therefore, be important to consider as to how the assessment should be made in cases in which the assessee has a known and determinate beneficial interest in a trust or trusts so that there is no loss of revenue. 5. In a case where the assessee has a beneficial interest only in one trust, it would not make any difference whether two assessments are made -one in the hands of the trustees relating to beneficiary's interest in the trust and the other in his hands relating to his other wealth or only one under section 21(2) in the hands of the beneficiary relating to his wealth inclusive of interest in the trust as long as the procedure laid down in Para No.3 above is followed. The position, however, would be different if the beneficiary's interest in a particular trust should be subjected, in the manner explained in Para No.3 above. There would, obviously, be loss of revenue if more than one assessment is made, ie. on the various trustees in respect of the beneficiary's interest in each of the relevant trusts at the rates applicable to each and on the beneficiary in respect of his other wealth. 6. The Board, therefore, desire that in cases in which the assessees have determinate and known shares in more than one trust, assessments should invariably be made on the beneficiaries under section 21(2) of the Wealth-tax Act and not on the trustees under section 21(1). 7. Even in cases where the assessee has a known and determinate beneficial interest in one trust only, although it will not affect the revenue if two assessments, as mentioned in Para No.5 above are made, yet it may be advisable to make only one assessment under section 21(2) because, in any case, the interest of the beneficiary in the trust has to be added to his other wealth to work out the tax leviable on the trustees, as explained in Para No. 3 above.