9911796707
TMI Blog1970 (9) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... apply equally in regard to the terms of the trust deed made by Vikram Sarabhai. By the trust deed Gautam Sarabhai settled certain shares and investments more particularly described in the schedule on the trusts set out in clause 2 of the trust deed. 2. (a) The trustees shall pay the net income of the trust funds to the said Anarkali, daughter of the settlor's sister, Bharatidevi Sarabhai, for a period of 18 years from the date of this deed (hereinafter referred to as " the said period ") provided however that during the minority of the said Anarkali the trustees shall be at liberty either to utilise the net income of the trust funds for her support, benefit, education and advancement in life of the said Anarkali or to pay the net income of the trust funds to Bharatidevi Sarabhai, mother of the said Anarkali as the guardian of the said Anarkali for the said purpose and the receipt of the said Bharatidevi Sarabhai as the guardian of the said Anarkali for the net income shall be a valid and effectual discharge to the trustees who shall not be liable to see to the application thereof. (b) From and after the expiration of the said period but not otherwise, the trustees shall hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e corpus of the trust funds possessed by her was merely a spes successionis---a mere chance or possibility of acquiring the corpus contingent on her surviving the period of distribution---and such an interest being inalienable, its value was nil. The Appellate Assistant Commissioner was impressed by this contention of the assessee and he, therefore, refused to add any amount to the net wealth of the assessee in respect of her interest in the corpus of the trust funds. The Wealth-tax Officer carried the matter in appeal to the Tribunal but the Tribunal also took the same view and held : " Only after the assessee attained a certain specified age under the former two trust deeds the assessee would acquire an interest in the corpus ... The living of the assessee up to the period specified in the former two trust deeds and the exercise of discretion of the trustees to utilise the trust corpus for the benefit of the minor are both uncertain events ... Under such circumstances we agree with the Appellate Assistant Commissioner that the interest in the corpus possessed by the assessee was only a spes succession is. There was a mere possibility or chance of acquisition of such an interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d life interest in the corpus on the assessee and he accordingly valued such life interest and included it in the net wealth of the assessee. The assessee did not dispute that the valuation of the life interest was liable to be included in computing her net wealth but she was aggrieved by the manner in which the valuation was made and she, therefore, appealed against the valuation to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner partly accepted the contention of the assessee in regard to the valuation and directed the Wealth-tax Officer to recompute the value of the life interest. The assessee and the Wealth-tax Officer were both dissatisfied with this order and hence both of them preferred appeals to the Tribunal. Before the Tribunal a new contention was advanced on behalf of the assessee, namely, that the interest which the assessee had under the trust deed constituted an " annuity " and was, therefore, exempt from wealth-tax under section 2(e)(iv) of the Wealth-tax Act, 1957. This contention found favour with the Tribunal and the Tribunal held that the interest of the assessee under the trust deed being an " annuity " exempt from wealth-tax, was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corpus on the relevant valuation date but also what sort of interest it was---whether it was vested or contingent. Now one thing is clear that even if the construction placed by the Tribunal on the relevant provisions of the two trust deeds is right and the gift of the corpus to the assessee is to take effect " on a future date on the happening of an uncertain event ", namely, the assessee being alive at the date of expiration of the period of distribution, namely, eighteen years under the first trust deed and seventeen years under the second trust deed, the assessee would undoubtedly have an interest in the corpus of the trust funds and it would not be a spes succession is : vide Commissioner of Wealth-tax v. Ashokkumar Ramanlal and Commissioner of Wealth-tax v. Bhogilal Maganlal Shah. But the real question is : What is the nature and quality of the interest of the assessee in the corpus ? Is it a vested interest or a contingent Interest ? The decision of this question depends on a true interpretation of the provisions of the trust deeds. Now in cases of this kind where the question is whether an interest granted under a settlement or will is vested or contingent, there is one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but not otherwise, the trustees shall hold the trust funds in trust for the assessee absolutely. Now, on the plain terms of this provision, it is clear that the interest in the corpus of the trust funds is to vest in the assessee only at the date of expiration of the period of distribution and not before such date. The trustees are required to bold the corpus of the trust funds in trust absolutely for the assessee only from the expiration of the period of distribution and it is only then that the interest in the corpus of the trust funds would vest in the assessee. But if the assessee dies before the expiration of the period of distribution, what is to happen to the corpus of the trust funds ? To whom is it to go? The answer is provided by clause 2, sub-clause (c). That sub-clause says that if the assessee shall die before the expiration of the period of distribution leaving a child or children her surviving, the trustees shall hold the trust funds in trust for such child or children of the assessee, if more than one in equal shares absolutely, but if she shall die before the expiration of the period of distribution without leaving a child or children her surviving, the trustees s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts the income or so much thereof as may be necessary to be applied for his benefit, such interest is not contingent. " The learned Advocate-General contended, relying on the exception to section 21, that the interest in the corpus of the trust funds coming to the assessee under clause 2, sub-clause (b), though apparently contingent on her being alive at the date of expiration of the period of distribution, was really vested since the settlor also gave to her absolutely the income to arise from such interest before the expiration of the period of distribution. Now, it is no doubt true, as contended by the learned Advocate-General, that the net income of the trust funds is given by the settlor to the assessee absolutely during the entire period up to the expiration of the period of distribution by sub-clause (a) and it might, therefore, appear at first sight that the case falls within the plain terms of the exception to section 21 ; but even so, we do not think that the interest given to the assessee in the corpus under clause 2, sub-clause (b), can be regarded as a vested interest. The exception to section 21 does not enact a rule of law which must prevail over the expressed inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 19 points out when an interest created in favour of a person can be said to be " vested ". It says : " Where, on a transfer of property, an interest therein is created in favour of a person without specifying the time when it is to take effect, or in terms specifying that it is to take effect forthwith or on the happening of an event which must happen, such interest is vested ........" But this statement is in express terms made subject to a very important qualification denoted by the words " unless a contrary intention appears from the terms of the transfer ". These qualifying words make it abundantly clear that the rule embodied in section 19 is merely a rule of construction intended as an aid in ascertaining the true intention of the settlor and it must give way where the intention of the settlor is manifest from the language used by him. Even if the conditions specified in section 19 are satisfied, the interest created on a transfer would not be vested if it appears clearly from the terms of the transfer that the interest was not intended to be vested. The intention of the settlor is the paramount consideration, and that must prevail over any artificial rules of construc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
