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TMI Blog1973 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the Wealth-tax Officer in the nature of protective assessment, though the assets of the three discretionary trusts were assessed to wealth-tax in the hands of the trustees as association of persons under section 21(4) of the said Act. The Appellate Assistant Commissioner, however, in appeals preferred by the respondent-assessee, was of the opinion that the respondent-assessee could be assessed only for the minimum amounts payable under the said three discretionary trusts to him for his maintenance, namely, Rs. 250, Rs. 150 and Rs. 250, respectively, per year and he, therefore, included the capitalised value thereof in the net wealth of the assessee. In appeal by the Wealth-tax Officer before the Appellate Tribunal, the Tribunal, having regard to the fact that the interest of the assessee in the assets held by the trustees on his behalf was indeterminate and unknown, held that only the capitalised value of the minimum amounts payable as aforesaid was liable to be included in his net wealth. The Tribunal, in that view of the matter, did not consider the grievance of the assessee that the Wealth-tax Officer was incompetent to assess the same assets twice. It is, therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee by way of maintenance were Rs. 250, Rs. 150 and Rs. 250, respectively. By the said trust deeds, the assessee's father settled certain shares on the trust set out in clauses 7 and 8 of the deeds which run as follows: "7. (a) Whatever income by way of interest or otherwise is received each year by the trustees from the trust fund should be first applied in meeting with the expenses of the management of the trust and the payment of taxes thereof. For a period of 18 years hereafter, the trustees may pay to Arvind or if Arvind gets married during the period to Arvind, his wife and children or to one or more of these persons, such portion of the net income remaining thereafter as the trustees deem fit. However, the trustees shall pay to Arvind or if Arvind gets married during the period to each of Arvind and his wife at least Rs. 150 every year. After such distribution, if there remains any surplus from the income of any year, it shall be added to the corpus of the fund. If in any year the net income accruing to the fund is less than Rs. 300 the whole amount should be paid to Arvind and if Arvind gets married during the period to Arvind and his wife in equal shares. If Arvind expir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ldren or survivors, all or such of them and in such proportion as the trustees deem fit. If none of the said persons are alive at the time of distribution, then the corpus and the balance of income will be given over by the trustees on such conditions as they deem fit as donation to the Gujarat University or any other educational institution or an institution giving medical aid or attending to the health of public in general. But if Arvind and his wife are the trustees at that time then they have no right to give vote in the above matter. But if the other trustees unanimously agree to allow them to vote then they can." It is common ground that only the minimum payment as indicated in paragraph 7 of the respective trust deeds was to be made to the respondent-assessee, who was a bachelor at all the relevant times of these assessment years. It is also an admitted position that the trustees have complete discretion regarding the remaining income of the trust assets for purposes of accumulation and also in respect of distribution of corpus at the end of 30 years or at an earlier period as may be advanced by the trustees within their discretion as empowered under clause 8 of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed the trustee under section 21(4) on the ground that there was a possibility of the settlor's son having more sons in future and, therefore, the shares of the beneficiaries in the assets were indeterminate and unknown. On a reference to the Gujarat High Court, the Division Bench held that as on the relevant date, namely, December 31, 1957, the number of beneficiaries was definite and their shares were equal, there was no question of their shares being indeterminate or unknown and, consequently, the provisions of sub-section (4) of section 21 would not apply, as mere possibility of a variation in the constitution of the family in future was immaterial and, therefore, the assessment should have been made under section 21(1). Shelat C. J. (as he then was) considered the relevant provisions of the Wealth-tax Act and particularly section 21 of the said Act. Speaking for the court, he observed: "But it is clear that if the Wealth-tax Officer has to assess either a trustee or a beneficiary under sub-section (1) or sub-section (2), as the case may be, he cannot do so unless the share of such a beneficiary is known and is definite, for even if the trustee were to be assessed he can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, there was no question of his share being indeterminate or unknown on that date. The learned advocate tried to draw support to his submission from the aforesaid two decisions of the Bombay High Court. In Commissioner of Wealth-tax v. Trustees of Mrs. Hansabai Tribhuwandas Trust the net income of the trust fund was to be paid to Hansabai so long as she continued to be and remained the wife or widow of Tribhuwandas and in the event of a son or sons being born to her, then on the said Hansabai ceasing to be wife or widow of the said Tribhuwandas, the corpus was to be divided amongst all the sons of the said Hansabai, if more than one, in equal shares and in the absence of any children of Hansabai, amongst the heirs of Tribhuwandas. On the relevant valuation date in that case, Hansabai had no son and Tribhuwandas had only brother's son. The Wealth-tax Officer held on the construction of the provisions of the trust deed that the beneficiaries in the corpus were not known or determinate on the valuation date and that it all depended upon certain contingencies happening and that section 21(4) was attracted. The Tribunal, however, held that it would be clearly possible by any comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven to her in the net income and had no right in the corpus of the property whereas the son of Nanalal had on the relevant date a contingent interest in the corpus of the trust property, contingent upon Hansa 'ceasing to be the wife or widow of the said Tribhuwandas', which as we have said, in our opinion, would also cover the case of her death." In Trustees of Putlibai R. F. Mulla Trust v. Conmissioner of Wealth-tax a Division Bench of the Bombay High Court was concerned with a trust deed created by the assessee, whereby the income from the properties of the trust had to be divided amongst her children who survived her in equal parts and after the death of each child the proportionate portion of the corpus was to be divided per stirpes. The Wealth-tax Officer, in that case, assessed the trustees under section 21(4) of the Wealth-tax Act as in his view the shares of the persons on whose behalf the corpus of the assets was held were indeterminate and unknown. This view was affirmed by the Appellate Assistant Commissioner as well as by the Tribunal. On a reference to the High Court of Bombay, it was held that the shares of the persons on whose behalf the assets were held by the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent-assessee being the sole beneficiary is not well-founded. In B. P. Mahalaxmiwala v. Commissioner of Income-tax, the court was concerned with a trust created by one P. D. Mahalaxmiwala under the provisions of which the trustees were to pay to the settlor's son and daughter-in-law until the death of the survivor of them such portion of income as may be necessary for their maintenance and to accumulate the balance of the income. After a period of 18 years the accumulated income was to be divided equally between the son and daughter of the settlor's son. Discretion was also given to the trustees to apply out of the corpus of accumulated income a prescribed sum for marriage expenses of the settlor's son's son and for higher education of the settlor's son's son or settlor's son's daughter. The Income-tax Officer assessed the trustees at the maximum rate, and the question that arose before the court was, whether the first proviso to section 41(1) was satisfied and the taxing department was entitled to tax the income in the hands of the trustees at the maximum rate. Chagla C. J. (as he then was), speaking for the court, observed as under: "Turning to the proviso in question, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsider what is the nature of interest in a discretionary trust. It was an appeal from an order of the Court of Appeal reversing an order of the Chancery Division of the High Court of Justice on an application by originating summons, taken out under section 3 of the Administration of Justice (Miscellaneous Provisions) Act, 1933, by the appellants, Edmund Travis Gartside and Donald Warburton, as trustees of the will of Thomas Edmund Gartside, the testator, for the determination of a question of liability to estate duty on the death of the testator's son, John Travis Gartside. The Chancery Division had held that the trustees were not liable to estate duty as they had no "interest in possession" in the income of the corpus of the trust estate. The Court of Appeal reversed that order and held that the trustees were liable to estate duty as the beneficiary had an interest within the meaning of section 43(1) of the Finance Act, 1940. The trustees took the matter in appeal before the House of Lords. Lord Reid in his speech while considering what is the nature of interest of a beneficiary in a discretionary trust observed as under: "I think that this idea of a group or class right must h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yet it may still lack the necessary quality of definable extent which must exist before it can be taxed. This may be illustrated by reference to the decision in Skinner v. Attorney-General on which the Crown relied. Whatever may be the correct explanation of that case, the existence of the element of extent was clearly apparent. In the present case its absence is equally noticeable, so that merely to show that 'interest' in section 2(1)(b) has a 'popular' meaning--as Sir Wilfrid Greene M. R. described it in the Court of Appeal: In re White--fails to meet the critical difficulty in the revenue's way. The Master of the Rolls and Salmon L. J. in the Court of Appeal were persuaded by an argument which was suggested to meet this difficulty. The beneficiary's right, it was claimed, is analogous to that of a competitor in a beauty competition; she has a right to be considered for the prize: if she is excluded, she can be awarded damages which a jury can assess. The analogy was inevitably left at some distance because it could hardly be suggested that a charge for estate duty could be assessed by any similar procedure; and it is clear enough that it fails at the critical point, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of the trust deed. What is to be the disposition of the income of the trust funds until the expiration of the period of distribution is provided in clause 7A. That clause provides that until the expiration of the period of thirty years, that is, during the period up to distribution, the trustees shall, out of the net income of the trust funds, pay to the assessee or if, in the meantime the assessee gets married, then pay to the assessee, his wife, his children and grand-children or such one or more of them, as they in their discretion think fit, such amount as they think proper, subject to a minimum of Rs. 250 per year to be paid to the assessee and if the assessee gets married, then subject also to a minimum of Rs. 250 per year to the assessee and his wife, and the balance of the income shall be added to the trust funds as capital. It is also provided by clause 7A that if, prior to the expiration of the period of thirty years, the assessee dies unmarried or in case of his marriage, both he and his wife die, the income every year shall be added to the trust funds until the expiration of the period of thirty years. Clause 7B then proceeds to state as to what shall happ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date had no right or interest qua the income of the trust property except to the extent of minimum annual payment to be made by the trustees thereunder. As regards the corpus also neither the discretionary object, namely, the respondent-assessee or his family, nor the accumulation beneficiaries can claim any right or interest in the same at the end of thirty years or at an earlier date as may be advanced by trustees. In that view of the matter, therefore, it cannot be said that the shares of beneficiaries in the assets held in trust by the trustees on their behalf were determinate or known, except to the extent of the amount of minimum annual payment to be paid to the respondent-assessee. As far as this interest is concerned, the Appellate Assistant Commissioner as well as the Tribunal has capitalised the same and brought it to tax in the hands of the assessee. In this view of the matter, therefore, it cannot be said that because the assessee was the sole beneficiary at the relevant date, the value of the entire estate of the trust could be included in the net wealth of the assessee. The learned advocate on behalf of the revenue, therefore, urged that the assessee had contingent i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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