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TMI Blog1993 (12) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... first appellate authority, who passed identical orders in all these cases and held that the question whether such a trust should be regarded as a discretionary trust is covered in favour of the revenue by a decision of the ITAT, Ahmedabad Bench in the case of a sister trust of this group of 65 appeals of similar trusts, all having been created on the same day under similarly worded deeds, vide order dated 5th June, 1989, WT Appeal No. 414 (Ahd.) of 1987, for assessment year 1979-80 in the case of Brinda Beneficiary Trust v. WTO [1989] 31 ITD 96 (Ahd.). It was held in the said decision that in order that a trust may be treated as a discretionary trust, it is sufficient if distribution of either the income or the corpus is at the discretion of the trustees. It is clear from the language of section 21(4) that when the shares of the beneficiaries are indeterminate or unknown (these shares may be either in income or corpus or both), the assets would be taxed as if they all belong to an individual. The Dy. CWT(A) further observed that there is one more reason for holding the trust as discretionary inasmuch as the trust deed provided that notwithstanding any of the conditions, the truste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he life tenant and the remaindermen's interest. The Dy. CWT(A) observed that the case decided by the ITAT in the case of Brinda Beneficiary Trust pertained to assessment year 1979-80. With effect from 1-4-1980, a new sub-section (1A) was inserted in section 21 which in substance would lead to the conclusion that the aggregate value of the asset is to be taxed in the hands of the trustees of this discretionary trust even when the life interest and remaindermen's interest are part of the corpus and income of the trust. This position of law is effective from assessment year 1980-81 and onwards and supersedes partly the decision of the Supreme Court in CWT v. Trustees of H.E.H Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 and that of the Gujarat High Court in CWT v. Smt. Arundhati Balkrishna Trust [1975] 101 ITR 626. The Dy. CWT(A) in the concluding para 8 of the order further observed that in this group of trusts, the settlors and the beneficiaries are members of the settlor's family and their relatives. These trusts were, therefore, created with a view to avoid tax. As per the decision of ITAT, Ahmedabad Bench in the case of Minal Trust v. ITO [1989] 34 TTJ (Ahd.) 303, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel, who appeared on behalf of these assessees, submitted that ground Nos. 1 2 are general in nature. The effective grounds are the subsequent ground Nos. 3 to 6. 6. As regards ground No. 3, the learned counsel submitted that this ground is covered against the assessee by an earlier decision of the Tribunal in the case of Brinda Beneficiary Trust. It was admitted that facts of all the cases under consideration are similar to that in the case of Brinda Beneficiary Trust. He also submitted that a similar view against the assessee was taken by the Tribunal in the case of Anand Family Trust [WT Appeal No. 416 (Ahd.) of 1987, dated 5-6-1989] for assessment year 1981-82, which is one of the appellants in the present group of appeals, so far as the point raised in ground No. 3 is concerned. Copies of the orders in the above two cases were also placed on record. 7. Respectfully following the reasons and conclusions derived in the above referred two cases of Brinda Beneficiary Trust and Anand Family Trust the view taken by the Dy. CWT(A) that all these assessee-trusts are discretionary trusts and that the provisions of section 21(4) are applicable and the assessees are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax, then no tax should be levied by resort to section 21(4). He also submitted that there is no justification in including in the net wealth the value of all the beneficial interests nor there is any justification in taking the total value of all the assets owned by the respective trusts. 10. The learned counsel, in the alternative submitted that the difference between the total value of the assets of the trusts and the aggregate value of life interest and remaindermen's interest should be held to be not taxable at all. 11. The learned counsel also submitted paper books in the cases of all these trusts in which copies of the respective trust deeds, copies of statement showing valuation of life interest, remaindermen's interest for the various years under consideration were submitted. These charts showing valuation of life interest and remaindermen's interest and balance surplus value were submitted with a view to provide the basic information to the Assessing Officer as regards value of these separate types of beneficial interests and the learned counsel submitted that this would, however, be subject to verification and correct determination by the Assessing Officer. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of wakf), the wealth-tax shall be levied upon and recoverable from the Court of wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf or for whose benefit the assets are held, and the provisions of this Act shall apply accordingly. (1A) Where the value or aggregate value of the interest or interests of the person or persons on whose behalf or for whose benefit such assets are held falls short of the value of any such assets, then, in addition to the wealth-tax leviable and recoverable under sub-section (1), the wealth-tax shall be levied upon and recovered from the court of wards, administrator general, official trustee, receiver, manager or other person or trustee aforesaid in respect of the value of such assets, to the extent it exceeds the value or aggregate value of such interest or interests, as if such excess value were the net wealth of an individual who is a citizen of India and resident in India for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such business or profession, wealth-tax shall be charged at the rates specified in Part I of Schedule I." It will also be worthwhile to reproduce section 164(1) of the Income-tax Act, 1961 : "Charge of tax where share of beneficiaries unknown: 164(1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as 'relevant income', 'part of relevant income' and 'beneficiaries', respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate." 13.2 The Hon'ble Madras High Court in the case of Haresh Anitha Trust considered the object for which section 21 was incorporated in the statute book by making a reference to the memora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Haresh Anitha Trust, we hold that the principles of law laid down by the Hon'ble Madras High Court in the aforesaid judgment would be fully applicable in the cases of those trusts where the net wealth, as may be determined by the Assessing Officer in accordance with the guidelines and findings as may be given in the subsequent paragraphs in relation to determination of net wealth, did not exceed the basic exemption limits provided in the wealth-tax rate schedule of the relevant and respective years. 13.3 It will be worthwhile to deal with the two judgments in Surendranath Gangopadhyaya Trust's case and Piarelal Sakseria Family Trust's case relied upon by the learned Dy. CWT(A) in para 6 of the order passed by him to come to a conclusion that the judgment of the Madras High Court cannot be preferred over those decisions. The Hon'ble Madras High Court in the case of Haresh Anitha Trust has dealt with both the aforesaid decisions of the Calcutta an M.P. High Courts at page 109 and has observed that these two decisions related to interpretation of section 164 of the IT Act, 1961 where the words used are "tax shall be charged" as against the word "levied" used in section 21( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be determined, which would consist of value of interest of beneficiaries--present interest or deferred interest. In other words, the process of valuation would require (1) determination of the present value or worth of a life interest, (2) valuation of interest of a contingent remainderman, and (3) market value of the assets. The question which arises for determination is whether the aggregate of all these interests should be included for determination of net wealth or any one or two of them should be taken into consideration for determining the net wealth chargeable to tax under section 21(4) in the case of private discretionary trusts such as in the cases of the present assessees. 13.6 The Hon'ble Gujarat High Court in the case of CWT v. Kum. Manna G. Sarabhai [1972] 86 ITR 153 has considered tire true meaning and scope of sections 21(1) and 21(4). It will be worthwhile to reproduce the findings given by the Hon'ble Gujarat High Court In the aforesaid case at pp. 177-178 in relation to interpretation of these two sub-sections of section 21 of the WT Act : "It is clear from these provisions that the assessment which is contemplated to be made on the trustees under sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stees in a representative capacity under sub-section (1) or assess it directly in the hands of the beneficiary by including it in the net wealth of the beneficiary. These two modes of assessment are clearly alternative to each other. The revenue can adopt either the one or the other but not both, because whether the assessment is made on the trustees or on the beneficiary, it is the same asset which is assessed to wealth-tax, namely, the interest of the beneficiary in the trust properties and it is elementary that the revenue cannot seek to assess the same asset twice. Sub-section (5) also emphasises that, where the trustees are assessed under sub-section (1) the assessment made on them 'in respect of the net wealth' of the beneficiary and if the trustees have to make payment of any amount in respect of the wealth-tax so assessed on them, they may retain such amount out of any assets which they may hold for the benefit of the beneficiary. This would clearly appear to be the position in regard to assessment where the trustees hold the trust property for the benefit of a single beneficiary or, there being more beneficiaries than one, the individual shares of the beneficiaries, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 21(4). 13.7 The Full Bench of the Hon'ble Gujarat High Court in the case of Smt. Kamalini Khatau has observed at page 668 of 112 ITR that the decision of the Gujarat High Court in the case of Kum. Manna Sarabhai has been impliedly approved by the Hon'ble Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust. However, so far as the point as to whether in the case of a discretionary trust the entire amount of corpus of the trust should be treated as constituting net wealth, the Hon'ble Supreme Court in the aforesaid case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust at pages 594-595 has observed as under: "The revenue has thus two modes of assessment available for assessing the interest of a beneficiary in the trust properties: it may either assess such interest in the hands of the trustee in a representative capacity under sub-section (1) or assess it directly in the hands of the beneficiary by including it in the net wealth of the beneficiary. What is important to note is that in either case what is taxed is the interest of the beneficiary in the trust properties and not the corpus of the trust properties. So also where ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court in the aforesaid judgment, inter alia, held that in a case where beneficiaries have life interest in the trust property and after their death or after the specified period certain other beneficiaries are to acquire interest in such trust property, the assessment of the beneficiaries and the remaindermen is made on their respective interest on the valuation date. In most cases, the aggregate value of the life interest and the remaindermen's interest is less than the value of the total corpus of the trust property. In view of this decision, the balance of the value of the corpus of the trust property would escape liability towards wealth-tax. With a view to countering attempts at tax avoidance through the creation of a specific trust, a new sub-section (1A) in section 21 of Wealth-tax Act was inserted to bring to tax the balance of the amount of net wealth after deduction of the value of life interest and interest of the remaindermen in the hands of the trustees. A plain reading of the provisions of section 21(1A) clearly indicate that such a provision was introduced only in relation to a specific trust and does not in any manner relate-to an assessment of a private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property and the aggregate of the two values of life interest and remaindermen's interest, which is the balance figure, will in the case of a private discretionary trust will still escape liability to wealth-tax in view of the aforesaid judgment of the Supreme Court and in view of the absence of a provision like section 21(1A) meant for private discretionary trusts on the statute. The contention of the learned counsel for the assessee that value of the life interest as well as value of remaindermen's interest should be separately computed and considered for deciding the question as to whether each one of them exceeds the taxable limits prescribed in the rate schedule of the WT Act cannot be accepted as the provisions of section 21(4) clearly provides that in the case of a private discretionary trust where the shares of the beneficiaries are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from the trustees in the like manner and to the same extent as it would be leviable upon and recoverable from an individual at either of the two types of rates mentioned in section 21(4) whichever course would be more beneficial to the revenue. The aggregate value of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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