1969 (5) TMI 14 - HC - Wealth-tax

Applicability of section 21(4) of the Wealth-tax Act - executor held the residuary funds and income was to be paid to the daughter of the testator for life and the estate was to the next of kin on her death - in assessment of executor section 21(4) is applicable to on whole value of estate

Summary

Issues Involved:

1. Applicability of section 21(4) of the Wealth-tax Act, 1957.
2. Determination of the beneficiaries and their shares under the will of Mrs. Ezekiel.
3. Assessment of wealth-tax on the Administrator-General.

Issue 1: Applicability of section 21(4) of the Wealth-tax Act, 1957

The primary issue revolves around whether section 21(4) of the Wealth-tax Act, 1957, applies to the assessment of wealth-tax on the Administrator-General holding the residuary estate of Mrs. Ezekiel. Section 21(4) states: "Notwithstanding anything contained in this section, where the shares of the persons on whose behalf any such assets are held are indeterminate or unknown, the wealth-tax may be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person aforesaid as if the persons on whose behalf the assets are held were an individual for the purposes of this Act."

Issue 2: Determination of the beneficiaries and their shares under the will of Mrs. Ezekiel

The will of Mrs. Ezekiel directed the Administrator-General to hold the residuary estate on trust, paying the income to her daughter, Rebecca, for life, and making various provisions for potential future beneficiaries, including Rebecca's husband and children. The will stipulated that in the absence of such appointments or children, the residuary estate would be held in trust for Rebecca's statutory next of kin. On the valuation date, March 31, 1960, Rebecca was over 66 years old, married, childless, and had made no appointments under the will.

Issue 3: Assessment of wealth-tax on the Administrator-General

The Wealth-tax Officer assessed the value of Rebecca's life interest and the future interest of the reversioners, considering the shares of the beneficiaries indeterminate or unknown. The Appellate Assistant Commissioner upheld this assessment. However, the Tribunal set aside the assessment, arguing that section 21(4) could not apply as there were no identifiable residuary beneficiaries on the valuation date.

Detailed Analysis:

Applicability of section 21(4):

The court concluded that the assessment should be based on the terms of the will and the situation on the valuation date. The Wealth-tax Officer needed to determine if Rebecca had exercised any powers of appointment and whether there were any children. Since she had not made any appointments and had no children, the Administrator-General was holding the residuary estate in trust for Rebecca's statutory next of kin, whose shares were indeterminate or unknown. Therefore, section 21(4) was applicable.

Determination of beneficiaries and their shares:

The court emphasized that the determination of beneficiaries and their shares should be based on the valuation date. Since Rebecca had not exercised her powers of appointment and had no children, the residuary estate was held in trust for her statutory next of kin. The shares of these next of kin were not ascertainable on the valuation date, making them indeterminate or unknown.

Assessment of wealth-tax on the Administrator-General:

The court upheld the Wealth-tax Officer's assessment, stating that the Administrator-General was liable to pay wealth-tax under section 21(4) due to the indeterminate or unknown shares of the beneficiaries. The Tribunal's decision to set aside the assessment was overturned, and the court ruled in favor of the Commissioner of Wealth-tax.

Conclusion:

The court answered the reference question in the negative, supporting the application of section 21(4) and the assessment of wealth-tax on the Administrator-General. The assessee was ordered to pay the costs of the reference to the Commissioner of Wealth-tax.