TMI Blog1994 (12) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... he trustees for the trust represented by both Sb. Fatima Fouzia and Sb. Amina Marzia. The wealth assessed in all the years' represented the value of the Jewellery Fund including sale proceeds of jewellery sold and reinvested in National Rural Development Bonds etc., Housing Fund and Pocket Money Fund, the Expenses fund was already exhausted by the end of March 1982 and there was no question of assessment thereof. 3. The CWT (Appeals), following the Tribunal's decision in the assessee's case reported in Trustees of Wedding Gifts Trust of HEH the Nizam's Two Grand Daughters v. WTO [1989] 30 ITD 490 (Hyd.), held in the first two years that the provisions of section 21(1) are not applicable but directed to make assessment under section 21(4) as, according to him, the remainder beneficiaries were not determinate as per the findings of the Tribunal in the aforesaid order. For assessment years 1986-87 and 198788, however, the successor CWT (Appeals) cancelled the assessments made under section 21(1) following the aforesaid order of the Tribunal but gave no further directions to assess under section 21(4), presumably, because the earlier decision of the CWT (Appeals) was not taken notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remuneration of the Trustees payable under these presents then the Trustees shall be at liberty to meet the same out of the corpus of the said Securities." 6. Clause 14 provides for the disposition of the Expenses Fund after the fulfilment and extinguishment of the other Funds to the then successor in title of the settlor as the Nizam of Hyderabad and if there be no such person then holding such title, rank or designation, to the eldest male descendant in the direct male line of succession of the settlor according to the Law of Primogeniture. One stock certificate of 3% Government of India Conversion Loan of 1946 of the face value of Rs. 25,000 was settled for this purpose. This Pocket-money Fund was exhausted by the end of March 1982 and was not in existence for the years under consideration. Jewellery Funds 7. Clause 3. sub-clauses (c), (d) and (g) and clause 4 dealing with the Jewellery Fund set apart for the benefit of Sb. Fatima Fouzia are as under : " 3(c) On the marriage of the said Fatima Fouzia to give the articles of jewellery specified in the First Schedule hereunder written to the said Fatima Fouzia as wedding gift to her from the Settlor along with other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share which their parent would have taken if then living, provided, however, that if the said Fatima Fouzia shall die without leaving any child or remoter issue her surviving then the Trustees shall hold Fatima Fouzia's Jewellery Fund UPON TRUST for the Nizam of Hyderabad who may be surviving at the date of the death of the said Fatima Fouzia in order to enable him to meet the essential expenditure for the management of the Sarf-e-Khas for which he will be responsible as the Head of the Family of the Settlor but if the dynasty of the Settlor shall come to an end for any reason whatsoever and there shall be no Nizam of Hyderabad existing at the date of the death of the said Fatima Fouzia then the Trustees shall in the event aforesaid hand over and transfer Fatima Fouzia's Jewellery Fund to the eldest male descendant in the direct male line of succession of the Settlor according to the law of primogeniture then living in order to enable him as the Head of the Family of the Settlor to maintain the dignity of the House of Asaf Jah to which the Settlor belongs and the status and position (if the various members of his family." 8. Similar provisions are made for Jewellery Fund for S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter directed to be held after the date of her death. (c) If and when the said Fatima Fouzia shall complete the age of 21 years, to pay the net income of Fatima Fouzia's Pocket-money Fund accruing thereafter to her for and during the term of her natural life. (d) On and after the death of the said Fatima Fouzia to hold Fatima Fouzia's Pocket-money Fund upon the same trusts as those on which Fatima Fouzia's Jewellery Fund is to be held after her death as directed in clause 4 hereof." 10. Clause 11, making provision for the pocket-money for Sb. Amina Marzia, is similarly worded as clause 10 in the case of Sb. Fatima Fouzia and, therefore, it is not reproduced. The property settled is one stock certificate of 3% Govt. of India Conversion Loan of 1946 of the face value of Rs. 50,000 described in the Third Schedule. Housing Fund 11. Clause 3, sub-clause (j), clauses 12 and 13 deal with this Fund. Clauses 3(j) and 12 are as under : " 3(j) To hold the Government Securities specified in the Fourth and Fifth Schedules hereunder written respectively upon the trusts hereinafter mentioned in clauses 12 and 13 hereof respectively of and concerning the same." " 12. The Truste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o at the cost of the said Fatima Fouzia and pay on her account all such taxes and outgoings in respect thereof and to deduct the amount of monies so expended or paid out of the income of any part of the Trust Property hereby settled and which may be payable to the said Fatima Fouzia under these presents or out of any portion of the corpus of the Trust Property. Provided Further that if by reason of Fatima Fouzia's Housing Fund or any portion thereof not being utilised or spent for the purpose of providing a residence for the said Fatima Fouzia as aforesaid or for any other reason whatsoever, any income shall arise or accrue from Fatima Fouzia's Housing Fund or any part thereof after the marriage of the said Fatima Fouzia, such income shall as and when the same shall accrue due after the date of her marriage be paid to her up to the date of her death. (d) On the death of the said Fatima Fouzia to hold Fatima Fouzia's Housing Fund upon the same trusts as those upon which Fatima Fouzia's Jewellery Fund is to be held after her death as directed in clause 4 hereof. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that it shall be lawfull for the Trustees during the continuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time being in a separate account and to invest the same in such manner as the Trustees may in their absolute discretion deem fit with full power to the Trustees in their absolute discretion to alter, vary or transpose the investments from time to time in such manner as they may think proper into or for others of the same or a like nature without being, responsible or accountable to anyone for the same or for any loss or diminution in the price thereof and pending as aforesaid to hold the net sale proceeds of the property acquired by the Trustees for the residence of the said Fatima Fouzia upon trust to pay the net income thereof to the said Fatima Fouzia until her death and on and after her death to hold such net sale proceeds as part of Fatima Fouzia's Housing Fund upon the trusts herein contained relating to Fatima Fouzia's Housing Fund." 12. Clause 13, dealing with the Housing Fund for the benefit of Sb. Amina Marzia is similarly worded as clause 12 and is not, therefore, reproduced. The property settled for this purpose, being one stock certificate of 3% Government of India Conversion Loan of 1946 of the face value of Rs. 1,00,000 and one stock certificate of 3% Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. The trust was created in the year 1951. In the year 1957, the Wealth-tax Act came into force and from asst. year 1957-58 onwards, the wealth-tax demand on the value of the various assets settled upon trust was created and the trustees had no funds with them to meet the wealth-tax demand. This situation had not been contemplated by the settlor when he created the trust in 1951. The settlor, as aforesaid, died in 1967. The arrears of wealth-tax demand created a piquant situation for the trustees in the management of the trust property. The jewellery was lying idle as dead wealth in the lockers of a bank at Bombay. The trustees, therefore, made a petition under section 34 of the Indian Trust Act to the Chief Judge, City Civil Court, Hyderabad, seeking the court's opinion regarding management of the trust property and also as to how best the unforeseen liability should be met. A request was made to the court for permission to sell one item of jewellery each from the First and Second Schedules for meeting the outstanding tax liability. The permission was granted by the Chief Judge, City Civil Court, by his order dated 21-4-1980. Aggrieved by the said order of the City Civil Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial portion of the sale proceeds of these jewelleries was invested in capital gains units of UTI and other specified assets. 18. On a petition by Sb. Fatima Fouzia, the Chief Judge, City Civil Court, Hyderabad, made an order under section 34 of the Indian Trust Act to the effect that she be paid 1/5th share in the interest derived from the deposits of the sale proceeds of the jewellery under the National Rural Development Bonds. Sb. Amina Marzia also approached the Chief Judge, City Civil Court, Hyderabad, under section 34 of the Indian Trust Act and vide order dated 23-7-1986 in OP 165 of 1986, a payment of Rs. 5,000 per month to Sb. Amina Marzia for life and Rs. 2,000 per month to each of the children until they attained respective age of 21 years, was granted from the date of the petition. Sb. Fatima Fouzia, in the meantime, carried the matter to the High Court against the order of the Chief Judge, City Civil Court, dated 23-3-1985 wherein 1/5th interest was granted to be given to her, and the High Court, vide order dated 19-8-1987, modified the order of the Chief Judge, City Civil Court, dated 23-3-1985, with a similar direction as to that given by the Chief Judge, City Civ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on dates. 21. The learned departmental representative, Sri P.T.N. Chart, assisted by the Assessing Officer, Sri Shiv Kumar, on the other hand, relied upon the decision of the Andhra Pradesh High Court in the case of CWT v. Trustees of H.E.H. the Nizam's Sahebzadi Anwar Begum Trust [1981] 129 ITR 796, and submitted that the decision relied upon by the assessee, in Sb. Anwar Begum's case has no application and the case is fully covered by the decision in Trustees of H.E.H. Nizam's Sahebzadi Anwar Begum Trust's case. He, therefore, submitted that so long as the life beneficiaries were alive, no other person has a right in the various Funds of the trust and, therefore, the Assessing Officer was justified in bringing the entire value of the Funds to tax under section 21(1) and alternatively, as directed by the CWT (Appeals), under section 21(4) of the WT Act as the ultimate beneficiaries are not known and determinate. 22. The relevant portion of the order of the Tribunal in the case of the assessee reported in Trustees of Wedding Gifts Trust of HEH the Nizam's Two Grand Daughters' case at 498-499 is as under : " 7. As against the above arguments advanced on behalf of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and we hold that the assessment purported to have been completed under section 21(1) is not valid under law." 23. On a careful reading of the aforesaid passage of the Tribunal's order, we are of the opinion that what the Tribunal held was what the life interest of the two grand-daughters of the settlor to wear the jewellery settled in trust is not an asset within the meaning of section 2(e) of the WT Act in view of the decision of the Andhra Pradesh High Court in Sb. Anwar Begum's case, and, therefore, cannot be brought to tax under section 21(1) of the Act. The beneficial interest of the remainder beneficiaries was held to be not assessable under section 21(1) because the particulars as to who were the beneficiaries, what were their particulars and what were their respective interests in the trust were not ascertained by the Revenue and mentioned in the orders of assessment. We respectfully concur with this finding and following the same hold that in view of the decision of the Andhra Pradesh High Court in the case of Sb. Anwar Begum, neither Sb. Fatima Fouzia nor Sb. Amina Marzia could be called to be a beneficiary as their mere right to wear jewellery cannot be considered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (Remainder Wealth) Trust's case wherein their Lordships held that the trustees can be assessed only if and to the extent the beneficiaries are liable to tax on the value of their respective interests. This is evident from the following extract from the head notes : " Since under sub-sections (1) and (4) of section 21 it is beneficial interests which are taxable in the hands of the trustees in a representative capacity and the liability of the trustees cannot be greater than the aggregate liability of the beneficiaries, no part of the corpus of the trust property can be assessed in the hands of the trustee under section 3 and any such assessment would be contrary to the plain mandatory provisions of section 21." The proposition is further clear from the following extract from the head notes : " In most cases, if not all, the aggregate of the values of the life interest and the remainderman's interest would be less than the value of the total corpus of trust property, since the value of the remainderman's interest would be the present value of his right to receive the corpus of the trust property at an uncertain future date and this would almost invariably be less than the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an income-yielding interest. On this interest, the beneficiaries have full right of enjoyment and use. They can spend this amount in any way they like, they have a proprietary right over that amount and, therefore, the test laid down in Sb. Anwar Begum's case, R.C. No. 69 of 1969, for holding it as not an asset, fails. In the light of the decision of the Supreme Court in the case of CWT v. Arvind Narottam [1988] 173 ITR 479, the capitalised value of this amount would be an asset includible in the net wealth under the WT Act. The life interest is to be valued as per the provisions of rule 1B of the WT Rules, 1958, and that would be the value of their interest in the trust assessable to tax either under section 21(1) of the WT Act in the hands of the representative-assessee or under section (2) directly in the hands of the beneficiaries. Admittedly, no direct assessment is made on the beneficiaries. The trustees, therefore, are to be assessed under section 21(1) on the value of this interest. The assessments of the Jewellery Fund to this extent are thus to be upheld. 27. As regards Pocket-money Fund, the two life beneficiaries became entitled to interest income earned on the corpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of H.E.H. Nizam's Family (Remainder Wealth) Trust, wherein each and every contingency is provided for and the shares of each beneficiary are ascertainable and known at a particular point of time, viz., the relevant valuation date. A similar contention was raised by the Revenue before the Supreme Court that the shares of the remainder beneficiaries were not determinate and known and was negatived by the Supreme Court as is evident from the following extract of the head notes appearing at page 557 of the report : " The question in regard to the applicability of sub-section (1) or (4) of section 21 has to be determined with reference to the relevant valuation date. The Wealth-tax Officer has to determine who are the beneficiaries in respect of the remainder on the relevant valuation date and whether their shares are indeterminate or unknown. It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiarie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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