TMI Blog1993 (8) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the deed an various trusts on terms and conditions mentioned in clauses 4 to 10 of the deed by dividing or treating as notionally dividing among six funds viz.-- (1) Prince Azam Jah Fund having 4/16 share; (2) Prince Moazzam Jah Fund having 4/16 share; (3) Princess Shahzadi begum Fund having 1/16 share; (4) Sb. Nawab Basalat Jah Fund having 1/16 share; (5) Remaining Sons Fund having 3/16 share; and (6) Remaining Daughters Fund having 3/16 share. We are concerned in this case with "Remaining Sons Fund" and in other cases with "Remaining Daughters Fund" also, wherein the terms and conditions except the sharing ratio of the beneficiaries are almost similar. Clause 9 of the deed, which deals with the share of property of the Remaining Sons Fund, reads as under :-- "The Trustees shall hold the said three equal parts of the principal Fund allocated to the sons, grandsons and grand-daughters of the Settlor mentioned in Part II of the Third Schedule hereunder written (hereinafter called "the Remaining Sons' Fund") UPON TRUST to divide the same or to treat the same as notionally divided into 126 (one hundred and twenty-six) equal units and to allocate such 126 units to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his or her respective life. (e) On the death of the Survivor of the Settlor and of each such beneficiary leaving a child or children and/or remoter issue him or her then surviving to divide and distribute the Units of the Remaining Sons' Fund allocated to such beneficiary as aforesaid among such child or children and/or remoter issue of such beneficiary per stripes in the proportion of two shares for every male child or remoter issue of such beneficiary to one share for every female child or remoter issue of such beneficiary standing in the same degree of relationship and so that no person shall take whose parent entitled to a share under this clause shall be living and further so that persons standing in the same degree of relationship shall take between themselves in the same proportions as above the share which their parent would have taken if living provided, however, that if any of the first 13 (thirteen) beneficiaries specified in Part II of the Third Schedule hereunder written (i.e., beneficiaries other than the 7 (seven) grand-children of the Settlor specified in item 14 of Part II of the Third Schedule hereunder written) shall die without leaving any child or remoter iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same with the respective Units of the Remaining Sons' Fund originally allocated to them respectively under the provisions of this clause and to hold the same respectively upon the same respective trusts as those upon which the respective original Units to which they are added and with which they are amalgamated as aforesaid are directed to be held under the provisions of this clause." 3. On a perusal of the aforesaid clause it is evident that the Trustees are to manage and accumulate the income after meeting expenses till the death of the Settlor, though an absolute discretion is given to the Trustees to pay to the beneficiaries in their specific shares, upon death of the Settlor, the net income is to be given absolutely to the beneficiaries for their respective lives and on their death the units of the fund are to be divided among/distributed to their children in such a way that a male child or remoter issue gets double the share of a female child or remoter issue. 4. The Settlor died in 1967 and as per the information given to us, the following immediate beneficiaries also died by the date of hearing (i.e., 26-8-1993) :-- Remaining Sorts Fund : 1. Nb. Rajjab Jah Bd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 27(1)(a) were issued by the Wealth-tax Officer by recording the following reasons :-- "The departmental Actuary has worked out residue corpus assessable under section 21(1A) in respect of the above fund. The assessee has not filed return of wealth. I have, therefore, reason to believe that by reason of omission on the part of the assessee to make a return under section 14 of the net wealth assessable under section 21(1A) of the Wealth-tax Act, 1957, for the assessment year 1983-84 net-wealth chargeable to tax has escaped assessment for that year." 8. Various disputes were raised by the assessee in the assessment proceedings. These are broadly as under-- (1) Validity of initiation of proceedings under section 17; (2) Application of section 21(1A); (3) Valuation of beneficiary's interest and the corpus of the trust; (4) Exemption under section 5(1)(xii); and (5) Deduction for cumulative tax liabilities. Insofar as the disputes at Sl. Nos. 3, 4 and 5 are concerned, both the parties agree that the issues stand covered by the decision of the Income-tax Appellate Tribunal in the case of WTO v. Trustees of HEH the Nizam's Jewellery Trust 35 ITD 402, wherein it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1A) of the Act. It was further submitted that the life interest value was nil and, therefore, everything belonged to the reversionary beneficiaries/remaindermen and that the life interest has not been assessed by the department. In these circumstances, it was contended that the assessment on the basis of the bifurcation of the value of the corpus into remaindermen's interest and remainder corpus is not warranted. The learned counsel also attempted to submit that in arriving at the value of the remainder corpus for the purposes of section 21(1A), a deduction from the value of the entire corpus, of the life interest of beneficiaries, has to be made. The departmental Valuation Officer has deducted the same by applying a rate of 6 1/2 per cent. This, according to the learned counsel, was based on "the underlying principles of calculation of ultimate beneficiaries' interest which pre-suppose the calculation of life interest at the same rate of interest as had been adopted for arriving at the ultimate beneficiaries' interest". The Valuation Officer has to estimate and deduct the value of life interest irrespective of the fact whether it was returned by the assessee or not, or whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trustees were liable to be assessed only on the value of the interest of the beneficiaries and nothing more and that that value was to be arrived at on actuarial basis. The remainder value of corpus which was held not taxable by the Supreme Court was now brought to tax by insertion of section 21(1A) of the Act with effect from 1-4-1980. He further submitted that life interest is taken at 'nil' by the departmental valuer and, therefore, the assessee is not right in submitting that the Valuation Officer has estimated the value of the life interest by adopting a rate of 6 1/2 per cent. He referred to various clauses of the report to demonstrate that the value of life interest has been taken at nil by the Valuation Officer. The assessee's method, he submitted, is not based on the present value of the future interest. The assessee has just allocated the value of the entire corpus to the remaindermen on the basis of a notional division. 13. We have heard the parties and considered the rival submissions. In our opinion, the departmental authorities were justified in initiating the proceedings and applying the provisions of section 21(1A) of the Act and bringing to tax the residuary v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 21(1A). It was clearly an omission or failure on the part of the assessee for the purposes of section 17(1)(a) of the Act. The returns filed by the Trustees by allocating the value of the jewellery were, or could at best be treated as, returns for the purposes of section 21(1) of section 21(2). The assessee's failure to disclose the value assessable under section 21(1A) is, in our opinion, sufficient for the Wealth-tax Officer to invoke the provisions of section 17(1)(a) of the Act. 14. The objection of the assessee that the Wealth-tax officer having assessed the value of the residuary interest in the hands of the parent trust representing all the sixteen units of the six funds, the reopening of the proceedings in these cases and assessment of the same value amounted to double-taxation which is not permissible in law, has also no force. The position that the Trustees were to be assessed as one unit or 16 units was not clear till the decision of the Supreme Court in the case of CIT v. Trustees of HEH the Nizam's Family Trust [1986] 162 ITR 286, which was reported in 1986. Till then, the assessee had been claiming that it was not a creation of a single trust but a case of six fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to valid initiation of proceedings under section 17(1)(a) and that there must be nexus between non-disclosure of wealth and escapement thereof, because the assessee has not filed the return of wealth assessable under section 21(1A) of the Act. 16. In these circumstances, we are of the opinion that the departmental authorities were justified in reopening the proceedings under section 17(1)(a). The assessee's ground is rejected. 17. As regards the applicability of section 21(1A) also, we agree with the departmental authorities. The assessee's contention that there being nil value of the interest of the life beneficiaries, the wealth of the trust stood notionally divided amongst the remaindermen and therefore, nothing was left for assessment under section 21(1A) has no force. In the absence of any income of the trust, the value of the interest of the life beneficiary was nil. It has been so determined at nil by the departmental Valuation Officer and, therefore, so long as the life beneficiary was alive and the fund of the trust was not actually distributed amongst the remaindermen, the Trustees have to be assessed for the residuary value under section 21(1A) of the Act. The value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty, the provisions of section 21(1A) were brought on the statute with effect from 1-4-1980. For the sake of reference, this provision is extracted below-- "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 fails 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 the purposes of this Act, and-- (i) at the rates specified in Part I of Schedule I, or (ii) at the rate of three per cent. whichever course would be more beneficial to the revenue." The contention of the learned counsel of the assessee that the acturial valuation is not the only and necessary basis for estimating the value and therefore the value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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