TMI Blog1965 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders were passed, a common consolidated statement of the case has been made at the instance of the two assessee-trusts as the question arising in both the cases was a common and identical question and the provisions of both the trusts also are identical except for the difference in the beneficiaries. The question in both the cases being the same and the provisions of the two trusts also being identical, the answer which we may give to the question referred to us will apply to both the trusts and therefore it will be sufficient if we recite the relevant clauses from the deed of trust dated December 30, 1945, only. The scheme under both the trust deeds is that income from the trust properties is made payable to each of the two daughters-in-law for her life and thereafter to divide and distribute the corpus in equal shares amongst the male child or children of the settlor's two sons, the said Jaykrishna and Ramkrishna. The clauses relevant for the purposes of this reference in the deed of trust dated December 30, 1945, are as follows : " NOW THIS INDENTURE WITNESSETH THAT..... in consideration of the settlor's natural love and affection for the beneficiaries under these presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s withdrawn with the result that the question remained open. In the appeals before the Tribunal against the orders of the Appellate Assistant Commissioner, the assessee-trusts once again pressed their contention that sub-section (1) and not sub-section (4) of section 21 would apply. But the Tribunal, following its previous order relating to the assessment year 1957-58, rejected the appeals upholding the view of the Wealth-tax Officer and the Appellate Assistant Commissioner that the trust being for the benefit and in favour of the male child or children of the said Jaykrishna, the shares coming to them on the happening of the event set out in the trust deed, i.e., the death of the said Padmavati, would be indeterminate and therefore it would be sub-section (4) of section 21 which would apply. In arriving at this conclusion the Tribunal appears to have been guided by certain observations made by Mody J. of the High Court of Maharashtra while deciding an Originating Summons, being O.S. No. 75 of 1960, filed for the purposes of obtaining certain directions in regard to an arrangement entered into between the said Jaykrishna and other trustees on the one hand and the said Padmavati. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. The crucial point of time for determining the net wealth of an assessee is, therefore, the relevant valuation date. Clause (q) of section 2 defines " valuation date " in relation to any year for which an assessment is to be made as meaning the last day of the previous year as defined in clause (11) of section 2 of the Income-tax Act if an assessment were to be made under that Act for that year, i.e., the 31st of March of each relevant year. Section 3 is the charging section and provides that, subject to the other provisions contained in the Act, there shall be charged for every financial year commencing on and from the first day of April, 1957, a tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the schedule. The wealth-tax charged under this section, therefore, is on the net wealth belonging to an assessee on the relevant valuation date. Section 7, which deals with the determination of the value of the assets, also provides that such value shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax where there are a number of beneficiaries and the tax is leviable under sub-section (1). The trustee would be assessed in respect of the net assets held by him on behalf of and to the extent of each of the beneficiaries and therefore the rate of tax would be low. In some cases the assets might not reach the prescribed minimum. Under sub-section (4), on the other hand, the benefit would not be available as the beneficiaries are to be treated as one individual and consequently all the assets held by the trustees on behalf of the beneficiaries would be taken into account for arriving at the aggregate value and it would be on that aggregate value that the tax would be computed and assessed. The distinction between the two sub-sections is thus clear, for, under sub-section (1), a trustee is to be assessed in the like manner and to the same extent as the tax would be levied upon and recoverable from the person on whose behalf the assets are held, whereas under sub-section (4) the tax is to be levied upon and recovered from the trustee as if the person on whose behalf the assets are held were an individual for the purposes of the Act. The object of sub-section (1) is thus to enab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assets held by the trustee or trustees, as the case may be. The Wealth-tax Officer obviously cannot determine the last question if the shares of the beneficiaries are not known or are not determinate and if that cannot be done, it would not be possible for him to assess the trustee in the like manner and to the extent that each of the beneficiaries would be liable to be assessed. Thus, if the assessment is to be made under sub-section (1), the Wealth-fax Officer must determine not only the share of each of the beneficiaries so as to be able to assess the trustee to the same extent as the individual beneficiary but he must also determine the value of such share as it prevails on the relevant valuation date. It must follow that if such value is 'X' in one assessment year but 'Y' in another year, the tax has to be computed according to the value prevailing at each relevant valuation date, i.e., the 31st of March of each relevant year. If the shares of the beneficiaries in the assets held by a trustee or trustees are not known or determinate at the relevant date, the provisions of sub-section (1) or, where the Wealth-tax Officer decides to assess the beneficiaries directly unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one Nandlal Karuri died on May 21, 1944, after having made and published his will whereby he appointed Suhashini Karuri, his wife, and Sudhir Prosad Karuri, his eldest son, as executors and trustees. The testator had eight sons of whom seven were alive and one was dead. He had also grandsons. Actually there were very few bequests in the will which in reality created a trust. The petitioners were the first trustees. Under the instrument, the trustees were to perform pujas of the deities mentioned therein and the cost thereof was to be defrayed from out of the income of certain properties mentioned therein. Clause 7 of the will provided : " The amount of surplus left of the income of the said Bowbazar property after defraying all the aforesaid expenses and the entire amount of income from the other properties the trustees shall divide in equal shares amongst my eight sons. If any son dies then his share shall be divided equally amongst his sons and in the event of death of any of those sons his share shall be divided amongst his sons. As to any minor son or grandsons (sons' sons) of mine the trustees shall make over the income allotted to his share to his guardian during the period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or their shares indeterminate or unknown at the relevant period. The learned Advocate-General tried to distinguish this decision by pointing out that the facts in that case were slightly different from the facts before us in the sense that the settlor or the testator had eight sons at the time when the will was made and each one of them was given an equal share. There was no question in that case of any variation in the number of beneficiaries by reason of the birth in future of a grandson or grandsons, as the grandsons were entitled to shares coming to their father, the sons of the settlor. That, in a way, is true. The share of each of the eight sons was definite and, the sons being only eight, the number of the beneficiaries also was certain and determinate. Since the assets were to be distributed amongst the eight sons only and not amongst the grandsons, there was no question of any variation in the number of beneficiaries. But the learned judge was dealing with the contention urged before him, namely, that in the event of birth of a grandson in future there was a likelihood of indefiniteness in the number of the beneficiaries and the ratio of the decision was in the answer gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer tried to ascertain who the beneficiaries under the said deed were and, though the assessee's auditors filed a list showing thirteen names besides the settlor as being entitled to benefit under the said deed, the Income-tax Officer came to the conclusion that the beneficiaries having been kept unknown and the share of each having not been clearly demarcated in the deed, it was not possible to apply sub-section(1) and applied the first proviso to that sub-section. The Appellate Assistant Commissioner in appeal held that the assessee's contention that the beneficiaries included only his sons and daughters could not be accepted, for the word " family " was wide enough to include his grandchildren also and on that footing held that the beneficiaries in that case were indeterminate as there were numerous grandchildren of the twelve sons and daughters of the assessee and that the term " family " was wide enough to include a daughter-in-law, the son and grandson of a maternal uncle and the son of a half-sister. When the case went up before the Tribunal, the Tribunal held that the exact number of children and descendants should be known and was definitely determinable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elding good income. The question was whether the first proviso to section 41(1) applied and the mutawalli was assessable on the income of the property at the maximum rate. The Supreme Court held that, although the number of beneficiaries was ascertainable at any given point of time, the beneficiaries had no specified shares in the income of the properties but had only a right to be maintained. The individual shares of the beneficiaries in the wakf were thus indeterminate within the meaning of the first proviso to section 41(1) and the mutawalli was therefore liable to pay tax at the maximum rate. Analysing sub-section (1) of section 41 and the first proviso thereof, the Supreme Court observed that under sub-section(1) the tax was leviable on the trustee of the wakf in the like manner and to the same amount as it would be leviable upon and recoverable from the beneficiaries, i.e., the assessment would be at the individual rates applicable to the beneficiary. But under the first proviso to that sub-section there were two exceptions to the general rule : (i) Where the income was not specifically receivable on behalf of any one person, and (ii) where the individual shares of the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the revenue authorities have to see is whether such shares are known, and specific during the accounting period. If these facts are known sub-section (1) and not the first proviso would apply and it does not matter that the number of beneficiaries might vary in future. Tax being leviable with reference to the income of the year of account, the crucial fact is not what is the general position but what is the position during the year of account. If during that year the number of beneficiaries is known and specific and their shares in the income are capable of determination, it would be sufficient and sub-section (1) of section 41 would apply and the exceptions laid down in the first proviso thereof would not apply. The language used in sub-sections (1) and (4) of section 21 being similar to that in sub-section (1) of section 41 and the first proviso thereof, there is no reason why the same interpretation should not apply to the provisions of sub-sections (1) and (4) of the Wealth tax Act. On that interpretation let us see whether it would be possible to say, as the Tribunal did, that the number of the beneficiaries and their shares were indeterminate so as to attract the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal held in that appeal that the class as such was capable of ascertainment only on the happening of the event contemplated in clause (b). The Tribunal also observed : " It may be, by virtue of certain circumstances adverted to in the judgment, there is no possibility of any extension or increase in the number of beneficiaries and that so long as the beneficiaries now alive are there, they get a vested interest which descends to their heirs even in the event of their not surviving Smt. Padmavati. For the purposes of this case, we are not concerned with the possibility or impossibility of any increase in the beneficiaries but what we are really concerned is whether on the relevant valuation date the assets were held on behalf of the two children of Jaykrishna. We are unable to hold that, on the language of the instrument, the properties are held on behalf of the said two children. The time for ascertainment of the said beneficiaries will arise only in the event contemplated in the clause (b) of the trust. Until then, the assets are held on behalf of the remaindermen, being the persons who may be eligible for being the beneficiaries at the time of cessation of the rights o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le children by his wife, the said Padmavati. Under clause (b) of the trust deed these two sons had a vested and transmissible interest in equal shares in the corpus of the trust properties, though the corpus was distributable after the death of their mother, the said Padmavati, and on the youngest male child of Jaykrishna attaining majority. Even assuming that there was a possibility of Jaykrishna having another male child in future, the only effect of such an event would be to diminish the share of each of the two sons and to divest to that extent their interest in the properties. But, as we have already stated, the revenue is not concerned with what would take place in future. It was concerned with the actual position on December 31, 1957, and on that day there being only two male children of Jaykrishna, each of them under clause (b) has a vested and transmissible interest in the corpus, though its distribution was postponed till the event set out in the deed. The trustees, therefore, held the properties in trust and for the benefit of these two sons. Thus, on the relevant date, i.e., December 31, 1957, number of beneficiaries was definite and their shares being equal there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eterminate and that their shares are also determinate and known, the Wealth-tax Officer is not entitled to proceed under sub-section (4) of section 21 on the mere ground that there is a possibility in future of a variation in the constitution of the family or in the number of the beneficiaries, and he will be bound in such a case to apply sub-section (1) of section 21. In the present case the assets must be said to have been held during the relevant period on behalf of the two sons of the said Jaykrishna who had, under the provisions of the deed of trust, a vested and transmissible interest in the corpus. It would not be possible to say that, because of some likelihood of the said Jaykrishna having in future one or more male children, the trustees were holding during the relevant period the assets on behalf of such, unborn persons. It may be that the vested interests of the two sons of the said Jaykrishna are subject to a condition subsequent and, on the happening of such a condition, namely, the said Jaykrishna having one or more male children in future, there would result to that extent a divesting of and a reduction in the shares of the two existing sons. But that would not mean ..... X X X X Extracts X X X X X X X X Extracts X X X X
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