TMI Blog1971 (9) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... years. By a trust deed dated 12th September, 1956, Gira Sarabhai, aunt of the assessee, settled certain properties on the trusts set out in clause (2) of the trust deed which runs as follows: " (2) (a) The Trustees shall pay the net income of the Trust funds to the said Manna daughter of the Settlor's brother Gautam Sarabhai until she attains the age of thirty years provided however that during the minority of the said Manna the Trustees shall be at liberty either to utilise the net income of the Trust funds for the support benefit, education and advancement in life of the said Manna or to pay the net income of the Trust funds to Kamalini Khatau mother of the said Manna as the Guardian of the said Manna for the said purpose and the receipt of the said Kamalini Khatau as the guardian of the said Manna of the net income shall be a valid and effectual discharge to the Trustees who shall not be liable to see to the application thereof. (b) If and when the said Manna shall attain the age of thirty years, but not otherwise, the Trustees shall hold the Trust Funds in trust for the said Manna absolutely. (c) If the said Manna shall die before attaining the age of thirty years leavin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust deed and there is obviously a mistake in numbering. Clauses (2) to (4) and (6) read as under: "(2) During the period of 18 years from the date hereof, the Trustees may either accumulate the net income of the Trust Funds or at their discretion utilise the same in such manner and at such time or times and in such proportions as the Trustees may think fit for the maintenance, support, education and benefit of Manna and Shyamali the daughters of the Settlor's brother Gautam and the Trustees shall also be at liberty to have recourse to and utilise any portion or portions of the corpus of the Trust Funds to the extent of a moiety thereof in the aggregate for the maintenance, support, education and benefit of the said Manna and Shyamali or either of them in such manner and in such proportions and at such time or times as the Trustees may in their discretion think fit. The accumulation of income shall be invested by the Trustees in any of the securities or investments hereby authorised and shall after expiration of the said period of 18 years form part of the Trust Funds. (3) On the expiration of the said period of 18 years from the date hereof the Trustees shall hold the Trust Fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /or Shyamali shall be permitted to reside free of rent in such house or premises then during the period they or she shall so reside they or she may be liable to pay all rates, taxes, assessments and outgoings in respect of such house or premises." The same clauses are also to be found in the other two trust deeds with only this difference that instead of a period of 18 years, the period of distribution provided in the second trust deed dated 12th February, 1958, is 20 years and that provided in the trust deed dated 21st February, 1958, is 22 years and there is an additional clause in each of these two trust deeds after clause (2) which provides: " (3) On the expiration of the said period of 18 years and until the expiration of a further period of two years" (in the case of the second trust deed dated 12th February, 1958, and four years in the case of the first trust deed dated 21st February, 1958) "thereafter the Trustees shall pay the net income of the Trust Funds or of the balance of the Trust Funds as the case may be to the said Manna and the said Shyamali in equal shares for their absolute use and benefit provided however that if the said Manna or Shyamali shall die after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssments. The Wealth-tax Officer thereupon carried the matter in appeals to the Tribunal. The main contention advanced on behalf of the Wealth-tax Officer was that the interest of the assessee in the corpus under the trust deeds was not a spes successionis-a mere possibility or chance of acquiring an interest in the corpus but it was a vested interest and its value was therefore includible in the net wealth of the assessee. The assessee gave a two-fold answer to this contention. The first answer was a denial of the contention. The assessee urged that under the trust deeds she had no interest in the corpus on the relevant valuation dates, what she had was merely spes successionis and since it was not transferable and had no saleable value, its value was nil. The assessee also contended in the alternative that in any event even if she had an interest in the corpus, it was not liable to be included in her net wealth since the trustees of the trust deeds had already been assessed to wealth-tax in respect of the corpus of the trust properties under section 21(4). The Tribunal was impressed by the first contention of the assessee and it held that since under the trust deeds the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the taxability of the interest of the assessee under the trust deeds. The first two questions raise the issue as to what is the nature and quality of the interest of the assessment in the corpus under the trust deeds. Now one thing is clear that whatever be the nature and quality of such interest, it is not spes successionis. A spes successionis is a bare or naked possibility such as the chance of a relation obtaining a legacy on the death of a kinsman or any other possibility of a like nature which must be distinguished from a possibility coupled with interest. Where interest in corpus is given to a donee under a settlement and such interest is contingent on the happening of an uncertain event, the donee acquires a contingent interest in the corpus which becomes vested on the happening of the uncertain event and such contingent interest, though dependent on a possibility for its vesting, is very much different from a spes successionis. It is a form of property which is assignable or transferable and on which money can be raised unlike spes successsonis which is non-transferable by reason of section 6(a) of the Transfer of Property Act. This distinction between the two legal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tains the age of 30 years and the contingency denoted by the adverb "if" is emphasized by the use of the expression "but not otherwise". It is only if the assessee attains the age of 30 years and not otherwise that the interest in the corpus is given to the assessee. The gift of the interest in the corpus to the assessee is therefore clearly a contingent gift and the interest created is a contingent interest, the contingency being the happening of an uncertain event, namely, the attainment of the age of thirty years by the assessee. This conclusion follows clearly and inevitably from the application of the rule enacted in section 21 of the Transfer of Property Act. But, as pointed out by the Supreme Court in Rajes Kanta Roy v. Smt. Shanti Devi, the intention of the settlor is to be collected from the settlement as a whole and no one clause should be construed in isolation and, therefore, we must see whether there is anything in the other parts of the trust deed dated 12th September, 1956, which shows that the gift of the corpus, though apparently contingent, was really intended to create a vested interest. Now the main provision on which the learned Advocate-General on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the rule. The rule instead of subserving the cause of interpretation of the intention of the settlor would become the master of it. Being merely an aid to ascertain the intention of the settlor and the ultimate object being really to ascertain such intention, the rule should not be regarded as one of compulsory application and if the intention of the settlor is otherwise clear and manifest, effect should be given to such intention, despite the rule. Here in the present case the settlor has made it clear in plain and unmistakable words that the assessee should have interest in the corpus only if she attains the age of thirty years and not otherwise. The word "if" is sufficiently expressive of the intention to confer a contingent interest but as if anticipating that by reason of clause (2), sub-clause (a), it may be contended relying on the rule of interpretation contained in the exception to section 21 that the interest given to the asssssee in the corpus is a vested interest, the settlor has, with a view to leave no doubt as to her intention, added the words "but not otherwise". These words must be given due meaning and effect and the manifest intention of the settlor expresse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n equal shares or for the survivor of them absolutely and if the assessee and Shyamali have both died before the expiration of the period of eighteen years leaving a child or children, such child or children shall take, if more than one, equally between them, the share which the assessee or Shyamali would have taken had she been alive at that date. But what is to happen if the asessee and Shyamali are both dead and there is no child of either of them alive at the date when the period of eighteen years comes to an end? The answer is provided by clause (4) which says that in such an event the corpus must come to the person or persons, object or objects, purpose or purposes as appointed by Gautam Sarabhai, the father of the assessee and Shyamali, in exercise of a power of appointment conferred upon him. Now the lauguage used in clauses (3) and (4) is clearly expressive of the settlor's intent that there shall be no vesting of interest in the corpus until the expiration of the period of eighteen years. The significant words used by the settlor in clause (3) are: "On the expiration of the said period of 18 years. . . . the Trustees shall hold the Trust Funds...in trust for the said Mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparently contingent was really intended to create a vested interest. The main provision on which reliance was placed on behalf of the revenue for spelling out an intention to create a vested interest was clause (2), but we do not see how this clause can help the revenue. Clause (2) does not confer on the assessee any right to receive one-half of the income of the trust funds during the period of eighteen years. If the settlor had given one-half of the corpus to the assessee on the expiration of the period of eighteen years and directed that in the meantime one-half of the net income of the trust funds should go to the assessee, it might have been possible to argue, in the absence of other countervailing circumstances, that the interest in one-half of the corpus given to the assessee was a vested interest and possession only was postponed till the expiration of the period of eighteen years. But here the assessee has not been given any right to any part of the income of the trust funds. Clause (2) vests a discretion in the trustees either to accumulate the net income of the trust funds or to utilise the same in such manner, at such time or times and in such proportions as the trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f both the assessee and Shyamali or for the benefit of the assessee or Shyamali alone-would depend solely and exclusively on the discretion of the trustees. The trustees may not utilise any portion of the corpus for the benefit of the assessee. Clause (2) does not, therefore, confer any right on the assessee to insist that a portion of the corpus shall be utilised for her benefit during the period up to the expiration of a period of eighteen years and no inference can be drawn from this clause that the settlor intended to create a vested interest in the assessee. The revenue also relied on clause (6) of the trust deed which confers a right on the trustees to purchase or construct a house or other residential premises for the personal residence of the assessee but this provision would come into operation only after the assessee attains majority and before the period of eighteen years comes to an end. Moreover, it does not appear from this clause as to what portion of the corpus would be required for purchasing or constructing a house or other residential premises for the personal residence of the assessee should the assessee require the trustees to do so. What kind of house or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oo on condition that, the assessee continues to be alive, cannot warrant the inference that the settlor intended to create a vested interest in any portion of the corpus in favour of the assessee. We, therefore, reach the conclusion that the Tribunal was not right in taking the view that the assessee had no interest in the corpus of the trust funds under the four trust deeds and what she had was merely a spes sucessionis. We are of the view that the assessee had a contingent interest in the corpus of the trust funds and the value of such contingent interest was liable to be included in the net wealth of the assessee on the relevant valuation dates subject to our decision on the third question submitted to us for our opinion. That takes us to the next question whether the assessee can be assessed to wealth-tax in respect of her contingent interest under the aforesaid four trusts when the trustees of those trusts have already been assessed to wealth-tax in respect of the trust properties under section 21(4) of the Wealth-tax Act, 1957. This question arises only in regard to the assessment year 1958-59 and to appreciate its proper scope and ambit, it is necessary to notice a few f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his definition that any property, wherever located, "belonging to" the assessee on the relevant valuation date would be includible in the net wealth of the assessee assessable to wealth-tax. The question is: what is the meaning of the expression "belonging to". This expression has been the subject-matter of judicial interpretation in a number of decisions and it would be sufficient if we refer only to one of them, namely, the decision of the House of Lords in Heritable Reversionary Co. Ltd. v. Millar. The House of Lords was called upon in this case to construe the expression "belonging to the creditor" as used in the Scottish Bankruptcy Act of 1856 and; while construing this expression, Lord Macnaghten observed: " The words 'property' and 'belonging to' are not technical words in the law of Scotland. They are to be understood, I think, in their ordinary signification. They are in fact convertible terms; you can hardly explain the one except by using the other. A man's property is that which is his own, that which belongs to him. What belongs to him is his property. No one in ordinary parlance would speak of land or funds held only in trust for another as the property of the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld equally be no difficulty in assessment where there are more beneficiaries than one, if the shares of the beneficiaries in the trust properties are determinate and known, so that it is possible to define precisely what is the interest of each beneficiary in the trust properties which can be included in computing his net wealth. But difficulty is bound to arise where there are more than one beneficiary and the shares of the beneficiaries are indeterminate or unknown. It would not be possible to predicate in such a case what precisely is the interest of each beneficiary in the trust properties for the purpose of inclusion in computation of his net wealth. How then is the assessment to wealth-tax in respect of the trust properties to be made in a case of this kind? This problem was solved by the legislature by providing that where it is not possible to assess the beneficiaries in respect of their interest in the trust properties, because their shares are indeterminate or unknown, the assessment to wealth-tax may be made on the trustees as if the beneficiaries on whose behalf or for whose benefit the trust properties are held were an individual. While making this provision, the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is a citizen of India and resident in India for the purposes of this Act. (5) Any person who pays any sum by virtue of the provisions of this section in respect of the net wealth of any beneficiary, shall be entitled to recover the sum so paid from such beneficiary, and may retain out of any assets that he may hold on behalf or for the benefit of such beneficiary, an amount equal to the sum so paid......" It is clear from these provisions that the assessment which is contemplated to be made on the trustees under sub-sections (1) and (4) is assessment in a representative capacity. It is really the beneficiaries who are sought to be assessed in respect of their interest in the trust properties through the trustees. Sub-section (1) provides that in respect of trust properties held by the trustees, wealth-tax shall be levied upon them in the like manner and to the same extent as it would be leviable upon the beneficiary for whose benefit the trust properties are held. This provision obviously can apply only where the trust properties are held by the trustees for the benefit of a single beneficiary or where there are more beneficiaries than one, the individual shares of the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment is 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 properties for the benefit of a single beneficiary or, there being more beneficiaries than one, the individual shares of the beneficiaries in the trust properties are determinate and known. But what is to happen where there are more than one beneficiary and their individual shares in the trust properties are indeterminate or unknown? The answer to this question is provided by sub-section (4) which provides that where the shares of the beneficiaries for whose benefit the trust properties are held are indeterminate or unknown, the wealth-tax may be levied upon the trustees as if the beneficiaries for whose benefit the trust properties are held were an individual for the purposes of the Act. Since the interests of the beneficiaries in the trust properties in such a case would be indeterminate or unk ..... X X X X Extracts X X X X X X X X Extracts X X X X
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