TMI Blog1994 (2) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... lam Birla Trust on the valuation dates were his beneficial interest of the trust and not the corpus of the trust and in that view of the matter the beneficial interest only should be included in the net wealth of the assessee ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the provisions of section 21(3) of the Wealth-tax Act, 1957, should not be applicable in the case of Sri Kumar Mangalam Birla (minor) for the purpose of making assessment of the assets held by him in the Kumar Mangalam Birla Trust ?" The facts giving rise to the first two questions are as follows: The assessee is a resident individual and the assessment year involved is 1983-84, the valuation date being March 31, 1983. In the course of assessment proceedings, the Assessing Officer found that the assessee held certain unquoted equity shares of Birla Brothers (P.) Ltd. The value of the shares was disclosed on the basis of the assessee's valuer's report which computed the value on the profit-making method and not on the break-up value method as prescribed by the provisions of rule 1D of the Wealth-tax Rules, 1957, for the purpose of valuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same and all additions and accretions thereto to the said Shri Kumar Mangalam Birla and in case of his death before attaining the age of 21 years to his heirs and legal representatives to be held and enjoyed by him or them absolutely." Thus, according to the terms of the said trust, Shri Kumar Mangalam (minor) had interest in the income and the corpus of the trust fund. The assessee, Kumar Mangalam Birla (minor), showed the value of the property of the trust in the return on the basis of the value of the beneficial interest in the trust property as per his valuer's report. The valuer held that the minor was not the absolute owner of the assets of the trust and the value of his beneficial interest as life tenant is to be the value taken for the purpose of assessments of net wealth in respect of the trust properties. The valuer went on the basis that the assessee is the sole beneficiary of the trust fund with full interest in the income and corpus of the fund, no matter when it may be applied for his benefit before his attainment of the age of 21 years but he cannot be said to be the absolute owner of the corpus. In the event of the death of the beneficiary before attaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minor beneficiary under the trust deed is assessable in respect of the full value of the corpus of the trust and not the value of the beneficial interest in the trust assets and that the provisions of sub-section (3) of section 21 are applicable in this case as the assessee, a minor, is in direct ownership of the property. The minor beneficiary has doubtless vested interest in the property under the trust. But the trust is to determine on the assessee's attaining the age of 21 years when the trustees shall hand over the trust fund as remaining on his attaining that age along with the accretions thereto, if any. Until attainment of the age of 21 years the assessee was to enjoy the income as well as the corpus either in part or whole for his benefit. The question arises whether the transfer of the corpus being held over or postponed till the attainment of the specified age makes his interest short of full ownership and his interest partakes of the nature of beneficial interest. Learned counsel for the assessee in the first instance contests the departmental contention that the case falls for assessment in terms of the provisions of sub-section (3) of section 21 of the Wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lute interest after the efflux of the stated time may be said to have in it embedded an absolute interest in the corpus. The beneficial interest is not a mere life interest. In this case, the minor beneficiary is not a life tenant under the deed of settlement. He has beneficial interest in the income of the trust property during the trust period which terminates on his attaining the age of 21 years and upon such termination the corpus as well vests in him in absolute terms. In the event of his pre-deceasing the terminal transition of the beneficial interest into ownership, the corpus shall vest in his legal heirs and successors as owners. Therefore, it is not a case where the beneficiary holds a life interest with remaindermen. The question is whether the beneficiary under the trust can convert at his option the beneficial interest into an absolute interest by accelerating the transition of the interest into ownership. Normally, the direction of the trustee is binding on the beneficiary. If no power is vested in the beneficiary by the settlor under the terms of the trust, he cannot bring the trust to an end and cause any modification in its terms. But, this is not an inflexible r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er said, when a settlor or a testator has made some provision that postpones the enjoyment through a direction for accumulation of the income for a given period, the trustees cannot disobey the direction of the settlor. In general terms, as long as a trust is being properly administered and is duly continuing, a beneficiary has no right to interfere in its administration but has passively to wait to receive the benefit under the trust. If, however, the trust is not being properly administered, a beneficiary can take steps to compel its proper administration and in any case may take certain action to preserve his beneficial right. Section 11 in the ultimate analysis accepts the proposition that the beneficiaries for whose benefit the trust was created are the final masters of the trust. At any rate, the beneficiary's power to accelerate the transfer of the property upon revocation of the trust is hedged in by the various conditions of which the principal one is that the minor beneficiary requires the consent of the principal court of original jurisdiction which again shall intervene only where the continuation of the trust is to the jeopardy of the interest of the beneficiary, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) at the rate of three per cent. ; whichever course would be more beneficial to the Revenue." This shows that the Legislature is aware that beneficial interest is not absolute interest and its value cannot be the full value of the corpus. The insertion of this new sub-section (1A) can be adverted to for support that beneficial interest is not absolute interest and is distinguishable from it. Where the beneficiaries are more than one, the aggregate value of all their beneficial interests cannot exhaust the full value of the assets in which such interests subsist. Therefore, where the beneficiary is a minor and has no present right to the corpus which right is to accrue to him only on attainment of majority, such interest is only a beneficial interest and its value cannot be equivalent to the full value of the asset. This principle is embedded in the provisions of the new sub-section. The contention of the Revenue is that sub-section (1A) can apply where the beneficiary is not a minor. Even if the minor has only a beneficial interest the full value of the property held in trust is none the less exigible to tax by virtue of sub-section (3). It is sub-section (3) which holds the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciary of a trust. The fact-situation required is that the assets are held by a guardian or trustee on behalf or for the benefit of the minor. If this be the situation, sub-section (3) lays down the method and extent of taxation. The taxation would be on the basis of two fictions. One is that the minor is not a minor but of full age. The second fiction is that even though his interest is a beneficial interest and not in absolute interest, yet he would be treated as the direct owner of such assets. The expression of the nature of the interest as "direct ownership" necessarily predicates the interest to be absolute interest. Thus, the contention of the Revenue has the support of the literal interpretation of sub-section (3) of section 21. On the face Of the unambiguous provisions, there is, thus, no escape from the inference that in the instant situation, we have to take the minor beneficiary as the direct owner of the property and his tax liability should be governed accordingly. For the reasons stated, questions Nos. 3 and 4 are answered in the negative and in favour of the Revenue. There will be no order as to costs. SHYAMAL KUMAR SEN J.-I agree. - - TaxTMI - TMITax - Wea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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