TMI Blog1978 (7) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... e excluded in determining the net wealth assessable in the assessee's hands for each of the valuation dates ? 3. Whether, on the facts and in the circumstances of the case, jewelleries mentioned in Part I of the First Schedule and shares to the extent of Rs. 3,60,000 out of the share fund be assessed in terms of section 21(1) of the Wealth-tax Act in the assessee's hands in respect of each of the valuation dates ? 4. Whether, on the facts and in the circumstances of the case and on a true reading of section 21 of the Wealth-tax Act in so far as it applies to the trustees, the material persons to be held as beneficiaries under the trust on the valuation dates for the assessment years in question are : (i) Smt. Sahebzadi Anwar Begum with a determinate share, as well as; (ii) the ultimate persons entitled to the other rights in the property with an indeterminate share; or the said Sahebzadi Anwar Begum only as the sole beneficiary, the ultimate persons entitled to other rights in the property being ignored altogether ? 5. Where a beneficiary is entitled to be paid a particular sum out of income of the fund on particular dates, his interest in the fund on that part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k fit provided that if the trustees shall at any time or times think it desirable to have any of the said ornaments or other articles set or reset or remade in such manner and designs or fashions as they may think fit or to have 'any of them converted into or exchanged for any other pieces or articles of jewellery or ornaments either for the purpose of realising better value for the same or otherwise, they shall have absolute power and discretion to do so. Provided, however, that the trustees shall as far as possible give to the descendants of the said Sahebzadi Anwar Begum by the said Prince Mauzzam Jah Bahadur and failing such descendants to the descendants of the settlor, the first option to purchase any of the said articles at the price obtainable for the same in the open market. (ii) To pay and divide the net income of the jewellery fund amongst the children and other issues howsoever remote of the said Sahebzadi Anwar Begum by the said Prince Mauzzam Jah Bahadur per stirpes from generation to generation in the proportion of two shares for every male to one share for every female standing in the same degree of relationship so that no person shall take a share in the net inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust deed, but we are not concerned with this fund in these references. The assessees claimed before the WTO that the assessments on the trustees should be made, in the like manner and to the same extent, as it would be leviable upon and recoverable from the person on whose behalf the assets are held in terms of s. 21(1) of the W.T. Act and that the provisions of s. 21(4) are not attracted. The WTO in his assessment order for the year 1957-58 held that, on a plain reading of the provisions of the trust deed, it is clear that Sahebzadi Anwar Begum is not entitled to the corpus of the trust fund during her lifetime. He further held that the claim of the assessee that the provisions of s. 21(4) are not attracted is without any force. He also held that the provisions of the trust deed make it clear that the trustees are the sole owners of the corpus on the relevant valuation date and hence an assessment could be made on such trustees under the Act. Therefore, he calculated the value of the jewellery and the value of the shares fund and adding thereto the accumulations, he assessed the trustees on the total net wealth so computed in terms of s. 21(4) of the W.T. Act.' Even fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for wearing on special ceremonial or festive occasions, but were not meant for the personal use in the sense of an article of her household. Therefore, the jewellery in Part I of the first schedule was not qualified for exclusion from the net wealth in terms of s. 5(1)(viii) of the Act. In respect of the shares fund, the corpus consists of 5% tax-free cumulative preference shares of the total face value of Rs. 4,00,000. The beneficiary's share in the income from this corpus is Rs. 1,500 per month i.e., Rs. 18,000 per year. The balance of the income from this corpus has to be accumulated. The beneficiary was not assigned any specific share in the accumulations of income but the trustees were given a discretion to pay or spend after (sic) the said Sahebzadi Anwar Begum such monies as are required out of the accumulations. The judicial Member was of the view that the shares fund of the value of Rs. 3,60,000 which yields an income of Rs. 18,000 will be assessed in terms s. 21(1) of the Act, but the balance of Rs. 40,000 and the accumulations of the income from the shares fund shall have to be assessed in terms of s. 21(4) of the W.T. Act. He also observed that only one single order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Sahebzadi Anwar Begum only as the sole beneficiary, the ultimate persons entitled to other rights in the property being ignored altogether. (2) Where a beneficiary is entitled to be paid a particular sum out of income of the fund on particular dates, his interest in the fund on that particular date is equal to the actual amount owing to him on that day or is equal to a Portion of the fund bearing the same proportion as the amount he is to receive bears to the total income of the fund ?" Before the third Member the counsel appearing for the assessee and the revenue submitted that the third Member was free to reject the unanimous reasons adopted by the two differing members and to express his own independent opinion on the points at issue. It was found that on the basis of the points referred to him, the correct answer arising out of the facts of the case could not be given. Therefore, the third Member re-framed the points of difference which are as under; " Whether the value of the whole or any portion of the jewellery fund and the share fund is liable to assessment in the hands of the Trustees under section 16 of the Wealth-tax Act, 1957, without recourse to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the opinion of the third Member was received the Income-tax Appellate Tribunal passed an order in appeal on August 6, 1963, in the following terms: " 1. One single assessment order for each year be passed incorporating all the items of wealth, but charging tax separately on those items in the manner laid down under sections 21(1) and 21(4) of the Act respectively as in the third Member's order. 2. The jewellery mentioned in Part II of the first schedule be excluded in determining the net wealth assessable in the assessee's hands for each of the valuation dates. 3. Jewelleries mentioned in Part I of the first schedule and shares to the extent of Rs. 3,60,000 out of the shares fund to be assessable in terms of section 21 (1) of the Act in the assessee's hands in respect of each of the valuation dates. The valuation of jewelleries to be made keeping in view the valuation made by the valuer appointed by the department. 4. The rest of the assets to be assessed in the hands of the assessee under section 21(4) for each of the valuation dates ." The revenue requested the Tribunal to refer the questions to the High Court and the five questions referred to the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cannot be considered by this court in the present reference as the matter has not been considered at lower stages. Before we proceed to answer the questions referred to the High Court, we propose to find out the scope and ambit of s. 3 and sub-ss. (1) and (4) of s. 21 of the W.T. Act. The question relating to the various trusts created by H.E.H. the Nizam arose in several cases in which this High Court as well as the Supreme Court had the occasion to deal with the nature of trusts and the application of the provisions of ss. 3, 21(1) and 21(4) of the W.T. Act in respect of the beneficial interests created in favour of various persons under the trust deeds. In these references as the points referred are similar in nature, it will be useful to refer to some of those decisions to find out as to what principles are enunciated in this regard. In Trustees of H.E.H. the Nizam's Family (Remainder Wealth) Trust v. CWT [1977] 108 ITR 555 at 558 one of the trusts named as H.E.H. the Nizam's Family (Remainder Wealth) Trust came up to this court by way of reference. In that case by a deed of trust dated May 16, 1950, late Nizam transferred nine crores of rupees in the Govt. securities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st similar with regard to jewellery. Under cl. (5) of the trust deed, the jewellery in the second schedule was allowed to be used by Prince Mauzzam Jah Bahadur on festive and ceremonial occasions. After such use the trustees were required to take charge of the jewellery and re-deposit the same for safe custody with a bank or some safe deposit company. The trustees were given the right to sell the jewellery or a part of it at their discretion, but with the consent of the settlor during his lifetime or with the consent of Prince Mauzzam Jah Bahadur after the settlor's lifetime. The income from the sale proceeds of the jewels, if the jewels were sold, was required to be paid to Prince Mauzzam Jah Bahadur during his lifetime. It was further provided that after the lifetime of Prince Mauzzam Jah Bahadur the jewellery was to go absolutely to the male descendants of the prince. Clauses 6, 7, 8 and 9 are similar to cl. 5 except as regards the beneficiaries. Under each clause the persons entitled to wear and use the jewellery in the corresponding schedule on festive or ceremonial occasions are mentioned and their children are named as the ultimate beneficiaries who would take the jewellery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Act. It is not necessary to multiply the authorities on this point except to refer to a pronouncement of the 'Supreme Court confirming the judgment of this court in R. C. No. 8 of 1967 [CWT v. Trustees of H.E H. the Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 (SC)] on similar points now referred to the High Court in these cases. The Supreme Court had the occasion to deal with ss. 3, 21(1) and 21(4) in CWT v. Trustees of Nizam's Family Trust [1977] 108 ITR 555 and referred to all the case law and views of the High Courts. It will be very useful to refer to this case more so for the reason that the case arises out of the trust created by H.E.H. The Nizam, viz., H.E.H. The Nizam's Family (Remainder Wealth) Trust. It will suffice for our purpose to refer to the questions referred to by the Tribunal which were under consideration of the Supreme Court. " (i) Whether the trustees are liable to be assessed under section 3 of the Wealth-tax Act in the status of an 'individual'? (ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provisions of section 3 of the Wealth-tax Act should be considered as subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must necessarily fall under s. 21 and he cannot be assessed apart from and without reference to the provisions of that section. Dealing with the provisions of s. 21, sub-ss. (1) and (4), the Supreme Court held that the beneficial interest which are taxable in the hands of the trustees in a representative capacity and the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries and no part of the corpus of the trust properties can be assessed in the hands of the trustee under s. 3 and any such assessment would be contrary to the plain mandatory provisions of s. 21. The Supreme Court also noted the consequences that seem to flow from the proposition laid down in s. 21, sub-s. (1), that the trustee is assessable " in the like manner and to the same extent " as the beneficiary. It was further clarified that these consequences are three-fold. In the first place, it follows inevitably from this proposition that there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though, for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinate shares, sub-s. (1) of s. 21 must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being. A Bench of this court in R.C. Nos. 50 and 54 of 1976, dated February 2, 1978 (CWT v. Nizam's Miscellaneous Trust) (since reported in [1980] 126 ITR 233) had to deal with the Trustees of H.E.H. the Nizam's Miscellaneous Trust, Hyderabad. In that case also, the following two questions arose for consideration. " 1. Whether, on the facts and in the circumstances of the case and on a true reading of sections 21(1) and 21(4) of the Wealth-tax Act, 1957, in so far as it applied to assessment on trustees : (i) the interest of a person entitled to a particular amount out of income of the fund on the valuation date is equal to only the actual amount due to him on the valuation date or that proportion of the trust fund as bears to the same proportion as the amount due to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h assessable in the assessee's hands for each of the valuation dates. Clause 4(b)(ii) of the trust deed provides for the jewellery mentioned in Part II of the first schedule. It runs thus: " (i) to allow the said Sahebzadi Anwar Begum to wear and use the articles specified in Part II of the first schedule hereunder written for her ordinary and every day use without the trustees being in any way liable or held responsible in any manner whatsoever by any person whomsoever for any loss or damage that may be caused to or in respect of any of the said articles specified in Part II of the first schedule hereunder written on account or in the course of the same being kept with or worn or used by her as aforesaid or for any other consequences resulting from the action of the trustees in allowing the said articles or any of them to be kept with or worn or used by her as aforesaid: Provided, however, that if at any time before her death or divorce or remarriage as aforesaid, whichever of the three events shall take place first, any part of the jewellery fund converted into any income-yielding investment, then the trustee shall pay the jewellery fund to her until her death or divorce or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration the terms of the trust deed in the instant case, we are of the view that the jewellery fund is liable to be taxed under s. 21(1) of the W.T. Act. The further question that arises is whether the jewellery fund could be excluded from the net wealth assessable in the hands of the assessee. The jewellery in Part II of the first schedule was exclusively kept for the ordinary and every day use of Sahebzadi Anwar Begum. It is not in dispute that the jewellery meant for the ordinary and every day use, if an asset, is exempt from being charged to wealth-tax under s. 5(1)(viii) of the W.T. Act. (Vide Nizam's Supplemental Jewellery Trust v. CWT [1975]. TLR 1085 (AP)). We have already referred to this judgment as it has a bearing in dealing with the jewellery to be used by Prince Muazzam Jah Bahadur, the husband of Anwar Begum. So, it is sufficient to say that we agree with the views expressed in the above decision and that it is applicable to the present case on all fours. In this view of the matter, the jewellery in Part 11 of the 1st schedule, though it constitutes an asset, is exempt from being charged to wealth-tax. The assessees in this case are the trustees of H.E.H. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be excluded in determining the net wealth assessable in the hands of the assessee for each of the valuation dates. The learned counsel for the revenue during the course of arguments raised the point that s. 5(1)(viii) of the Wealth-tax Act is amended by the Finance (No. 2) Act of 1971 and is given retrospective effect from April 1, 1963. By this amendment the exemption given to certain assets, i.e., jewellery from the charge of wealth-tax was excluded. As retrospective effect is given to and jewellery is brought out of the purview of exemption, it becomes an asset and attracts charge of wealth-tax. Therefore, the assessees cannot claim exemption now under s. 5(1)(viii) of the W.T. Act. As this point gives rise to a pure question of law, it is submitted that this could be adverted to and decided by this court. Sri Y. V. Anjaneyulu, the learned counsel for the assessee, on the other hand, submitted that when the assessments were made, jewellery was exempt and this matter was not considered at lower stages. He also submitted that this is not a pure question of law, but depends upon several factors. That apart, different High Courts have taken different views about the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bahadur or until she shall re-marry some other person, whichever of the three events shall take place first, to hold the jewellery fund upon trust : (i) To allow the said Sahebzadi Anwar Begum to wear and use the articles specified in Part I of the first schedule hereunder written or such of them as may be required on and for the purpose of any special ceremonial or festive occasion and after any such ceremonial or festive occasion shall be over, to take charge of such articles from the said Sahebzadi Anwar Begum and to re-deposit the same for custody in the joint names of the trustees with some safe deposit company or bank of good repute approved by the trustees preferably in Bombay provided that the trustees shall not be liable or held responsible in any manner whatsoever for any person whomsoever for any loss or damage that may be caused to or in respect of any of the said articles specified in Part I of the first schedule hereunder written in the course of the removal or transit of any of the said articles for the purpose aforesaid or for any other consequences resulting from the action of trustees in allowing the said articles or any of them to be worn or used as aforesaid. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for Prince Mauzzam Jah, to allow him to wear and use the jewellery on festive or ceremonial occasions. It was also provided that during the lifetime of the said Prince if the jewellery is sold, the income from the sale proceeds was required to be paid to him. The Bench of this court in Nizam's S. J. Trust v. CWT [1975] Tax LR 1085 (AP), to which we have already made a reference, held that the assessment has to be made under s. 21 (1) of the W.T. Act. We are entirely in agreement with the said view. The Supreme Court also expressed the same view (Vide CWT v. Trustees of Nizam's Family Trust [1977] 108 ITR 555 (SC). We will now deal with the shares fund to the extent of Rs. 3,60,000. It is not in dispute that the shares fund is of Rs. 4,00,000. Clause 5(a) of the trust deed provides for this fund which reads as under: " (a) Until the death of the said Sahebzadi Anwar Begum or until she shall have been divorced from the said Prince Mauzzam Jah Bahadur or until she shall remarry some other person whichever of the three events shall take place first, to pay to her a Sam of Rs. 1,500 (rupees one thousand and five hundred) per month out of the income of the shares fund and to accumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration to precisely decide the point. It will be useful to extract the passage. It runs thus (pp. 595, 596): " Let us, by way of illustration, take a case where property of the value of Rs. 10 lakhs is held in trust under which the income of the property is given to A for life and on his death, the property is to be divided equally between B and C. The beneficiaries in this case are clearly A, B and C, A having life interest in the trust property and C having equal shares in the remainder. The revenue has option to assess the beneficial interests of A, B and C in the trust property in the hands of the trustee or to make direct assessment on each of the three beneficiaries. If the trustee is assessed under sub-section (1) of section 21, three separate assessments would have to be made on him, one in respect of the actuarial valuation of the life interest of A, which may be, to take an ad hoc figure, say, Rs. 5 lakhs, and the other two in respect of the actuarial valuations of the remaindermen's interests of B and C, which may be, to take again an ad hoc figure, say, Rs. 2 lakhs each. Bat, as pointed out above, the revenue may, instead of assessing the trustees, proceed to make di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years in question are Anwar Begum with determined share as well as the ultimate persons entitled to the other rights in the property with an indeterminate share; or the said Anwar Begum only as the sole beneficiary, the ultimate persons entitled to other rights in the property being ignored altogether. The provisions in the trust deed with regard to the jewellery fund as well as the shares fund are set out in clauses 4 and 5. The provisions made in cls. 4 and 5 are almost similar. Clause 2 states that the trust created shall be called " Sahebzadi Anwar Begum's Trust ". That is, the trust is named after Anwar Begum. It gives a clue to understand the provisions made in the trust which are mainly meant for the benefit of Anwar Begum so long as she is alive, is not divorced, or shall not remarry any other person. It would suffice to state that cl. 4 provides for the jewellery fund while cl. 5 for shares fund. We have already noted that Sahebzadi Anwar Begum is entitled to the use of the jewellery in Parts and II of the 1st schedule and if any part of the jewellery is converted into an income-yielding investment, the entire net income therefrom should be paid to her as along a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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