Per Shri R. L. Sangani, Judicial Member - These two appeals and a cross-objection arise out of the proceedings for the assessment of wealth-tax for the assessment year 1979-80. Out of these two appeals, the first one has been filed by the department while the other has been filed by the assessee. The cross-objection filed by the assessee pertains to the appeal filed by the department.
2. The assessee is a private trust represented by the trustees. The trust has been created by the trust deed dated 24-2-1969. According to the trust deed, the income of the trust was to be spent or applied for the benefit of Ajit up to the end of the calendar year 1978. After 1-1-1979 the same had to be spent or applied for the benefit of Mrs. Tara during her lifetime. From and after death of Mrs. Tara, the trust was to be determined and the trust funds were to be distributed to the persons mentioned in clause 3C of the trust deed.
3. The property of the trust consisted of the shares of Parle Products (P.) Ltd. The WTO held that the entire wealth of the trust was liable to be included in the net wealth to be assessed in the hands of the trustees under section 21 of the Wealth-tax Act, 1957 (the Act). He, accordingly, assessed the trustees on the value of shares held by them as trustees on the value of shares held by them as trustees on the relevant valuation date.
4. In the appeal filed by the assessee, the AAC relied on the decision of the Supreme Court in CWT v. Trustees of H. E. H., Nizams Family Remainder Wealth) Trust : 108ITR555(SC) and held that the aggregate values of the interest of the beneficiaries were liable to be taxed in the hands of the trustees and that the entire corpus of the trust was not liable to be assessed under section 21. Before him a submission was made that the beneficiaries had been assessed for these assessment years under section 21(2) in respect of their interests in the trust. He directed the WTO to verify the correctness of the said statement made on behalf of the assessee. His further direction was that if on verification the WTO found the said submission to be correct, the present assessment framed on the trustees under section21(1) should be treated as annulled. He did not decided the other two grounds, which had been raised before him. Those two grounds pertained to rate of tax and proper value of shares.
5. In the appeal filed by the department, four identical grounds have been raised. The first grounds is that the decision of the Supreme Court in the case of Trustees of H. E. H. Nizams Family (Remainder Wealth) Trust (supra) relied on by the AAC was not applicable. The second ground is corollary to the first one. The third ground is that the assessments should not have been annulled. The fourth ground is corollary to the third ground.
6. In the cross-objection filed by the assessee, the first ground raised is that the AAC should have determined the value of the shares. The second ground is that the AAC should have decided the other grounds raised by the assessee.
7. In the appeal filed by the assessee, the ground raised is that the order of the conditional annulment of the assessment was erroneous and that the learned AAC ought to have held that the trustees were liable to be assessed in like manner and to the same extent as the beneficiaries, in view of the fact that the returns submitted by the beneficiaries had not been acted upon by the WTO.
8. The contention of the learned departmental representative before us is that the trust in question is a discretionary one, and that the shares of the beneficiaries are unknown and indeterminate on the relevant valuation dates, and as, such, the assessment should be made under section 21(4). His further submission is that the order of the conditional annulment was erroneous. The learned representative for the assessee has relied on the reasons given in the order of the AAC.
9. We have considered the rival submissions and facts on record. We may observe at the outset that these appeals and the cross-objection had been along with the appeals for the assessment years 1974-75 to 1978-79. After hearing the parties, we found that as far as the assessment year 1979-80 was concerned, the legal position was different from that in the assessment years 1974-75 to 1978-79. Consequently, we disposed of the appeals for the assessment 1974-75 to 1978-79 by our order dated 31-8-1984. These two appeals and the cross-objection which pertain to the assessment year 1979-80 are being dealt with separately.
10. The relevant clause which is material is clause 3E of the trust deed which is as follows :
'The trustees may however during the lifetime of Mrs. Tara pay, spend or apply at their discretion from time to time any part or parts of the trust fund to or for the benefit of Mrs. Tara and any child or remoter issue of Mrs. Tara and of Vijay and of Raj or any one or more of them to the exclusion of the other of others of them and in such proportion and manner as they the trustees in their absolute discretion shall think fit.'
11. The contention on behalf of the assessee, is that since on the relevant valuation date, the trustees had in fact not exercised the discretion conferred on them by clause 3E, the provisions of the said clause should be ignored and we should confine ourselves to the remaining clauses of the trust deed. Under the remaining clauses, the beneficiaries are known and their shares are determinate. Consequently, according to the assessee, the provisions of section 21(1) would apply, and, as such, the value of the interests of the beneficiaries should be assessed under the said provisions.
12. A perusal of the trust deed indicates that Mrs. Tara acquired life interest in the income of the trust with effect from 1-1-1979. However, clause 3E also became effective from that date. That clause in express words states that during the lifetime of Mrs. Tara the trustees had absolute discretion to pay, spend or apply any part of the trust fund to or for the benefits of either Mrs. Tara or any child or remoter issue of Mrs. Tara or for the benefit of Vijay and of Raj or any one or more of them to the exclusion of the other or others of them and in such proportion and manner as the trustees may think fit. Thus, on the relevant valuation date, the trustees could have at their discretion applied the entire trust fund to the benefit of any one of those persons to the exclusion of the other. Since the discretion has been given in respect of entire trust funds, the whole trust could have been determined by the trustees after 1-1-1979. Thus, as far as the valuation date (31-3-1979) is concerned, it cannot be said with certainty having regard to the said clause of the trust deed, as to who the real beneficiary was and the share of the said beneficiary in the trust funds. It must, therefore, be held that on the relevant valuation date the beneficiaries were unknown and their shares were indeterminate. Mere fact that the trustees had not in fact exercised such discretion on or before the relevant valuation date would not make any difference in the determination of the question whether the beneficiaries were known and whether their shares were determinate on the relevant valuation date. What is to be seen is that determine this question and not what they actually did. On this point, we are supported by the decision of the Bombay High Court in B. P. Mahalaxmiwalla v. CIT : 26ITR177(Bom) . The question in that case had arisen in connection with section 41(1) of the Indian Income-tax Act, 1922 and the proviso to the said section. The said proviso was identical with the provision with which we are concerned. In the trust deed with which their Lordships were concerned, a discretion had been given to pay out of the corpus any amount for other purposes. Under the proviso to section 41(1), a heavier liability upon the income received from a trust had been imposed if the income was not specifically receivable on behalf they are receivable were indeterminate or unknown. The attention of their Lordships was drawn to a resolution passed by the trustees by which they had exercised their discretion in a particular manner and it is contended that the higher liability was not attracted. Their Lordships observed that the resolution by the trustees themselves to limit that discretion or to regulate that discretion, would not take the case our of the said proviso. They accordingly held that the trustees were liable to pay tax at the maximum rate under the proviso. In the present case also mere fact that the trustees had not exercised their discretion under clause 3E would not take the case out of the provisions of section 21(4).
13. The second decision which is relevant in this connection is CIT v. Lady Ratanbai Madhurdas : 67ITR504(Bom) . In this case also the question was whether the first proviso to section 41(1) applied. It was observed that what is to be considered is whether upon the provisions of the trust deed, the shares are indeterminate or unknown. The action which the trustees might have taken or did not take would be wholly irrelevant. We have to took to what is provided by the deed and not to what the trustees may choose to do in the implementation of its terms. This decision also supports the view which we have taken.
14. We may mention here that the learned representative for the assessee had relied on the decision of the Tribunal rendered in the case of another trust [WT Appeal Nos. 575 to 581 (Bom) of 1983 dated 25-10-1983]. The aspect which we have emphasised and which is material has not been considered in the said decision. Consequently, that decision is no assistance in the present case.
15. After carefully considering all the relevant clauses of the trust deed, we find that clause 3E was applicable with effect from 1-1-1979 and, as such, from 1-1-1979 and 31-3-1979, which is the relevant valuation date, the trustees under the said provision in the trust deed could have applied the trust fund in their absolute discretion given to them in the said clause. Consequently, as far as the relevant valuation date, viz. 31-3-1979, was concerned, the beneficiaries must be held to be unknown and their shares indeterminate. The provisions of section 21(4) would, therefore, apply.
16. The learned AAC has passed a cyclostyled order in several appeals heard by him together. His attention does not appear to have been drawn to clause 3E which is relevant as far as the assessment year 1979-80 was concerned. It is true that the WTO has observed that the shares of the beneficiaries were determinate. However, that observation is inconsistent with his action in taxing the whole property. He has referred to section 21 and not to any sub-clause thereof. His observation that shares of beneficiaries were determinate is erroneous in view of the fact that the discretion that was given to the trustees resulted in the beneficiaries being unknown and their shares indeterminate.
17. The direction of the learned AAC that the assessment on the trustees would stand annulled if the WTO found that the beneficiaries had already been assessed under section 21(2) was not proper. In fact, the question whether the beneficiaries had been assessed under section 21(2), should have been determined by the AAC himself and then, he should have family disposed of the appeals before him. In the memo of appeal filed by the assessee, it is specifically mentioned that the returns submitted by the beneficiaries have not been acted upon by the WTO. Consequently, it is obvious that up to the date of the order of the AAC, the beneficiaries had not been assessee under section 21(2). In the circumstances, there was no propriety in making a conditional order as was done by the learned AAC. That direction cannot be sustained.
18. We have already held that in view of clause 3E, the beneficiaries were not know and their shares were indeterminate on the relevant valuation date (31-3-1979) and, as such, provisions of section 21(4) were attracted. In the circumstances, the trustees are to be assessed in accordance with the said provision.
19. As already stated, the AAC has not decided the other grounds raised before him, one of which regarding the value of shares. We, therefore, hereby restore the appeal to the AAC with direction that the trustees shall be petitioner in accordance with the provisions of section 21(4). We, further direct that the AAC shall decide the other questions which had raised before him but which were not decided by him, and then finally dispose of the appeal.
20. In the result, the appeal filed by the department is allowed, while the appeal and the cross-objection filed by the petitioners are dismissed.