JAGANMOHAN REDDY C.J. - The Income-tax Appellate Tribunal had referred to us the following question, namely :
'Whether the Tribunal was justified in holding that the provisions of section 21(4) of the Wealth-tax Act did not apply to the fact of the present case ?'
The facts of the present case have been set out in the statement of the case with which the said question had been referred to us by the Tribunal. The assessees are the trustees of H. E. H. The Nizams Supplemental Family Trust. The assessment years are 1957-58,1958-59 and 1959-60 for which the corresponding valuation dated are March 31,1957, March 31,1958, and March 31,1959, respectively. The Wealth-tax Officer held that the shares of the beneficiaries were not determinate and, therefore, the trustees were liable for assessment on the whole of the wealth, and that the provisions of section 21(4) of the Wealth-tax Act were clearly applicable. It is unnecessary to state the corpus of the trust or the income it yields except to say that there is sufficient and substantial income, and that the shares are valued at about six lakhs of rupees. According to the terms of the settlement deed, the trustees were to manage the trust fund, collect, recover interest and other income if any of the funds and securities for the time being comprised in or representing the investment of the trust fund or any part thereof and to pay and discharge out of the income of the shares all expenses and charges for collection and recovering the income of the trust fund and the remuneation of the trustees payable under the trust fund and the remuneration of the trustees payable under the trust deed, and all other costs, charges, expenses and outgoing relating to the safe custody, preservation and up keep of the trust under etc. During the lifetime of the settlor, the trustees were to accumulate the balance of the income of the trust fund after defrang the aforesaid expenses from year to year. After the death of the settlor, the trust funds were to be utilised in accordance with he terms of the trust deed. The Tribunal stated that the three beneficiaries viz, Mr. Nusrath Ali Khan, Batool Begum and Mehbooob Begum, have determinate interest of 11 units, 6 units, and 6 units, respectively, i.e. in all 23 units. The remaining two units were lift for incurring the expenditure of the trust into a separate 'expenses account fund'. The income corresponding to the units allocated to each of the beneficiaries was to be paid to the respective beneficiaries during their lifetime and thereafter it was to be divided as provided under clauses 4,5, and 6 of the trust deed. In the case of each beneficiary, the heirs were to inter it the trust funds allocated to him or her in certain proportions as provided in the said three clauses. The Trustees contested before the Wealth-tax Officer their liability to the tax on two grounds, viz, (1) that the trustees, being an association of persons, cannot be taxed to wealth-tax, as the charging section 3 does not contemplate charging the wealth of 'association of persons', and (2) that the trustees cannot be said to be holding the trust fund on behalf of the beneficiaries. The Wealth-tax Officer repelled both these contentions and as we have said earlier, he has held that the provisions of section 21(4) of the Wealth-tax Act are clearly applicable. The assessment was confirmed by the Appellate Assistant Commissioner.
The Tribunal, however, reversed the said findings and observed that the three beneficiaries for whose benefit the trust was created had a vested interest in the trust fund during the lifetime of the settlor and, after the death of the settlor, they had got a right to the income from the trust funds. It was of the view that that could not be said that on the valuation dates the assets held by the trustees were not for specified persons. Thus, it came to the conclusion that, under the terms of the deed, the shares of the three beneficiaries were determinate and the provisions of section 21(4) were not applicable. This is what it has stated :
'Irrespective of the fact that the three beneficiaries are only entitled to utilise the income from the trust funds and have no right to claim anything from the corpus and their heirs have a vested right, it cannot be said that there being a plurality of beneficiaries, they are unknown or their shares are indeterminate or unknowable. Even on the valuation dates, if the three aforesaid beneficiaries are to b excluded and their heirs are held to be the beneficiaries under the trust deed, they are known persons and their shares are determinable under the law. Looked at from whatever angle, the provisions of section 21(4) are inapplicable.'
The only point that is canvassed before us is that the shares are not terminate, inasmuch as there is a term in the trust deed by and under which the income from the trust fund cannot be distributed during the lifetime of the settlor. According to the learned advocate for the department, the term which requires accumulations of the income during the settlors lifetime would make the shares indeterminate. But we are unable to understand how such a contention could be addressed because under the trust deed, the beneficiaries have a vested right in the accumulated income of the corpus and would be entitled to it in the event of the death of the settlor. In other words, there is a postponement of the enjoyment but it could not be contended that mere postponement of the enjoyment deprives the beneficiaries of their rights or that they have no vested rights in that income. If any of the beneficiaries do not survive the settlor, the provisions of the trust-deed clearly show that the shares of each one of these persons will devolve according to their personal law so that the shares of heirs also will be determinate on the happening of the said event, namely, the death of settlor. Section 21(4) of the Wealth-tax Act corresponds to section 41 of the old Income-tax Act and designed to describe the mode of collection of tax. Under the provisions of this section, either the trustees can be assessed in respect of the shares of each of the beneficiaries or the beneficiaries themselves. Sub-section (4) of section 21 of the Wealth-tax Act, which correspons to the proviso to section 41 of the old Income-tax Act, sets out the conditions in which those provisions would not apply and the income in the hands of the trustees will be treated as income in the hands of an individual. Sub-section (4) of section 21 reads as follows :
'(4) Notwithstanding anything contained in this section, where the shares of the persons on whose behalf or for whose benefit any such assets are held are indeterminate or unkown, the welath-tax may be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person aforesaid as if the persons on whose behalf or for whose benefit, the assets are held were an individual who is a citizen of India and resident in India for the purposes of this Act.'
It will be observed that, in order to apply the provisions of section 21(4) one of the important ingredients is that the shares of the person on whose behalf or for whose benefit any such assets are held should be indeterminate or unknown, and it is only then that the Wealth-tax Officer may levy and recover tax from the trustee as if the person on whose behalf or for whose benefit the assets are held was an indiviidual. In other words, the whole of that wealth would become liable for assessment as if the trustees are the owners of it and not on behalf of each of the beneficiaries in a accordance with the share of that beneficiary in the wealth of that trust. As we have said, the department also could not controvert that the trust deed definitely fixes the shares of each of the beneficiaries. Once that basic condition is satisfied, sub-section (4) of section 21 of the Act cannot be called in aid by the wealth-tax authorities to assess the trustees as an indvidual. It is not necessary to refer to any cases because the question is one which depends on the terms of the trust deed. We, however, refer to a decision of the Gujarat High Court in Padmavati Jaykrishna Trust Commissioner of Wealth-tax wherein the decision of the Supreme Court in Commissioner of Income-tax v. Puthiya Pumanichintakam Wakf, had been referred to and applied.
We according answer the reference in the affirmative and in favour of the assessee with costs. Advocates fee Rs. 250.