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Commissioner of Wealth-tax Vs. Trustees of H.E.H. the Nizam's Sahebzadi Anwar Begum Trust (11.07.1978 - APHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred Nos. 79 and 121 of 1976
Judge
Reported in[1981]129ITR796(AP)
ActsWealth Tax Act, 1957 - Sections 5(1), 21, 21(1), 21(4); Finance (No. 2) Act, 1971
AppellantCommissioner of Wealth-tax
RespondentTrustees of H.E.H. the Nizam's Sahebzadi Anwar Begum Trust
Appellant AdvocateRama Rao, Adv.
Respondent AdvocateY.V. Anjaneyulu, Adv.
Excerpt:
direct taxation - assessment - sections 5 (1) and 21 of wealth tax act, 1957 and finance (no. 2) act, 1971 - whether jewellery intended for personal use of beneficiary was exempt from levy of wealth tax by virtue of section 5 (1) - in view of facts and circumstances court opined that such jewellery is liable to be assessed in terms of section 21. - - they read as under !4. (c) and after the death of the said sahebzadi anwar begum or on and after she shall have been divorced from the said prince mauzzam jah bahadur or on and after her remarriage as aforesaid, whichever of the three events shall take place first, to hold and stand possessed of the jewellery fund upon the trusts following, namely :(i) to sell the ornaments and articles of jewellery specified in the first schedule.....madhava rao, j. 1. referred case no. 79 of 1976 pertains to the years 1957-58 to 1966-67, while referred case no. 121 of 1976 is for the assessment years 1967-68 to 1969-70. both the cases are in respect of the assessment of the wealth-tax for the properties in the hands of the trustees of h.e.h. the nizam's sahebzadi anwar begum trust, hyderabad. the questions of law that arise are common to both the cases. the income-tax appellate tribunal of hyderabad, bench ' b ', referred the following questions of law for decision :' 1. whether, on the facts and in the circumstances of the case, even where a single assessment order for each year is passed incorporating all the items of wealth, tax should be charged on those items separately ?2. whether, on the facts and in the circumstances of the.....
Judgment:

Madhava Rao, J.

1. Referred Case No. 79 of 1976 pertains to the years 1957-58 to 1966-67, while Referred Case No. 121 of 1976 is for the assessment years 1967-68 to 1969-70. Both the cases are in respect of the assessment of the wealth-tax for the properties in the hands of the trustees of H.E.H. the Nizam's Sahebzadi Anwar Begum Trust, Hyderabad. The questions of law that arise are common to both the cases. The Income-tax Appellate Tribunal of Hyderabad, Bench ' B ', referred the following questions of law for decision :

' 1. Whether, on the facts and in the circumstances of the case, even where a single assessment order for each year is passed incorporating all the items of wealth, tax should be charged on those items separately ?

2. Whether, on the facts and in the circumstances of the case, the jewellery mentioned in Part II of the First Schedule could be 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

(i) Smt. Sahebzadi Anwar Begum with a determinate share, as wellas;

(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 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 '

2. To answer the above questions the relevant facts are as under : By the indenture dated March 21, 1953, H.E.H. Nawab Mir Sir Osman AH Khan Bahadur, the Nizam of Hyderabad, created a trust of three properties, namely : (i) jewellery mentioned in the first schedule of the trust deed comprising Parts I and II, (ii) properties mentioned in the second schedule of the trust deed, being 5% tax-free cumulative preference shares in M/s. Greaves Cotton and Company Ltd. of the face value of Rs. 4,00,000, and (iii) a sum of Rs. 75,000 in cash for residence. (For convenience, the above three funds are called the jewellery, the shares and the residence funds, respectively). Clause 4 is in respect of the jewellery fund. Under Clause 4(b), the settlor's daughter-in-law, Sahebzadi Anwar Begum, is permitted to use the jewellery mentioned in Part I of the first schedule on ceremonial and such other occasions while the jewelleries mentioned in Part II of the First Schedule are to be used by Sahebzadi Anwar Begum for ordinary and every day purpose. In Sub-clauses (c) and (d) of Clause 4, provisions are made as to what should happen to the jewellery after the death, etc., of Anwar Begum. They read as under !

' 4. (c) and after the death of the said Sahebzadi Anwar Begum or on and after she shall have been divorced from the said Prince Mauzzam Jah Bahadur or on and after her remarriage as aforesaid, whichever of the three events shall take place first, to hold and stand possessed of the jewellery Fund UPON THE TRUSTS following, namely :--

(i) To sell the ornaments and articles of jewellery specified in the first schedule hereunder written at the earliest opportunity at such prices, on such terms and in such manner as the trustees may in their discretion think fit without the trustees being liable or accountable to any person whomsoever for the reasonableness or otherwise of the price or other terms in respect of the sale of any of the said articles and to invest the net sale proceeds thereof in such manner as the trustees may from time to time think fit with power to them to convert any such investments into any other investments and to reinvest the same in such manner as they may think 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 tohave any of them converted into or exchanged for any other pieces or articles of jewellery or ornaments either for the purpose of realising a 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 stripes 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 income of the jewellery fund as long as his or her parents entitled to a share under this sub-clause shall be alive and so that persons standing in the same degree of relationship shall take between themselves in the proportion mentioned above their respective parent's share and so on from generation to generation.

(iii) On the failure of any child or children or other remote issue of the said Sahebzadi Anwar Begum by the said Prince Mauzzam Jah Bahadur to pay the net income of the jewellery fund to the said Prince Muazzam Jah Bahadur for and during the term of his natural life.

(iv) On and after the death of the said Prince Mauzzam Jah Bahadur to pay the net income of the jewellery fund to the settlor's eldest son Prince Azam Jah Bahadur for and during the term of his natural life.

(v) On and after the death of the said Prince Azam Jah Badadur to pay and divide the net income of the jewellery fund amongst the children and other remoter issue of the said Prince Azam Jah Bahadur by his wife Princess Durre-Shehvar 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 and so that no person shall take a share in the net income of the jewellery fund as long as his or the parent entitled to a share under this sub-clause shall be alive and so that persons standing in the same degree of relationship shall take between themselves in the proportion mentioned above their respective parent's share and so on from generation to generation.

(d) On the death of the last survivor of the persons entitled to the net income of the jewellery fund or any portion thereof as hereinabove provided, to stand possessed of the jewellery fund UPON TRUST to utilise the same and the income thereof for any of the purposes for the benefit of the holy places of Mussalmans in Iraq in such manner as the trustees may in their absolute discretion think fit. '

3. Clause 5 deals with the share fund. Sahebzadi Anwar Begum is entitled to a sum of Rs. 1,500 per month out of the income of the shares under Sub-clause (a) of Clause 5. Sub-clauses (b) and (c) of Clause 5 make provisions after the death of Sahebzadi Anwar Begum, which are almost identical to those made in Sub-clauses (c) and (d) of Clause 4 extracted above.

4. The manner in which the residence fund has to be dealt with is stated in Clause 6 of the trust deed, but we are not concerned with this fund in these references.

5. 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 Section 21(1) of the W.T. Act and that the provisions of Section 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 Section 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 Section 21(4) of the W.T. Act, Even for the other assessment years also, the WTO made the assessments on the same pattern.

6. The assessee filed appeals before the AAC against the assessments. Before the AAC the point raised by the trustees was that the appellants held the trust fund on behalf of a specified beneficiary under the terms of the trust deed and consequently the same should be assessed as the wealth in the hands of the beneficiary directly. Alternatively, it was argued that the WTO should have made the assessment on the appellants under Section 21(1) of the W.T. Act, in the like manner and to the same extent as the beneficiary herself would have been assessed. The AAC was of the view that the ownership of the corpus of the trust vests in the trustees and the beneficiary is entitled only to a life interest. Therefore, the trustees are liable to be assessed to wealth-tax on the value of the trust property vested in them as on the relevant valuation dates. Consequently, he held that the assessments were in order.

7. Thereupon the trustees filed an appeal before the Income-tax Appellate Tribunal and raised the following points ; (i) that the AAC was not correct in holding that the provisions of Section 21(1) of the W.T. Act are not applicable; and (ii) that the jewellery intended for the personal use of the beneficiary was exempt from the levy of wealth-tax by virtue of Section 5(1)(viii) of the W.T. Act. The question whether the assessment should be made under Section 21(1) or Section 21(4) was also considered by the Appellate Tribunal, The Judicial Member and the Accountant Member passed separate orders.

8. The Judicial Member held that the beneficiary on whose behalf the trustees held the assets, viz., the corpus of the trust fund, was only one, namely, Sahebzadi Anwar Begum. He also held that the jewellery fund is kept for the benefit of Sahebzadi Anwar Begum on the relevant valuation dates, in that, those that are mentioned in Part II are for her daily personal wear and those in Part I are for casual wear. Therefore, it falls to be assessed under Section 21(1) of the W.T. Act. It was also held that so far as the jewellery mentioned in Part II of the First Schedule is concerned, it being for personal use could be excluded in the computation of the net wealth under Section 5(1)(viii) of the W.T. Act, So far as the jewellery mentioned in Part I of the first schedule is concerned, it is observed that they were only meant 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 Section 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 Section 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 Section 21(4) of the W.T. Act. He also observed that only one single order of assessment be passed, but the net wealth assessable under Section 21(1) and Section 21(4) have to be kept separate, from each other, for the purpose of calculating the rate of tax. The total tax thus assessed has to be charged on the corpus in the hands of the trustees.

9. The Accountant Member found that the right of Sahebzadi Anwar Begum is only to wear the jewellery. No doubt it would be exempt under Section 5(1)(viii) of the W.T. Act, but that right to wear the jewellery is not an asset for the purpose of Section 2(e) of the W.T. Act. The interest of SahebzadiAnwar Begum, therefore, has no value and if it is valued, it will be nil. The shares of the beneficiaries and the beneficiaries themselves being indeterminate, the assessment has to be made on the trustees. The balance of rights will total up to the actual and full value of the jewellery fund on the valuation date. An assessment under Section 21(4) on the actual valuation of the jewellery fund would have to be made on the trustees. With regard to the shares fund, it was held by the Accountant Member that out of the total amount of shares fund including the accumulations of income, etc., after deducting the actual amounts due up to the valuation date to be paid to Sahebzadi Anwar Begum, the balance be assessed under Section 21(4) as pertaining to indeterminate beneficiaries with undefined shares and the actual amount paid up to the valuation date to Sahebzadi Anwar Begum out of the shares fund, be assessed at the rate appropriate to her other net wealth. It was further held that one single assessment for each year would be passed comprising the three separate items, namely, jewellery fund, shares fund and residence fund.

10. On account of the difference of opinion between the Judicial Member and the Accountant Member the case was referred to the President under Section 24(11) of the W.T. Act, 1957, for decision on the following points on which there was difference :

' (1) 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 determinate share, as well as

(ii) the ultimate persons entitled to the other rights in the property with an indeterminate share ;

the 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 '

11. 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 21, or is liable to assessment in the hands of the trustees under Section 21(1) of the Act, or is liable to assessment in the hands of the trustees under Section 21(4) ?'

12. The third Member in para. 39 of the order recorded his opinion that the assessment cannot be made under Section 3 (or Section 16) in regard to the jewellery fund, or the shares fund, or any part thereof. He opined that Sahebzadi Anwar Begum was the sole beneficiary of the entire jewellery fund on the relevant valuation dates and that since the WTO elected to assess the same directly in the hands of Sahebzadi, it was not open to him to assess the same in the hands of the trustees under the alternative provision of Section 21(1). He also further opined that even if it was open to the WTO to assess the wealth, it was exempt from assessment under Section 5(1)(viii) of the Act. He also held that no tax could be levied on the trustees in respect of the jewellery fund nor on Sahebzadi Anwar Begum directly in respect thereof. With respect to the share fund the third Member also held that Sahebzadi Anwar Begum was the sole beneficiary of the said fund on all the relevant valuation dates, that her interest has been properly valued by the Judicial Member. He further held that even if it is assumed that the beneficiaries mentioned in Clause 5(b) of the trust deed are also beneficiaries within the meaning of Section 21(1), all the beneficiaries and their shares are known and determinate on any given valuation date and their interest could, therefore, be assessed under Section 21(1) and not under Section 21(4). It was further opined that if for any reason, it is assumed that the beneficiaries under Clause 5(c) of the trust deed are also beneficiaries within the meaning of Section 21, their beneficial interest would be assessable under Section 21(4) being indeterminate. The third member, by way of precaution, also expressed the opinion on the question referred to him stating that in that event it was not open to him to re-frame the points and answer them.

13. On question No. 1 he gave the opinion that Sahebzadi Anwar Begum is the sole beneficiary, the ultimate persons entitled to other rights in the property being ignored altogether. On the second question he opined that in the shares fund, the interest is equal to the portion of the fund bearing the same proportion as the amount she is entitled to receive bears to the total income of the fund.

14. After 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 itemsin 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 .'

15. The revenue requested the Tribunal to refer the questions to the High Court and the five questions referred to the High Court have already been noted at the outset.

16. Now, the learned counsel for the revenue, Sri P. Rama Rao, mainly contended that Sahebzadi Anwar Begum is not entitled to any portion of the corpus in Parts I and II of the first schedule and, therefore, the corpus must be valued under Section 21(4) of the W.T. Act. With regard to the shares fund, the learned counsel urged that Sahebzadi Anwar Begum is not entitled to any share fund but is only entitled to a sum of Rs. 18,000 per year out of the income of the shares fund and, therefore, the entire shares fund and the balance of income are to be assessed under Section 21(4) of the W.T. Act. Therefore, even to the extent of Rs. 3,60,000 out of the shares fund has to be assessed under Section 21(4) of the W.T. Act in the hands of the trustees. It was also contended that Sahebzadi Anwar Begum alone was not the sole beneficiary, but there are other persons entitled to the rights in the property with an indeterminate share. The learned counsel for the respondent, on the other hand, submitted that under the trust deed the beneficiaries, whether immediate or ultimate, are known on the valuation dates corresponding to the wealth-tax assessments under consideration and also their respective shares. Hence, the wealth-tax assessments had to be made by applying Section 21(1) of the W.T. Act. It was also contended that so far as the beneficial interest of Sahebzadi Anwar Begum, who is the immediate beneficiary in the jewellery fund and shares fund, is concerned it is not liable to assessment under Section 21(1) of the W.T. Act since the jewellery meant for personal wear of Sahebzadi Anwar Begum is exempt from being charged to wealth-tax under Section 5(1)(viii) of the W.T. Act. Even with regard to the shares fund it was submitted that it is not liable to assessment under Section 21(1) of the W.T. Act. It was further submitted that the beneficial interest, if any, of the ultimate beneficiaries in the jewellery fund andshares fund is not liable to assessment. In this connection, he relied upon a decision of this court in the Nizam's Supplemental Jewellery Trust v. CWT [1975] TLR 1085 which is also affirmed by the Supreme Court in Civil Appeal Nos. 821 to 830 of 1977 dated May 3, 1977.

17. It was lastly submitted that in any event the matter relating to the assessment of beneficial interest, if any, of the ultimate beneficiaries in the jewellery fund and shares fund cannot be considered by this court in the present reference as the matter has not been considered at lower stages.

18. Before we proceed to answer the questions referred to the High Court, we propose to find out the scope and ambit of Section 3 and Sub-sections (1) and (4) of Section 21 of the W.T. Act.

19. 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 Sections 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]108ITR555(SC) 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 to the trustees constituted by him. The corpus was to be notionally divided into 175 equal units. Five of the units were to constitute a fund called the ' reserve fund' and 31/2 units were to constitute a ' family trust expenses fund '. The remaining 1661/2 units were allotted to the relatives mentioned in the IInd schedule in the manner specified in the schedule. On a reference, the High Court held that the joint trustees should be regarded as a unit for purposes of taxation and so they could be assessed to wealth-tax in the status of an individual in respect of the properties held by them as trustees. It is also held that Section 3 of the W.T. Act, which is a general section, is to be read subject to Section 21, which is a special provision governing the taxation of trusts. The expression ' on behalf of ' in Section 21 of the W.T. Act means'for whose benefit'. Therefore, Section 21(1) is applicable to the facts of the case. Adverting to Section 21(4) it was observed that what has to be seen is whether on any given date it is possible to determine who would succeed to the corpus and in what shares. On facts the High Court held that under the trust deed such persons and their shares could be determined and that the beneficiaries are known on any given date and their shares are a mere matter of arithmetic. Hence, it was held that Section 21(4) was not applicable to the facts of the case. This judgment has been confirmed by the Supreme Court in CWT v. Trustees of Nizam's Family Trust : [1977]108ITR555(SC) .

20. In Nizam's Supplemental Jewellery Trust v. CWT [1975] Tax LR 1085 a Bench of this court dealt with two questions referred to it, The questions are also relevant for our purpose. They are as under:

' (1) Whether, on the facts and in the circumstances of the case, the trust funds were assessable in the assessee's hands under the provisions of Section 21(1) or Section 21(4) of the Wealth-tax Act ?

(2) Whether, on the facts and in the circumstances of the case, the value of jewelleries specified in schedules 1 to 6 of the trust deed is exempt under the provisions of Section 5(1)(viii) of the Wealth-tax Act '

21. We are referring to the facts of this case in extenso for the reason that Prince Mauzzam Jah Bahadur, the beneficiary in that case is no other than the husband of Sahebzadi Anwar Begum, the beneficiary in the instant case, and the points that arise for consideration are almost similar with regard to jewellery. Under Clause (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 Clause 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 absolutely on their death. The High Court relied on the decision in Trustees of H.E.H. The Nizam's Family(Remainder Wealth) Trust v. CWT : [1977]108ITR555(SC) and held that the deed of trust should be construed as distinct trusts created in favour of the persons specified in Clauses 4, 5, 6, 7, 8 and 9 in respect of the jewellery specified in schedules 1 to 6, respectively. Keeping the terms of the trust deed in view, the Bench held that the jewellery in each schedule was held on the relevant dates of valuation for the benefit of the persons entitled to wear and use them and not for the benefit of their children who were to get them after their death. The assessments had to be made under Section 21(1) without recourse to Section 21(4) of the W.T. Act. On the other question it was submitted that under Section 21(1), the assessment on the trustees had to be made in the like manner and to the same extent as it would be upon the immediate beneficiaries. Therefore, it was contended that no assessment could be made on the immediate beneficiaries, i.e., Prince Mauzzam Jah Bahadur and others in view of Section 5(1)(viii) of the W.T. Act as it stood before the amendment. After referring to the observations of the Supreme Court in CWT v. Arundhati Balkrishna : [1970]77ITR505(SC) the learned judges held that the jewellery intended for the personal use of the assessee comes within the exemption granted by Section 5(1)(viii) as it stood before the amendment. The jewelleries in Schedules 2 to 6 were intended for the personal use of the immediate beneficiaries, such as Prince Mauzzam Jah Bahadur and others. Therefore, the jewellery would not have been taxable directly in the hands of the immediate beneficiaries in view of Section 5(1)(viii) of the Act. Accordingly, if the jewellery in the hands of the immediate beneficiaries was not taxable, it would not be equally taxable in the hands of the trustees in view of Section 21(1) also as it provides that the assets would be chargeable in the hands of the trustees in the like manner and to the same extent as they would be chargeable in the hands of the beneficiaries. Accordingly, the learned judges held that in regard to the trusts created by Clauses 5 to 9 of the trust deed, the assessments had to be made under Section 21(1) of the W.T. Act. It was further held that under Clauses 5 to 9, the value of the jewels is exempted under the provisions of Section 5(1)(viii) of the W.T. Act.

22. 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]108ITR555(SC) ] on similar points now referred to the High Court in these cases. The Supreme Court had the occasion to deal with Sections 3, 21(1) and 21(4) in CWT v. Trustees of Nizam's Family Trust : [1977]108ITR555(SC) 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 subject to the provisions of Section 21 of the above Act?

(iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in refusing to admit the additional ground filed on behalf of the department (in WTA Nos. 690 to 694 of 1963-64), except to the extent of supporting the assessment as made ?

(iv) Whether, on a proper construction of the trust deeds in question, the Tribunal was correct in holding that the settlor had created only one trust in favour of several beneficiaries and not separate and independent trusts in favour of several beneficiaries or groups of beneficiaries ?

(v) Whether, having held that a single trust was created by the trust deeds, the Tribunal was correct in law in holding that under Section 21(4) of the Act the remainder wealth could be assessed in respect of each of the several units or groups of units allocated in favour of the beneficiaries specified under the relevant trust deeds ?

(vi) Whether, on the facts and in the circumstances of the case, and on a proper construction of the provisions of Section 21 of the Act, the Tribunal was right in holding that the provisions of Section 21(4) are applicable in the circumstances of this case '

23. To answer the questions referred by the Tribunal, the Supreme Court stated the facts with regard to the Trustees of H.E.H. the Nizam's Family (Remainder Wealth) Trust. The late H.E.H. the Nizam created a trust known as ' family trust ' and transferred a corpus of rupees nine crores in Government securities to the trustees constituted by him. In the case of that trust, the questions extracted above were referred to for adjudication. For adjudication of those questions, the Supreme Court had to deal with the scope and ambit of Sections 3, 21(1) and 21(4) of the W.T. Act, 1957. It will be sufficient for our purpose to note the principles enunciated by the Supreme Court in its judgment.

24. The Supreme Court held that Section 3 of the W.T. Act imposes the charge of wealth-tax ' subject to the other provisions ' of the Act, and these other provisions would include Section 21. Being made expressly subject to Section 21, Section 3 must yield to that section in so far as Section 21 makes special provision for assessment of the trustee of a trust. Therefore, whenever assessment is made on a trustee, it must be made in accordance with the provisions of Section 21. Every case of assessment on a trustee must necessarily fall under Section 21 and he cannot be assessed apart from and without reference to the provisions of that section.

25. Dealing with the provisions of Section 21, Sub-sections (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 Section 3 and any such assessment would be contrary to the plain mandatory provisions of Section 21.

26. The Supreme Court also noted the consequences that seem to How from the proposition laid down in Section 21, Sub-section (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 of the wealth of each beneficiary. Secondly, the assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. Thirdly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest if he were assessed directly.

27. The other relevant principle laid down by the Supreme Court is that to a case where property is held on trust for giving income for life to A and on his death, to such of the children of A as the trustee might think fit, Section 21(4) would be clearly attracted so far as the reversionary interest is concerned, because on the relevant valuation date, the remaindermen and their shares would be indeterminate and unknown. If the persons are known and their shares are determined, only Section 21, Sub-section (1), is attracted. There are also two assessments made on the trustee, one in respect of the actuarial valuation of the life interest under Sub-section (1) of Section 21 and the other in respect of the actuarial valuation of the totality of the beneficial interest in the remainder as if it belonged to one individual under Sub-section (4) of Section 21. It was further held by the Supreme Court that the difference between the value of the corpus of the trust property and the aggregate of the actuarial valuation of the life interest and the remaindermen's interest would not be assessable in the hands of the trustees.

28. The further proposition laid down by the Supreme Court is that the question with regard to the applicability of Sub-section (1) or Sub-section (4) of Section 21has to be determined with reference to the relevant valuation date. The WTO has to determine who are the beneficiaries in respect of the remainder on the relevant valuation date and whether their shares are indeterminate or unknown. It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of sub- Section (1) of Section 21. The position has to be seen on the relevant valuation date as if 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-section (1) of Section 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,

29. 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]126ITR233(AP) ) 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 him bears to the total income of the trust fund ;

(ii) the material persons to be held as the beneficiary or beneficiaries on the respective valuation dates for the assessment years in question were only those who are entitled on the valuation date to a particular amount out of the income or the corpus of the fund or those persons and also those who, after such disbursement, are entitled to the residue of the corpus and the accumulated income ?

2. Whether, on the facts and in the circumstances of the case, the assessments under Section 21(4) and under Section 21(1) would have to be different and separate '

30. The learned judges relied on the decision of the Supreme Court in CWT v. Trustees of Nizam's Family Trust : [1977]108ITR555(SC) and held that separate assessments will have to be made, one under Section 21(1) in respect ofthe actuarial valuation of the monthly sums paid to each of the beneficiaries and the other under Section 21(4) in respect of the actuarial valuation of the totality of the beneficial interests of the remaindermen or reversioners.

31. So far, we have noted the relevant authorities that have dealt with the scope and ambit of Sections 3, 21(1) and 21(4) of the W.T. Act. With this background and the principles enunciated by the Supreme Court in CWT v. Trustees of Nizam's Family Trust : [1977]108ITR555(SC) we would examine the facts arising in these cases. We, therefore, now take up the questions referred to the High Court.

32. So far as the facts leading to the reference are concerned, we have already stated them in the earlier part of our judgment. It will be convenient to take up the points referred to in seriatim.

33. The first point is in respect of a single assessment for each year incorporating all the items of wealth and taxing each item separately. This question need not detain us for the reason that the counsel appearing for the parties have not, in our view, rightly pressed this point. Whether they are separate assessment orders on each item or a single assessment, it ultimately makes no difference to arrive at the total assessment on the wealth because even in single assessment orders for each item separate tax would be charged and the tax on all those items would be incorporated in single assessment order.

34. The second question referred is whether the jewellery mentioned in Part II of the first schedule could be excluded in determining the net wealth 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 remarriage as aforesaid whichever of the three events shall take place first. '

35. The said clause lays down that the jewellery is meant for her ordinary and every day use. It also makes clear that the trustees are not in any way liable nor could be held responsible in any manner for any loss or damage that may be caused to or in respect of any of the said articles which, are being kept with her for her use. It also further provides that if at any time before her death or divorce or remarriage, whichever event takes place first, if any part of the jewellery fund is converted into any income-fetching investments, the trustees shall pay the net income of such investment to her. This clause makes it abundantly clear that the jewellery in Part II was exclusively meant for her daily personal use. Thus, Anwar Begum alone is entitled to use the jewellery in Part II for her ordinary and every day use until her death, divorce or remarriage, whichever event takes place first. Further, if the jewellery is sold and invested in any income-yielding investment the entire income therefrom has to be paid to her. The learned counsel for the revenue vehemently contended that this right given to her was only a right to wear the jewellery, but she is not entitled to the jewellery itself. Therefore, the trustees are the owners of the jewellery, or, after her death, as provided in the trust deed the ultimate beneficiaries are entitled to it. We have already noted that the provisions in Clause 4(b)(ii) of the trust deed leave no doubt that so long as Anwar Begum is alive, no other person could have any interest in the said jewellery. If that is so, the beneficial interest in the jewellery fund has to be assessed only under Section 21(1) of the W.T. Act. At this stage a decision in R.C. No. 67 of 1969 of this court was brought to our notice by the learned counsel for the respondent. The said decision deals with the interest in share fund and the jewellery. Therein it was held that the right to use jewels does not constitute an asset within the meaning of Section 2(e) of the W.T. Act. In the present case, the point that arose for consideration was whether the jewellery fund is liable to be assessed under Section 21(1) of the W.T. Act. In R.C. No. 67 of 1969, this aspect was not under consideration but was confined to the point whether the mere wearing of the jewellery constitutes an asset. Taking into consideration 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 Section 21(1) of the W.T. Act.

36. 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 Section 5(1)(viii) of the W.T. Act. (Vide Nizam's Supplemental Jewellery Trust v. CWTILR [1975] (AP) 1085). 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 II 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 Nizam's Sahebzadi Anwar Begum Trust. The WTO was of the view that the trustees are the owners of the property and, therefore, under Section 3 of the W.T. Act the wealth in the hands of the trustees could be assessed ignoring the beneficiaries, but that view was not rightly accepted by the Tribunal. It will suffice for our purpose to state that Section 21(1) provides that in the case of assets chargeable to tax under the W.T. Act, which are held by any trustee appointed under a trust declared by a duly executed instrument in writing, the wealth-tax shall be levied upon and recoverable from the trustee, in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf or for whose benefit the assets are held. In this connection, we may also note the provisions of Section 21(1), which read as under:

'21. Assessment when assets are held by courts of wards, administrators-general, etc.--(1) In the case of assets chargeable to tax under this Act, which are held by a court of wards or an administrator-general or an official trustee or any receiver or manager or any other person, by whatever name called, appointed under any order of a court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of wakf), the wealth-tax shall be levied upon and recoverable from the court of wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be leviable upon and ^recoverable from the person on whose behalf or for whose benefit the assets are held, and the provisions of this Act shall apply accordingly. '

37. In the present case, Anwar Begum is the beneficiary of the jewellery in Part II of the 1st schedule and the same was held by the trustee on her behalf and for her benefit. We have already dealt with the legal position and referred to the authorities in the preceding paragraphs of our judgment. It is now well-settled law that the beneficiary's interest in the corpus in the hands of (he trustee is only assessable. Therefore, the assessment would have to be made under Section 21(1) of the Act. Further, the jewellery in Part II of the first schedule is exempt from being chargedto wealth-tax. Therefore, it 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 Section 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 Section 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 definition of jewellery. The learned counsel for the assessee referred to the decision in CWT v. Binapani Chakraborty [1978] 114 ITR 82 wherein the Orissa High Court took the view that the meaning given to 'jewellery' by Explanation 1 to Section 5(1)(viii) of the W.T. Act introduced by amendment, operates only prospectively from April 1, 1972, and as such gold ornaments without precious or semi-precious stones embedded in them are not jewellery prior to that date and, therefore, they must be exempt for assessment for the years prior to April, 1, 1972. In CWT v. Jayantilal Amrailal : [1976]102ITR105(Guj) the Gujarat High Court held that Section 5(1)(viii) of the W.T. Act was amended giving partly prospective and partly retrospective effect by the Finance (No. 2) Act of 1971. 'Jewellery '' was excluded from the purview of exemption from wealth-tax with effect from April 1, 1963, while the Explanation by which the Legislature defined the term ' jewellery ' for purposes of Clauses (viii) and (xiii) was brought into effect prospectively from April 1, 1972. The Explanation denned ' jewellery ' as including ornaments made of gold, silver and platinum and studded with precious stones.

38. As pointed out already this question was not raised and discussed at the lower stages nor there is any reference made to us. In the absence of any reference and in view of the different views expressed on this point, we do not think it proper and safe to go into this point at this stage.

39. Question No. 3 is in respect of jewellery mentioned in Part I of the 1st schedule and shares to the extent of Rs. 3,60,000 out of the shares fund. The question is whether these two funds are liable to be assessed under Section 21(1) or Section 21(4) of the W.T. Act. To find this out, we have toexamine the terms of the trust deed. If the beneficiaries are known and determinate, the assessment has to be made under Section 21(1) of the W.T. Act; but if the beneficiaries are unknown and indeterminate then it should be under Section 21(4). With regard to the jewellery in Part I of the 1st schedule the trust deed made provisions in several clauses. Clause 4(b) which is relevant for the present purpose reads as under :

'4. (b) Until the death of the settlor's daughter-in-law, Shahebzadi Anwar Begum, the wife of the settlor's second son, Prince Mauzzam Jah Bahadur or until she shall have been divorced from the said Prince Mauzzam Jah 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,

(ii) 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.......

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 be converted into any income-yielding investment, then the trustees shall pay the net income of such investment comprised in the jewellery fund to her until her death or divorce or remarriage as aforesaid, whichever of the three events shall take place first. '

40. Even Clause 4(b)(i) provides that the jewellery mentioned in Part I of the 1st schedule could be worn by Anwar Begum on ceremonial or festive occasions. The purpose and reason in making a provision for the use of the jewellery in Part I on ceremonial or festive occasions may be that they are of higher value. It is common knowledge that whenever the jewelleryis of higher value, it is only used on festive or ceremonial occasions. So, there is absolutely nothing strange in making this provision for the jewellery in Part I separately. If we examine Clause 4 of the trust deed, it is clear that it provides for the entire jewellery fund in Clause (b). Clause 4(b)(i) deals with the jewellery in Part I while Clause 4(b)(ii) deals with the jewellery in Part II of the 1st schedule. The proviso extracted above is common to both the items of jewellery in Part I as well as in Part II, No distinction whatsoever is made by the settlor between the jewellery in Part I and Part II with regard to conversion into any income-yielding investment, but, on the other hand, in such an event, the trustees are directed to pay the entire net income from such investment to Anwar Begum. The only difference is that the jewellery in Part I is meant for wearing on ceremonial or festive occasions while the jewellery in Part II is meant for ordinary and every day use. Therefore, we see no reason to differentiate between the jewellery in Part I and Part II so far as the interest of Anwar Begum in them is concerned. Accordingly it follows that the beneficial interest in the jewellery fund mentioned in Part I of the 1st schedule is to be assessed in terms of Section 21(1) of the W.T. Act. A similar provision was made in Nizam's Supplemental Jewellery Trust 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 to which we have already made a reference, held that the assessment has to be made under Section 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]108ITR555(SC) .

41. 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 sum of Rs. 1,500 (rupees one thousand and five hundred) per month out of the income of the shares fund and to accumulate the balance of the income thereof with liberty to the trustees to pay to or spend after the said Sahebzadi Anwar Begum such monies from time to time out of the accumulations of the balance of the said income as the trustees may in their absolute discretion think fit for any unforeseen emergency or other necessary expenses of the said Sahebzadi Anwar Begum. '

42. Clause 5(b) deals with the provisions after the death of Anwar Begum, which are similar to those made in Clause 4(c) already extracted above. Clause 5(a) provides that Anwar Begum should be paid a sum of Rs. 1,500 per month out of the income of the shares fund and that out of the accumulations of the balance income of this fund, the trustees can use that money for the benefit of Anwar Begum. The question before us is, when she is paid Rs. 1,500 per month (Rs. 18,000 per year) from out of the income of this shares fund, what would be her interest in the shares fund available for being charged to wealth-tax and whether such assessment should be under Section 21(1) or Section 21(4) of the Act. So far as the reading of Clause 5(a) of the trust deed goes, the entire income and the accumulations thereon from out of the shares fund (apart from Rs. 18,000 per year) could be utilised for her benefit if it becomes necessary. To put it in other words, no right or interest is created in any third person in the shares fund so long as she is alive, not divorced or shall not remarry. Therefore, it is clear that she has interest in the entire shares fund and not only to a proportion of it, which fetches an income of Rs. 18,000 per year. But the question referred to us is confined to Rs. 3,60,000 out of the shares fund. This Rs. 3,60,000 is calculated pro rata on the basis that the shares fund of Rs. 4,00,000 fetches an annual income of Rs. 20,000. The learned counsel for the revenue has submitted that this calculation is not warranted. In fact and in law the actuarial valuation has to be taken into consideration when annuities are paid to a person having life interest in the corpus. In this connection, he relied upon a decision in CWT v. Trustees of Nizam's Family Trust : [1977]108ITR555(SC) wherein the Supreme Court held that the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest if he were assessed directly. In that case, the Supreme Court gave an illustration 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 B 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 twoin 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. But, as pointed out above, the revenue may, instead of assessing the trustees, proceed to make direct assessment on each of the three beneficiaries, A, B and C and, in that case, Rs. 5 lakhs, Rs. 2 lakhs and Rs. 2 lakhs would be included in the net wealth of A, B and C, respectively. The result would be that though the value of the corpus of the trust property is Rs. 10 lakhs, the assessments, whether made on the trustee or on each of the three beneficiaries, would be only in respect of Rs. 5 lakhs, Rs. 2 lakhs and Rs. 2 lakhs and the balance of Rs. 1 lakh would not be subject to taxation. In fact, in most cases, if not all, the aggregate of the value of the life interest and the reminder-men's interest would be less than the value of the total corpus of the trust property, since the value of the remaindermen's interest would be the present value of his right to receive the corpus of the trust property at an uncertain future date and this would almost invariably be less than the value of the corpus of the trust property after deducting the value of the preceding life interest. The balance of the value of the corpus of the trust property would not, in the result, be subjected to assessment to wealth-tax. But that is the logical and inevitable effect of the scheme of Section 21. '

43. This illustration points out that whenever there is a life interest in the corpus, actuarial valuation of the life interest has to be calculated for the separate assessment of that person. Therefore, in this particular case when annuity to be paid is Rs. 18,000 per year for her life, the actuarial valuation of the life interest has to be calculated on that basis and not in proportion to her interest in the income from the shares fund. This proposition is not in dispute. Therefore, the assessment would have to be made on Sahebzadi Anwar Begum under Section 21(1) of the W.T. Act on the basis of the actuarial valuation of her life interest in the shares fund.

44. Next, we come to question No. 4. While dealing with questions 2 and 3, we have referred to the relevant provisions made in the trust deed and dealt with them. The answer to this question also depends upon the facts which have been already referred to while dealing with questions 2 and 3. This question, which is already extracted above, is whether on a true reading of Section 21 of the W.T, 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 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.

45. 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 Clauses 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 Clause 4 provides for the jewellery fund while Clause 5 for shares fund. We have already noted that Sahebzadi Anwar Begum is entitled to the use of the jewellery in Parts I 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 as she is alive, not divorced or shall not re-marry. It is only after the death, divorce, or re-marriage, whichever event takes place first, further provision is made as to who would be entitled to the trust property. There is no doubt left in the provisions as to who would be entitled to the trust property. But we need not go so far because on the valuation dates, she is alive and entitled to the benefits provided for. In this case, therefore, the question of ultimate indeterminate beneficiaries does not arise. The learned counsel for the assessee, Sri Y. V. Anjaneyulu, stated across the Bar that Anwar Begum has children and if on the valuation date Anwar Begum is dead the persons who are entitled to the trust benefits are the descendants of the said 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. Thus, there is no question of indeterminate share to the ultimate persons entitled to the other rights in the property. We are convinced that Sahebzadi Anwar Begum, according to the terms of the trust deed, is the sole beneficiary and that the ultimate persons entitled to other rights in the property are to be ignored altogether.

46. Question No. 5 is : Where a beneficiary is entitled to be paid a particular sum out of the income of the fund on particular dates, (whether) 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 We have already held while dealing with question No. 3 that the interest of the beneficiary for purposes of assessment has to be determined not in proportion to the income, but on the basis of the actuarial valuation of the life interest of the beneficiary.

47. In the result, our answers to the questions referred are as under : Question Nos. 1 and 2 are answered affirmatively. With regards to the firstpart of question No. 3, our answer is that the jewellery in Part I of the 1st schedule is to be assessed under Section 21(1) of the W.T. Act in respect of each of the valuation dates. With regard to the shares fund, the assessment would have to be made on the basis of the actuarial valuation of the life interest of Sahebzadi Anwar Begum. Our answer to question No. 4 is that Sahebzadi Anwar Begum alone is the sole beneficiary, the ultimate persons entitled to other rights in the property being ignored altogether for the purpose of assessment on the valuation dates. Our answer to question No. 5 is that where a beneficiary is entitled to be paid a particular sum out of the income of the fund on particular dates, his interest in the fund on that particular date is to be assessed on the basis of the actuarial valuation of the life interest of the beneficiary.

48. The parties will bear their own costs. Advocate's fee Rs. 250.


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