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Commissioner of Wealth-tax Vs. Trustees of H.E.H. the Nizam's Miscellaneous Trust (02.02.1978 - APHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred Nos. 50 and 54 of 1976
Judge
Reported in[1980]126ITR233(AP)
ActsWealth Tax Act, 1957 - Sections 21(1) and 21(4)
AppellantCommissioner of Wealth-tax
RespondentTrustees of H.E.H. the Nizam's Miscellaneous Trust
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateY.V. Anjaneyulu, Adv.
Excerpt:
direct taxation - assessment - sections 21 of wealth tax act, 1957 - dispute between revenue and assessee regarding question whether provision of section 21(1) is applicable in relation to annuities payable to beneficiaries under various clauses of trust deed - wealth tax officer and assistant appellate commissioner taxed trustees for corpus of trust under section 21 (4) as beneficiaries are entitled for annuity from income of trust and their interest is not certain - tribunal opined that interest of beneficiaries are certain as they are getting fixed monthly share out of income of trust and any shortfall is required to be compensated from corpus of trust and are thus liable to be assessed under section 21 (1) - reference before high court - in view of decision of supreme court separate.....obul reddi, c.j. 1. these two references, r.c. nos. 54 and 50 of 1976, under section 27(1) of the w.t. act, at the instance of the revenue, relate to the assessment years 1957-58, 1958-59 and 1959-60 and 1960-61 to 1972-73, respectively.2. the assessees are the trustees of h.e.h. the nizam's miscellaneous trust, hyderabad. the then nizam of hyderabad created a trust for the benefit of his family members and dependants mentioned in schs. 2 to 6 to the trust deed and transferred the corpus of the trust to the trustees on the terms and conditions set out in the trust deed. the terms of the deed were to come into force from the date of the settlor's death. until then, after making certain disbursements, the residuary income was to be paid to the settlor. the settlor later, by a release deed.....
Judgment:

Obul Reddi, C.J.

1. These two references, R.C. Nos. 54 and 50 of 1976, under Section 27(1) of the W.T. Act, at the instance of the revenue, relate to the assessment years 1957-58, 1958-59 and 1959-60 and 1960-61 to 1972-73, respectively.

2. The assessees are the trustees of H.E.H. the Nizam's Miscellaneous Trust, Hyderabad. The then Nizam of Hyderabad created a trust for the benefit of his family members and dependants mentioned in schs. 2 to 6 to the trust deed and transferred the corpus of the trust to the trustees on the terms and conditions set out in the trust deed. The terms of the deed were to come into force from the date of the settlor's death. Until then, after making certain disbursements, the residuary income was to be paid to the settlor. The settlor later, by a release deed dated June 21, 1954, relinquished his right in the trust property, with the result that the terms of the trust deed came into force with effect from June 21, 1954, as if the settlor had expired on that date. In these two references, we are concerned with clauses 2. 2(d), 2(e), 2(f), 2(h), 2(j), 2(1), 2(1)(i), 2(1)(ii) and 2(1)(iii) of the trust deed and these clauses read:

' 2. The trustees shall hold and stand possessed of the trust fund upon trust :--

(d) To pay a sum of Rs. 1,000 per month to Sardar Begum, widow of the late His Highness Nawab Mahaboob AH Khan and step-mother of the Settlor, for and during the term of her natural life or until the extinction of this trust as provided in clause 4 hereof, whichever event shall happen first.

(e) To pay a sum of Rs. 250 per month to Umda Begum, widow of the late His Highness Nawab Mahaboob AH Khan and step-mother of the Settlor, for and during the term of her natural life or until the extinction of this trust as provided in clause 4 hereof, whichever event shall happen first,

(f) From the date on which Rahat Begum, mother of Sahebzada Nawab Basalat Jah Bahadur and step-brother of the settlor, goes to stay with her son the said Sahebzada Basalat Jah Bahadur, to pay the said Rabat Begum a sum of Rs. 1,000 per month for and during the term of her natural life or until the extinction of this trust as provided in clause 4 hereof, whichever event shall happen first.

(h) To pay to Zamrud Begum, wife of Nawab Kazim Jah Bahadur, a sum of Rs. 250 per month for and during the period of her natural life or the extinction of this trust as provided in clause 4 hereof, whichever event shall happen first provided that in the event of a child or children being born to the said Zamrud Begum, the amount payable to her so long as any child of hers shall be living, shall be increased by Rs. 1,000 per month making in all Rs. 1,250 (Rupees one thousand two hundred and fifty) per month with an obligation on the said Zamrud Begum to maintain, educate and bring up her children in a status befitting the position in life of her husband PROVIDED ALWAYS that in the event of the trustees being of the opinion that the child or children are not being so maintained, it shall be open to the trustees to withhold payment of the said sum of Rs. 1,000 or any part thereof for any period or periods during the lifetime of the said Zamrud Begum and the decision of the trustees in this respect shall be final and binding on the said Zamrud Begum.

(j) To set apart every month from the date of these presents and during the lifetime of the Settlor for the benefit of each of the fourteen persons whose names are hereinafter in this Sub-clause mentioned the sums mentioned against their names and to accumulate the same and on the death of the Settlor or to pay to each of the said fourteen persons the total accumulated amount with interest thereon standing to his or her credit at the time.

(1) On and after the death of the Settlor the Trustees shall deal with the balance of the income of the Trust Fund remaining over after making due provision for the payments provided in Sub-clauses (a), (b), (c), (d), (e), (f), (g) and (j) hereof in manner following, that is to say :--

(i) to pay to each of the 37 (thirty-seven) grandchildren of the Settlor whose names are particularly mentioned in the Second Schedule here-under written a sum of Hali Sicca Rs. 250 per month from the date of their first marriage (or in the event of their having married during the lifetime of the Settlor then on and after the death of the Settlor) for and during the term of their respective lives or until this trust is extinguished as provided in clause 4 hereof, whichever event shall happen first, on condition that the said sum of Rs. 250 per month shall be used by such person for the maintenance of his or her wife or husband, as the case may be, intention of the Settlor being to provide a special remuneration to each of the said 37 (thirty-seven) grandchildren payable to them on their marriage for meeting the extra expenses that they have to incur by reason of such marriage;

(ii) to pay to each of the persons whose names are mentioned in the third schedule hereunder written every month the sum mentioned against their names in the second column of the third schedule for and during the term of their respective lives or until the extinction of this trust as provided in clause 4 thereof.

(iii) to set apart every month for the benefit of each of the following five persons, viz.,

(1) Mohesen AH Mirza, S/o Hasan AH Mirza.

(2) Nadir AH Mirza, S/o Hasan AH Mirza.

(3) Ameer AH Mirza, S/o Hasan AH Mirza.

(4) Sadiq AH Mirza, S/o Hasan AH Mirza.

(5) Requia Begum, D/o Hasan Ali Mirza.

a sum of Rs. 100 per month for and during the term of their respective natural lives or until this trust is extinguished as provided in clause 4 hereof and to apply the same for the medical expenses, education, advancement in life and otherwise for the benefit of each of the abovenamed five persons as the Trustees in their absolute discretion deem fit with liberty to the Trustees to accumulate such payment for any year or years (not exceeding eighteen years in all at any one time) and to spend the same for the purposes as aforesaid for any subsequent year or years provided that if on the death of any of the said five persons any amount set apart for the benefit of such person shall have remained unspent, such amount shall be added to the corpus of the Trust Fund. '

3. The trustees filed a return of wealth in respect of the assessment year 1957-58 in the status of an association of persons declaring net wealth of Rs. 1,91,70,478 and sought exemption from wealth-tax in respect of the same on the ground that, as an association of persons, they were not liable to wealth-tax. The WTO found that the trust created on August 6,1950, comprised of the following items as corpus ;--

Rs. 1.3% Government of India Securities 1970-75 of the face value of8,00,000 2.11/4% Hyderabad Government Loan of face value of O.S. 4,50,00,000 3.23/4% Government of India Securities of the face value of25,00,000

4. The WTO held that the first item of Rs. 8 lakhs was earmarked for the eight sons of the settlor in equal shares. He, therefore, directed that it should be considered only in their respective assessments and not in the assessments of the trust and we are not concerned with it. Having regard to the terms of Clause 2(e), (f), (g), (h) and (1) of the trust deed, the WTO found that the beneficiaries specified therein were to receive only certain amounts during their lifetime and had no right to commute the payments in lieu of a lump sum amount, and as such they did not have any interest whatever in the corpus of the fund. Except for the sum of Rs. 8 lakhs, the entire corpus, until the expiry of 50 years as mentioned in the deed, was held liable to assessment in the hands of the trustees under Section 21(4). Treating the corpus as an invested sum of money whose present value at an annual yield of interest would represent the net wealth, the WTO worked out the net wealth for each of the assessment years. On appeal, the AAC, dealing with the question of assessment made by resort to Section 21(4), held that, though the beneficiaries had some share in the income, that would not be tantamount to their having a definite share in the corpus. According to him, as the shares of the beneficiaries in the corpus of the trust were indeterminate and not known, the assessments were rightly made by the WTO under Section 21(4). On further appeal to the Appellate Tribunal, the assessee contended that the terms of the deed made it clear that the provisions of Section 21(4) are applicable to a substantial portion of the corpus. In other words, the assessee's case was that, if the shares in the income are known and determinate, then the shares in the corpus could be worked out. According to the assessee, there was no justification for the view -adopted by the revenue that the share in the corpus of any beneficiary should be specific or known. The case of the department was that Section 21(4) was not applicable. It was urged by the revenue that even after separate assessments could be made in respect of the beneficiaries, whose shares are determinate, as a share payable to them has no reference proportionately to the corpus and as there were also different groups of indeterminate beneficiaries, no separate assessments could be made in respect of individual groups and, as such, Section 21(4) was attracted. In other words, it was the case of the revenue that the annual payments to some of the beneficiaries cannot be regarded as relating to a particular item of the corpus or income thereof. There was a difference of opinion between the Judicial Member and the Accountant Member. The differing opinions are set out in juxtaposition as under :

Accountant MemberJudicial Member

' 1. Where a beneficiary is tobe paid an amount out of the fund(including the income accrued there-on, his interest on the valuation dateis restricted to the actual amount dueto him from the fund on that date.

The interest of the beneficiarywho is to receive a particularamount out of the income of thefund is that portion of the fund(including the accrued incometherein) which bears the sameproportion as the amount receiv-able by him bears to the totalincome of the fund.

2. The beneficiaries on thevaluation dates are all the personswho are entitled to receive a por-tion of the income of the fund or aportion as also the person or personscollectively, who after these peopleare paid off, are entited to the residue.

The only persons who are entit-led to the interest in the fund arethose who are entitled to receive ashare of the income or corpus ofthe fund on the valuation date andnot the residual beneficiaries.'

5. Having regard to the differing views expressed by the Members of the Bench, it was referred to a third Member. The points formulated for reference to a third Member were :

' Whether, on the facts and circumstances of the case and on a true reading of section 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 the income of the fund on the valuation date is equal to only the actual amount due to him on the valuation or that a proportion of the trust fund as bears to the same proportion as the amount dup 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 these persons and also those who after such disbursement are entitled to the residue of the corpus and the accumulated income ?'

6. The third Member held that, notwithstanding the residual right in favour of the successor to the Nizam at the expiry of the period of 50 years the facts as on the relevant valuation dates have to be examined. According to him, it is not necessary for the application of Section 21(1) that the corpus itself should be held under trust. If, in effect, the income is payable to a particular parson, then the property is held for his benefit at the relevant time and it was not necessary to look at the ultimate beneficiary. In that view, he held that the corpus was held under the trust for the respective beneficiaries set out in Clause (2) of the deed. The trust properties to that extent as held for the benefit of the respective beneficiaries would be liable to be taxed only under Section 21(4). He was, therefore, of the view that it was not possible to say that Section 21(4) alone applied and not Section 21(1). He answered the question referred to him in these terms :

' (i) The interest of a particular beneficiary in the trust fund is to be worked out on the basis of the proportion the said income bears to the total income of the fund and the proportionate part of the trust fund should be taken as assessable under section 21(4) with reference to that particular beneficiary. Similar assessments would have to be made with reference to the other beneficiaries.

(ii) In view of the decisions of the Supreme Court mentioned already, I am not concerned with the residual beneficiary of the corpus. I have to proceed on the basis of the persons entitled on the respective valuation dates to the income or the corpus. The assessment under section 21(1) or section 21(4), as the case may be, would be based on the facts in each year.

(iii) I may make it clear that the assessments under section 21(4) and under section 21(4) would have to be different and separate.'

7. In accordance with the decision of the third Member, the Tribunal passed the following order :

' (i) The portion of the trust fund which bears the same proportion as the aggregate amount of annuities paid to the beneficiaries of the trust under clauses 2(d), (e), (f), (h), (j), (1)(i), (1)(ii) and (1)(iii) of the trust deed bears to the total income of the fund shall be excluded from the assessments. It is open to the Wealth-tax Officer to consider the assessability of the corpus proportionate to the annuity payable to each beneficiary acting under section 21(4) or under the provisions of section 21(4) of the Wealth-tax Act.

(ii) The amounts of corpus set apart under clause 2(m) of the trust deed for the benefit of the several beneficiaries mentioned in the fifth schedule shall be excluded from the assessments. It is open to the Wealth-tax Officer to consider the assessability of the corpus allotted for the benefit of each beneficiary according to section 21(4) or under the provisions of section 21(4) of the Wealth-tax Act.

(iii) The amounts of corpus set apart under clause 2(o) of the trust deed for the benefit of the several beneficiaries mentioned in the sixth schedule shall be excluded from the assessment. It is open to the Wealth-tax Officer to consider the assessability of the corpus allotted for the benefitof each beneficiary acting under section 21(4) or under section 21(2) of the Wealth-tax Act.

(iv) The portion of the trust fund which bears the same proportion as the sum of Rs. 1,50,000 to the total income of the fund required to be spent collectively on the beneficiaries' palace kitchen under clause 2(1)(iv) of the trust deed and the corpus remaining after making the above exclusion is liable to be assessed together in the hands of the trustees under section 21(4) of the Wealth-tax Act.'

8. The following common questions have been referred to this court in both the cases :

' 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 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 io a particular amount out of the income or the corpus of the fund or these 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 '

9. The area of dispute between the revenue and the assessee is very much narrowed down in these references. The only subsisting dispute between the revenue and the assessee is whether the provisions of Section 21(1) of the Act would be applicable in relation to the annuities or amounts payable to the beneficiaries under clause 2(d), (e), (f), (1)(i), (1)(ii) and (1)(iii) of the trust deed.

10. The case of the revenue, as presented by Mr. Rama Rao, is that except for a sum of rupees 8 lakhs set apart or earmarked under the trust deed for division of the corpus among the eight sons of the settlor in equal shares, the rest of the trust fund is liable to be assessed in the hands of the trustees under Section 21(4). According to him, in respect of the rest of the corpus, as the settlor had directed that, if the income was inadequate to make the monthly payments to the beneficiaries referred to in Clauses. 2(e), (f). (h), (j), (1)(i), (1)(ii) and (1)(iii), the shortage could be drawn from the corpus and that would show that the trust was not held for each of the beneficiaries separately, and that what was directed to be paid to them were annuities and a person who is entitled to the annuity can have no interest in the corpus of the trust property. He further contended that in assessing the trustees the amount payable to the immediate beneficiaries and ultimately to the remaindermen or reversioners should be taken into account for purposes of computing the wealth under Section 21(1) or 21(4), as the case may be ; and in evaluating the wealth, the actuarial valuations will have to be taken into consideration and in a case where there are assessments to be made under Section 21(4) on more than one beneficiary, the entire amount has to be aggregated and assessed in the hands of the trustee.

11. According to the assessee, it is Section 21(1) that is applicable in so far as the annuities payable to the beneficiaries under Clause 2(d), (e), (f), (1)(i), (1)(ii) and (1)(iii) of the trust deed are concerned. A scrutiny of the various clauses of the deed shows that there are three sets of beneficiaries to the assets on each of the valuation dates. Some have the right to receive specific amounts per month from the income. For this purpose, the beneficiaries must be alive on the valuation date. The other beneficiaries have to satisfy certain conditions such as marriage, etc. They have a right to , receive a specified amount from out of the income of the corpus only on satisfying the conditions. The third set consists of beneficiaries who take under Clause (4) of the deed whatever remains in the corpus or income at the end of 50 years, i.e., those who would be entitled to share the entire balance as remaindermen. We are now concerned with those beneficiaries who are to receive a fixed sum per month from out of the income of the corpus. A sum of Rs. 1,000 per month is to be paid to the step mother of the settlor during her lifetime. Similarly, a sum of Rs. 250 under Clause 2(a) was payable per month to Umda Begum, another step-mother of the settlor, during her lifetime. Another step-mother of the settlor was to get a sum of Rs. 1,000 per month for life from the date she chose to stay with her son, Sahebzadi Basalat Jah Bahadur. The three step-sisters of the settlor were similarly provided Rs. 1,000 each per month or such other lesser sum as indicated in the deed. Under Clause (1)(i), 37 grandchildren of the settlor whose names were mentioned in the second schedule are to get Rs. 250 per month from the dates of their marriage dviring their lifetime or till the trust is extinguished. A similar provision was made under Clause (1)(iii) setting apart every month for the benefit of the persons mentioned therein a sum of Rs. 100 each per month during their lifetime.

12. It is contended by Mr. Rama Rao that the amounts payable to the beneficiaries being in the nature of annuities, Section 21(4)is not -attracted, as the definition of 'assets ' in Section 2(e) of the Act takes out a, right to annuity.

13. It may be stated at the outset that the word ' annuity ' is not used in the deed. What is payable is a fixed amount of Rs. 1,000 or Rs. 250 or Rs. 100 per month, as the case may be, to each of the beneficiaries. It is a ' definite share of the income of the trust payable to the beneficiaries during their lifetime or until the extinction of the trust as provided in Clause 4 thereof whichever event happened first.

14. The first proviso to Section 41(1) of the Indian I.T. Act, 1922, is analogous to Section 21(4) of the Act. Section 41(1) of the Indian I.T. Act, 1922, is analogous to Section 21(4) of the Act. The word ' share ' in the expression ' definite shares ' in Section 41(1) of the Indian I.T. Act, 1922, came to be considered by a Division Bench of the Calcutta High Court in Bankim Ch. Datta v. C1T : [1966]62ITR239(Cal) . Both parties before the Calcutta High Court contended that the applicability of the first proviso to Section 41(1) would depend upon the word ' shares '. The learned judges observed that the word ' shares ' means and includes a specific, definite part or portion of the income of the property. They also observed that the fixed sums payable to the beneficiaries, though may be variable in different years in different situations, would still be determinate and known.

15. In Trustees of Putlibai R. F. Mulla Trust v. CWT : [1967]66ITR653(Bom) a question arose whether the shares of the beneficiaries under the trust deed were indeterminate or unknown. Under the trust deed created by the assesseee, the income from the properties, which were the subject-matter of the trust, had to be divided amongst her children who survived her in equal parts and after the death of each child the proportionate portion of the corpus was to be divided per stirpes. The WTO took the view that the trustees had to be assessed under Section 21(4) of the W.T. Act as, in his view, the shares of the persons on whose behalf the corpus of the assets was held were indeterminate and Unknown. That view was affirmed by the AAC and the Tribunal. On a reference to the High Court, it held that the shares of the persons on whose behalf the assets were held by the trustees on the Valuation date was determinate and known and the case was governed by Section 21(4)and not by Section 21(4) of the Act.

16. In CWT v. Hansabai Tribhuwandas Trust : [1968]69ITR527(Bom) was a case where a life-interest was created under the trust deed in one beneficiary and contingent interest on corpus in others. The question was whether the shares of the beneficiaries were indeterminate or unknown, and whether the assessments should be made under Section 21(1) or Section 21(4). On a cons traction of the terms of the deed, the Bombay High Court held that there was nothing indeterminate or Unknown in the trust deed as regards the shares. Hansabai had clearly only the interest given to her in the net income and had no right in the corpus of the property, whereas the son of Triphuwamlas's brother had on the relevant date a contingent interest in the corpus of the trust property as heir of Tribhuwan-das contingent upon Hansabai 'ceasing to be the wife or widow of Tribhuwandas ', which contingency would also cover the case of her death. ' It was also held by the Bombay High Court that it is always possible by actuarial calculations to assess the present worth of a life interest such as Hansabai had or a contingent remainder such as the heirs of Tribhuwandas would have. The shares of the persons on whose behalf the trustees were holding the assets were determinate and known and, therefore, Section 21(4) was not applicable.

17. In CWT v. Trustees of H.E.H. Nizam's Supplemental Family Trust : [1968]68ITR508(AP) this court had occasion to consider the scope of Sections 21(4) and 21(1) of the Act. The trust deed in that case provided for accumula-tion of income of the trust properties and prohibited distribution of the income during the life-time of the settlor. After his death, it was provided' that the beneficiaries would be entitled to the income in certain definite shares. The deed also provided that, in the event of any of the beneficiaries not surviving the settlor, his or her share would devolve according to his or her personal law. Construing Section 21(4) this court observed at page 511 of the report:

' 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 individual. 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 accordance with the share of that beneficiary in the wealth of that trust.'

18. In Chintamani Ghosh Trust v. CWT : [1971]80ITR331(All) the Allahabad High Court was concerned with the scope of Section 21(4) vis-a-vis Section 21(4) of the Act. The learned judges opined that the Tribunal erred in holding that the trustees, being the legal owners of the assets, did not hold the same ' on behalf of ' anybody and, therefore, the shares of the beneficiaries were indeterminate and that being so Section 21(4) had no application and Section 21(4) would have to be applied. They also opined that, where the benefit receivable by a beneficiary is in the shape of an annuity or income from a trust estate and it is possible to evaluate its capitalised value, the share or interest of that beneficiary is not ' indeterminate or unknown ' within the meaning of Section 21(4) and the assessment in such a case shall have to be made under the provisions of Section 21(4) of the Act.

19. In CWT v. Arvind Narottam : [1976]102ITR232(Guj) the Gujarat High Court endorsed the view of the Allahabad High Court in Chintamani Ghosh Trust v. CWT : [1971]80ITR331(All) and opined that, where shares of beneficiaries were determinate and known, the assessment should be made under either sub-ss. (1) or (2) of Section 21(4), as the case may be, and where the shares of the beneficiaries are indeterminate and unknown, the assessment should be made under Section 21(4) of the Act.

20. The Supreme Court, on a review of the case law, defined the scope of Section 21(1) and (4) in CWT v. Trustees of H.E.H. Nizam's Family ('Remainder Wealth) Trust : [1977]108ITR555(SC) . The learned judges 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(4). Being made expressly subject to Section 21(4), Section 3 must yield to that section in so far as Section 21(4) makes a special provision for the assessment of the trustees of a trust. Therefore, whenever assessment is made on a trustee, it must be made in accordance with the provisions of Section 21(4). Every case of assessment on a trustee must necessarily fall under Section 21(4) and he cannot be assessed apart from and without reference to the provisions of that section. Relying upon the decision, the counsel for the revenue contended that where there was a reversionary interest, it canno.t be said that the interest of the beneficiaries is determinate or known and hence assessment should be made under Section 21(4). The learned judge, Bhagwati J., who spoke for the court, did not say that the income given for life to an individual is to be assessed invoking Section 21(4), What the learned judge said is that, where property is held on trust for giving income for Hie to an individual and on his death, to such of his children 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. The learned judge, Therefore, said (head-note) :

'But here also two assessments would have to be made on the trustee : one in respect of the actuarial valuation of the life interest of A under sub-section (1) of section 21 and the other in respect of the actuarial valuation of the totality of the beneficial interests in the remainder as if it belonged to one individual under sub-section (4) of section 21(4).'

21. The clauses of the trust deed here which are quoted supra do not deal with beneficiaries who are indeterminate or unknown nor the amounts payable to them are indeterminate or unknown. Specific amounts are payable to each of the beneficiaries per month in accordance with the terms of the deed and that is to come from out of the income of the corpus. Merely for the reason that the benefit receivable by the beneficiary is in the shape of a monthly income, it cannot be said that it is not possible to evaluate its capitalised value. The fact that the settlor had directed that, if the income was inadequate to make the monthly payments to the beneficiaries, that shortfall should be drawn from the corpus makes no difference. What must be seen is whether the beneficiaries were entitled to the payment of definite or known amount and have life interest. For the same reason, it is not also necessary that the trust should be held for each of the beneficiaries separately.

22. We, therefore, hold, in view of the decision of the Supreme Court in CWT v. Trustees of Nizam's Family (Remainder Wealth) Trust : [1977]108ITR555(SC) , that separate assessments will have to be made, one unders. 21(4) in respect of the 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.

23. The two questions referred to us are answered accordingly as indicated above. No costs. Advocate's fee Rs. 250 in each.


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