1. The revenue has filed these appeals for the assessment years 1968-69 to 1972-73 on the ground that the AAC erred in holding that the assessee's beneficial interest as a remainderman in the following four trusts could not be included in the total wealth of the assessee : 2. Sheth Hargovindas Jiwandas Family Trust was created by Hargovindas Jiwandas by a deed dated 4-12-1924 which was modified by an agreement dated 6-5-1962. The income of the trust was settled for the benefit of Dharamdas and after his death the corpus was to belong to the assessee and his brother, Amresh Dharamdas, in equal parts.
Bai Harkorebai Hargovindas Trust was created by Harkorebai Hargovindas by a deed dated 6-11-1931 as modified by a covenant dated 6-5-1962. The life interest belonged to Dharamdas (son of Harkorebai) and after his death the corpus would go to the assessee and his brother, Amresh Dharamdas, in equal parts.
Shantabai Dharamdas Trust was created by Shantabai, wife of Dharanidas, on 7-4-1943. Shantabai retained the life interest in the trust for herself and after her death the corpus would go to the assessee and his brother, Amresh Dharamdas, in equal parts.
Dharamdas Hargovindas and Gordhandas Dharamdas Joint Trust was created by Dharamdas Hargovindas and Gordhandas Hargovindas on 14-10-1943. The life interest was with Dharamdas and after his death the income was to be paid to the benefit of the assessee for his life and upon the death of the survivor (between Dharamdas or the assessee whoever died last) the corpus would belong to the assessee's sons.
3. In the wealth-tax proceedings, the assessee appended a note to the return of net wealth and also in the letter dated 9-6-1962, it was stated that the assessee did not have any life interest in the trusts at present. These trusts had filed the returns and after deducting the value of the life interest of the person having life interest which was separately assessed, the trusts had already paid wealth-tax on the balance. In these circumstances it was pleaded before the WTO that in view of the provisions of Section 21(1) of the Wealth-tax Act, 1957 ('the Act') nothing was taxable in the assessee's hands. The WTO, however, rejected the assessee's claim according to his understanding of Section 21(2). He proceeded to include the value of the life interest of the assessee in these trusts.
4. On an appeal by the assessee before the AAC for the assessment years 1968-69 to 1972-73, it was pointed out that all the four trusts were being separately assessed to tax. The trusts at Nos. 1, 2 and 4 were subjected to tax after deducting the life interest of Dharamdas and on the trust at No. 3, the tax was levied after deducting the life interest of Shantabai. It was submitted on behalf of the assessee that there was no dispute about the fact that the assessee was having vested interest in the corpus of the trusts at Nos. 1, 2 and 3 to the extent of 50 per cent by way of remainderman's interest. In the case of trust No. 4, however, the assessee's interest was to the extent of 50 per cent and that too on the contingency of the assessee surviving Dharamdas. It was the assessee's case before the AAC that the WTO having made up his mind to tax the trusts direct under Section 21(1), there was no scope for levy of wealth-tax on the assessee under Section 21(2). In this connection, reliance was placed on the CBDT Circular F.No. 45/78/66-ITJ (5), dated 24-2-1967 and another Circular No. 157 [F.No. 228/8/73-IT (A-II)], dated 26-12-1974 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edition, p. 564]. Further reliance was placed on the Bombay High Court decision in the case of Trustees of Chaturbhuj Raghavji Trust v. CIT  50 ITR 693. Arguments were also made before the AAC as regards the erroneous valuation of the assessee's life interest in these trusts. Having considered the submissions on behalf of the assessee and the fact that all the assessments for these five years in the case of the trusts were passed long before the assessments were made in the case of the assessee on 5-3-1979, the AAC took note of the Board's circulars relied upon by the assessee and held that the WTO was not correct in assessing the assessee's interest in the trusts as part of the assessee's wealth.
5. The revenue is in appeal against the order of the AAC objecting to the AAC holding that the assessee's beneficial interest as remainderman in the four trusts could not be included in the total wealth of the assessee. On behalf of the revenue, it was submitted that under Section 21(1), wealth-tax should be levied upon the trustees direct in the like manner and to the same extent as it would be leviable and recoverable from the persons on whose behalf the assets were held by the trustees.
In the instant case, no doubt, the same quantum of the life interest was taxed in the hands of the trusts as in the case of the assessee, who was the beneficiary, it was not assessed to the same extent. It was explained on behalf of the revenue that what was meant by 'to the same extent' was that the rate applicable to the quantum of life interest was at lower rate in the hands of the trusts. For example, in the case of the assessee for the assessment year 1968-69, the assessee's life interest in Sheth Hargovindas Jiwandas Family Trust was valued at Rs. 2,08,798 as a part and parcel of the total wealth of Rs. 12,98,432 as belonging to the assessee which would be taxable at the rates applicable to Rs. 12,98,432. In the hands of the trustees of the trust of Sheth Hargovindas Jiwandas Family Trust, however, the assessee's interest was valued at Rs. 2,08,798 and taxed at the rates applicable to this amount. This was not what was meant to be done under Section 21(1). Therefore, according to the learned departmental representative, the AAC had erred in cancelling the direct assessments on the assessee, who was the beneficiary, in these trusts for the five years.
6. On behalf of the assessee, heavy stress was laid on the provisions of Section 21(1) and the directions of the CBDT in its two circulars dated 26-12-1974 and 24-2-1967, which are as under : Assessment of discretionary trusts under Section 164/166 - Correct procedure therefor 1. Attention is invited to Board's Instruction No. 45/78/66-ITJ (5), dated 24-2-1967 [printed as 'Circular Two'] on the subject of assessment made under Section 41(2) of the 1922 Act/Section 166 of the 1961 Act. In spite of the clear instructions to the effect that neither Section 41 which gave an opinion to the department to tax either the representative assessee or the beneficial owner of the income nor the parallel provisions of the 1961 Act contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances have come to the notice of the Board of such double assessment.
2. According to the scheme of the 1961 Act, even as it was under the 1922 Act, the general principle is to charge all income only once.
The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue, the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue. Having exercised his option once, it will not be open to the Income-tax Officer to assess the same income for that assessment year in the hands of the other person (i.e., the beneficiary or the trustee).
1. Recently an interesting case came to the notice of the Board. The assessee was one of the beneficiaries in the trust. The shares of the beneficiaries were known and determinate. The Income-tax Officer raised an assessment on the trustees taxing the income of the trust in their hands at the appropriate rate and to the amount which would have been recoverable in the hands of the beneficiarise. While dealing with the case of one of the beneficiaries of the trust, the Income-tax Officer again included for rate purposes his share in the income of the trust. The reason advanced by him was that the amount of tax leviable should be the same whether the income from the trust is assessed in the hands of the trustees or in the hands of the beneficiaries and if the proportionate income from the trust is not included for rate purposes in the hands of the beneficiary, his income other than the income from the trust would be taxed at a rate lower than that which would have been applicable if the trust income were assessed directly in his hands.
2. The Board have been advised that the approach of the Income-tax Officer is not correct. Section 41 of the 1922 Act gave an option to the department to tax either the representative assessee or the beneficial owner of the income. Once the choice is made by the department to tax either the trustee or the beneficiary, it is no more open to the department to go behind it and assess the other at the same time. The inclusion of the share income from the trust in the total income of the beneficiary for rate purposes would virtually amount to an assessment of the income which has already been assessed and subjected to tax. According to the scheme of the Act, if certain income is to be included for rate purpose in the total income, a specific provision in that behalf is made in the Act. In the absence of any such express provision, the general principle to charge all income only once would be applicable in such a case.
3. The position under the 1961 Act is also identical. In order that there is no loss to the revenue, the Income-tax Officers may keep this point in view while raising the initial assessment on the trust beneficiaries.
7. We have carefully considered the facts of the case. For the first five years the fact is that the trustees of the four trusts were subjected to tax considerably earlier than the assessee himself. The same wealth could not be taxed once in the hands of the trustees and then in the hands of the beneficiaries. In fact, the CBDT itself has accepted this position expressly under the relevant provisions of the Income-tax Act, 1961 which are in part materia as to the procedure to be adopted in such circumstances in the two circulars relied upon by the assessee. In our opinion, therefore, once having assessed the trustees in respect of the wealth attributable to the life interest of the assessee in the trust, the WTO could not have proceeded to tax the value of the life interest in the assessee's hands directly. There is no substance in the argument on behalf of the revenue that, as in the instant case, the life interest had not suffered the same taxation in the hands of the trustees as it would have suffered in the hands of the assessee himself. In the circumstances, the appeals filed by the revenue for the first five years are hereby dismissed.
8. Coming to the last two years, with which we are concerned here, viz., the assessment years 1973-74 and 1974-75, the difference in facts is that the assessments in the case of Sheth Hargovindas Jiwandas Family Trust were made after the assessment in the case of the assessee. The AAC has, therefore, upheld the direct assessment of the assessee's life interest in the Sheth Hargovindas Jiwandas Family Trust for these two assessment years on the basis of the actuarial valuation on the respective valuation dates. He has directed that the assessee should get the valuation done actuarially and supply it to the WTO. For this purpose, he directed the WTO to look into the question of loans given to Dharamdas Hargovindas and to decide whether these loans were recoverable. While making the assessments, he directed the WTO to consider whether the inclusion of the assessee's interest in the Sheth Hargovindas Jiwandas Family Trust would be more beneficial to the revenue then the assessments on the trust itself. The revenue has objected to the order of the AAC firstly, on the same ground that the assessee's life interest in the remaining three trusts, namely, Bai Harkorebai Hargovindas Trust, Shantabai Dharamdas Trust and Dharamdas Hargovindas and Gordhandas Dharamdas Joint Trust, could not be included in the total wealth of the assessee. Admittedly, the assessments in the case of the trustees in respect of the assessee's life interest in these trusts have been made prior to the direct assessment on the assessee in respect of his life interest in these trusts. For the same reasons as in respect of the five preceding years detailed earlier in this order, the appeals filed by the revenue on this ground are dismissed.
9. The next ground on which the revenue has objected to the order of the AAC for these two years is that according to the revenue, the AAC has erred in holding that the assessee's interest as a remainderman in the Sheth Hargovindas Jiwandas Family Trust should be included in the assessee's total wealth only at its actuarial value and not at its full value as taken by the WTO. Unfortunately, at the time of the hearing, the learned departmental representative has not been in a position to explain the manner in which the value of the assessee's life interest in this trust was arrived at by the WTO. We find that there is a statutory rule on the subject, namely, Rule 1B of the Wealth-tax Rules, 1957 which is mandatory. We, therefore, modify the direction of the AAC to the effect that the WTO will value the assessee's life interest in the trust under Rule 1B.10. The revenue has finally objected to the AAC's order for these last two years on the ground that the AAC erred in holding that the loans due to Hargovindas Jiwandas Family Trust from Dharamdas Hargovindas should be excluded from the assets of that trust for the purposes of computing the assessee's interest as a remainderman in that trust if those loans are found to be irrecoverable. As stated earlier, we have directed that the assessee's interest in the Sheth Hargovindas Jiwandas Family Trust should be valued under Rule 1B. In consonance with the aforesaid direction, we hereby direct that the WTO will take only those factors into consideration as may be permitted under Rule 1B and none other. Incidentally, we find that Rule 1B does not provide for deduction of bad debts from the value of the assets of the trust for determining the value of life interest of a beneficiary. Therefore, the order of the AAC giving such a direction is erroneous and is, therefore, vacated.
11. In the result, the appeals filed by the revenue for the first five years, namely, the assessment years 1968-69 to 1972-73 are dismissed whereas the appeals for the assessment years 1973-74 and 1974-75 are partly allowed.