1. These appeals of the revenue relates to the assessment years 1978-79 to 1980-81 and arise out of the order of the AAC, B-Range; Nagpur, dated 26-2-1982. The revenue contests the aforesaid appeals on the ground that on the facts and in the circumstances of the case, the AAC erred in holding that the income of the trust distributed amongst the beneficiaries by virtue of the resolution dated 15-8-1977 is to be deducted as a liability while computing the net wealth of the assessee-trust. The aforesaid appeals involve a common issue and are, therefore, heard together and disposed of by a common consolidated order for the sake of convenience.
2. In all the aforesaid appeals the WTO taxed net wealth of the assessee-trust which was held to be a private discretionary trust by applying provisions of Suction 21(4) of the Wealth-tax Act, 1957 ('the Act'). While doing so, the WTO refused to exclude from the corpus or the assets held by the trust as on valuation date, the amounts which had been distributed to the various beneficiaries during the year out of the income of the trust and credited to their respective accounts.
The reason given for the same by the WTO in the assessment order is as follows : Under Suction 21(1), the representative-assessee is liable for levy of tax in the like manner and to the same extent as it would be leviable upon the person on whose behalf and for whose benefit the assets are held. In case the beneficiaries were assessed directly, this liability payable to themselves could not have been allowed.
Hence this liability is not being allowed.
3. As against this order of the WTO, the assessee went in appeal before the AAC before whom the learned counsel for the assessee contended that the amounts credited to the accounts of the beneficiaries before the valuation date cannot be held to be still a part of the corpus of the trust. It is further submitted by the learned counsel for the assessee that these amounts were withdrawn by. the beneficiaries from the trust funds next year.
After hearing the learned counsel for the assessee the AAC allowed the appeals of the assessee with the following observations in his order : Under the Wealth-tax Act, the trustee is not a unit of assessment.
The beneficiaries are to be assessed through the medium of the trustee. Under Suction 21, which deals with the assessment of the beneficiaries through medium of trustees, provides for various circumstances. Generally when the share of the beneficiaries in the corpus or the income of the trust is definite and ascertained the beneficiaries themselves are to be assessed through the medium of the trustee. When there is a single beneficiary, there will be a single assessment in the hands of the trustee as a representative assessee with respect to assets held for that beneficiary. When there are several beneficiaries there will be several assessments, in the hands of the same trustee with reference to the several beneficiaries. Sub-clause (4) of Suction 21 provides through a fiction of law that when the shares of the beneficiaries in the corpus of the trust are indeterminate or unknown, wealth-tax will be levied on the trustee as if the persons on whose behalf or for whose benefit the assets are held were an individual, by application of rates mentioned in that sub-section. This is a case which is different from normal assessment of the trust provided in Suction 21(1). The argument advanced by the WTO to the effect that liabilities to the beneficiaties will not be a real liability deductible from the net wealth of the trust will be a valid argument so far as Suction 21(1) is concerned but not with respect to Suction 21(4). Suction 21(4) can be applied in a case where the shares of the beneficiaries in the assets held by the trust are unknown. In the case of a private discretionary trust where the trustees are given power to distribute income of the trust amongst the beneficiaries according to their discretion, the income of the trust for the year which has actually been distributed by the etrustes to the beneficiaries in accordance with the above power can no longer be held to be a part of the asset held by the trust for the beneficiaries.
4. As against this order of the A AC, the revenue is in appeal before us. The learned departmental representative contended before us that there is no difference between Suction 21(1) and Suction 21(4) and that Suction 21(1) has to be applied to the facts of this case. The learned counsel for the assessee, on the other hand, relied on the order of the AAC.5. We have carefully considered the facts and circumstances of the case and the submissions on either side. Suction 21(1) and Suction 21(4) comes into operation under different circumstances. As pointed out by the learned AAC in his order, Suction 21(1) applies to a trust where the beneficiaries are known and the shares are determinate. Suction 21(4) will come to play in the case of discretionary trust. Sub-section (4) of Suction 21 provides that when the shares of the beneficiaries in the corpus of the trust are indeterminate or unknown, wealth-tax will be levied on the trustee as if the person on whose behalf or for whose benefit the assets are held were an individual, by application of rates mentioned in that subsection. Under Suction 21(1) all the beneficiaries are assessed through the medium of the trustee and there, will be as many assessments equal to the number of beneficiaries. In that case as argued by the WTO, the liabilities to the beneficiaries will not be real liability and the aforesaid liability cannot be deductible from the net wealth of the trust. But in the case under Suction 21(4), wealth-tax will be levied on the trustee as if the persons on whose behalf or for whose benefit the assets are held were an individual.
When an assessment is made on a non-discretionary trust, the trustees will be assessed in the same manner and to a like extent as if the assessment is made directly on the beneficiaries. But when Suction 21(4) is applied, a single assessment is made on the net wealth of the trust as if the wealth belongs to an individual. When the trustees distribute certain amounts to the beneficiaries those moneys go out of their control. They become the liabilities of the trustees. In making the assessment of an individual, the liabilities owed by him are deducted. In the present case also since the assessments are to be made as if the trust belongs to an individual, the liabilities of the individual, namely, the amounts which are to be distributed to the beneficiaries, have to be allowed. In the income-tax assessment, the income earned by the trust is assessed according to the provisions of Section 164 of the Act. The income distributed by the trustees to the beneficiaries will be application of income of the trust and are, therefore, not allowed as deduction. But this is not so in the case of wealth-tax. In wealth-tax, the incomes so distributable will become liabilities and have to be deducted from the net wealth. Further in income-tax assessments, there is no provision to deduct the income distributed from the income earned by the trust as in the case of assessment on executors where there is a provision, namely, Section 168(4) of the Act.