1. We find it convenient to dispose of the above two appeals together.
The main issue is whether the department was justified in assessing the value of the assets held by the trust in the hands of the trustees instead of assessing a highly discounted value as returned by the assessee.
2. The assessees are trustees of a private trust which was created on 24-3-1966. The settlor is Champabai Bhogilal. She had transferred some properties to the trustees. The beneficiaries of the trust had been divided into two categories (i) income beneficiaries and (ii) corpus beneficiaries. The term 'corpus beneficiaries' is not used in the trust deed but we find it convenient to refer so to those persons who are to be considered for distribution of the corpus on the determination of the trust. The trustees have been given absolute discretion in applying the net income of the trust fund every year. It is also open for the trustees not to apply the income at all but to accumulate the same.
3. Now, the determination of the trust would be on what is referred to as the 'vesting day'. There are two contingencies visualized in the trust deed and the earlier of the two contingencies would determine the vesting date. The first of the contingencies is the date on which the eldest of the beneficiaries mentioned in the trust deed and named as qualifying individuals reach the age of 71. The second contingency is when the income beneficiaries get reduced to two persons either by death, renunciation or otherwise. On the happening of any of these events, clause 8 of the trust deed provides that the trustees shall transfer and hand over to such of the beneficiaries of the first group referred to in the trust deed who would be living on the vesting date absolutely in such shares as the trustees shall in their discretion determine. In case there were no beneficiaries of the first group, then the trustees shall distribute the corpus at their discretion to those person or persons living on the vesting day among the beneficiaries of the second group. Failing any beneficiaries of the second group, the trustees can choose any from the third group. But it is clear that they have clear discretion in deciding who the beneficiaries are and their shares.
4. We are concerned with the assessments to wealth-tax for the assessment years 1978-79 and 1979-80. The trustees had invested in certain shares of limited companies. The trustees had referred the question of determining the value? of the interest of the beneficiaries to an actuary. The actuary took into account the number of beneficiaries given on the various beneficiary groups in the trust deed, determined their respective ages and arrived at a finding that the property would vest only after a period of 31 years. According to him, the value of the corpus was Rs. 4,28,903. Since the beneficiaries would have these properties vesting on them only after 31 years, he arrived at the present value of the property at Rs. 19,608. This was the figure returned in the assessment.
5. For the assessment year 1979-80 also, a similar exercise was done in determining the value and a return of Rs. 21,399 was made.
6. The WTO did not accept the return. Following the decision in the assessments of the trust for the earlier years, he took the present value of the shares and did not at all accept the discounted value as given by the actuary. We may also mention that he did not accept the value of the corpus either. As against Rs. 4,28,903 determined by the actuary, he fixed the value at Rs. 7,62,335 for the assessment year 1978-79. Similarly, for the assessment year 1979-80, as against the value of Rs. 4,25,531 fixed by the actuary, the WTO fixed the value at Rs. 9,10,939.
7. The assessee appealed. The AAC in a considered order accepted the assessee's contention that what was assessable was only the interest of the beneficiaries and not the entire corpus value of the properties.
But he did not accept the assessee's contention that only the discounted value should be taken for assessment purpose. He did not accept the premise of the actuary that the vesting date was 31 years later. He pointed out that the trust deed did not fix the vesting date unalterably. The trust deed had provided for the vesting date being preponed to an earlier date. It is even theoretically possible that the vesting date would be on the valuation date itself. Therefore, according to the AAC, there was no justification for discounting the value of the corpus. As the assessee was a discretionary trust, the trustees having unlimited discretion with regard to the distribution of the trust fund, they were assessable on the entire value of the corpus of the trust as on the valuation dates. With this finding, he dismissed the appeals.
8. The assessee is on further appeal before us. Shri Chokshi for the assessee-trust submitted that it is well settled in view of the decision of the Supreme Court in the case of CIT v. Trustees of H.E.H.Nizam's Family (Remainder Wealth) Trust  108 ITR 555 that the department could assess the trustees only under the provisions of Section 21 of the Wealth-tax Act, 1957 ('the Act'). If the trust were to be a discretionary trust, then the' provisions of Section 21(4) would be applicable. Even if this provision were to be applied, he submitted that what is brought to assessment is not the value of the corpus of the trust but the value of the beneficial interest. Under Section 21(1) where the beneficiaries and the shares are known, the valuation is made according to the shares specified. Where the shares are not known or the beneficiaries are indeterminate, he submitted, then under the provisions of the section one should assume that the trustees were holding the properties on behalf of one individual who is the citizen of India and resident in India. He submitted that the fiction created by Section 21(4) is to the extent of reducing the innumerable beneficiaries nominated in the trust to one person. He submitted that the fiction does not extend further. He submitted that there is no fiction regarding the date of vesting of the properties.
The section does not affect the trust deed on this point. Therefore, it is not open for fixing up any other date of vesting of the properties than what is given in the trust deed. He then submitted that as per the trust deed the date of vesting was 31 years after the valuation date.
Therefore, in order to evaluation the beneficial interest of the fictional individual in Section 21(4) it has to be discounted. He then submitted that the actuary has made a proper calculation and it was not open for the departmental authorities to vary this figure. Shri Tej Prakash for the department relying on the findings of the AAC submitted that what the WTO has done is the only possible method of assessment under law.
9. We have considered the submissions. The first point made out by Shri Chokshi is that the trustees can be assessed only under Section 3, read with Section 21, of the Act. The effect of this submission is that what is brought to assessment is not the value of the properties held by the trustees but the value of the interest of the beneficiaries. This submission must be accepted since it is supported by the decision of the Supreme Court in Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra). The following passage occurs : ... Now, wherever there is a trust, it is obvious there must be beneficiaries under the trust, because the very concept of a trust connotes that though the legal title vests in the trustee, he does not own or hold the trust properties for his personal benefit but he holds the same for the benefit of others, whether individuals or purposes. It must follow inevitably from this premise that- since under Sub-sections (1) and (4) of Section 21 it is the beneficial interest which are taxable in the hands of the trustee in a representative capacity and the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries, 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.(p. 595) 10. The question then would be what is the value of the interest of the beneficiary on the valuation date. Under Section 21(4), a fiction has been created that there is only one beneficiary who will be an individual. So, it is necessary for us to find out the value of the interest of this beneficiary in the trust corpus. The valuation of the actuary has been made on the assumption that the properties would vest in the beneficiary only on the vesting day, i.e., a matter of 31 years from the valuation date. That is why property, the value of which is Rs. 4,28,903, has been evaluated at Rs. 19,608. Now, the actuary has assumed that the individual beneficiary will have no interest in the property for a period of 31 years. -This is totally against the trust provisions. We have pointed out that the trust is discretionary both on income as well as on corpus. Therefore, it is within the discretion of the trustees to distribute the income till the vesting day. As per the provisions of Section 21(4), the fictional individual is the beneficiary for this income also. Since he is the beneficiary for income for a period of 31 years, that also should have been taken into account in evaluation. The actuary has failed to do so. Therefore, the valuation given on the assumption that the beneficiary will have no interest in the property for a period of 31 years cannot be correct.
The fictional beneficiary in Section 21(4) is not only the full beneficiary of the income but also the full beneficiary of the corpus.
This point has been overlooked.
11. The omission to consider this aspect, in our opinion, arose out of the application of the ratio of the Supreme Court decision given on the facts of the Supreme Court case to the facts of the assessee's case before us. In the Supreme Court case, there were two types of beneficiaries, the income beneficiary and the corpus beneficiary. The income beneficiaries were specific and their shares were determinate.
There was no dispute between the department and the assessee that as far as their interest was concerned the provisions of Section 21(1) would apply. It is only in respect of the interest of the corpus beneficiary that the department had invoked the provisions of Section 21(4) and brought to tax the difference between the value of the properties held by the trustees and the value of the life interest of the income beneficiaries. Assuming that in such case the provisions of Section 21(4) would apply to the corpus beneficiaries, the Supreme Court had observed as follows : We have given in the preceding paragraph illustration of a case falling within Section 21, Sub-section (1), but the illustration can be slightly modified by taking 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, Sub-section (4), would be clearly attracted in such a case so far as the reversionary interest is concerned, because, on the relevant valuation date, the remaindermen and their shares would be indeterminate and unknown. 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 interest in the remainder as if it belonged to one individual under Sub-section (4) of Section 21. The difference between the value of the corpus of the trust property and the aggregate of the actuarial valuations of the life interest of A and the remainderman's interest would not be assessable in the hands of the trustee because, as pointed out above, the trustee can be taxed only in respect of the beneficial interests and there being no other beneficiary apart from A and such of the children of A as the trustee might think fit, the balance of the value of the corpus cannot be brought to tax in the hands of the trustee under Sub-section (1) or (4) of Section 21. (p. 596) Thus, it will be seen from the above, that the observation would fit into a case only where there is a life beneficiary to be followed by a remainderman. In such case the remainderman has no interest at all till the lifetime of the life beneficiary. Under those circumstances, it will be justified in totally ignoring the income accruing till the date of vesting. But in a case like the one before us, where both the life interest and the corpus interest are discretionary, there is no question of the corpus beneficiary not having any interest at all prior to the vesting date. The fiction given in the section steps in and simplifies the various types of beneficiaries into one single beneficiary. As per the section, individual beneficiary is also the beneficiary for income as well as corpus. That being so, his interest cannot be anything less than the full interest of a freehold property of an individual.
12. Even on the assumption that the 'individual' contemplated in Section 21(4) will have no interest in the income of the property for a period of 31 years, even then, the valuation given is not acceptable.
Since the trust is discretionary and there is no life beneficiary considered apart from the corpus beneficiary, the income of the trust has to be accumulated and added to the corpus. The 31 years income which is added to the value of the property on the valuation date will be more than sufficient to neutralize the discounting factor in the actuarial calculation.
13. Under these circumstances, we are unable to accept Shri Chokshi's submission. He made a point that there is no fiction in Section 21(4) regarding the date of vesting of the properties. We must accept this submission. We have to see the position as on the valuation date. If on that date any of the happenings contemplated in the clause regarding vesting date has not happened, then one must assume that the beneficiary for corpus will be only among those who are mentioned in the provisions regarding the first vesting date. But acceptance of this submission does not mean that we are ignoring the provisions of the trust deed and advancing the date of vesting. What we are pointing out is that where complete discretion is given to the trustees for income as well as corpus, under the provision of Section 21(4) there is only one beneficiary both for income and corpus and his interest cannot be less than the full value of the property.
14. Shri Chokshi also made a point that the valuation given by the actuary should not have been disturbed by the WTO since the actuary was an expert on the line. In our opinion, it is open for the WTO to consider the valuation of the properties where the expert has made certain assumption in evaluation which is not valid in law. In the case before us the actuary has assumed that for a period of 31 years the beneficiary has no interest at all in the trust properties. That assumption, as we have pointed out, is not justified on the facts of the case.