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Padmavati Jaykrishna Trust and anr. Vs. Commissioner of Wealth-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 2 of 1965
Judge
Reported in[1966]61ITR66(Guj)
ActsIncome Tax Act, 1961 - Sections 21, 21(1) and 21(4); Wealth Tax Act, 1957 - Sections 2, 3, 7, 21 and 21(4); Wealth Tax (Amendment) Act, 1959 - Sections 21(I)
AppellantPadmavati Jaykrishna Trust and anr.
RespondentCommissioner of Wealth-tax, Gujarat
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredB. P. Mahalaxmiwala v. Commissioner of Income
Excerpt:
direct taxation - trust - sections 21, 21 (1) and 21 (4) of income tax act, 1961, sections 2, 3, 7, 21 and 21 (4) of wealth tax act, 1957 and section 21 (1) of wealth tax (amendment) act, 1959 - question arose whether assessment should be made under section 21 (1) or 21 (4) - tribunal was of view that as number of beneficiaries and their shares were indeterminate so attracted provisions of section 21 (4) - tribunal held that number of beneficiaries was uncertain for their number was capable of ascertainment only on happening of event which was death of beneficiary - revenue should not be concerned with what would take place in future - actual position on valuation date was that there was only two male child who had vested and transmissible interest in corpus though distribution postponed.....shelat, c.j.1. one mahalaxmibai, the widow of harivallabhadas kalidas, executed two deeds of trust dated december 30, 1945, and september 14, 1946, and thereunder settled certain amounts, shares and securities upon certain trusts the income from which was payable for life to the wives of two of her sons, jaykrishna harivallabhadas and ramkrishna harivallabhadas. both jaykrishna and ramkrishna have two sons each by their wives, padmavati and virmati, respectively. the two trusts were assessed to wealth-tax under the wealth-tax act, 1957, and the assessment year under reference common to both is 1958-59 and the relevant valuation date relating to both is december 31, 1957. 2. the reference arises from two orders passed by the tribunal in two appeals filed by the two assessee-trusts. though.....
Judgment:

Shelat, C.J.

1. One Mahalaxmibai, the widow of Harivallabhadas Kalidas, executed two deeds of trust dated December 30, 1945, and September 14, 1946, and thereunder settled certain amounts, shares and securities upon certain trusts the income from which was payable for life to the wives of two of her sons, Jaykrishna Harivallabhadas and Ramkrishna Harivallabhadas. Both Jaykrishna and Ramkrishna have two sons each by their wives, Padmavati and Virmati, respectively. The two trusts were assessed to wealth-tax under the Wealth-tax Act, 1957, and the assessment year under reference common to both is 1958-59 and the relevant valuation date relating to both is December 31, 1957.

2. The reference arises from two orders passed by the Tribunal in two appeals filed by the two assessee-trusts. Though the assesses in the appeals were different and two separate order were passed, a common consolidated statement of the case has been made at the instance of the two assessee-trusts as the question arising in both the case was a common and identical question and the provisions of both the trusts also are identical except for the difference in the beneficiaries. The question in both the cases being the same and the provisions of the two trusts also being identical, the answer which we may give to the question referred to us will apply to both the trusts and therefore it will be sufficient if we recite the relevant clauses from the deed of trust dated December 30, 1945, only.

3. The scheme under both the trust deeds is that income from the trust properties is made payable to each of the two daughter-in-law a for her life and thereafter to divide and distribute the corpus in equal shares amongst the male child or children of the settlor's two sons, the said Jaykrishna and Ramkrishna. The clauses relevant for the purposes this reference in the deed of trust dated December 30, 1945, are as follows :

'NOW THIS INDENTURE WITNESSETH THAT..... in consideration of the settler's natural love and affection for the beneficiaries under these presents it is hereby agreed and declared that the trustees shall stand possessed of the said sum of Rs. 3,30,079 (Rupees three lakhs thirty thousand and seventy-nine) and the said shares and securities.... upon the trust following, that is to say :

(a) In Trust to pay the income thereof to Padmavati, wife of Jaykrishna Harivallabhadas during her lifetime for her sole and separate use :

(b) After the death of the said Padmavati, wife of Jaykrishna Harivallabhadas, ln Trust for the male child or children of the said Jaykrishna Harivallabhadas for their own use and benefit absolutely in equal shares to the intent and effect that the share of each such male child shall be a vested and transmissible interest in such child so that the representatives of the male child dying before the said Padmavati, wife of Jaykrishna Harivallabhadas, shall take the share which such male child would have taken had he been alive, to be divided, paid and transferred to them and as soon as the yongest of the said male children attains the age of majority....'

4. The Wealth-tax Officer first worked out the wealth of the trust under the trust deed dated December 30, 1945, at Rs. 38,68,074 and after computing the life interest therein of the said Padmavati, the wife of Jaykrishna, at Rs. 5,10,466 and deduction the same from the said amount of Rs. 38,68,074 brought to tax the balance under the Act. This was done as the life interest of the said Padmavati was brought to tax in her personal assessment. The same thing was done in the case of the other daughter-in-law, the said Virmati. In the course of the those assessment proceedings a question common to both the trusts arose as to whether assessment should be made under sub-section (1) or sub-sections (4) of section 21. In the view that the Wealth-tax Officer took that the beneficiaries in the remainder after payment of the life interest and their shares were indeterminate, he applied section 21(4) rejecting the contention urged by both the trusts that it would be sub-section(1) of section 21 which would apply. In appeal, the Appellate Assistant commissioner, following the decision of the Tribunal in the assessment of the two trusts for the previous assessment year 1957-58, upheld the view of the Wealth-tax Officer. A reference was made to this court against the assessment for the earlier year 1957-58 but that references was not pressed and was withdrawn with the result that the question remained open. In the appeals before the Tribunal against the order of the Appellate Assistant Commissioner, the assessee-trusts once again pressed their contention that sub-section (1) and not sub-section (4) of section 21 would apply. But the Tribunal following its previous order relating to the assessment year 1957-58, rejected the appeals upholding the view of the Wealth-tax Officer and the Appellate Assistant Commissioner that the trust being for the benefit and in favour of the male child or children of the said Jaykrishna, the shares coming to them on the happening of the event set out in the trust deed. i.e. the death of the said Padmavati, would be indeterminate and therefore it would be sub-section (4) of section 21 which would apply. In arriving at this conclusion the Tribunal appears to have been guided by certain observations made by Mody J. of the High Court of Maharashtra while deciding on Originating Summons, being O.S. No.75 of 1960, filed for the purposes of obtaining certain directions in regard to an arrangement entered into between the said Jaykrishna and other trustees on the one hand and the said Padmavati. These observations were made by the learned judge in construing the provisions of clauses(a) and (b) of trust deed and were as follows :

'As regards the beneficiaries it is clear that under the said clause (a) the defendant (the said Padmavati) is entitled to full income of the trust property during her lifetime. Under clause (b), after the death of the defendant (the said Padmavati), the property, i.e., corpus, has been given to the male child or children of the first plaintiff for their own use and benefit absolutely in equal shares. The male child or children referred to in clause (b) have not been confined to those of the first plaintiff by the defendant and, therefore, can possibly be of the first plaintiff (the said Jaykrishna) by any other wife also'.

5. On the basis of the these observation, the Tribunal held that the class of beneficiaries was not restricted to the male child or children of Jaykrishna by the said Padmavati alone, that the class of beneficiaries was not capable of ascertainment until the happening of the event stated in clause (b), namely, the death of the said Padmavati, and therefore the shares of the person on whose behalf the trust properties were held were indeterminate and consequently it would be sub-section (4) of section 21 which would be applicable. It is the correctness of this view which is challenged in this reference.

6. Before we proceed to deal with the question referred to us, it is necessary to consider a few provision of the Act to see if they throw any light on the correct interpretation of sub-section (1) and (4) of section 21. Section 2(e) defines 'assets' as including property of every description, movable or immovable. Clause (m) defines 'net wealth' as meaning the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets 'belonging to the assessee on the valuation date, ' including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than debts with which we are not presently concerned. Therefore, under this definition, the net wealth of an assessee is to be computed according to the value of the assets belonging to such assessee on the relevant valuation date, deducting therefrom debts owed by the assessee on that date. The Crucial point of time for determining the net wealth of an assessee is, therefore,the relevant valuation date. Clause (q) of section 2 defines 'valuation date' in relation to any year for which an assessment is to be made as meaning the last day of the previous year as defined in clause (11) of section 2 of the Income-tax Act if an assessment were to be made under that Act for that year, i.e. the 31st of March of each relevant year. Section 3 is the charging section and provides that, subject to the other provisions contained in the Act, there shall be charged for every financial year commencing on and from the first day of April, 1957, a tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the schedule. The Wealth-tax charged under this section, therefore, is on the net wealth belonging to an assessee on the relevant valuation date. Section 7, which deals with the determination of the value of the assets, also provides that such value shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. Section 21, on the construction of which depends our answer to the question referred to us, deals with assessment when assets are held by courts of wards, administrators-general, official trustee, receiver, manager, etc., or a trustee appointed under a trust. The relevant part of sub-section (1) of that section provides that in the case of assets chargeable to tax launder this Act which are held amongst other persons by a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, 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 the assets are held, and the provisions of this Act shall apply accordingly.' Sub-section (2) provides that nothing contained in sub-section (1) shall prevent either the direct assessment of the person on whose behalf the assets above referred to are held, or the recovery from such person of the tax payable in respect of such assets. Sub-section (3) need not detain us as we are not concerned with its provisions. Sub-section (4) provides : 'Notwithstanding anything contained in this section, where the shares of the persons on whose behalf any such assets are held are indeterminate or unknown, the wealth-tax may be levied upon and recovered from the court of wards, manager or other person aforesaid as if the person on whose behalf the assets are held were an individual for the purposes of this Act'. It is clear that whereas under sub-section (1) the liability of a trustee is in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf the trustee holds the assets, under sub-section (4) the trustee is liable as if the person on whose behalf the assets are held were an individual for the purposes of the Act. Under sub-sections (1), the trustee would be liable to be assessed only to the extent of the share in the assets which he holds on behalf of each of the beneficiaries under a deed of trust, while under sub-section (4) tax would be leviable in his hands on the total net assets though the beneficiaries might be more than one as if all such beneficiaries were an individual. Thus, there would clearly be a difference in the rate, the quantum of the net wealth and the tax where there are a number of beneficiaries and the tax is leviable under sub-section (1). The trustee would be assessed in respect of the net assets held by him on behalf of and to the extent of each of the beneficiaries and therefore the rate of tax would be low. In some cases the assets might not reach the prescribed minimum. Under sub-section (4), on the other hand, the benefit would not be available as the beneficiaries are to be treated as one individual and consequently all the assets held by the trustee on behalf of the beneficiaries would be taken into account for arriving at the aggregate value and it would be on that aggregate value that the tax would be computed and assessed. The distinction between the two sub-section is thus clear, for, under sub-section (1), a trustee is to be assessed in the like manner and to the same extent as the tax would be levied upon and recoverable from the person on whose behalf the assets are held, whereas under sub-section (4) the tax is to be levied upon and recovered from the trustee as if the person on whose behalf the assets are held were an individual for the purposes of the Act. The object of sub-section (1) is thus to enable the Wealth-tax Officer to levy and recover the tax from a trustee not as a taxable unit or as an individual but in the like manner and to the same extent as the person on whose behalf he holds the assets. Though the tax is assessed on a trustee, the provision of the Act are to be applied in an assessment upon him as they would apply in an assessment upon an individual beneficiary. Sub-sections (1) and (2) show that though the assessment under sub-section (1) would be made upon a trustee, the provision enabling the Wealth-tax Officer has to assess a trustee does not take away from him the right to assess beneficiary under sub-section (2). But it is clear that if the Wealth-tax Officer has to assess either a trustee or a beneficiary under sub-section (1) or sub-section (2), as the case may be, he cannot do so unless the share of such a beneficiary is known and is definite, for even if the trustee were to be assessed he can be assessed in the like manner and to the same extent as the beneficiary. Since the liability of the trustee is co-extensive with that of the beneficiary, the rate applicable in such a case would be that rate which would be applicable if the beneficiary was assessed. In a case where there are a number of beneficiaries on whose behalf assets are held by a trustee or trustees, if the value of the share in those assets held on behalf of a beneficiary is not up to the taxable limits, a trustee in such a case would not be assessable in respect of the share of that beneficiary, as, under sub-section (1) he has to be assessed in the like manner and to the same extent that the beneficiary would be assessed under sub-section (2). It would not therefore be possible to carry out the assessment unless the share or benefit in the assets held by a trustee of each of the beneficiary under the instrument of trust is determinate and known on the relevant valuation date. As the revenue is entitled to assess only the share or benefit which a beneficiary is entitled to, the assessement would be on the value of such share or benefit on the relevant valuation date. Therefore, during the assessment proceedings, the Wealth-tax Officer has to determine : (1) as to who is or are the person or persons holding the assets; (2) the beneficiary or beneficiaries on whose behalf such person or persons hold the assets; and (3) what are the shares of such beneficiaries in the assets held by the trustee or trustees, as the case may be. The Wealth-tax Officer obviously cannot determine the last question if the shares of the beneficiaries are not known or are not determinate and if that cannot be done, it would not possible for him to assess the trustee in the like manner and to the extent that each of the beneficiaries would be liable to be assessed. Thus, if the assessment is to be made under sub-section (1), the Wealth-tax Officer must determine not only the share of each of the beneficiaries so as to be able to assess the trustee to the same extent as the individual beneficiary but he must also determine the value of such share as it prevails on the relevant valuation date. It must follow that if such value is 'X' in one assessment year but 'Y' in another year, the tax has to be computed according to the value prevailing at each relevant date, i.e., the 31st of March of each relevant year.

7. If the shares of the beneficiaries in the assets held by a trustee or trustees are not known or determinate at the relevant date, the provisions of sub-section (1) or, where the Wealth-tax officer decides to assess the beneficiaries directly under sub-section (2), the provisions of sub-section (2), cannot be worked out and complied with, for there would be no basis i.e., the shares of the beneficiaries on which he can compute the value and arrive at the quantum of tax. In such a case, since he cannot act under these two sub-sections, the legislature has permitted him to assess under sub-section (4). In such case, i.e, where the shares of the beneficiaries on whose behalf the assets liable to tax under the Act are held are either indeterminate or unknown, the tax can be levied on a trustee or trustees as if the beneficiaries on whose behalf the assets are held were an individual for the purposes of the Act. If the shares under the instrument of trust are not determinate or known, it means that the settlor has not determined or specified the shares. The result in such a case would be that the Wealth-tax officer cannot determine the share of each individual beneficiary and the trustee cannot be assessed in the like manner and to the extent that such individual beneficiary would be liable to be assessed. The revenue in such a case would be entitled to treat all such beneficiaries as an individual and instead of assessing the respective shares of each such beneficiary all of them would be treated as an individual i.e., as a combined taxable entity. The Scheme of section 21 is thus fairly clear, namely, that, as a general rule, the tax has to be levied and recovered on the footing of sub-section (1) and that it is only when assessment under that sub-section cannot be made on account of the shares of the beneficiaries not being determinate or known that the Wealth-tax Officer can resort to sub-section (4) and treat all the beneficiaries as an individual. Whether it is sub-section (1) or sub-section(4) which applies to a particular case has thus to be determined from the question whether the shares of the persons on whose behalf the trust assets are held during the assessment year are determinate or known. If they are, the Wealth-tax Officer has to apply the provision of sub-section (1) and assessee accordingly.

8. We find from the decision of Sinha J. of the High Court of Calcutta in Suahashini Karuri v. Wealth-tax Office, Calcutta, which the Tribunal has sought to distinguish, that section 21 has been construed by that learned judge in the same manner as we are inclined to construe it. In that case, one Nandlal Karuri died on May 21, 1944, after having made and published his will whereby he appointed Suhashini Karuri, his wife, and Sudhir Prosad Karuri, his eldest son, as executors and trustees. The testator had eight sons of whom seven were alive and one was dead. He had also grandsons. Actually there were very few bequests in the will which in reality created a trust. The petitioners were the first trustees. Under the instrument, the trustees were to perform pujas of the deities mentioned therein and the cost thereof was to be defrayed from out of the income of certain properties mentioned therein. Clause 7 of the will provided : 'The amount of surplus left of the income of the said Bowbazar property after defraying all the aforesaid expenses and the entire amount of income from the other properties the trustees shall divide in equal shares amongst my eight sons. If any son dies then his share shall be divided equally amongst his sons and in the event of death of any of those sons his share shall be divided amongst his sons. As to any minor son or grandsons (sons' sons) of mine the trustees shall make over the income allotted to his share to his guardian during the period of his minority. If, after my death, any of my sons or sons' sons renounce the Hindu religion and customs, he shall not get the aforesaid share of the income mentioned in this paragraph. The entire income shall be divided amongst the remaining heirs.' One of the contentions raised in the petitione was that sub-section (4) of section 21 of the Wealth-tax Act applied to the facts of the case and that contention was founded on the basis that the shares of persons on whose behalf the assets were held were indeterminate or unknown. As aforesaid, the contention was that the number of beneficiaries was not fixed because there was a possibility of a son dying leaving a number of grandsons. Dealing with this contention, the learned judge observed that the share of a beneficiary could be said to be indeterminate if at the relevant time the share of a beneficiary could not be determined but merely because the number of beneficiaries varied from time to time, one could not say that it was indeterminate. The learned judged, relying upon a decision of the Patna High Court in M. Habibur Rahman v. Commissioner of Income-tax, to which we shall presently come, a decision on section 41 of the Income-tax Act, 1922, observed that in the case before him there was no difficulty in determining the shares of the beneficiaries during the relevant period. The will clearly laid down as to who would be entitled to the income and it was a mere matter of calculation as to how many sons and grandsons were in existence at the relevant date and to ascertain their respective shares as provided under the testamentary trust. It is clear from this decision that the learned judge was distinctly of the view that the question whether the shares of the beneficiaries, in that case the sons and grandsons and the deities, were determinate or known had to be ascertained with reference to the relevant valuation date and not with reference to any future date or period, such as the date of distribution or division of the assets. It was on this basis that he held that at the relevant date of valuation it was possible to know the number of the beneficiaries and their shares and further that, even if the number of such beneficiaries were to vary by reason of the death of any one of the sons or the birth of a grandson or grandsons, such developments in future would not make any difference or render the number of the beneficiaries or their shares indeterminate or unknown at the relevant period. The learned Advocate-General tried to distinguish this decision by pointing out that the facts an that case were slightly different from the facts before us in the sense that the settlor or the testator had eight sons at the time when the will was made and each one of them was given an equal share. There was no question in that case of any variation in the number of beneficiaries by reason of the birth in future of a grandson or grandsons, as the grandsons were entitled to shares coming to their father, the sons of the settlor. That, in a way, is true. The share of each of the eight sons was definite and, the sons being only eight, the number of the beneficiaries also was certain and determinate. Since the assets were to be distribute amongst the eight sons only and not amongst the grandsons, there was no question of any variation in the number of beneficiaries. But the learned judge was dealing with the contention urged before him, namely, that in the event of birth of a grandson in future there was a likelihood of indefiniteness in the number of the beneficiaries and the ratio of the decision was in the answer given by him, namely, that in the order to ascertain whether the shares of beneficiaries and their numbers were determinate or not, the Wealth-tax Officer has to ascertain the facts as they prevailed on the relevant date and therefore any variation in the number of beneficiaries in further would not matter and would not make sub-section (4) of section 21 applicable. The distinction sought to be drawn by the learned Advocate-General therfore does not arise. In construing section 21, it is also permissible to derive some assistance from section 41(1) of the Income-tax Act, 1922, and the first proviso thereof, where the legislature has not only used the same words as in sub-sections (1) and (4) of section 21 but has also made a similar distinction between a case where the shares of the of the person on whose behalf the income is held by a trustee are determinate and where they are not. Sub-section (1) of section 41 provides that in the case of income, profits or gains chargeable under the Act, which amongst other person therein set out a trustee or trustees appointed under the trust declared by a duly executed instrument in writing are entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from such trustee or trustees in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of the Act, are to apply accordingly. The first proviso to that sub-section provides, inter alia, that where any such income, profits or gains or any part thereof are not specifically receivables on behalf of any one person or where the individual shares of the person on whose behalf they are receivable are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate. These provisions came up for construction before Fazl Ali C.J., as he then was, and Manohar Lall J. of the High Court of the Patna in M. Habibur Rahman v. Commissioner of Income-tax. In that case, M. Habibur Rahman executed a deed of waqf by which he dedicated the income from a certain business with ultimate benefit to the poor, for maintenance and support of the sole mutawalli of the trust. The question was whether the first proviso to section 41(1) of the Income-tax Act applied to the facts of that case. It appears that before making the assessment the Income-tax Officer tried to ascertain, who the beneficiaries under the said deed were and, though the assessee's auditors filed a list showing thirteen names besides the settlor as being entitled to benefit under the said deed, the Income-tax Officer came to the conclusion that the beneficiaries having been kept unknown and the share of each having not been clearly demarcated in the deed, it was not possible to apply sub-section (1) and appeal the first proviso to that sub-section. The Appellate Assistant Commissioner in appeal held that the assessee's contention that beneficiaries included only his sons and daughters could not be accepted, for the word 'family' was wide enough to include his grandchildren also and on that footing held that the beneficiaries in that case were indeterminate as there were numerous grandchildren of the twelve sons and daughters of the assessee and that the term 'family' was wide enough to include a daughter-in-law, the son and grandson of a material uncle and the son of a half-sister. When the case went up before the Tribunal, the Tribunal held that the exact number of children and defendants should be known and was definitely determinable under the Mohammaddan law at any given time and that the largness of their number was no ground either for failing to ascertain the beneficiaries or for treating them as indeterminate and unknown. The Tribunal also observed that the number might be variable from time to time but since the assessing officer was concerned with the constitution of the family, as it was in the relevant accounting periods, the subsequent variation or expansion was wholly immaterial. Accepting the view of the Tribunal that in the accounting year there were only twenty-four persons who were entitled to share the profits, it was held that it was not possible to say that the number of the beneficiaries was unknown or indeterminate and consequently the first proviso to sub-section (1), of section 41 was not applicable. This decision thus clearly lays down, as was done in the Calcutta case, that what was required for the application of section 41(1) of the Income-tax Act was that the beneficiaries and their shares must be known and must be specify during the accounting period and, so long as that condition was satisfied, it would not matter if the number of beneficiaries where to vary as a result of some development in later years, such as, for instance, by a change in the constitution of the settlor's family. Therefore once the Tribunal had found that the beneficiaries were twenty-four in number during the year of account, there was no difficulty in applying sub-section (1) of section 41. A similar question regarding section 41(1) and the first proviso thereto also arose in Commissioner of Income-tax v. Puthiya Ponmanichintakam Wakf, where one Umbichi and his wife created a wakf of properties and the mutawalli appointed thereunder was directed to manage the properties and to meet the maintenance expenses of their children and grandchildren and the female children that might be born to them in future and to the male children born to the said family children. The deed of wakf provided that after payment of taxes and meeting the expenses for repairs and maintenance of the properties, the mutawalli was to utilise the balance of the income for the daily house and food expenses, dress and other necessities of the then male and female members of the tarwad and for conducting certain religious and charitable ceremonies. Out of the balance, if any, the mutawalli was directed to acquire property yielding good income. The question was whether the first proviso to section 41(1) applied and the Mutawalli was assessable on the income of the property at the maximum rate. The Supreme Court held that, although the number of beneficiaries was ascertainable at any given point of time, the beneficiaries had no specified shares in the income of the properties but had only a right to be maintained. The individual shares of the beneficiaries in the wakf were thus indeterminate within the meaning of the first proviso to section 41(1) and the mutawalli was therfore liable to pay tax at the maximum rate. Analysing sub-section (1) of section 41 and the first proviso thereof the Supreme Court observed that under sub-section (1) the tax was leviable on the trustee of the wakf in the like manner and to the same amount as to it would be leviable upon and recoverable from the beneficiaries, i.e., the assessment would be at the individual rates applicable to the beneficiary. But under the first proviso to that sub-section there were two exceptions to the general rule : (i) Where the income was not specifically receivable on behalf of any one person, and (ii) Where the individual shares of the persons on whose behalf the income was receivables were indeterminate or unknown. In those two circumstances, tax should be levied and recoverable at the maximum rate. In that case, the first exception did not apply but the question was whether the individual shares of the person on whose behalf the income was receivable were indeterminate or unknown. Construing the provisions of the wakf deed, the Supreme Court held, that though the number of the beneficiaries was determinate during the relevant period, the document did not expressly or by necessary implication specify the shares of the beneficiaries, indeed the individual shares were not germane to the objects of the document. The Supreme Court observed that the mutawalli was directed to bear, out of the income, the expenses necessary for the maintenance of the members of the tarwad and to conduct necessary religious ceremonies. But the distribution of the family income and the family expenses was left to the discretion of the mutawalli and the document also contemplated that the mutawalli by his product and efficient management would have sufficient amount for purchasing properties. At page 176 of the report, the Supreme Court observed :

'The direction indicate beyond any reasonable doubt that no specified share of the income was given to any of the beneficiaries, and their right was nothing more than to be maintained, having regard to their reasonable requirements which were left to the discretion of the mutawalli. While it is true that the number of the beneficiaries would be ascertainable at any given point of time, it is not possible to hold, as the High Court held, that under the document the beneficiaries had equal share in the income. The beneficiaries had no specified share in the income, but only had the right to be maintained.'

9. Since the Supreme Court held on the construction of the document that, though the number of the beneficiaries could be ascertained at any given point of time, the individual shares of the beneficiaries were indeterminate within the meaning of the first proviso to section 41(1), the assessee was liable to pay income-tax at the maximum rate. These decisions are clear authorities for the proposition that in determining whether the shares of beneficiaries are determinate and known, so that assessment should be made under sub-section(1) of section 41 of the Income-tax Act what the revenue authorities have to see is whether such shares are known, and specific during the accounting period. If these facts are known sub-section (1) and not the first proviso would apply and it does not matter that the number of the beneficiaries might vary in future. Tax being leviable with reference to the income of the year of account the crucial fact is not what is the general position but what is the position during the year of account. If during that year the number of the beneficiaries is known and specific and their shares in the income are capable of determination, it would be sufficient and sub-section (1) of section 41 would apply and the exception laid down in the first proviso thereof would not apply. The language used in sub-sections (1) and (4) of section 21 being similar to that in sub-section (1) of section 41 and the first proviso thereof, there is no reason why the same interpretation should not apply to the provision of sub-section (1) and (4) of the Wealth-tax Act.

10. On that interpretation let us set whether it would be possible to say, as the Tribunal did, that the number of the beneficiaries and their shares were indeterminate so as to the attract the provisions of the sub-section (4) of section 21. Under the deed of trust dated December 30, 1945 the trustees are to hold the trust property in trust to pay the income thereof to the said Padmavati during her lifetime and, on the happening of the event, i.e, her death, trust for the male child or children of Jaykrishna for their use and benefit absolutely in equal shares to the intent and effect that the share of each such child shall be a vested interest in such child so that in case any such child were to predecease the said Padmavati, the representatives of such predeceased child would take the share which he would have taken had he been alive, to be divided, paid and transferred to them when the yongest of the said male children attains the age of majority. There can be no doubt that under these clauses, though the said Padmavati was entitled to a life interest and the distribution of the corpus was postponed till the youngest of the male children attained majority, the deed created a vested interest in each of the male children in the trust properties so that if any one of them were to predecease the said Padmavati, his interest would devolve on his legal representatives. The share of each such male child in the corpus being equal, it is not possible to say that the settlor did not specify the shares or that the shares were unknown or indeterminate. But the Tribunal was of the view that, though in the assessment year 1958-59 the said Jaykrishna had two sons, both of them being alive, the possibility of the said Jaykrishna having more sons in future could not be eliminated and therefore it would not be possible to say how many sons there would be at the time of the death of the said Padmavati. On this reasoning, the Tribunal held that the number of the beneficiaries was uncertain for their number was capable of ascertainment only on the happening of the event set out in clause (b), namely, the death of the said Padmavati. In the other which the Tribunal passed in the appeal against the assessment for the assessment year 1957-58, which is part of the statement of the case and which the Tribunal and the Appellate Assistant Commissioner followed in the present assessment, the Tribunal had observed, relying upon the aforesaid observation of Mody J., that the class of beneficiaries was not restricted to the issues by the said Padmavati alone. On that basis the Tribunal held in that appeal that the class as such was capable of ascertainment only on the happening of the event contemplated in clauses(b). The Tribunal also observed :

'It may be, by virtue of certain circumstances adverted to in the judgment, there is no possibility of any extension or increase in the number of the beneficiaries and that so long as the beneficiaries now alive are there, they get a vested interest which descends to their heirs even in the event of their not surviving Smt. Padmavati. For the purposes of this case, we are not concerned with the possibility or impossibility of any increase in the beneficiaries but what we are really concerned is whether on the relevant valuation date the assets were held on behalf of the two children of Jayakrishna. We aren unable to hold that, on the language of the instrument, the properties are held on behalf of the said two children. The time for ascertainment of the said beneficiaries will arise only in the event contemplated in the clause(b) of the trust, Until then, the assets are held on behalf of the remaindermen, being the persons who may be eligible for being the beneficiaries at the time of cessation of the rights of Mrs. Padmavati in the trust. If the assets cannot be said to have been held on behalf of the existing children of Jaykrishna and Mrs. Padmavati on the relevant valuation date, there can be no dispute about the validity of the assessment as such because section 21(4) clearly applies to a case where the shares of the persons on whose behalf such assets are held are indeterminate or unknown.'

11. The Tribunal rejected the contention urged on behalf of the assessees that the number of beneficiaries entitled to a share in the trust property was known on each valuation date and, since their interest was specifically provided for, there was no question of their shares being indeterminate or unknown. In rejecting that contention, the Tribunal observed that, during the lifetime of the said Padmavati, the entire interest of the class of beneficiaries who were entitled to get it under clause (b) was indeterminate or unknown and that the fact that the male children had a vested interest under the deed was immaterial as the share of each beneficiary in respect of it might not be ascertained. It is clear from these observations that the Tribunal was of the view that, until the death of the said Padamavati, it would not be possible to hold that the trust properties were held on behalf of the existing two sons of the said Jaykrishna, as the time for ascertaing as to who and how many beneficiaries there are would be only when the event contemplated in clause (b) occurred, namely, the deaths of Padmavati and, until that event took place, it would not be possible to say that the trustees held the assets on behalf of the two existing sons of the said Jaykrishna. In our view the construction placed by the Tribunal on sub-sections (1) and (4) of section 21 was not a correct construction and was contrary to the view taken both by the Supreme Court and the Calcutta and the Patna High Courts in the decisions referred to by us. As already stated, under the Provisions of sub-sections (1) and (4) of section 21, the revenue would be concerned with the position which existed on the relevant valuation date, namely, December 31, 1957, and even if there was a possibility of any variation in the constitution of the family in future, such variation would be immaterial and would not affect the application of sub-section (1) of the section 21. On December 31, 1957, the said Jaykrishna had two male children by his wife, the said Padmavati. Under clause (b) of the trust deed these two sons had a vested and transmissible interest in equal shares in the corpus of the trust properties, though the corpus was distributable after the death of their mother, the said Padmavati, and on the youngest male child of Jaykrishna attaining majority. Even assuming that there was a possibility of Jaykrishna having another male child in future, the only effect of such an event would be to diminish the share of each of the two sons and to divest to that extent their interest in the properties. But, as we have already stated, the revenue is not concerned with what would take place in future. It was concerned with the actual position on December 31, 1957, and on that day there being only two male children of Jaykrishna, each of them under clause (b) has a vested and transmissible interest in the corpus, though its distribution was postponed till the even set out in the deed. The trustees, therefore, held the properties in trust and for the benefit of these two sons. Thus, on the relevant date, i.e., December 31, 1957, the number of beneficiaries was definite and their shares being equal there was no question of their shares being indeterminate or unknown and consequently the provisions of sub-section (1) and not of sub-section (4) of section 21 would apply.

12. The learned Advocate-General however, s contended that there was nothing in section 21 which obliged the Wealth-tax Officer to find out at every valuation date the beneficiaries and their shares in the trust properties. If, on a perusal of the trust deed it was found that the number of the beneficiaries was indeterminate, that would be a factor which the revenue would be entitled to take into consideration and it was not necessary that the revenue should have to find out on each relevant valuation date as to who the beneficiaries were and whether their number was definite. If, therefore, a trustees holds certain assets on the strength of a trust deed and if a settlor himself does not specify the beneficiaries or their shares thereunder, the revenue can at once proceed under sub-section (4) of section 21. The interpretation sought to be placed by the learned Advocate-General, in our view, cannot be accepted. As already stated, the valuation date as defined by section 2(q) of the Act is the crucial date in respect of the assessment year for which the assessment is to be made. Under section 3, wealth-tax is to be levied in respect of the net wealth on the corresponding valuation date. Under section 21, the Wealth-tax Officer has to ascertain the net wealth of a beneficiary as on the relevant valuation date. Therefore, it is incumbent upon him to find out who are those beneficiaries and what their shares are so as to determine the net wealth of each of them. It is only when that is not possible that sub-section (1) of section 21 would not apply and the Wealth-tax Officer would be entitled to proceed under sub-section (4). What the learned Advocate-General does not take into account is the fact that section 21 is not a charging section but is merely a machinery section and has therefore to be read in the context of the provisions of section 3. It is true, as contended by the learned Advocate-General, that the crucial words in sub-section (1) of section 21 are the words 'on whose behalf' the assets are held under the instrument of trust. But, as we have already stated, if it is possible to find out that during the relevant period assets are held for and on behalf of beneficiaries who are known and determinate and that their shares are also determinate and known and the Wealth-tax Officer is not entitled to proceed under sub-section (4) of section 21 on the mere ground that there is possibility in future of a variation in the constitution of the family or in the number of the beneficiaries, and he will be bound in such a case to apply sub-section (1) of section 21. In the present case the assets must be said to have been held during the relevant period on behalf of the two sons of the said Jaykrishna who had, under the provisions of the deed of trust, a vested and transmissible interest in the corpus. It would not be possible to say that, because of some likelihood of the said Jaykrishna having in future one or more male children, the trustees were holding during the relevant period the assets on behalf of such unborn persons. It may be that the vested interests of the two sons of the said Jaykrishna are subject to a condition subsequent and, on the happening of such a condition, namely, the said Jaykrishna having one or more male children in future, there would result to that extent a divesting of and a reduction in the shares of the two existing sons. But that would not mean that the number of beneficiaries during the relevant period was not known or was indeterminate as envisaged by sub-section (4) of section 21. That being the position, it is not possible to sustain the contention urged on behalf of the revenue by the learned Advocate-General. The learned Advocate-General then relied upon the Bombay decision in B. P. Mahalaxmiwala v. Commissioner of Income-tax In that case the question again was with regard to the construction to be placed on section 41(1) of the Income-tax Act, 1922, and the first proviso thereof. On a perusal of the decision of Chagla C.J., who spoke for the Bench, it is clear that the interpretation placed by the learned Chief Justice was exactly the same which the Patna High Court in the case of M. Habibur Rahman placed. The learned Advocate-General also drew our attention to an unreported judgment referred to by the learned Chief Justice at pages 183 and 184 of the report. Since the facts in that unreported case have however not been fully set out, it is difficult to appreciate on what basis the learned judges in that unreported decision came to the conclusion that the shares to which the beneficiaries in that case were entitled were inderterminate and it is, therefore, not possible to say as to whether that decision was in any way contrary to the interpretation placed upon section 41(1) of the Income-tax Act in the Patna case above referred to. But the decision in Mahalaxmiwala's case does not assist the learned Advocate-General, nor does it carry further the interpretation suggested by him of the provisions of either section 41(1) of the Income-tax Act or sections 21(1) and 21(4) of the present Act. In our view, the construction placed by the Tribunal on the provisions of section 21 was not correct. We are also of the opinion that the number of beneficiaries as also their shares were both known and determinate within the meaning of sub-section (1) of section 21 and therefore the application of sub-section (4) of section 21 by the Wealth-tax Officer was erroneous.

13. In that view, our answer to the question referred to us is in the affirmative. The Commissioner of Wealth-tax will pay the costs of this reference to the applicants.

14. Questions answered in the affirmative.


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