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Commissioner of Wealth-tax, Gujarat-1 Vs. Manna G. Sarabhai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 4 of 1968
Judge
Reported in[1972]86ITR153(Guj)
ActsWealth Tax Act, 1957 - Sections 2, 3, 4, 21 and 21(4); Transfer of Property Act, 1882 - Sections 6 and 21
AppellantCommissioner of Wealth-tax, Gujarat-1
RespondentManna G. Sarabhai
Appellant Advocate J.M. Thakore, Advocate-General
Respondent Advocate K.H. Khaji, Adv.
Cases ReferredHeritable Reversionary Co. Ltd. v. Millar and
Excerpt:
direct taxation - trust property - sections 2, 3, 4 and 21 (4) of wealth tax act, 1957 and sections 6 and 21 of transfer of property act, 1882 - whether assessee can be assessed to wealth-tax in respect of contingent interest in trust when trustees of trust property already assessed under section 21 (4) - once assessment is made on trustees in respect of interest of beneficiaries in trust properties beneficiaries cannot be assessed again - held, assessee cannot be assessed to wealth-tax in respect of contingent interest in trust when trustees already assessed under section 21 (4). - - a spes successions is a bare or naked possibility such as the chance of a relation obtaining a legacy on the death of kinsman or any other possibility of a like nature which must be distinguished from a.....bhagwati, c.j. 1. this reference arises out of an assessment to wealth-tax made on the assessee for the assessment years 1957-58 and 1958-59, the relevant valuation dates being 31st march, 1957, and 31st march, 1958. the reference involves two questions : one is a question of construction of certain trust deeds executed by the assessee's aunt, gira sarabhai, and the other relates to the interpretation of section 21(4) of the wealth-tax act, 1957. the assessee was born on 15th november, 1947, and on both the relevant valuation dates, she was a minor below the age of eighteen years. by a trust deed dated 12th september, 1956, gira sarabhai, aunt of the assessee, settled certain properties on the trusts set out in clause (2) of the trust deed which runs as follows : '(2) (a) the trustees.....
Judgment:

Bhagwati, C.J.

1. This reference arises out of an assessment to wealth-tax made on the assessee for the assessment years 1957-58 and 1958-59, the relevant valuation dates being 31st March, 1957, and 31st March, 1958. The reference involves two questions : one is a question of construction of certain trust deeds executed by the assessee's aunt, Gira Sarabhai, and the other relates to the interpretation of section 21(4) of the Wealth-tax Act, 1957. The assessee was born on 15th November, 1947, and on both the relevant valuation dates, she was a minor below the age of eighteen years. By a trust deed dated 12th September, 1956, Gira Sarabhai, aunt of the assessee, settled certain properties on the trusts set out in clause (2) of the trust deed which runs as follows :

'(2) (a) The Trustees shall pay the net income of the Trust funds to the said Manna daughter of the Settlor's brother Gautam Sarabhai until she attains the age of thirty years provided however that during the minority of the said Manna the Trustees shall be at liberty either to utilise the net income of the Trust funds for the support, benefit, education and advancement in life of the said Manna or to pay the net income of the Trust funds to Kamalini Khatau mother of the said Manna as the Guardian of the said Manna for the said purpose and the receipt of the said Kamalini khatau as the guardian of the said Manna of the net income shall be a valid and effectual discharge to the Trustees who shall not be liable to see to the application thereof.

(b) If and when the said Manna shall attain the age of thirty years, but not otherwise, the Trustees shall hold the Trust Funds in trust for the said Manna absolutely.

(c) If the said Manna shall die before attaining the age of thirty years leaving a child or children her surviving, the Trustees shall hold the Trust Funds in trust for such child or children of the said Manna and if more than one in equal shares absolutely, provided, however, that if the said Manna shall die before attaining the age of 30 years without leaving a child or children her surviving, the Trustees shall hold the Trust Funds for Shyama and such of the other children or child of the said Gautam Sarabhai as may be living at the death of the said Manna, and if more than one in equal shares absolutely and if there be no child of the said Gautam Sarabhai living at the date of the death of the said Manna, then the Trustees shall hold the Trust Funds in the trust for the said Kamalini Khatau absolutely and if the said Kamalini Khatau shall not be living at the date of death of the said Manna, then in trust for the said Gautam Sarabhai absolutely and if the said Gautam Sarabhai shall not be then living, then in trust for the heirs of the said Gautam Sarabhai absolutely in proportion to their respective shares according to law.

Notwithstanding anything to the contrary contained, the trustees shall have absolute power and discretion at any time until the said Manna shall have attained the age of 30 years to have recourse to and utilise from time to time any portion or portions of the corpus of the Trust Funds for the support, education, benefit and advancement in life of the said Manna or on the occasion of any serious illness or emergency as the trustees may in their absolute discretion consider proper or necessary and the decision of the Trustees to utilise any portion or portions of the corpus of the Trust Funds under this clause for the benefit of the said Manna shall be final and binding on all persons and shall not be liable to be questioned or challenged by any person whatsoever.'

2. Three other trust deeds were also executed by Gira Sarabhai, two dated 12th February, 1958, and the third dated 21st February, 1958. The trusts on which the properties settled under these three deeds of trust are to be held by the trustees are set out in clauses (2) to (6) which are in identical terms in all the three deeds of trust leaving only difference in the period of distribution. These clauses may be reproduced as they appear in the first trust deed dated 12th February 1958. We have not reproduced clause (5) as there is no such clause in this trust deed and there is obviously a mistake in numbering. Clauses (2) to (4) and (6) read as under :

'(2) During the period of 18 years from the date hereof, the Trustees may either accumulate the net income of the Trust Funds or at their discretion utilise the same in such manner and at such time or times and in such proportions as the Trustees may think fit for the maintenance, support, education and benefit of Manna and Shyamali the daughters of the Settlor's brother Gautam and the Trustees shall also be at liberty to have recourse to and utilise any portion or portions of the corpus of the Trust Funds to the extent of a moiety thereof in the aggregate for the maintenance, support, education and benefit of the said Manna and Shyamali or either of them in such manner and in such proportions and at such time or times as the Trustees may in their discretion think fit. The accumulation of income shall be invested by the Trustees in any of the securities or investments hereby authorised and shall after expiration of the said period of 18 years form part of the Trust Funds.

(3) On the expiration of the said period of 18 years from the date hereof the Trustees shall hold the Trust Funds or the balance thereof as the case may be in trust for the said Manna and Shyamali in equal shares or for the survivor of them absolutely provided however that if the said Manna and Shyamali shall have died before the expiration of the period of 18 years leaving a child or children, such child or children shall take if more than one equally between them the share which the said Manna or Shyamali would have taken had she been living at the said date.

(4) If on the expiration of the said period of 18 years from the date hereof there shall be no person who shall be entitled to the Trust Funds or the balance thereof as the case may be under the provisions hereinbefore contained, the Trustees shall hold the same for such person or persons, object or objects, purpose or purposes in such manner and in such proportions and at such time or times as the said Gautam may from time to time by deed, revocable or irrevocable, or codicil appoint without transgressing the provisions of sections 13 and 14 of the Transfer of Property Act and section 113 and 114 of the Indian Succession Act provided always that the power of appointment hereby conferred on the said Gautam shall not be exercisable or exercised by him so as to give the corpus of the Trust Funds or the balance thereof or any part thereof or so as to confer any benefit or interest to or in the same to or in favour of the Settlor.

(6) If at time after attaining the age of majority but before the said period of 18 years from the date hereto, the said Manna and/or Shyamali require the Trustees to purchase or construct a house or other residential premises for the personal residence of the said Manna and/or Shyamali the Trustees shall on being so required to do, sell, and realise the Trust Funds or such part or parts thereof as may be necessary and invest the same in the purchase or construction of any such house or residential premises and such house or residential premises shall be treated as part of the Trust Funds or Trust Properties subject to the trusts and provisions of these presents and if and when the said Manna and Shyamali or either of them shall desire to reside in such house or residential premises the Trustees shall permit them or either of them to reside in such house or residential premises free of rent or at such rent as Trustees may determine provided however that if the said Manna and/or Shyamali shall be permitted to reside free of rent in such house or premises then during the period they or she shall so reside they or she may be liable to pay all rates, taxes, assessments and outgoing in respect of such house or premises.'

3. The same clauses are also to be found in the other two trust deeds with only this difference that instead of a period of 18 years, the period of distribution provided in the second trust deed dated 12th February, 1958, is 20 years and that provided in the trust deed dated 21st February, 1958, in 22 years and there is an additional clause in each of these two trust deeds after clause (2) which provides :

'(3) On the expiration of the said period of 18 years and until the expiration of a further period of two years' (in the case of the second trust deed dated 12th February, 1958, and four years in the case of the first trust deed dated 21st February, 1958) 'thereafter the Trustees shall pay the net income of the Trust Funds or of the balance of the Trust Funds as the case may be to the said Manna and the said Shyamali in equal shares for their absolute use and benefit provided however that if the said Manna or Shyamali shall die after the expiration of the period of 18 years and before the expiration of the further period of two years leaving a child or children, the Trustees shall pay the share of such deceased daughter, viz., Manna or Shyamali, in the net income of the Trust Funds to such child or children if more than one in equal shares and during the minority of such child or children to utilise the same for the maintenance, support, education, benefit and advancement of such child or children provided further that if the said Manna or Shyamali shall die after the expiration of the said period of 18 years and before the expiration of a further period of two years without leaving a child or children the whole of the net income of the Trust Funds or of the balance of the Trust Funds as the case may be shall be paid to the survivor of the said Manna or Shyamali.'

4. In the course of assessment of the assessee to wealth-tax for the assessment years 1957-58 and 1958-59 a question arose whether the assessee was taxable on her interest under the aforesaid trust deeds. The Wealth-tax Officer took the view that under the trust deeds dated 12th September, 1956, and 12th February, 1958, the assessee had an interest both in the income and in the capital of the trust properties and so far as the trust deed dated 21st February, 1958, is concerned, the assessee had an interest only in the corpus of the trust properties and not in the income and on this view he proceeded to value the interest of the assessee under the trust deed and included such valuation in the net wealth of the assessee. The assessee being aggrieved by the orders of assessment passed by the Wealth-tax Officer preferred appeals against the same to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, the assessee contended that she had no interest in the income of the trust properties and even so far as the corpus was converted, what she had was only a possibility or chance of acquiring an interest in the corpus at a future date if she was then alive and nothing was therefore liable to be included in her net wealth on account of the value of her interest under the trust deeds. This contention found favour with the Appellate Assistant Commissioner deleted the value of the interest of the assessee under the trusts from the assessments. The Wealth-tax Officer thereupon carried the matter in appeals to the Tribunal. The main contention advanced on behalf of tha Wealth-tax Officer was that the interest of the assessee in the corpus under the trust deeds was not a spes succession is - a mere possibility or chance of acquiring an interest in the corpus but it was a vested interest and its value was therefore includible in the net wealth of the assessee. The assessee gave a two-fold answer to this contention. The first answer was a denial of the contention. The assessee urged that under the trust deeds she had no interest in the corpus on the relevant valuation dates : what she had was merely spes successionis and since it was not transferable and had no saleable value, its value was nil. The assessee also contended in the alternative that in any event even if she had an interest in the corpus, it was not liable to be included in her net wealth since the trustees of the trust deeds had already been assessed to wealth-tax in respect of the corpus of the trust properties under section 21(4). The Tribunal was impressed by the first contention of the assessee and it held that since under the trust deeds the assessee was to acquire interest in the corpus only on attaining a specified age and not till then, the assessee had no interest in the corpus of the trust properties on the relevant valuation dates but what she had was a mere spes successionis which had no value and the Appellate Assistant Commissioner was, therefore, right in excluding it from the computation of the net wealth of the assessee. In this view of the matter, the Tribunal did not consider it necessary to examine the validity of the second contention urged on behalf of the assessee. The Commissioner was obviously dissatisfied with this decision of the Tribunal and he, therefore, applied for a reference and the Tribunal, at the instance of the Commissioner, referred the following two questions of law for the opinion of this court :

'(1) Whether, on the facts and in the circumstances of the case, and on a proper construction of the provisions of the trust deed dated September 12, 1956, executed by Smt. Gira Sarabhai, was the Tribunal right in holding that the assessee had no interest in the corpus of the said trust on the valuation dates relevant to the assessment years 1957-58 and 1958-59

(2) Whether, on the facts and in the circumstances of the case, and on a proper construction of the provisions of the trust deeds dated February 12, 1958, February 12, 1958 and February 21, 1958, executed by Smt. Gira Sarabhai, was the Tribunal right in holding that the assessee had no interest in the corpus of the said three trust on the valuation date relevant to the assessment years 1957-58 and 1958-59

5. The assessee suggested at the hearing of the reference application that a further question arising from her second contention should also be included in the reference and since such question admittedly arose out of the order of the Tribunal, the Tribunal reframed it in the following words, namely :

'(3) If the answer to common question for the assessment years 1957-58 and 1958-59, bearing No. (1) and the question No. (2) for the assessment year 1958-59 are answered in negative, then would the assessee be assessable to wealth-tax for the wealth of any of the aforesaid four trusts when the trustees of those trusts have already been assessed under section 21(4) of the Act

and referred it for the opinion of this court along with the first two questions so that there may be a final adjudication of the controversy in regard to the taxability of the interest of the assessee under the trust deeds.

6. The first two questions raise the issue as to what is the nature and quality of the interest of the assessment in the corpus under the trust deeds. Now one thing is clear that whatever be the nature and quality of such interest, it is not spes successionis. A spes successions is a bare or naked possibility such as the chance of a relation obtaining a legacy on the death of kinsman or any other possibility of a like nature which must be distinguished from a possibility coupled with interest. Where interest in corpus is given to a donee under a settlement and such interest is contingent on the happening of an uncertain event, the donee acquires a contigent interest in the corpus which becomes vested on the happening of the uncertain event and such contingent interest, though dependent on a possibility for its vesting, is very much different from a spes successionis. It is a form of property which is assemble or transferable and on which money can be raised unlike spes successionis which is non-transferable by reason of section 6(a) of the Transfer of Property Act. This distinction between the two legal concepts is clear and well-defined and it has been recognised in several judicial decisions. We may mention only two of them : Ma Yait v. Official Assignee and Commissioner of Wealth-tax v. Ashokkumar Ramanlal. It is, therefore, clear that even if the gift of the corpus to the assessee were regarded as contingent on her attaining a specified age as held by the Tribunal, the interest of the assessee in the corpus cannot be held to be spes successionis and therefore without value.

7. The question then arises whether the gift of an interest in the corpus to the assessee under the trust deeds is contingent on her attaining a specified age or it is vested in interest in the assessee, possession or enjoyment alone being postponed. What is the nature and quality of the interest of the assessee in the corpus : Is it a vested interest or contingent interest Now, in cases of this kind where the question is as to whether an interest granted under a settlement or a will is vested or continent, there are two rules of construction which have to be kept in mind. one rule is and that is a well-settled rule for the guidance of courts is construing the settlement or will, that the interest is to be held to be vested unless a condition precedent to the vesting is expressed with reasonable clearness. The rule is that the court must always lean in favour of vesting. See Bickersteth v. Shanu, Rajes Kanta Roy v. Smt. Shanti Devi and Commissioner of Wealth-tax v. Ashokkumar Ramanlal. The other rule which is an equally cogent rule is that the intention of the author of the instrument must be gathered from a comprehensive view of all the terms of the instrument. The instrument must be read as a whole : no one part should be construed in isolation. With these preliminary observations we may now proceed to examine the relevant clauses of the trust deeds.

8. We will first take up for consideration the trust deed dated 12th September, 1956. The provision which effects the gift of the corpus to the assessee in this trust deed is sub-clause (b) of clause (2). this pervasion says that if and when the assessee shall attain the age of 30 years but not otherwise, the trustees shall hold the trust funds in trust for the assessee absolutely. The language used in this provision is clearly one of contingency. The trustees are to hold the trust funds in trust for the assessee only if the assessee attains the age of 30 years and the contingency denoted by adverb 'if' is emphasized by the use of the expression 'but not otherwise'. It is only if the assessee attains the age of 30 years and not otherwise that the interest in the corpus is given to the assessee. The gift of the interest in the corpus to the assessee is therefore clearly a contigent gift and the interest created is a contingent interest, the contingency being the happening of an uncertain event, namely, the attainment of the age of thirty years by the assessee. This conclusion follows clearly and inevitably from the application of the rule enacted in section 21 of the Transfer of Property Act. But, as pointed out by the Supreme Court in Rajes Kanta Roy v. Smt. Shanti Devi, the intention of the settlor is to be collected from the settlement as a whole and no one clause should be construed in isolation and, therefore, we must see whether there is anything in the other parts of the trust deed dated 12th September, 1956, which shows that the gift of the corpus, though apparently contingent, was really intended to create a vested interest.

9. Now the main provision on which the learned Advocate-General on behalf of the revenue relied as indicative of the settlor's intention to create a vested interest was that contained in clause (2), sub-clause (a), which imposes an obligation on the trustees to pay the net income of the trust properties to the assessee until she attains the age of thirty years. The argument of the learned Advocate-General was that this provision brought the case within the exception section 21 of the Transfer of Property Act which provides as follows :

'Where, under a transfer of property, a person becomes entitled to an interest therein upon attaining a particular age, and the transferor also gives to him absolutely the income to arise from such interest before he reaches that age, or directs the income or so much thereof as may be necessary to be applied for his benefit, such interest is not contingent.'

10. The learned Advocate-General contended that since the interest in the corpus was given to the assessee on her attaining the age of thirty years and the net income of the trust properties was also given to her absolutely until she attained the age of thirty years, the exception to section 21 applied and the interest given to the assessee must be held to be vested interest. Now it is true that under clause (2), sub-clause (b), the assessee is to have an interest in the corpus on attaining the age of thirty years and clause (2), sub-clause (a), also gives to the assessee absolutely the income to arise from such interest before she reaches that age and the case, therefore, falls fairly and squarely within the language of the exception to section 21. But even so we do not think that the interest given to the assessee in the corpus can be said t be a vested interest. It must be remembered that the rule enacted in the exception to section 21, is like all rules of construction, founded on the principle of assumed intention of the settlor and it must, therefore, yield where the intention of the settlor is manifest from the words used in the settlement. Like all rules of construction the operation of this rule is presumptive and not peremptory and, therefore, where the words used by the settlor are clear and unambiguous, there can be no scope for invoking the rule. To ignore the plain and manifest language of the settlor and to read the rule as if it laid down an invariable proposition of law, would be to make the intention of the settlor subordinate to the rule. The rule instead of subserving the causes of interpretation of the intention of the settlor would become the master of it. Being merely an aid to ascertain the intention of the settlor and the ultimate object being really to ascertain such intention, the rule should not be regarded as one of compulsory application and if the intention of the settlor is otherwise clear and manifest, effect should be given t such intention, despite the rule. Here in the present case the settlor has made it clear in plain and unmistakable words that the assessee should have interest in the corpus only if she attains the age of thirty years and not otherwise. The word 'if' is sufficiently expressive of the intention to confer a contingent interest but as if anticipating that by reason of clause (2), sub-clause (a), it may be contended relying on the rule of interpretation contained in the exception to section 21 that the interest given to the assessee in the corpus is a vested interest, the settlor has, with a view to leave no doubt as to her intention, added the words 'but not other wise'. These words must be given due meaning and effect and the manifest intention of the settlor expressed in these words should not be defeated by relying on a rule of interpretation enacted in the exception to section 21. If it is held on an application of the rule of construction enacted in the exception to section 21 that the interest in the corpus given to the assessee vested in her on the date of the trust deed, such a construction would be clearly in contradiction of the manifest intention of the settlor. Even though the settlement has said in so many terms that the interest in the corpus shall vest in the assessee only if she attains the age of thirty yeas 'but not other wise ', we would be saying that the interest shall vest in the assessee on the date of the trust deed. Such a construction would be totally impermissible; it would be wholly and egregiously wrong. The revenue also ralied on the second paragraph of clause (2), sub-clause (c), which invests the trustees with absolute power and discretion at any time until the assessee attains the age of thirty years to utilise any portion or portions of the corpus for the support, education, benefit and advancement in life of the assessee or, on the occasion of any serious illness or emergency, as the trustees may in their absolute discretion consider proper or necessary. But this provision obviously cannot help the revenue for it merely gives a discretionary power to the trustees to apply a portion of the corpus for the benefit of the assessee and the trustees may or may not exercise the discretionary power according as they deem fit. This provision does not create any vested interest in the corpus in the assessee. We are, therefore, of the view that the interest in the corpus conferred on the assessee under the trust deed dated 12th September, 1956, was a contingent interest which was to take effect only on the happening of the uncertain event, namely, the attainment of the age of thirty years by the assessee.

11. Turning now to the other three trust deeds, we may first examine the relevant provisions of the first trust deed dated 12th February, 1958. If we look at this trust deed it is clear that the provision which effects the gift of the corpus to the assessee is clause (3). This provision says that on the expiration of the period of eighteen years from the date of the trust deed, the trustees shall hold the trust funds or the balance thereof, as the case may be, in trust for the assessee and Shyamali in equal shares or for the survivor of them absolutely and if the assessee and Shyamali have both died before the expiration of the period of eighteen years leaving a child or children, such child or children shall take, if more than one, equally between them, the share which the assessee or Shyamali would have taken had she been alive at that date. But what is to happen if the assessee and Shamali are both dead and there is no child of either of them alive at the date when the period of eighteen years comes to an end The answer is provided by clause (4) which says that in such an event the corpus must come to the person or persons, object or objects, purpose or purposes as appointed by Gautam Sarabhai, the father of the assessee and Shyamali, in exercise of a power of appointment conferred upon him. Now the language used in clauses (3) and (4) is clearly expressive of the settlor's intent that there shall be no vesting of interest in the corpus until the expiration of the period of eighteen years. The significant words used by the settlor in clause (3) are : 'On the expiration of the said period of 18 years.... the Trustees shall hold the Trust Funds... in trust for the said Manna and Shyamali in equal shares or for the survivor of them absolutely.' These words show that the assessee is to receive the interest in the corpus only on the expiration of the period of eighteen years provided she is alive at that date. If the assessee dies before that date but Shyamali is then alive, the whole of the corpus would go to Shyamali and conversely, if Shyamali dies but the assessee is alive at that date, the whole of the corpus would go to the assessee. If the assessee and Shyamali are both not alive at that date, the child or children, if any, of the assessee and Shyamali, would take the share which the assessee or Shyamali would have taken had she been living at that date. Here again the important words are 'had she been living at the said date'. These words clearly postulate that the assessee would take a share in the corpus only if she is 'living at the said date' and they re-emphasize the intention of the settlor that the assessee should have an interest in the corpus only if she is alive at the date of expiration of the period of eighteen years. If neither the assessee nor Shyamali is alive and there is also no child of theirs in existence on the expiration of the period of eighteen years, the corpus would go according to the appointment made by Gautam Sarabhai. The words used by the settlor in clause (4), namely, 'if on the expiration of the said period of 18 years..... there shall be no person who shall be entitled to the Trust Funds..... under the provisions hereinbefore contained' describe the event on which the corpus is to go according to the disposition made by Gautam Sarabhai and they clearly suggest that it is at the date of expiration of the period of eighteen years that it has to be seen whether there is any person alive who is entitled to interest in the corpus according to the provisions of clause (3). It is, therefore, clear that the interest in the corpus given to the assessee is a contingent interest, the contingency being in regard to one-half of the corpus that the assessee should be alive at the date of the expiration of the period of eighteen years and in regard to the other half that Shyamali should have died but the assessee should be alive at that date.

12. But the question then arises whether there are any other provisions in the first trust deed dated 12th February, 1958, which show that the gift of the corpus though apparently contingent was really intended to create a vested interest. The main provision on which reliance was placed on behalf of the revenue for spelling out an intention to create a vested interest was clause (2), but we do not see how this clause can help the revenue. Clause (2) does not confer on the assessee any right to receive one-half of the income of the trust funds during the period of eighteen years. If the settler had given one-half of the corpus to the assessee on the expiration of the period of eighteen years and directed that in the meantime one-half of the net income of the trust funds should go to the assessee, it might have been possible to argue, in the absence of other countervailing circumstances, that the interest in one-half of the corpus given to the assessee was a vested interest and possession only was postponed till the expiration of the period of eighteen years. But here the assessee has not been given any right to any part of the income of the trust funds. Clause (2) vests a discretion in the trustees either to accumulate the net income of the trust funds or to utilise the same in such manner, at such time or times and in such proportions as the trustees may think fit for the maintenance, support, education and benefit of the assessee and Shyamali. The trustees may, in the exercise of their discretion, choose not to spend any part of the net income of the trust fund for the maintenance, support, education or benefit of the assessee and the assessee cannot do anything about it. The trustees may even spend the whole of the net income of the trust funds for the maintenance, support, education and benefit of Shyamali to the exclusion of the assessee. Even if the trustees accumulate the net income of the trust funds, no part of such accumulation would go to the assessee if she dies before the expiration of the period of 18 years : the accumulation would in such a case go, as part of the trust funds, to Shyamali if she is then alive and if Shyamali is also dead, then to the child or children of the assessee and Shyamali then living and if no child is also then in existence, then to the appointee under the power of appointment exercised by Gautam Sarabhai. The assessee is therefore not entitled to receive as of right any part of the income of the trust funds cannot be read as indicative of any intention on the part of the settlor to give a vested interest to the assessee. Clause (2) also empowers the trustees to utilise any portion or portions of the corpus of the trust funds to the extent of the moiety thereof in the aggregate, for the maintenance, support, education and benefit or the assessee and Shyamali or either of them in such manner and in such proportions and at such time or times as the trustees may in their discretion think fit. But this provision is also unhelpful to the revenue for it does not confer any right on the assessee to have recourse to one-half or, for the matter of that, any part of the corpus of the trust funds during the period up to the expiration of a period of eighteen years. The trustees are merely given discretion to utilise a portion of the corpus not exceeding one-half and in the exercise of this discretion the trustees may or may not utilise a portion of the corpus as they think fit. Even if the trustees choose to utilise a portion of the corpus what portion should be utilised and for whose benefit - whether for the benefit of both assessee and Shyamali or for the benefit of the assessee or Shyamali alone - would depend solely and exclusively on the discretion of the trustees. The trustees may not utilise any portion of the corpus for the benefit of the assessee. Clause (2) does not, therefore, confer any right on the assessee to insist that a portion of the corpus shall be utilised for her benefit during the period up to the expiration of a period of eighteen years and no inference can be drawn from this clause that the settlor intended to create a vested interest in the assessee.

13. The revenue also relied on clause (6) of the trust deed which confers a right on the trustees to purchase or construct a house or other residential premises for the personal residence of the assessee but this provision would come into operation only after the assessee attains majority and before the period of eighteen years comes to an end. Moreover, it does not appear from this clause as to what portion of the corpus would be required for purchasing or constructing a house or other residential premises for the personal residence of the assessee should the assessee require the trustees to do so. What kind of hours or other residential premises should be purchased or constructed for the personal residence of the assessee and how large it should be and where it should be situate would be matters which would obviously rest in the discretion of the trustees and it would be for the trustees to decide as to what portion of the corpus should be utilised by them for this purpose. It is, therefore, not possible to say that the assessee had vested interest in any portion of the corpus before the expiration of the period of eighteen years, particularly on the relevant valuation dates when the assessee had not attained majority.

14. What we have said above in relation to the first trust deed dated 12th February, 1958, must apply equally in relation to the second trust deed dated 12th February, 1958, and the trust deed dated 21st February, 1958. The relevant provisions in all the three trust deeds are almost identical with only this difference that the period of vesting provided in the second trust deed dated 12th February, 1958, is twenty years and that provided in the trust deed dated 21st February, 1958 is 22 years as against a period of eighteen years provided in the first trust deed dated 12th February, 1958, and the reasons which have weighed with us in taking the view that the interest in the corpus given to the assessee under the first trust deed dated 12 the February, 1958, is contingent interest must induce us to take the same view also in regard to the interest in the corpus given to the assessee under the second trust deed dated 12th February, 1958, and the trust deed dated 21st February, 1958. It is true that there is an additional clause (3) in the second trust deed dated 12th February, 1958, and trust deed dated 21st February, 1958, which requires the trustees to pay the net income of the trust funds to the assessee and Shyamali in equal shares for their absolute use and benefit during the period of two or four years, as the case may be, from the expiration of the period of eighteen years but that cannot make any difference to the determination of the question before us since, as pointed out above, no part of the income of the trust funds is given to the assessee absolutely during the period up to the expiration of eighteen years and gift of one-half share of the income of the trust funds to the assessee during the subsequent two or four years, as the case may be, and that too on condition that the assessee continues to be alive, cannot warrant the inference that the settlor intended to create a vested interest in any portion of the corpus in favour of the assessee.

15. We, therefore, reach the conclusion that the Tribunal was not right in taking the view that the assessee had no interest in the corpus of the trust funds under the four trust deeds and what she had was merely a spes successionis. We are of the view that the assessee had a contingent interest in the corpus of the trust funds and the value of such contingent interest was liable to be included in the net wealth of the assessee on the relevant valuation dates subject to our decision on the third question submitted to us for our opinion.

16. That takes us to the next question whether the assessee can be assessed to wealth-tax in respect of her contingent interest under the aforesaid four trusts when the trustees of the trust properties under section 21(4) of the Wealth-tax Act, 1957. This question arises only in regard to the assessment year 1958-59 and to appreciate its proper scope and ambit, it is necessary to notice a few facts found by the Tribunal. The trustees of the trust deed dated 12th September, 1956, were assessed to wealth-tax in respect of the trust properties for the assessment year 1958-59 by an order dated 30th March, 1959. The assessments of the trustees of the two trust deeds dated 12th February, 1958, and the third trust deed dated 21st February, 1958, in respect of the trust properties to wealth-tax for the assessment year 1958-59 were also completed by the Income-tax Officer on 27th February, 1959, 17th February, 1959, and 27th February 1959, respectively. These assessments were made on the trustees of the said trust deeds under section 21(4) of the Wealth-tax Act, 1957. The assessee contended on these facts that the trustees having already been assessed in respect of the trust properties under section 21(4), it was not competent to the revenue to proceed against the assessee for assessing her in respect of her contingent interest in the trust properties. The revenue disputed the validity of this contention and urged that since the trust properties belonged to the trustees at the relevant valuation date, they were liable to be included in the net wealth of the trustees and assessed as such and the assessee was also simultaneously liable to be assessed in respect of her contingent interest in the trust properties since such interest belonged to her at the relevant valuation date. The revenue contended that the assessment of the trustees in respect of the trust properties under section 21(4) did not preclude the revenue from assessing the assessee in respect of the contingent interest in the trust properties belonging to her. To determine the validity of these rival contentions, it is necessary to understand what is the subject-matter on which the charge of wealth-tax is levied under the Act. Section 3 which is the charging section levies the charge of wealth-tax on the net wealth of the assessee on the relevant valuation date and 'net wealth' is defined in section 2(m) to mean 'the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, 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'. It is clear from this definition that any property, wherever located, 'belonging to' the assessee on the relevant valuation date would be includible in the net wealth of the assessee assessable to wealth-tax. The question is : what is the meaning of the expression 'belonging to'. This expression has been the subject-matter of judicial interpretation in a number of decisions and it would be sufficient if we refer only to one of them, namely, the decision of the House of Lords in Heritable Reversionary Co. Ltd. v. Millar. The House of Lords was called upon in this case to construe the expression 'belonging to the creditor' as used in the Scottish Bankruptcy Act of 1856 and, while construing this expression, Lord Macnaghten observed :

'The words 'property' and 'belonging to' are not technical words in that law of Scotland. They are to be understood, I think, in their ordinary signification. They are in fact convertible terms; you can hardly explain the one except by using the other. A man's property is that which is his own, that which belongs to him. What belongs to him is his property. No one in ordinary parlance would speak of land or founds held only in trust for another as the property in any real sense any more than a bankrupts sequestered estate is the property of the trustee in bankruptcy. It is true that in the present case the complete feudal title was in the bankrupt. It is true that in a strict legal view the right of the beneficiaries was only a personal claim against the trustee. But for all that the bankrupt could not have applied the property to his own purposes or used it for his own benefit without committing a fraud for which he might have been made ciminally responsible. The beneficiaries were the true owners all along.'

17. This construction of the expression 'belonging to' was accepted by a Division Bench of this court in Commissioner of Wealth-tax v. Harshad Rambhai Patel, which was a cases under the Wealth-tax Act, 1957. There the Division Bench pointed out, after referring to the aforesaid passage from the speech of Lord Macnaghten in Heritable Reversionary Co. Ltd. v. Millar and the decision of the Court of Appeal in In re Miller, where the same view was taken as to the meaning of the expression 'belonging to' in the context of bankruptcy law : 'These were cases arising under the Bnakruptcy Acts, but the construction of the words 'belonging to' would apply equally to the same words used in section 4 and in the definition clause, clause 2(c), in the present Act', that is, the Wealth-tax Act, 1957. It is, therefore, clear that assets held by the trustee in trust for others cannot be said to be assets 'belonging to' the trustees so as to be includible in his net wealth. The assets so held 'are not the trustee's property in any real senses' : they are the property of the beneficiaries and, to use the words of Lord Macnaghten, the beneficiaries are the true owners all along. The trustees of a trusts cannot, therefore, be assessed to wealth-tax in respect of the trust properties. The trust properties 'belong to' the beneficiaries and it is the beneficiaries who are assessable to wealth-tax in respect of the interest in the trust properties belonging to them. Now there may be no difficulty in assessing a beneficiary to wealth-tax in respect of his interest in the trust properties where he is the sole beneficiary, for in such a case, the whole of the whole of the trust properties would 'belong to him' and they would be liable to be include in the computation of his net wealth. There would equally be no difficulty in assessment where there are more beneficiaries than on, if the shares of the beneficiaries in the trust properties are determinate and known, so that it is possible to define precisely what is the interest of each beneficiary in the trust properties which can be included in comporting his net wealth. But difficulty is bound to arise where there are more than one beneficiary and the share of the beneficiaries are indeterminate or unknown. It would not be possible to predicate in such a cases what precisely is the interest of each beneficiary in the trust properties for the purpose of inclusion in computation of his net wealth. How then is the assessment to wealth-tax in respect of the trust properties to be made in a case of this kind This problem was solved by the legislature by providing that where it is not possible to assess the beneficiaries in respect of their interest in the trust properties, because their shares are indeterminate or unknown, the assessment to wealth-tax may be made on the trustees as if the beneficiaries on whose behalf or for whose benefit the trust properties are held were an individual. While making this provision, the legislature also permitted assessment to wealth-tax to be made on the trustees, even where there is a single beneficiary or there are more beneficiaries than one but their shares are determinate and known, as such a procedure would be highly convenient to the revenue from the point of view of recovery of the wealth-tax since the trust properties would be in the hands of the trustees who are assessed and in case of default in payment of the wealth-tax, it would be easy for the revenue to proceed against the trust properties for recovery of the wealth-tax and at the same time no prejudice or hardship would be caused to the beneficiaries. This result was brought about by the legislature by the enactment of section 21 which, so far as material, reads as follows :

'21. Assessment when assets are held by courts of wards, adminsitrators general etc. - (1) In the case of assets chargeable to tax under this Act which are held by a court of wards or an administrator-general or an official trustee or any receiver or manger or any other person, by whatever name called, appointed under any order of a court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly exerted instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of wakf), the wealth-tax shall been levied upon and recoverable from the court of wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be livable upon and recoverable from the person on whose behalf or for whose benefit the assets are held, and the provision of this Act shall apply accordingly.

(2) Nothing contained in sub-section (1) shall prevent either the direct assessment of the person on whose behalf or for whose benefit the assets above referred to are held, or the recovery from such person of the tax payable in respect of such assets.......

(4) Notwithstanding anything contained in this section, where the shares of the persons on whose behalf or for whose benefit any such assets are held are indeterminate or unknown, the wealth-tax may be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person aforesaid as if the persons on whose behalf or for whose benefit the assets are held were an individual who is a citizen of India and resident in India for the purposes of this Act.

(5) Any person who pays any sum by virtue of the provisions of this section in respect of the net wealth of any beneficiary, shall be entitled to recover the sum so paid from such beneficiary, and may retain out of any assets that he may hold on behalf or for the benefit of such beneficiary, an amount equal to the sum so paid....'

18. It is clear from these provisions that the assessment which is contemplated to be made on the trustees under sub-sections (1) and (4) is assessment in a representative capacity. It is really the beneficiaries who are sought to be assessed in respect of their interest in the trust properties through the trustees. Sub-section (1) provides that in respect of trust prorates held by the trustees, wealth-tax shall be levied upon them in the like manner and to the same extent as it would be livable upon the beneficiary for whose benefit the trust properties are held. This provision obviously can apply only where the trust properties area held by the trustees for the benefit of a single beneficiary or where there are more beneficiaries than one, the individual shares of the beneficiaries in the trust properties are determinate and known. Where such is the case, wealth-tax can be levied on the trustees in respect of the interest of any particular beneficiary in the trust properties in the same manner and to the same extent as it would be livable upon the beneficiary and in respect of such interest in the trust properties, the trustees would be assessed in representative capacity as representing the beneficiary. But this does not mean that the revenue cannot proceed to make direct assessment on the beneficiary in respect of interest in the trust properties which 'belongs to' him. The beneficiary would always be assessable in respect of his interest in the trust properties since such interest in the trust prorates 'belongs to' him and the right of the revenue to make a direct assessment on him in respect of such interest in the trust properties stands unimpaired by the provision enabling assessment to be made on the trustees in a representative capacity. Sub-section (2) makes this clear by providing that nothing contained n sub-section (1) shall prevent either the direct assessment of the beneficiary for whose benefit the trust properties are held or the recovery form the beneficiary of the wealth-tax in respect of his interest in the trust properties which is assessed in the hands of the trustees. The revenue has thus two modes of assessment available for assessing the interest of a beneficiary in the trust properties, where there is either a single beneficiary or there are more beneficiaries than one but their shares in the trust properties are determinate and known. The revenue may either assess the interest of the beneficiary in the trust properties in the a hands of the trustees in a representative capacity under sub-section (1) or assess it directly in the hands of the beneficiary by including it in the net wealth of the beneficiary. These two modes of assessment are clearly alternative to each other. The revenue can adopt either the one or the other but not both, because whether the assessment is made on the trustees or on the beneficiary, it is the same asset which is assessed to wealth-tax, namely, the interest of the beneficiary in the trust properties and it is elementary that the revenue cannot seek to assess the same asset twice. Sub-section (5) also emphasizes that where the trustees are assessed under sub-section (1) the assessment is made on them 'in respect of the net wealth' of the beneficiary and if the trustees have to make payment of any amount in respect of the wealth-tax so assessed on them, they may retain such amount out of any assets which they may hold for the benefit of the beneficiary.

19. This would clearly appear to be the position in regard to assessment where the trustees hold trust properties for the benefit of a single beneficiary, or, there being more beneficiaries than one, the individual shares of the beneficiaries in the trust properties are determinate and known. But what is to happen where there are more than one beneficiary and their individual shares in the trust properties are indeterminate or unknown The answer to this question is provided by sub-section (4) which provides that where the shares of the beneficiaries for whose benefit the trust properties are held are indeterminate or unknown, the wealth-tax may be levied upon the trustees as if the beneficiaries for whose benefit the trust properties are held were an individual for the purposes of the Act. Since the interests of the beneficiaries in the trust properties in such a case would be indeterminate or unknown, it would not be possible to make direct assessment on any beneficiary in respect of his interest in the trust properties nor would it be possible to levy wealth-tax on the trustees in respect of the interest of any beneficiary in the trust properties 'in the like manner and to the same extent as it would be livable upon.' such beneficiary, under sub-section (1). The legislature, therefore, provides that, in a case of this kind, wealth-tax may be assessed on the trustees as if the beneficiaries were an individual, so that, for the purpose of assessment, a fiction would be created as if the trustees hold the trust properties for the benefit of a single beneficiary and assessment would be made on the trustees on such fictional basis under sub-section (1) When assessment is made on the trustees on the fictional basis as if the beneficiaries were one individual, it is assessment on the trustees in a representative capacity and what is assessed to wealth-tax is the totality of the interest of the beneficiaries in the trust properties. It is, therefore, apparent that once assessment is made on the trustees in respect of the interest of the beneficiaries in the trust properties. under sub-section (4), the beneficiaries cannot be again assessed directly in respect of their interest in the trust properties. The interest of the beneficiaries in the trust properties having suffered assessment to wealth-tax in the hands of the trustees in a representative capacity, cannot again be assessed to wealth-tax in the hands of the beneficiaries.

20. It is clear, on the facts of the present case, that the trustees of the four trust deeds dated 12th September, 1956, 12th February, 1958, 12th February, 1958, and 21st February, 1958, were assessed to wealth-tax in respect of the trust properties and it was, therefore, not competent to the revenue to include the value of the interest of the assessee in the trust properties in the computation of her net wealth for the assessment year 1958-59.

21. We, therefore, answer questions Nos. 1 and 2 in the negative by saying that the assessee had a contingent interest in the corpus of the trust founds under the four trust deeds dated 12th September, 1956, 12th February, 1958, 12th February, 1958, and 21st February, 1958. We also answer question No. 3 in the negative by stating that the assessee cannot be assessed to wealth-tax in respect of her interest in the corpus of the trust funds under the four trust deeds dated 12th September, 1956, 12th February, 1958, 12th February, 1958 and 21st February, 1958, for the assessment year 1958-59, since the trustees of those trusts were already assessed to wealth-tax for the assessment year 1958-59 under section 21, sub-section (4), of the Wealth-tax Act, 1957. Since the assessee and the Commissioner have both partly succeeded in the reference, there will be no order as to costs of the reference.


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