1. Under Section 27(1) of the W.T. Act of 1957, the following question has been referred :
' Whether, on the facts and in the circumstances of the case, the assessments under the Wealth-tax Act for the assessment year 1958-59 and 1960-61 to 1967-68, on the assessee, namely, the trustee of the estate of V. R. Chetty and Brothers, should be made under Section 21(4) of the Wealth-tax Act, 1957 '
2. One Vitta Rangiah Chetty owned certain properties acquired by him under a deed executed in his favour by his adoptive father. Vitta Rangiah Chetty executed a trust deed on August 15, 1931, in respect of some of the properties that belonged to him. At that time he had two sons, Vitta Radha Krishna Chetty and Vitta Gopala Krishna Chetty then aged 2 years and 3 months respectively. Under the aforesaid deed, the official trustee of Madras was appointed trustee of the properties. He was to hold them ' in trust for the benefit and use of Radhakrishna Chetty and Gopalakrishna Chetty and all other sons that may be born to him thereafter till the eldest son completed the age of 21 years '. In accordance with the trust deed, the official trustee, Madras, took possession of the properties. After the trust deed, three more sons were born to the author of the trust, namely, Vitta Mohankrishna Chetty, Vitta Muralikrishna Chetty and Vitta Ananda-krishna Chetty. After Vitta Radhakrishna Chetty attained 21 years of age, the three sons of the author of the trust filed O. P. No. 23 of 1952 in the High Court for appointing the first of them, or any other person as guardian of the two minors. Another application was filed by all the five sons of the author of the trust for directing the official trustee to hand over the properties to them. The above original petition and the application were disposed of by the High Court in February, 1952. It was contended in these proceedings on behalf of the sons of the author of the trust that only such sons of the author of the trust as were born before the eldest of them completed the age of 21 years were entitled to the properties but that contention was rejected by the High Court. The relevant clause in the trust deed was interpreted to mean that all the sons of the author of the trust, inclusive of those born at any time subsequent to the creation of the trust would be entitled to the benefit of the properties but that the official trustee was to be the trustee till the eldest son completed 21 years of age. The High Court discharged the official trustee from the trusteeship and appointed the three major sons of the author of the trust as trustees. Vitta Radhakrishna Chetty was also appointed as the guardian of the two minor sons of the author of the trust.
3. Muralikrishna Chetty, the youngest son of the author of the trust, instituted O. S. No. 137 of 1967 in the High Court after attaining majority. He impleaded his four elder brothers as defendants 1 to 4, his sister, Varalakshmi as defendant 5, and his father as defendant 6, and prayed for the removal of defendants 1 to 3 from the trusteeship and appointment of fit and proper persons as trustees and for rendition of accounts of the management of the trust estate. The suit was compromised and a decree was passed in terms thereof in 1970, Under the said decree, defendants 1 to 4 were to pay Rs. 44,000 to the plaintiff, Muralikrishna Chetty, in full quit of his claim for marriage expenses and for rendition of accounts. It was also provided therein that the properties should be divided into five equal shares and that the plaintiff and defendants 1 to 4 should each be entitled to one of such shares.
4. The WTO assessed the trustees of the estate of Vitta Rangiah Chetty in the status of ' Individual ' for the assessment years now under consideration. In doing so, he rejected the contention of the trustees that since they held the properties in trust for the benefit of themselves and their brothers they should be separately assessed in respect of the shares of each of them under Section 21(1) of the W.T. Act of 1957 and that Section 21(4) of thesaid Act did not apply. He held that the shares of the beneficiaries in the trust properties were indeterminate and that, therefore, Section 21(4) applied.
5. The AAC, on appeal, upheld the view taken by the WTO. The trustees thereupon preferred appeals to the Tribunal. After examining the provisions of Section 21 of the W.T. Act and the materials on record, the Tribunal held that the trustees should have been assessed under Section 21(1) of the W.T. Act and not under Section 21(4). The assessments were, therefore, set aside with a direction to the WTO to redo the same in accordance with its order. The question already set out has been referred as arising out of this order.
6. Section 21(1) of the W.T. Act, 1957, so far asit is material, runs thus :
' In the case of assets chargeable to tax under this Act, which are hely by a court of wards, or an administrator-general or an official trustee or any receiver or manager 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 executed instrument in writing, whether testamentary or otherwise....... the wealth-tax shall be 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 leviable upon and recoverable from the person on whose behalf or for whose benefit the assets are held, and the provisions of this Act shall apply accordingly.
Sub-section (4) of Section 21, provides, and so far as it is relevant, runs thus : ' 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 shall 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 purpose of this Act...... '
7. It is unnecessary to refer to the rest of the provision.
8. The Supreme Court, in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust : 108ITR555(SC) , has gone into the construction of Section 21(1) and (4) and pointed out that Section 3 of the W.T. Act, 1957, imposes the charge of wealth-tax subject to the other provisions of the Act and that the other provisions would include Section 21. Being made expressly subject to Section 21, Section 3 must yield to that section in so far as Section 21 makes special provision for assessment of the trustee of a trust. Therefore, whenever assessment is made on a trustee, it must be made in accordance with the provisions of Section 21, Every case of assessment on a trustee must necessarily fall under Section 21 and he cannot be assessed apart from and without reference to the provisions of that section. In dealing with this provision at page 595, the Supreme Court has observed :
' Now, wherever there is a trust, it is obvious there must be beneficiaries under the trust, because the very concept of a trust connotes that though the legal title vests in the trustee, he does not own or hold the trust properties for his personal benefit but he holds the same for the benefit of others, whether individuals or purposes. It must follow inevitably from this premise that since under Sub-sections (1) and (4) of Section 21, it is the beneficial interests which are taxable in the hands of the trustee in a representative capacity and the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries, no part of the corpus of the trust properties can be assessed in the hands of the trustee under Section 3 and any such assessment would be contrary to the plain mandatory provisions of Section 21. '
9. By applying Section 21(1) it would follow that a trustee is assessable ' in the like manner and to the same extent ' as the beneficiary. The Supreme Court points out that there are three consequences resulting from the application of Sub-section (1). They are :
(1) In the first place, it follows inevitably from this proposition that there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary.
(2) Secondly, the assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee, and
(3) Lastly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly.
At page 598, in dealing with Section 21(1) and (4), the Supreme Court points out;
' The correct interpretation of Sub-section (4) of Section 21 must, therefore, be that even where the beneficiaries of the remainder are indeterminate or unknown the trustee can be assessed to wealth-tax in respect of the totality of the beneficial interest in the remainder, treating the beneficiaries fictionally as an individual.......
The Wealth-tax Officer has to determine who are the beneficiaries in respect of the remainder on the relevant date and whether their shares are indeterminate or unknown ......So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of Sub-section (1) of Section 21. '
10. Bearing these principles in view, we have to look at the document in the present case. As mentioned earlier, the document was executed on August 15, 1931. At that time, the author had only two sons, Vitta Radhakrishna Chetty and Vitta Gopalakrishna Chetty, then aged 2 years and 3 months respectively. The operative clause runs as follows :
' Now this indenture witnesseth that in consideration of the premises the author of the Trust do hereby appoint the Official Trustee of Madras as the Trustee of the movable and immovable properties more particularly described in the schedule hereto which are in his possession in trust for the benefit and use of Radhakrishna Chetty and Gopalakrishna Chetty the minor sons of the author of the Trust and all other sons that may be born to him hereafter till the eldest son completes the age of 21 years.
The Official Trustee of Madras and such other trustee under this document shall collect the rents and profits from the properties more particularly described in the schedule hereto and shall pay the net collection to the author of the Trust abovenamed month after month for a period of 2 years from 1st August, 1931, to be utilised by him for the benefit of himself and his minor children and thereafter pay to the author of the Trust only half the net collections every month for being spent for the maintenance and education of the sons now in existence and hereafter to be born.
If on the Official Trustee of Madras closing the estate of the author of the Trust any monies are found to the credit of the estate, then 2/3rds of the said amount shall be transferred to the account of the beneficiaries under this Deed of Trust and the said sum so transferred shall form part of the Trust estate hereby created.
The official trustee of Madras shall have in the management of the trust properties all the powers usually vested in him as official trustee and shall be entitled to charge the Trust estate the commission and other charges payable to him under the rules. ' (emphasis* added).
11. The main dispositive clause which we have extracted above, particularly the words emphasised, contemplates the official trustee holding the property for the benefit and use of not only the two sons who were in existence, but also other sons to be born. It is not in dispute that the author had five sons. All the five sons became entitled to the estate as beneficiaries under the trust deed. Even where the share of each of the beneficiary is not specified, the rule of construction of the document that is applied is that each one of them takes equally. If there are, however, indications to the contrary, then that indication would have to be given effect to. It is only in the absence of such indication, that the rule of equality of shares will apply. Thus, in this case, each beneficiary has one-fifth share in the corpus.
12. The learned counsel for the revenue submitted that the trust deed did not indicate that the properties are to vest in any one and that the official trustee had been appointed only as the manager of the property for a particular period. If this contention were to be accepted then the author of the trust will be the real owner of the property and it will be he or the trustee as his representative or manager who has to be proceeded against. This was not the view taken by any of the authorities 50 far, nor was this contention put forward at any stage earlier. This was not even the contention urged as a matter of construction in this court at any time when this matter came before this court (in the original side). The matter, it must be remembered, came before this court more than once. Further, this contention is not consistent with the language of the document. The operative clause of the trust deed which we have extracted clearly shows that the properties are transferred to the Official Trustee, Madras, for the benefit and use of the children of the author of the trust. In the absence of any indication in the document to show that the benefit is only for the respective lives of the individuals, they would be the absolute beneficiaries under the document. The intention was to keep the properties away from the dispositive power of the author and put a stranger, the official trustee, in possession. There was no attempt at retaining any right or interest in the properties. On a construction of the operative part of the document, we hold that each one of them had a vested right in the properties covered by the trust deed to the extent of their respective shares. Any other construction would defeat the intention of the author of the trust.
13. The very expression ' use ' occurring in the operative portion of the document is a well-known expression used in the law of trust, and the word has always been construed as indicating that the trustee holds the property for the beneficiaries. By the expression ' use ', it is clear that the beneficiary has an interest in the property and the suggestion to the contrary that the beneficiary has no interest in the property is not correct.
14. Learned counsel for the revenue drew our attention to two decisions of the Supreme Court. The first decision is in CIT v. Puthiya Ponmanichintakan Wakf : 44ITR172(SC) . In that case, one Umbichi and his wife created a wakf of their properties. The mutawalli appointed thereunder was directed to manage the properties in such a way as to do acts necessary for charitable purposes 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 male children born to the said female children. After payment of taxes and meeting expenses for repairs and maintenance of the properties, the mutawalli was to utilise the balance of the income for the daily household and food expenses and 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 properties yielding good income. The question arose whether the first proviso to Section 41(1)of the Indian I.T. Act, 1922, applied and the mutawalli was assessable on the income of the properties at the maximum rate, on the basis that the shares of the beneficiaries were indeteiminate or unknown. It was held that although the number of beneficiaries was ascertainable at any given point of time, the beneficiaries had no specified share in the income of the properties but had only a right to be maintained. The individual shares of the beneficiaries under the wakf was thus found to be indeterminate within the meaning of Section 41(1) of the Indian I.T. Act. and the mutawalli was held liable to pay tax at the maximum rate. The position here is different.
15. Section 41(1) of the Indian I.T. Act contemplates two exceptions : (i) where the income is not specifically receivable on behalf of any one person ; and (ii) where the individual shares of the persons on whose behalf the income is receivable are indeterminate or unknown. In these two circumstances tax has to be levied at the maximum rate. The first of the two exceptions does not find a place in Section 21. Having regard to this variation between Section 41(1) of the Indian I.T. Act, 1922, and Sections 21 and 21(4) of the W.T. Act, 1957, it is not possible to apply that decision to the present case. In that case, it would have been enough, if the income was receivable specifically on behalf of any one person. But under the Wealth-tax Act, unless the individual shares of the persons on whose behalf assets are held are indeterminate or unknown, the wealth-tax would be leviable at the rate applicable to the beneficiary. It will then be a case of pure representative assessment, and the wealth-tax will have to be paid in accordance with Section 21(1) in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf or benefit the assets are held. In the present case, the shares being determinate, Sub-section (1) of Section 21 would clearly apply.
16. The other decision cited by the learned counsel for revenue was CWT v. Kripaskankar Dayashankar Worah : 81ITR763(SC) . In that case, a trust deed was executed creating a trust over certain properties. The author of the trust himself was the trustee. The income from the trust properties had to be applied for the maintenance and joint use of himself and his wife, for the maintenance, education and marriage expenses of his two minor daughters, and for the maintenance and education of his minor sons. Certain provisions were made in case the author should predecease his wife. After the marriage of the daughters and also after the death of the author's wife and the attainment of majority of the minor sons, the trustee was to hold the trust estate for the absolute use and benefit of the sons. Even before the first of the relevant valuation dates, both the daughters had been married and the sons had attained majority. The question was whether the respondent was liable to be assessed to wealth-tax in respect of the trust properties under Section 21(1) of the W.T. Act, 1957. It was held that the trustee held the trust properties ' on behalf of ' others within the meaning of Section 21(1) and was assessable to wealth-tax under Section 21 ; since on the relevant valuation dates, the respondent and his wife had a right to be maintained out of the income of the trust properties, and they also had a right of residence in the house situate in that property and the sons had a right to be maintained and educated, the shares of the beneficiaries were found to be indeterminate and the trustees had to be assessed under Section 21(4). The decision proceeded on the construction of the particular document in the light of the factual situation that existed in that case. There is nothing in that decision which runs contrary to what we have expressed earlier, as flowing from the construction of the document before us.
17. On the construction of the document, we answer the question in the negative, in the sense that the trustees of the estate should be assessed under Section 21(1) and not under Section 21(4) of the W.T. Act in accordance with the share of each individual beneficiary. The assessee will be entitled to his costs. Counsel's fee Rs. 500 in one set.