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Commissioner of Wealth-tax Vs. Administrator-general of West Bengal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberWealth-tax Reference No. 201 of 1965
Judge
Reported in[1971]79ITR154(Cal)
ActsWealth Tax Act, 1957 - Section 21 and 21(4)
AppellantCommissioner of Wealth-tax
RespondentAdministrator-general of West Bengal
Appellant AdvocateB.L. Pal and ;Chandan Banerjee, Advs.
Respondent AdvocateD. Pal, Adv.
Cases ReferredAnnada Mohan Roy v. Gour Mohan Mullick
Excerpt:
- .....the relevant date. amplifying his arguments counsel for the assessee says that if on the relevant date the beneficiaries have no vested interest but a mere contingent interest which may ripen into a vested interest on the happening of a contingency which may or may not happen, they (i.e., the beneficiaries) cannot conceivably be liable for any wealth-tax. and if they (i.e., the beneficiaries) are not liable to wealth-tax, their trustee whose liability is co-extensive with their liability cannot also be liable. the assessee's counsel relies on the judicial committee's observation in amrit narayan singh v. goya singh, [1918] l.r. 45 i.a. 35 ; 44 i.c. 408, 410 (p.c.) at page 39, the judicial committee has said:'... a hindu reversioner has no right or interest in praesenti in the property.....
Judgment:

Sankar Prasad Mitra, J.

1. In this reference under Section 27(1) of the Wealth-tax Act, 1957, the assessment to wealth-tax was made on the Administrator-General of West Bengal, representing the estate of Mrs. Sreemah Joseph Jacob Judah Ezekiel, deceased--beneficiary, Mrs. R.M. Ezra --for the assessment year 1960-61, the corresponding valuation date being March 31, 1960.

2. Mrs. Ezekiel, by her will executed on the 26th July, 1912, appointed the Administrator-General and her daughter,

3. Rebecca, as the executor and executrix and trustees. After certain legacies she directed her executor andexecutrix and trustees to realise the residue of her estate and transfer one quarter of the capital to her daughter, Rebecca, after three years and another quarter after eight years of her death. This has been done. Of the remaining moiety of her residuary estate, the testator's directions were as follows:

(a) The residuary fund to be held upon trust to pay the income thereof to her said daughter for her life without power of anticipation during any coverture.

(b) Power conferred on the daughter by will or codicil to appoint that the income of the whole or any part of the residuary trust fund shall be paid to any husband with whom she may hereinafter inter-marry and who may survive her during his life or for any less period.

(c) Subject to the exercise of the power of appointment aforesaid, the capital and income of the fund were to be held in trust for such or more of her issues, immediate or remote, or her adopted children and their issues at such time and if more than one in such shares as the said daughter, by deed or by will or codicil, appoint and in default of such appointment upon trust for all the children or any child (excluding adopted children) of the said daughter who would attain the age of 21 years and if more than one in equal shares.

(d) In the event the daughter had no child born to her, then subject to any appointment made by her in favour of any husband with whom she may inter-marry, in trust for such objects and purposes as the said daughter shall by will or codicil appoint.

(e) In default of any such appointment, in trust for her statutory next of kin as if she had died a spinster and intestate and the residuary trust fund would be deemed to have formed part of her personal estate.

4. Now, Section 27(4) of the Wealth-tax Act, 1957, as it stood at the material date, was as follows :

' 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, administrator-general, official trustee, receiver, manager or other person aforesaid as if the persons on whose behalf the assets are held were an individual for the purposes of this Act.'

5. In the instant case up to the assessment year 1959-60 the entire residuary estate had been assessed to wealth-tax, under Section 27(4), in the hands of the Administrator-General. For 1960-61, the assessee contended that, as the life tenant, Mrs. Ezra, was already more than 66 years of age on the valuation date, namely, March 31, 1960, the value of her life interest in the residuary estate would be nil and, as such, no wealth-tax was payable by the assessee.

6. The Wealth-tax Officer took the view that under the will of Mrs. Ezekiel, the beneficiaries were not only the daughter of the testator, but also the residuary legatees including the daughter's husband and the daughter's children either natural or adopted. He held that the Administrator-General was liable to pay wealth-tax on the value of the life interest of the daughter and the present value of the future interest of the reversioners in the residuary estate. The Wealth-tax Officer valued the daughter's life interest at five times the net yield from the trust estate, that is, at Rs. 1,81,870. He also estimated the present value of the reversioner's future interest receivable after five years at 0.7853 times of the total value of the residuary estate and determined the same at Rs. 5,71,950. The Wealth-tax Officer was further of opinion that, as the Administrator-General held the future interest as aforesaid on behalf of the beneficiaries whose shares were indeterminate or unknown, the assessment of the future interest was to be made under Section 27(4). The Wealth-tax Officer passed an order of assessment on the basis aforesaid.

7. The Appellate Assistant Commissioner held that on the terms and conditions of the will the different beneficiaries and their shares of the residue were not ascertainable. In the premises, he sustained the Wealth-tax Officer's order under Section 27(4).

8. Before the Tribunal, it was stated on behalf of the assessee that (a) at the time of hearing of this appeal Mrs. Ezra was more than 70 years old (b) she had married in 1926 and her husband was alive ; (c) she had no child born to her ; (d) she had not adopted any child; (e) she had not made any appointment in favour of her husband; and (f) she had not declared any trust in respect of the residuary estate by will or codicil. In these circumstances, it was argued before the Tribunal, there were no residuary beneficiaries on the valuation date, who were beneficially interested on the death of Mrs. Ezra. And no assessment could be made on the Administrator-General under Section 27(4). The Tribunal was of opinion that an assessment could be made under Section 21 only when assets were, held on behalf of any person. Further, Sub-section (4) of Section 21 contemplated, according to the Tribunal, that such persons were in existence on the valuation date but the shares of such persons were indeterminate or unknown. The Tribunal said that if the persons on whose behalf the assets were held were themselves indeterminate or unknown on the valuation date, there was no scope for an assessment under Section 21. In these premises, the Tribunal set aside the order under Section 21(4).

9. The following question of law has been referred to this court:

'Whether, on the facts and in the circumstances of the case, and on a proper construction of the will of Mrs. Ezekiel, dated July 26, 1912, the Tribunal was right in holding that the assessment made upon theAdministrator-General under Section 21(4) of the Wealth-tax Act, 1957, on the estimated value of the future interest of the reversioners under the said will was not sustainable in law '

10. Mr. Debi Pal, learned counsel for the assessee, submits that in order to attract Section 21(4) of the Wealth-tax Act, two conditions must be satisfied, namely, (1) the trustee must hold assets on the relevant valuation date on behalf of the beneficiaries; in other words, the beneficiaries' on whose behalf the trustee holds the assets must have a vested interest in praesenti in the assets on the relevant date ; and (2) the shares of these beneficiaries are indeterminate or unknown on the relevant date. Amplifying his arguments counsel for the assessee says that if on the relevant date the beneficiaries have no vested interest but a mere contingent interest which may ripen into a vested interest on the happening of a contingency which may or may not happen, they (i.e., the beneficiaries) cannot conceivably be liable for any wealth-tax. And if they (i.e., the beneficiaries) are not liable to wealth-tax, their trustee whose liability is co-extensive with their liability cannot also be liable. The assessee's counsel relies on the Judicial Committee's observation in Amrit Narayan Singh v. Goya Singh, [1918] L.R. 45 I.A. 35 ; 44 I.C. 408, 410 (P.C.) at page 39, The Judicial Committee has said:

'... a Hindu reversioner has no right or interest in praesenti in the property which the female owner holds for her life. Until it vests in him on her death, should he survive her, he has nothing to assign or to relinquish, or even to transmit to his heirs. His right becomes concrete only on her demise ; until then it is mere spes successions. '

11. The assessee's counsel also cites the decision of the Judicial Committee in Annada Mohan Roy v. Gour Mohan Mullick, [1923] L.R. 50 I.A. 239 ; A.l.R. 1923 P.C. 189 to show that spes successions can never be transferred.

12. It seems to us that this reference should be decided purely upon construction of the terms of the will of Mrs. Ezekiel. And from this point of view the example of a Hindu reversioner's interest does not appear to be apposite. The facts are that on the valuation date there were reversioners under the will, although there was no evidence as to who exactly they were. The degrees of kindred in a given case can, however, always be computed in the manner set forth in the table of kindred set out in Schedule I to the Indian Succession Act. And the estimated value of the future interests of these reversioners can also be determined.

13. Turning to the will itself we find that the Administrator-General was required to hold the residuary fund on certain trusts. He was asked, inter alia, to pay the income from the trust fund to the testatrix's daughter for life. The daughter was entitled to make different kinds of appointments which were to be operative after her death. Then it is said :

' In default of any such appointment the Administrator-General was to hold in trust for the statutory next of kin as if she had died a spinster and intestate and the residuary trust fund would be deemed to have formed part of her personal estate. '

14. Now, when the Wealth-tax Officer is making an assessment with reference to a particular valuation date he has to see whether on that date the testatrix's daughter had made any appointment under any of the powers given to her by the will. If the Wealth-tax Officer found that she had not exercised any of these powers and she had no children natural or adopted, he had to come to the conclusion that on the relevant date the Administrator-General was holding the residuary fund upon trust to pay the income thereof to the daughter of the testatrix for life without power of anticipation during any coverture and thereafter in trust for the daughter's statutory next of kin as if she had died a spinster and intestate. The Wealth-tax Officer had further to come to the conclusion that the shares of the statutory next of kin aforesaid were, on the valuation date, indeterminate or unknown having regard to the evidence at his disposal. In these premises, the provisions of Section 21(4) of the Wealth-tax Act would be attracted and the assessment had to be completed in terms of those provisions. We may, in this connection, incidentally refer to the Bombay High Court's decision in Commissioner of Wealth-tax v. Trustees of Mrs. Hansabai Tribhuwandas Trust : [1968]69ITR527(Bom) . In this case, under the terms of a trust deed the net income of the trust fund was to be paid to H so long as H continued to be and remained either the wife or the widow of T. In the event of a son or sons being born to H, on H ceasing to be either the wife or the widow of T, the corpus was to be divided amongst all the sons of H, if more than one, in equal shares and in the absence of the children of H, amongst the heirs of T. Now, on the relevant valuation date H had no sons ; but T's brother had a son. The Wealth-tax Officer held that upon the provisions of the trust deed, the beneficiaries in the corpus were not known or determinate on the date of valuation, and that it all depended upon 'certain contingencies happening', and that Section 21(4), therefore, applied to the case. The Tribunal held that having regard to the provisions of the relevant documents it would be clearly possible for any competent actuary to determine the interest of these persons as on the respective valuation dates quite precisely and that the property held under that deed, therefore, should have been charged in the hands of the respective beneficiaries in respect of the value of interest which each of them had in the corpus either in the hands of trustees or in their own hands. The Bombay High Court has held, that, under the trust, on the relevant date, II would be entitled to the entire income of the trust fund and the heirs of T, according to law, would have a contingent interest in the corpus of the trust property; there was nothing indeterminate or unknown in this trust deed as regards the shares; H clearly had only the interest given to her in the net income and had no rights in the corpus of the property, whereas the son of T's brother had on the relevant date a contingent interest in the corpus of the trust property as heir of T, contingent upon H ' ceasing to be the wife or widow of T ' which contingency would also cover the case of her death. The Bombay High Court has said further that though it would be a difficult thing to compute and determine the share in the case of a life interest or in the case of a contingent remainder, the difficulty of computation should not come in the way of the application of the law which speaks of 'the shares of the persons on whose behalf or for whose benefit any such assets are held being indeterminate or unknown' ; it is always possible by actuarial calculations to assess the present worth of a life interest such as H had or a contingent remainder such as the heirs of T would have : the shares of the persons on whose behalf the trustees were holding the assets were determinate and known in the present case, and Section 21(4) was not applicable. The Bombay High Court is of the view, however, that for ihe purpose of applying the provisions of Section 21(4) the question whether the shares of the beneficiaries are indeterminate or unknown has to be judged as the facts stand on the 'relevant date' in each assessment year; and the mere fact that under the terms of the trust the beneficiaries may change on the happening of certain contingencies will not make the shares of the beneficiaries indeterminate or unknown and justify the assessment of the trustee as an individual on the entire wealth. We agree that the terms of a will, in a case like this, have to be construed in a wealth-tax assessment with reference to the relevant date of valuation. In the instant reference, on the relevant date, the Administrator-General was holding the residuary fund upon trust to pay the income to the daughter of the testatrix for her life and in trust for her statutory next of kin whose shares, on the materials available, were indeterminate or unknown. The Wealth-tax Officer was, therefore, justified in applying the provisions of Section 21(4).

15. In the result, our answer to the question referred to this court is in the negative and in favour of the Commissioner of Wealth-tax. The assessee will pay to the Commissioner the costs of this reference.

Sabyasachi Mukharji, J.

16. I agree.


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