Judgment:
1. This is an appeal by the assessee. The proceedings relate to the assessment for the assessment year 1976-77. The assessee is a wakf trust. It was created by a deed of trust dated 21-2-1938. The income of the trust is to be applied in terms of Clauses 2, 3 and 4 of the deed of trust which are reproduced below : 2. The trustees shall pay the net income of the trust funds to the said Ahmedbhoy Oomerbhoy during his life for his maintenance and support and after his death shall pay the net income of the trust funds to Bai Khatizabai, the wife of the said Ahmedbhoy Oomerbhoy during her life for her maintenance and support.
3. After the death of the survivor of the said Ahmedbhoy Oomerbhoy and the said Khatizabai the trustees shall distribute the net income of the trust funds among the male children of the said Ahmedbhoy Oomerbhoy and the descendants of such male children from generation to generation for their maintenance and support.
4. On the total extinction of male child or children of the said Ahmedbhoy Oomerbhoy and their descendants the trustees shall hold the trust fund for such religious, pious and charitable purposes as the trustees may, in their absolute discretion, think fit.
After Clause 4, there was a further provision that for the purpose of arriving at the net income of the trust certain deductions would be made in respect of certain expenses and a sum equivalent to 10 per cent of the gross income will be set apart for creating reserves, etc.
However, the said Clause is not important for the purpose of this appeal. Both Ahmebhoy Oomerbhoy and his wife, Khatizabai, are no longer alive. The income of the trust is distributed among the male children of the said Ahmedbhoy Oomerbhoy and/or descendants of such male children.
2. The assessee's contention that when the aggregate value of the life-interests of the beneficiaries and the remainderman's interest are taxed in the hands of the beneficiaries, there is nothing that can be taxed in the hands of the trustees in view of the decision of the Supreme Court in the case of CWT v. Trustees of H.E.M. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 has been rejected by the WTO who has observed : 1. The assessee-trust is a discretionary trust inasmuch as the trustees have been given absolute discretion to apply the income and capital of the trust as mentioned in Clauses 2, 3 and 4 of the original trust deed dated 30-3-1938.
2. It cannot be said that the shares of beneficiaries are known and determinate as on the valuation date, because as per the trust deed it is mentioned that 'after the death of the survivor of Shri Ahmedbhoy and his wife, the trustees shall distribute the net income of the trust funds among the male children of the said Ahmedbhoy Oomerbhoy and the male descendants of such male children from generation to generaiion for their maintenance and support. On the total extinction of male child or children of Shri Ahmedbhoy Oomerbhoy and their descendants, the trustees shall hold the trust funds for such religious and pious and charitable purposes as the trustees may in their absolute discretion think fit.
Observing further that, at best, it was a case where the beneficiaries were known and determinate and not a case where the shares of the beneficiaries were known and determinate, the WTO has completed the assessment under Section 21(4) of the Wealth-Tax Act, 1957 ('the Act').
3. The Commissioner (Appeals) referred to the legal principles in this regard in paragraph 4 of his order and applying these principles to the assessee's case, he has, for elaborate reasons given in paragraphs 5 and 6 of his order, upheld the order of the WTO to the extent that the provisions of Section 21(4) were attracted in this case. Finding some discrepancy in the manner of computing the net wealth, however, the Commissioner has set aside the assessment with the direction that the assessment should be made again under Section 21(4) by properly estimating the value of the immovable properties and redetermination of the life-interest, reversionary interest, etc.
4. Aggrieved by the order of the Commissioner (Appeals), the assessee has come up in appeal. It is stated by the learned counsel for the assessee, that as on the relevant valuation date, i.e., 31-3-1976, there are five beneficiaries who are all grandsons of Ahmedbhoy Oomerbhoy. Inviting our attention to Section 200 of Mulla's Principles of Mahommedan Law, it is submitted that under the Mahommedan law where a wakf is made for the benefit of the settlor's descendants, but no rules of succession are laid down in the deed of wakf, the descendants take per stirpes and not per capita and the males and females take equal shares. It is pointed out that Tyabji's Mustim Law, Fourth edn., paragraph 546 at page 608, also lays down the same principle.
Accordingly, it is contended that the departmental authorities were not justified in holding that it is a discretionary trust merely because the rules of succession were not indicated in the deed of trust or that the distribution of the net income was for maintenance and support which might mean it would depend upon the number of members of the family. Reliance in this regard is placed on the decision of the Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra), the relevant observations being at pages 560-595 and the Bombay High Court's decision in the case of CED v. Bai Suntokbai Damodar Govindji [1981] 132 ITR 223 at pages 232-233.
It is reiterated that the situation contemplated in Clause 4 of the deed of trust has not arisen and, therefore, Clause 4 of the deed of trust does not come into operation on the valuation date.
5. The departmental representative has strongly relied on the order of the Commissioner (Appeals). In particular, our attention is invited to Clause 3 of the deed of trust to show that the trustees had absolute discretion in distributing the net income of the trust among the male children of the said Ahmedbhoy Oomerbhoy and the descendants of such male children.
6. Having heard the parties and after going through Section 200 of Mulla's Principles of Mahommedan Law and paragraph 546 of Tyabji's Muslim Law, we are satisfied that under the Mahommedan law, the descendants, where there is no indication, succeed to the interests of their ancestors equally per stirpes and not per capita. This being so, we have little difficulty in accepting the assessee's submission that in terms of Clause 3 of the deed of trust the five beneficiaries as on the valuation date were entitled to the net income of the trust equally. The expression used in Clause 3 'for their maintenance and support' is of general nature and does not govern or control the distribution of the net income in a manner different from what is laid down under the Mahommedan law. Therefore, we have to say that as on the valuation date not only the beneficiaries but also their shares were determinate and known.
As regards Clause 4 which provides for a contingency of total extinction of male child or children of the said Ahmedbhoy Oomerbhoy and their descendants, firstly, it is a remote contingency ; secondly, as on the relevant valuation date such a situation has not arisen and lastly, if at all such a situation arises, the trustees would hold the trust fund for such religious, pious and charitable purposes as they may think fit in their absolute discretion. In this context, we may refer to the observations of the Hon'ble Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra), at page 597, where it has been held that no part of the corpus of the trust funds could be assessed in the hands of the assessees but the assessment could be made on the assessees only in respect of the beneficial interests of the beneficiaries in the trust funds under Sub-sections (1) and (4) of Section 21. If some amount remains untouched as it is found not held by the trustees on behalf of the beneficiaries, determinate or indeterminate, the said amount will remain untaxed. It is pertinent to mention that the provisions of Section 21 have since been amended to take care of such a situation.
However, the amended provision is not applicable for the assessment year 1976-77. Having regard to the above discussion, we hold that the provisions of Section 21(1) are applicable in this case and not those of Section 21(4). The WTO is accordingly directed to reframe the assessment under Section 21(1).