1. All these appeals were heard together as, according to the learned representatives of both the parties, the facts and issues involved in these appeals are identical and are accordingly disposed of by this common order.
2. The Assessing Officer in all these cases held that all these trusts are discretionary trusts. The same would, therefore, be liable to be assessed under Section 21(4) and will attract tax at the rate of 3 per cent provided in Section 21(4) on the entire value of the assets owned by the Trust (through the trustees in their representative capacity).
He also held that the discretionary trusts are not entitled to grant of exemption under Section 5(1 A) in accordance with the provisions contained in Explanation 2 to Section 21(4) of the W.T. Act.
3. The assessees preferred appeals before the first appellate authority, who passed identical orders in all these cases and held that the question whether such a trust should be regarded as a discretionary trust is covered in favour of the revenue by a decision of the ITAT, Ahmedabad Bench in the case of a sister trust of this group of 65 appeals of similar trusts, all having been created on the same day under similarly worded deeds, vide order dated 5th June, 1989, WT Appeal No. 414 (Ahd.) of 1987, for assessment year 1979-8$ in the case of Brinda Beneficiary Trust v. WTO [1989] 31 ITD 96 (Ahd.). It was held in the said decision that in order that a trust may be treated as a discretionary trust, it is sufficient if distribution of either the income or the corpus is at the discretion of the trustees. It is clear from the language of Section 21(4) that when the shares of the beneficiaries are indeterminate or unknown (these shares may be either in income or corpus or both), the assets would be taxed as if they all belong to an individual. The Dy. CWT(A) further observed that there is one more reason for holding the trust as discretionary inasmuch as the trust deed provided that notwithstanding any of the conditions, the trustees may, until the date of distribution at their discretion, from time to time spend or apply any part of the trust fund for the benefit of the beneficiary or any of her children. The word benefit would include maintenance, education, medical relief and advancement of any object or purpose which the trustees consider likely to give or offer relief or help to the persons. He also placed reliance on the decision of the M.P. High Court in Rai Saheb Seth Ghlsalal Modi Family Trust v.CIT [1984] 149 ITR 724 wherein it was held that when trustees are given discretion to spend money for requirements of beneficiaries, though their shares in the corpus are equal, it can be said that the trust is discretionary trust. Thereafter the learned Dy. CWT(A) considered the assessee's contention based on the judgment of Hon'ble Madras High Court in the case of Haresh Anitha Trust v. CWT [1988] 173 ITR 103. It was contended on behalf of the assessee that the question of applying higher rate of wealth-tax under Section 21(4) would arise only if the assessee's wealth is otherwise taxable. The Dy. CWT(A) observed that the decision of the Madras High Court is at variance with the judgment of Hon'ble Supreme Court in the case of Ujagar Prints v. Union of India [1989] 179 ITR 317. He then discussed the various points discussed by the Supreme Court and the Madras High Court in the above referred two cases and came to the conclusion that the ratio of Madras High Court decision is not correct. He followed the decision of Calcutta High Court in Surendranath Gangopadhyaya Trust v. CIT [1983] 142 ITR 149 and the M.P. High Court in Piarelal Sakseria Family Trust v. CIOOT [1982] 136 ITR 583 and came to the conclusion that provisions of Section 21(4), providing for levy of 3 per cent rate of wealth-tax would be applicable to even such cases, where the wealth is less than the maximum net wealth not liable to tax in the schedule of rate of wealth-tax, as it is not the case of the assessee that none of the beneficiaries has net wealth exceeding the amount not chargeable to wealth-tax in the case of an individual or none is a beneficiary under any other trust.
3.1 The learned Dy. CWT(A) thereafter considered an alternative submission made by the assessee on the strength of the decision of the ITAT in the case of Brinda Beneficiary Trust (supra) that net wealth would be a sum of only the life interest of the life tenant and the remaindermen's interest. The Dy. CWT(A) observed that the case decided by the ITAT in the case of Brinda Beneficiary Trust (supra) pertained to assessment year 1979-80. With effect from 1-4-1980, a new Sub-section (1A) was inserted in Section 21 which in substance would lead to the conclusion that the aggregate value of the asset is to be taxied in the hands of the trustees of this discretionary trust even when the life interest and remaindermen's interest are part of the corpus and income of the trust. This position of law is effective from assessment year 1980-81 and onwards and supersedes partly the decision of the Supreme Court in CWT v. Trustees of H.E.H Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 and that of the Gujarat High Court in CWT v. Smt. Arundhati Balkrishna Trust [1975] 101 ITR 626. The Dy. CWT(A) in the concluding para 8 of the order further observed that in this group of trusts, the settlors and the beneficiaries are members of the settlor's family and their relatives.
These trusts were, therefore, created with a view to avoid tax. As per the decision of ITAT, Ahmedabad Bench in the case of Minal Trust v. ITO [1989] 34 TTJ (Ahd.) 303, the benefit of proviso (f) to 112(1) could not be available. Since the proviso (ia) to Section 21(4) correspond to proviso (f) in Section 164(1) the ITAT decision in Mined Trust's case (supra) is applicable to each trust of this group of trusts with the result that benefit under the proviso (ia) in Section 21(4) of the WT Act cannot be extended to the cases of these assessee-trusts. The ITAT, in the case of Minal Trust (supra) relied on the judgment in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC). The Dy. CWT(A), therefore, placed reliance on the said judgment of the Supreme Court and held that the entire net wealth of the assessee-trust is required to be taxed in accordance with the provisions contained in Section 21(4).
4. Against the aforesaid identical orders passed by the Dy. CWT(A), these assessees have submitted the following identical grounds before us: 1. Your appellant being aggrieved by the order passed by the learned Dy. CWT(A), Surat presents this appeal against the same on the following amongst other grounds.
2. The order passed by the learned Dy. CWT(A) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now.
3. The learned Dy. CWT(A) has erred in dismissing the appeal of the appellant. The learned Dy. CWT(A) has erred in holding that the appellant is a discretionary trust and provisions of Section 21 of the WT Act is applied. It is submitted that the trust should be held to be a specific trust and should be assessed under Section 21(1) of the WT Act. The appellant further submits that the deductions as provided under Section 5(1 A) of the WT Act should have been allowed and the net wealth should be determined accordingly.
4. Without prejudice to the above contention it is submitted that even if it is held as a discretionary trust then the value of the remaindermen's interest should have been independently worked out and if each of it is below taxable limit it should be held to be not taxable.
5. The appellant submits that the difference between the total value of the trust and the value of the life interest and remaindermen's interest should be held to be not taxable at all. It is, therefore, submitted that it should be held accordingly.
6. Your appellant submits that the trust should be taxed on the basis of above and should not be taxed at maximum rate.
5. Shri H.M. Talati, the learned Counsel, who appeared on behalf of these assessees, submitted that ground Nos. 1 & 2 are general in nature. The effective grounds are the subsequent ground Nos. 3 to 6.
6. As regards ground No. 3, the learned Counsel submitted that this ground is covered against the assessee by an earlier decision of the Tribunal in the case of Brinda Beneficiary Trust (supra). It was admitted that facts of all the cases under consideration are similar to that in the case of Brinda Beneficiary Trust (supra). He also submitted that a similar view against the assessee was taken by the Tribunal in the case of Anand Family Trust PVVT Appeal No. 416 (Ahd.) of 1987, dated 5-6-1989] for assessment year 1981-82, which is one of the appellants in the present group of appeals, so far as the point raised in ground No. 3 is concerned. Copies of the orders in the above two cases were also placed on record.
7. Respectfully following the reasons and conclusions derived in the above referred two cases of Brinda Beneficiary Trust (supra) and Anand Family Trust (supra) the view taken by the Dy. CWT(A) that all these assessee-trusts are discretionary trusts and that the provisions of Section 21(4) are applicable and the assessees are not entitled to any exemption/deductions as provided under Section 5(1A) of the WT Act is confirmed. Ground No. 3 taken in all these appeals is, therefore, rejected.
8. The learned Counsel for the assessee, however, vehemently argued that the alternative grounds raised in ground Nos. 4 & 5 deserve acceptance. He submitted that the Hon'ble Madras High Court in the case of Haresh Anitha Trust (supra) has clearly held that where the net wealth did not exceed the basic exemption limit, which was in that case Rs. 1 lakh, the question of levy of wealth tax on such net wealth did not arise and consequently the higher rate prescribed by Section 21(4) becomes inapplicable in such cases where the net wealth did not exceed the taxable limits prescribed in the wealth-tax rate schedule pertaining to the respective years. He also submitted that the Ahmedabad Benches of the Tribunal have been consistently following the above referred judgment of the Hon'ble Madras High Court and such a contention has been accepted by the Tribunal in the case of Brinda Beneficiary Trust (supra) and the order in the case of Anand Family Trust [Misc. Application No. 31 (Ahd.) of 1989, dated 2-5-1990]. Copy of the Tribunal's order in the aforesaid M.A. was also placed before us.
9. The learned Counsel for the assessee thereafter submitted that in order to determine the question as to whether the net wealth exceeded the taxable limit prescribed in the wealth-tax rate schedule it will be necessary to ascertain the separate value of (1) present worth of the life interest of the beneficiaries, (2) value of remaindermen's interest, and (3) surplus, if any. If value of any of these three items fall below the basic exemption limit of Rs. 1 lakh or Rs. 1.5 lakh as may be applicable in the respective years, the provisions of Section 21(4) would not be applicable in view of the aforesaid judgment of Hon'ble Madras High Court read with the judgment of Hon'ble Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra). Similar view was taken by the Tribunal in the aforesaid order passed in, the misc. application in the case of Anand Family Trust (supra). He, therefore, urged that the WTO should be directed to determine the value of the life interest as well as the remaindermen's interest and if value of each of these two different interests is below the basic exemption limit of wealth not chargeable to tax, then no tax should be levied by resort to Section 21(4). He also submitted that there is no justification in including in the net wealth the value of all the beneficial interests nor there is any justification in taking the total value of all the assets owned by the respective trusts.
10. The learned Counsel, in the alternative submitted that the difference between the total value of the assets of the trusts and the aggregate value of life interest and remaindermen's interest should be held to be not taxable at all.
11. The learned Counsel also submitted paper books in the cases of all these trusts in which copies of the respective trust deeds, copies of statement showing valuation of life interest, remaindermen's interest for the various years under consideration were submitted. These charts showing valuation of life interest and remaindermen's interest and balance surplus value were submitted with a view to provide the basic information to the Assessing Officer as regards value of these separate types of beneficial interests and the learned Counsel submitted that this would, however, be subject to verification and correct determination by the Assessing Officer. He submitted that in the case of Sangeeta Trust No. 1 there is only one distinguishing feature that the life interest has been taken by adopting the period of 45 years as per the relevant clause in the respective deed at page 3 of the compilation. All other facts and the basis of calculation of such value of life interest and remaindermen's interest taken by the assessee in the charts enclosed in the paper book are similar. He urged that all the alternative submissions raised in ground Nos. 4 & 5 should be accepted. Ground No. 6 is merely to support the points raised in ground Nos. 4 & 5 and require no further elaboration as per the learned Counsel.
12. The learned D.R. strongly supported the order of the Dy. CWT(A). He submitted that the learned Dy. CWT(A) has elaborately examined all the relevant aspects both as to the relevant facts and law and has come to a correct conclusion. His order requires no interference.
13. We have carefully considered the rival submissions made by the learned representatives and have also gone through the orders of the departmental authorities as well as other court decisions and the decisions of the Tribunal relied upon by the learned representatives of the parties as well as the decisions relied upon by the learned Dy.
CWT(A).
13.1 We have already held that in view of the elaborate reasons given by the Tribunal in the cases of Brinda Beneficiary Trust (supra) and Anand Family Trust [supra], all the assessee-trusts will be treated as discretionary trusts. We have also affirmed the finding given by the Dy. CWT(A) that the provisions of Section 21(4) would be applicable in all these cases and the deduction/exemption as claimed under Section 5(1 A) has rightly been denied by the Assessing Officer and the Dy.
CWT(A). In order to properly consider and decide the various alternative submissions and points raised on behalf of the assessee in relation to ground Nos. 4 & 5, it will be profitable to reproduce the relevant provisions of the Wealth-tax Act: 21(1) Subject to the provisions of Sub-section (1A), 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 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 (including a trustee under a valid deed of wakf), 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.
(1A) Where the value or aggregate value of the interest or interests of the person or persons on whose behalf or for whose benefit such assets are held falls short of the value of any such assets, then, in addition to the wealth-tax leviable and recoverable under Sub-section (1), the wealth-tax shall be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person or trustee aforesaid in respect of the value of such assets, to the extent it exceeds the value or aggregate value of such interest or interests, as if such excess value were the net wealth of an individual who is a citizen of India and resident in India for the purposes of this Act, and (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.(3) ** ** ** (4) Notwithstanding anything contained in the foregoing provisions of 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 the case may be, in the like manner and to the same extent as it would be leviable upon and recoverable from an individual who is a citizen of India and resident in India for the purposes of this Act, and (i) such assets are held under a trust declared by any person by will and such trust is the only trust so declared by him; or (ia) none of the beneficiaries has net wealth exceeding the amount not chargeable to wealth-tax in the case of an individual who is a citizen of India and resident in India for the purposes of this Act or is a beneficiary under any other trust; or (ii) such assets are held under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance: or (iii) such assets are held by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, wealth-tax shall be charged at the rates specified in Part I of Schedule I.It will also be worthwhile to reproduce Section 164(1) of the Income-tax Act, 1961 : 164(1) Subject to the provisions of Sub-sections (2) and (3), where any income in respect of which the persons mentioned in Clauses (iii) and (iv) of Sub-section (1) of Section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as 'relevant income', 'part of relevant income' and 'beneficiaries', respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate.
13.2 The Hon'ble Madras High Court in the case of Haresh Anitha Trust (supra) considered the object for which Section 21 was incorporated in the statute book by making a reference to the memorandum explaining the provisions of the Finance Bill of 1970, published in [1970] 75 ITR (St.) 81. It was clearly stated in the said memorandum that the flat rate of 1.5% (subsequently increased to 3%) will be applied under Section 21(4) to the whole of the net wealth without the initial exemption of Rs. 1 lakh which is available under the rate schedule of ordinary wealth-tax in the case of individuals. The Hon'ble High Court observed that it is undoubtedly true that the intention which appears from the memorandum was not to make available the initial exemption of Rs. 1 lakh to a private discretionary trust. But on a construction of the relevant provisions as they stand, it appears that Section 21(4) cannot be treated as a charging provision and must be treated only as a provision intended to facilitate the assessment, notwithstanding the fact that it prescribes two different rates of tax. The question as to whether the second rate which is the higher and a rate more beneficial to the revenue will be attracted in a given case depends on the construction of the charging provisions in Section 3 and the impact of the charging provision on the proviso which is intended to give benefit to the persons owning net wealth less than Rs. 1 lakh. The court further observed that wording of Section 164 of the IT Act clearly indicates that it was not merely a machinery provision but also a charging provision because the words used in Section 164 are "tax shall be charged". However, in Section 21(4) the word used is "leviable".
When the word "charged" is used in the charging provision under Section 3 of the Act and in another provision the word used is "levied", the two words cannot be treated as synonymous. The Court, therefore, held that Section 21(4) cannot be construed as a charging provision and unless there was clear provision in Section 21(4) taking away the benefit of the exemption of Rs. 1 lakh, the scope of Section 21(4) cannot be extended so as to convert it into a charging provision. It was, therefore, held that wealth-tax could not be levied in respect of net wealth of the assessee-discretionary trust where the net wealth was less than Rs. 1 lakh. The ITAT, Ahmedabad Benches have been consistently following the aforesaid judgment of Hon'ble Madras High Court such as in the case of Brinda Beneficiary Trust (supra) and Anand Family Trust (supra). Respectfully following the judgement of Hon'ble Madras High Court in the case of Haresh Anitha Trust (supra), we hold that the principles of law laid down by the Hon'ble Madras High Court in the aforesaid Judgment would be fully applicable in the cases of those trusts where the net wealth, as may be determined by the Assessing Officer in accordance with the guidelines and findings as may be given in the subsequent paragraphs in relation to determination of net wealth, did not exceed the basic exemption limits provided in the wealth-tax rate schedule of the relevant and respective years.
13.3 It will be worthwhile to deal with the two judgments in Surendranath Gangopadhyaya Trust's case (supra) and Piarelal Sakseria Family Trust's case (supra) relied upon by the learned Dy. CWT(A) in para 6 of the order passed by him to come to a conclusion that the judgment of the Madras High Court cannot be preferred over those decisions. The Hon'ble Madras High Court in the case of Haresh Anitha Trust (supra) has dealt with both the aforesaid decisions of the Calcutta and M.P. High Courts at page 109 and has observed that these two decisions related to interpretation of Section 164 of the IT Act, 1961 where the words used are "tax shall be charged" as against the word "levied" used in Section 21(4). It has been held that Section 164 is a charging section while Section 21(4) cannot be treated as a charging section. In this regard it would be also worthwhile to make a useful reference to the Full Bench decision of the Hon'ble Gujarat High Court in the case of CIT v. Smt. Kamalini Khataul 1978] 112 ITR 652. At pages 661-662, the Court has compared the words used in the first proviso to Section 41(1) of IT Act, 1922 and the corresponding provisions of Section 164 of IT Act, 1961. The words used in the old proviso to Section 41(1) were "the tax shall be levied upon and recoverable" while under the Act of 1961 the words used are "tax shall be charged". After comparing the effect of the different expressions "charged" and "levied", the Court came to the conclusion that the provisions of Section 164 of the IT Act is a charging section and situations contemplated by that section will be governed by the charging Section 164 rather than general charging Section 4 of the Act of 1961. While the old proviso to Section 41(1) could not be regarded as a charging section. The view taken by the Hon'ble Madras High Court on the identical words used in Section 21(4) similar to the old proviso to Section 41(1) of 1922 Act is, therefore, fully supported by the aforesaid Full Bench decision of the Hon'ble Gujarat High Court. For this reason also we hold that the principles of law laid down by the Hon'ble Madras High Court in the case of Haresh Anitha Trust (supra) would be applicable after taking into consideration the facts and figures relating to computation of net wealth of the respective trusts for respective years.
13.4 Now we will have to consider as to how net wealth of the assessees, which are private discretionary trusts, should be computed in accordance with the provisions contained in Section 21(4) and for the purpose of deciding as to whether the net wealth of a particular discretionary trust exceeds the basic exemption limit of Rs. 1 lakh or Rs. 1.5 lakh, as the case may be, according to the rate schedule for the respective years in order to decide the applicability of principles of law laid down by the Hon'ble Madras High Court in the case of Haresh Anitha Trust (supra) 13.5 The starting point for considering this question is to first determine the market value of the trust fund. Thereafter the aggregate value of the beneficial interest of the beneficiaries will have to be determined, which would consist of value of interest of beneficiaries - present interest or deferred interest. In other words, the process of valuation would require (1) determination of the present value or worth of a life interest, (2) valuation of interest of a contingent remainderman, and (3) market value of the assets. The question which arises for determination is whether the aggregate of all these interests should be included for determination of net wealth or any one or two of them should be taken into consideration for determining the net wealth chargeable to tax under Section 21(4) in the case of private discretionary trusts such as in the cases of the present assessees.
13.6 The Hon'ble Gujarat High Court in the case of CWTv. Kum. Manna G.Sarabhai [1972] 86 ITR 153 has considered the true meaning and scope of Sections 21(1) and 21(4). It will be worthwhile to reproduce the findings given by the Hon'ble Gujarat High Court in the aforesaid case at pp. 177-178 in relation to interpretation of these two sub-sections of Section 21 of the WT Act : 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 properties held by the trustees, wealth-tax shall be levied upon them in the like manner and to the same extent as it would be leviable upon the beneficiary for whose benefit the trust properties are held. This provision obviously can apply only where the trust properties are 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 leviable upon the beneficiary and in respect of such interest in the trust properties, the trustees would be assessed in a 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 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 properties '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 in Sub-section (1) shall prevent either the direct assessment of the beneficiary for whose benefit the trust properties are held or the recovery from 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 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 emphasises that where the trustees are assessed under Sub-section (1) the assessment 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.
This would clearly appear to be the position in regard to assessment where the trustees hold the trust property 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 share in the 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 leviable 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 of 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.
From a perusal of the aforesaid judgment of the Hon'ble Gujarat High Court, it is clear that when an assessment is made on the trustees of a discretionary trust under Section 21(4) on 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.
These findings of the Hon'ble Gujarat High Court give a prima facie impression as if value of all the three types of interests i.e., market value of the assets belonging to the trust will constitute net wealth for the purpose of an assessment in accordance with Section 21(4).
13.7 The Full Bench of the Hon'ble Gujarat High Court in the case of Smt. Kamalini Khatau (supra) has observed at page 668 of 112 ITR that the decision of the Gujarat High Court in the case of Kum. Manna Sarabhai (supra] has been impliedly approved by the Hon'ble Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [supra). However, so far as the point as to whether in the case of a discretionary trust the entire amount of corpus of the trust should be treated as constituting net wealth, the Hon'ble Supreme Court in the aforesaid case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra) at pages 594-595 has observed as under : The revenue has thus two modes of assessment available for assessing the interest of a beneficiary in the trust properties: it may either assess such interest in the hands of the trustee 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. What is important to note is that in either case what is taxed is the interest of the beneficiary in the trust properties and not the corpus of the trust properties. So also where beneficiaries are more than one, and their shares are indeterminate or unknown, the trustees would be assessable in respect of their total beneficial interest in the trust properties. Obviously, in such a case, it is not possible to make direct assessment on the beneficiaries in respect of their interest in the trust properties, because their shares are indeterminate or unknown and that is why it is provided that the assessment may be made on the trustee as if the beneficiaries for whose benefit the trust properties are held were an individual. The beneficial interest is treated as if it belong to one individual beneficiary and assessment is made on the trustees in the same manner and to the same extent as it would be on such fictional beneficiary. It will, therefore, be seen that in this case too, it is the beneficial interest which is assessed to wealth-tax in the hands of the trustee and not the corpus of the trust properties. This position becomes abundantly clear if we look at Sub-section (5) which clearly postulates that where a trustee is assessed under Sub-section (1) or Sub-section (4), the assessmentis made on him in respect of the net wealth', of the beneficiaries, i.e., the beneficial interest belonging to him. 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 property 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.
It is clear from the aforesaid judgment of the Hon'ble Supreme Court that in the case of a private discretionary trust where the shares are indeterminate or unknown, it is the beneficial interest alone which is assessed to wealth-tax in the hands of the trustees and not the corpus of the trust properties.
13.8 The Supreme Court in the aforesaid judgment, inter alia, held that in a case where beneficiaries have life interest in the trust, property and after their death or after the specified period certain other beneficiaries are to acquire interest in such trust property, the assessment of the beneficiaries and the remaindermen is made on their respective interest on the valuation date. In most cases, the aggregate value of the life interest and the remaindermen's interest is less than the value of the total corpus of the trust properly. In view of this decision, the balance of the value of the corpus of the trust property would escape liability towards wealth-tax. With a view to countering attempts at tax avoidance through the creation of a specific trust, a new Sub-section (1A) in Section 21 of Wealth-tax Act was inserted to bring to tax the balance of the amount of net wealth after deduction of the value of life interest and interest of the remaindermen in the hands of the trustees. A plain reading of the provisions of Section 21(1A) clearly indicate that such a provision was introduced only In relation to a specific trust and does not in any manner relate to an assessment of a private discretionary trust in the hands of the trustees in their representative capacity in accordance with the provisions of Section 21(4). This is further corroborated by the expression used in Section 21(4) which starts with a non obstante clause saying that "notwithstanding anything contained in the foregoing provisions of this section". Such expression clearly excludes the applicability of the newly inserted provisions of Section 21(1A) in relation to the cases of private" discretionary trusts which are governed by the provisions of Section 21(4). The provisions of Section 21(1A) which has been inserted by the Finance (No. 2) Act, 1980 w.e.f.
1-4-1980 also provides that where the value of aggregate value of the interest or interest of the person or persons on whose behalf or for whose benefit such assets are held falls short of the value of any such assets, then, in addition to the wealth-tax leviable and recoverable under Sub-section (1), the wealth-tax shall be levied upon and recovered from the trustees in respect of the value of such assets to the extent it exceeds the value or aggregate value of such interest or interests, as if such excess value were the net wealth of an individual. This also clearly reveals that the provisions of Section 21(1 A) relate only to the cases of specific trusts and does not relate to private discretionary trusts. In view of the aforesaid position of law as it stands even after the insertion of the new Section 21(1A), it is clear that so far as Supreme Court's finding in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra) in relation to private discretionary trust is concerned, it remains unaltered and unaffected The Supreme Court in the said judgment, as per the extracts already reproduced hereinbefore, has clearly laid down that it is only the beneficial interest which is assessed to wealth-tax in the hands of the trustees of a private discretionary trust and not the corpus of the trust properties. In view of such categorical findings given by the Hon'ble Supreme Court, we are of the opinion that for computing the net wealth of the assessee-trusts, the aggregate value of the life interest and the remaindermen's interest should be taken together and that will constitute the net wealth in the hands of these private discretionary trusts. The difference between the market value of the total corpus of the trust property and the aggregate of the two values of life interest and remaindermen's interest, which is the balance figure, will in the case of a private discretionary trust will still escape liability to wealth-tax in view of the aforesaid judgment of the Supreme Court and in view of the absence of a provision like Section 21(1A) meant for private discretionary trusts on the statute. The contention of the learned Counsel for the assessee that value of the life interest as well as value of remaindermen's interest should be separately computed and considered for deciding the question as to whether each one of them exceeds the taxable limits prescribed in the rate schedule of the WT Act cannot be accepted as the provisions of Section 21(4) clearly provides that in the case of a private discretionary trust where the shares of the beneficiaries are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from the trustees in the like manner and to the same extent as it would be leviable upon and recoverable from an individual at either of the two types of rates mentioned in Section 21(4) whichever course would be more beneficial to the revenue. The aggregate value of such beneficial interest, therefore, has to be regarded as belonging to the fictional individual and the same cannot be bifurcated nor their separate valuation can be taken into consideration for arriving at the conclusion as to whether the same exceeds the taxable limits prescribed in the rate schedule of the WT Act of the respective years.
13.9 The assessees have furnished various charts showing the computation of market value of entire trust property, value of the life interest as well as the value of remaindermen's interest for all the years under consideration. However, the value computed by the assessee in those charts need scrutiny, verification and determination by the Assessing Officer. The Assessing Officer is, therefore, directed to determine the value of different interests of the various assets in accordance with the recognised methods of valuation after taking into consideration the relevant clauses in the respective trust deeds. The Assessing Officer will, however, determine such value after providing reasonable opportunity to the assessees. After determination of the value of such interests in the assets of the trust property, if the aggregate of the life interest and remaindermen's interest in a particular year in the case of all the assessees is less than the taxable limits prescribed in the wealth-tax rate schedule of the relevant year, the matter would be squarely covered by the judgment of Hon'ble Madras High Court in the case of Haresh Anitha Trust (supra).
In case it exceeds the taxable limits prescribed in the respective wealth-tax rate schedule, the tax shall be levied in accordance with the provisions contained in Section 21(4) keeping in view the principles of law laid down by the Hon'ble Madras High Court in the case of Haresh Anitha Trust [supra).
14. In the result, all the appeals are treated as partly allowed for statistical purposes.