1. These seven appeals by the assessee and the Revenue are against the orders of the Commissioner of Wealth-tax (Appeals) for assessment years 1984-85, 1985-86, 1986-87 and 1987-88. In all these appeals, the dispute is against assessments made under Section 21(1) of the Wealth-tax Act, 1957, bringing to tax the entire value of the assets held by the Trust. For the sake of convenience, all these appeals are being disposed of by this common order.
2. In all the years under consideration, the assessments were made by the Assessing Officer by invoking the provisions of Section 21 (1) of the WT Act - two assessments each for assessment years 1984-85, 1985-86 and 1987-88 on the trustees for the trust represented by Sb. Fatima Fouzia and Sb. Amina Marzia separately and one assessment for assessment year 1985-86 on the trustees for the trust represented by both Sb. Fatima Fouzia and Sb. Amina Marzia. The wealth assessed in all the years represented the value of the Jewellery Fund including sale proceeds of jewellery sold and reinvested in National Rural Development Bonds etc., Housing Fund and Pocket Money Fund, the Expenses fund was already exhausted by the end of March 1982 and there was no question of assessment thereof.
3. The CWT (Appeals), following the Tribunal's decision in the assessee's case reported in Trustees of Wedding Gifts Trust of HEH the Nizam's Two Grand Daughters v. WTO [1989] 30 ITD 490 (Hyd.), held in the first two years that the provisions of Section 21(1) are not applicable but directed to make assessment under Section 21(4) as, according to him, the remainder beneficiaries were not determinate as per the findings of the Tribunal in the aforesaid order. For assessment years 1986-87 and 1987-88, however, the successor CWT (Appeals) cancelled the assessments made under Section 21(1) following the aforesaid order of the Tribunal but gave no further directions to assess under Section 21(4), presumably, because the earlier decision of the CWT (Appeals) was not taken notice of by him. The assessee is in appeal for the first two assessment years whereas the Revenue is in appeal for the latter two assessment years.
4. The facts of the case are as follows: HEH Nb. Mir Sir Osman Ali Khan Bahadur, the Nizam of Hyderabad and Berar, as he then was, created the impugned trust, viz., The Wedding Gifts Trust of H.E.H. the Nizam's two grand-daughters, on 4-9-1951, out of natural love and affection and diverse other good causes and considerations him thereunto moving, for the benefit of his grand-daughters Sb. Fatima Fouzia and Sb. Amina Marzia, daughters of his second son Walashan Prince Muazzam Jah Bahadur. Six Funds were created under this deed: two Jewellery Funds by setting apart two sets of ladies jewellery of ornamental type as wedding gift each to Sb. Fatima Fouzia and Sb. Amina Marzia; one Pocket-money Fund for their equal benefit by setting apart certain securities worth Rs. 50,000; two Housing Funds, one each for the beneficiaries, by setting apart Government securities worth Rs. 1 lakh each; and one Expenses Fund by setting apart securities worth Rs. 25,000. Various terms and conditions governing the Funds are contained in the Trust deed and they are discussed hereunder.
5. Clause 3, Sub-clauses (a) and (b) dealing with the generality of the provisions and the creation of Expenses Fund is as follows :- 3. The Trustees shall hold and stand possessed of the Trust property UPON TRUST as follows :- (a) To manage the Trust Property and collect and recover the interest and other income (if any) of the funds and securities for the time being comprised in or representing the investment of the Trust Property or any part thereof.
(b) To pay and discharge out of the income of the Securities specified in the Sixth Schedule hereunder written all expenses and charges for collecting and recovering the income of the Trust Property and the remuneration of the Trustees payable under these presents and all other costs, charges, expenses and outgoings relating to the safe custody, preservation and upkeep of the Trust Property and relating to this Trust and the administration thereof.
Provided, however, that if and so far as the income of the Securities specified in the Sixth Schedule hereunder written be at any time not sufficient to meet any of the said costs, charges, expenses and outgoings and the remuneration of the Trustees payable under these presents then the Trustees shall be at liberty to meet the same out of the corpus of the said Securities.
6. Clause 14 provides for the disposition of the Expenses Fund after the fulfilment and extinguishment of the other Funds to the then successor in title of the settlor as the Nizam of Hyderabad and if there be no such person then holding such title, rank or designation, to the eldest male descendant in the direct male line of succession of the settlor according to the Law of Primogeniture. One stock certificate of 3% Government of India Conversion Loan of 1946 of the face value of Rs. 25,000 was settled for this purpose. This Pocket-money Fund was exhausted by the end of March 1982 and was not in existence for the years under consideration.
7. Clause 3, Sub-clauses (c), (d) and (g) and Clause 4 dealing with the Jewellery Fund set apart for the benefit of Sb. Fatima Fouzia are as under : 3(c) On the marriage of the said Fatima Fouzia to give the articles of jewellery specified in the First Schedule hereunder written to the said Fatima Fouzia as wedding gift to her from the Settlor along with other jewellery which may be given to her on the occasion, provided, however, that soon after the ceremonies and festivities in respect of the wedding of the said Fatima Fouzia shall be over, she shall return and hand over to the Trustees all the said articles of jewellery specified in the First Schedule hereunder written and thereafter the Trustees shall hold the same UPON TRUST to allow the said Fatima Fouzia to wear and use the said articles of jewellery or such of them as may be required on and for the purpose of any special ceremonial or festive occasion and after any such ceremonial or festive occasion shall be over to take charge of such articles from the said Fatima Fouzia PROVIDED ALWAYS that the Trustees shall not be liable or held responsible in any manner whatsoever by any person whomsoever for any loss or damage that may be caused to or in respect of any of the said articles for the purposes aforesaid or for any other consequences resulting from the action of the Trustees in allowing the said articles or any of them to be worn or used as aforesaid.
(d) On and after the death of the said Fatima Fouzia to hold the said articles of jewellery specified in the First Schedule here under written upon the trusts hereinafter mentioned in Clause 4 hereof.
(g) During the life-time of the said Fatima Fouzia not to sell or otherwise dispose of the articles of jewellery specified in the First Schedule hereunder written and not to deal with the same in any manner except for the purpose of allowing and enabling the said Fatima Fouzia to wear or use the same or any of them on and for the purpose only of any special ceremonial or festive occasion as aforesaid.
4. On the death of the said Fatima Fouzia, the Trustees shall hold the said articles of jewellery specified in the First Schedule hereunder written (hereinafter called "Fatima Fouzia's Jewellery Fund) upon trust to divide the same amongst her children and/or remoter issue then living per stirpes in the proportion of two shares for every male child or remoter issue of hers and one share for every female child or remoter issue of hers standing in the same degree of relationship and so that no person shall take whose parent entitled to a share under this clause shall be living and further so that persons standing in the same degree of relationship shall take between themselves in the same proportion as above the share which their parent would have taken if then living, provided, however, that if the said Fatima Fouzia shall die without leaving any child or remoter issue her surviving then the Trustees shall hold Fatima Fouzia's Jewellery Fund UPON TRUST for the Nizam of Hyderabad who may be surviving at the date of the death of the said Fatima Fouzia in order to enable him to meet the essential expenditure for the management of the Sarf-e-Khas for which he will be responsible as the Head of the Family of the Settlor but if the dynasty of the Settlor shall come to an end for any reason whatsoever and there shall be no Nizam of Hyderabad existing at the date of the death of the said Fatima Fouzia then the Trustees shall in the event aforesaid hand over and transfer Fatima Fouzia's Jewellery Fund to the eldest male descendant in the direct male line' of succession of the Settlor according to the law of primogeniture then living in order to enable him as the Head of the Family of the Settlor to maintain the dignity of the House of Asaf Jah to which the Settlor belongs and the status and position of the various members of his family.
8. Similar provisions are made for Jewellery Fund for Sb. Amina Marzia as contained in Clause 3 Sub-clauses (e), (f) and (h) and Clause 5 of the deed. As they are similarly worded, they are not reproduced. The properties settled for the benefit of Sb. Fatima Fouzia and Sb. Amina Marzia are in Schedules 1 and 2 respectively, being two sets of ladies' jewellery of ornamental type described in the First and Second Schedules respectively.
9. Clause 3, Sub-clause (i) and Clauses 10 and 11 deal with the Pocket-money Fund. Clauses 3(i) and 10 are as under :- 3(i) To divide the Securities specified in the Third Schedule hereunder written or to treat the same as notionally divided into two equal parts and to hold one of such equal parts (hereinafter called 'Fatima Fouzia's Pocket Money Fund') upon the trusts hereinafter mentioned in Clause 10 hereof and to hold the other of such equal parts (hereinafter called 'Amina Marzia's Pocket Money Fund') upon the trusts hereinafter mentioned in Clause 11 hereof.
10. The Trustees shall hold and stand possessed of 'Fatima Fouzia's Pocket-money Fund' upon the trusts hereinafter declared and contained of and concerning the same, namely :- (a) To accumulate the income thereof until the said Fatima Fouzia shall complete the age of 21 years or until she shall die, whichever of the said two events shall occur first and on her completing the age of 21 years to pay, hand over and transfer all such accumulations on the investments thereof for the time being together with any interest which shall have accumulated on the investments of such accumulations to the said Fatima Fouzia absolutely, provided, however, that if prior to the said Fatima Fouzia completing the age of 21 years, the Trustees so think fit, they may at any time and from time to time spend or utilise the accumulations of the said income or any part thereof for the maintenance education or other benefit of the said Fatima Fouzia to such extent and in such manner as they may in their absolute discretion think fit.
(b) On the said Fatima Fouzia dying before completing the age of 21 years, to hold the balance of the unspent accumulations of the net income of Fatima Fouzia's Pocket-money Fund then in their hands and the investments thereof for the time being and the interest accrued due on such investments upon the same trusts as those upon which the corpus of Fatima's Pocket-money Fund is hereinafter directed to be held after the date of her death.
(c) If and when the said Fatima Fouzia shall complete the age of 21 years, to pay the net income of Fatima Fouzia's Pocket-money Fund accruing thereafter to her for and during the term of her natural life.
(d) On and after the death of the said Fatima Fouzia to hold Fatima Fouzia's Pocket-money Fund upon the same trusts as those on which Fatima Fouzia's Jewellery Fund is to be held after her death as directed in Clause 4 hereof.
10. Clause 11, making provision for the pocket-money for Sb. Amina Marzia, is similarly worded as Clause 10 in the case of Sb. Fatima Fouzia and, therefore, it is not reproduced. The property settled is one stock certificate of 3% Govt. of India Conversion Loan of 1946 of the face value of Rs. 50,000 described in the Third Schedule.
11. Clause 3, Sub-clause (f), Clauses 12 and 13 deal with this Fund.
Clauses 3(f) and 12 are as under : 3(j) To hold the Government Securities specified in the Fourth and Fifth Schedules hereunder written respectively upon the trusts hereinafter mentioned in Clauses 12 and 13 hereof respectively of and concerning the same.
12. The Trustees shall hold the said Government Securities specified in the Fourth Schedule hereunder written (hereinafter called 'Fatima Fouzia's Housing Fund') upon the trusts hereinafter declared and contained of and concerning the same, namely:- (a) To accumulate the income thereof up to the occasion of the marriage of the said Fatima Fouzia or up to the date of her death, whichever event shall occur first and to invest the accumulations thereof in such manner as the Trustees are hereby authorised to invest the Trust Property.
(b) On the said Fatima Fouzia dying before her marriage shall take place, to hold all the accumulations of the income of Fatima Fouzia's Housing Fund made up to the date of her death and the investments thereof for the time being and the interest accrued due on such investments upon the same trusts as those upon which Fatima Fouzia's Jewellery Fund is to be held after the date of her death as directed in Clause 4 hereof.
(c) At any time prior to and in contemplation of the marriage of the said Fatima Fouzia or if that be not possible or expedient, at any time after her marriage, out of the corpus of Fatima Fouzia's Housing Fund and of the accumulations of the income thereof and the investments thereof for the time being to purchase land at Hyderabad or elsewhere and to erect any building thereon suitable for the residence of the said Fatima Fouzia or to purchase any building suitable for her residence at any place and to purchase furniture and fittings for any such building and to otherwise furnish, fit up and decorate any such building with power to the Trustees to pull down any such building and to re-erect any new structure or make any additions or alterations to any existing structure AND if and when such property be acquired, constructed or purchased the Trustees shall allow the said Fatima Fouzia to use and occupy the same free of rent so long as she shall carry out all ordinary repairs to such property and pay the costs of such repairs as also all Municipal, property and other taxes and outgoings that may be payable from time to time in respect thereof, provided, however, that in the event of the said Fatima Fouzia failing to carry out such repairs or to pay the costs of such repairs or the taxes or other outgoings in respect of any such property as aforesaid the Trustees shall be at liberty to themselves carry out repairs thereto at the cost of the said Fatima Fouzia1 and pay on her account all such taxes and outgoings in respect thereof and to deduct the amount of monies so expended or paid out of the income of any part of the Trust Property hereby settled and which may be payable to the said Fatima Fouzia under these presents or out of any portion of the corpus of the Trust Property. Provided Further that if by reason of Fatima Fouzia's Housing Fund or any portion thereof not being utilised or spent for the purpose of providing a residence for the said Fatima Fouzia as aforesaid or for any other reason whatsoever, any income shall arise or accrue from Fatima Fouzia's Housing Fund or any part thereof after the marriage of the said Fatima Fouzia, such income shall as and when the same shall accrue due after the date of her marriage be paid to her up to the date of her death.
(d) On the death of the said Fatima Fouzia to hold Fatima Fouzia's Housing Fund upon the same trusts as those upon which Fatima Fouzia's Jewellery Fund is to be held after her death as directed in Clause 4 hereof.
PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that it shall be lawfull for the Trustees during the continuance of this, Trust at any time and from time to time to sell, transfer, convey or assign any land or bulding purchased, acquired or erected by them for the said Fatima Fouzia under the foregoing provisions hereof or any portion or portions thereof at such price or prices and on such terms and conditions relating to title or otherwise in all respects as they shall think fit and to buy in or rescind or vary any contract for sale, transfer or assignment and to re-sell the same or enter into a fresh contract for sale, transfer or assignment thereof without being answerable for any loss occasioned thereby and for such purpose to execute all necessary Conveyances, Assignments, Transfers and other assurances and to pass and give and execute all necessary receipts, releases and discharges for the consideration or otherwise and the Trustees shall be at liberty to utilise the net sale proceeds of any property held by them for the benefit of the said Fatima Fouzia in the purchase of any other land and building suitable for the said Fatima Fouzia as aforesaid or in the purchase of land and in the erection of a suitable building thereon for the said Fatima Fouzia and also in the purchase of furniture and fittings for any such building and in otherwise furnishing fitting up and decorating any such building and to allow the said Fatima Fouzia to use and occupy any such new property purchased or acquired or erected by them as aforesaid for her residence free of rent upon the same terms and conditions as those mentioned above concerning the property which may be originally purchased or otherwise acquired out of Fatima Fouzia's Housing Fund and to otherwise hold any such new property and the furniture and fittings therein upon the same trusts and subject to the same terms and provisions as those contained above as if the same were originally purchased or acquired out of Fatima Fouzia's Housing Fund AND pending the purchase or acquisition of any such new land or building or the completion of the erection, furnishing, fitting up and decorating of any building on any such new land to hold the net sale proceeds of any property purchased or acquired or erected by the Trustees under the foregoing provisions for the residence of the said Fatima Fouzia or the unutilised portion thereof for the time being UPON TRUST to keep such net sale proceeds or the unutilised portion thereof for the time being in a separate account and to invest the same in such manner as the Trustees may in their absolute discretion deem fit with full power to the Trustees in their absolute discretion to alter, vary or transpose the investments from time to time in such manner as they may think proper into or for others of the same or a like nature without being responsible or accountable to anyone for the same or for any loss or diminution in the price thereof and pending as aforesaid to hold the net sale proceeds of the property acquired by the Trustees for the residence of the said Fatima Fouzia upon trust to pay the net income thereof to the said Fatima Fouzia until her death and on and after her death to hold such net sale proceeds as part of Fatima Fouzia's Housing Fund upon the trusts herein contained relating to Fatima Fouzia's Housing Fund.
12. Clause 13, dealing with the Housing Fund for the benefit of Sb.Amina Marzia is similarly worded as Clause 12 and is not, therefore, reproduced. The property settled for this purpose, being one stock certificate of 3% Government of India Conversion Loan of 1946 of the face value of Rs. 1,00,000 and one stock certificate of 3% Government of India Conversion Loan of 1946 of the face value of Rs. 25,000 are set apart for this purpose as described in Fourth Schedule for the benefit of Sb. Fatima Fouzia and in Fifth Schedule for the benefit of Sb. Amina Marzia.
13. Clause 6 provides for the deposit of and keeping deposited in the name of the Trustees all the articles mentioned in First and Second Schedules for safe custody with some Safe Deposit Company or Bank of good repute. Clauses 7 and 8 provide for the sale of the jewellery described in First and Second Schedules on the respective death of Sb.
Fatima Fouzia and Sb. Amina Marzia within a period of three years after their respective death and to invest the net proceeds thereof in such manner and in such security or investment either in India or in any foreign country as the trustees may think fit from time to time, provided, however, that if the settlor survives the said Fatima Fouzia/Amina Marzia and if he desires to postpone the sale of the said articles or any of them beyond a period of three years, then the trustees shall be entitled to postpone the sale thereof till such time as the settlor may in his absolute discretion direct them to do. Clause 9 provides for the setting or re-setting or making in such manner and design or fashion the ornaments of the jewellery or other articles as the trustees think fit or to have any of them converted into or exchanged for any other pieces or articles of jewellery or ornaments.
14. From a reading of the clauses reproduced above, it is clear that Sb. Fatima Fouzia and Sb. Amina Marzia are entitled to wear the jewellery of the Jewellery Fund so long as they are alive, to income of interest of the Pocket-money Fund including accumulations after they attain the age of 21 years and a right to residence if provision is made for such residence by acquisition of property or, until then, interest from the Housing Fund, upon and after marriage till their life. After their respective death, the property of the respective Funds is to go to their children - each male child two shares and each female child one share - and in the event of they dying issueless, then the property is to go back to the Nizam.
15. The settlor died in the year 1967. The two grand-daughters were married in the meantime and in the years under consideration, they have attained the age of 21 years and have children of their own.
16. The trust was created in the year 1951. In the year 1957, the Wealth-tax Act came into force and from asst. year 1957-58 onwards, the wealth-tax demand on the value of the various assets settled upon trust was created and the trustees had no funds with them to meet the wealth-tax demand. This situation had not been contemplated by the settlor when he created the trust in 1951. The settlor, as aforesaid, died in 1967. The arrears of wealth-tax demand created a piquant situation for the trustees in the management of the trust property. The jewellery was lying idle as dead wealth in the lockers of a bank at Bombay. The trustees, therefore, made a petition under Section 34 of the Indian Trust Act to the Chief Judge, City Civil Court, Hyderabad, seeking the court's opinion regarding management of the trust property and also as to how best the unforeseen liability should be met. A request was made to the court for permission to sell one item of jewellery each from the First and Second Schedules for meeting the outstanding tax liability. The permission was granted by the Chief Judge, City Civil Court, by his order dated 21-4-1980. Aggrieved by the said order of the City Civil Court, Sb. Amina Marzia filed a revision petition before the High Court of Andhra Pradesh contending, inter alia, that the piecemeal sale of one or more items of jewellery for meeting the tax demand would not solve the problem, that similar sales of jewellery have to be made periodically for meeting the ever growing tax demand and that in case the jewellery is sold piecemeal in that fashion the entire corpus would dwindle down and in this way there might be nothing left for the ultimate beneficiaries, i.e., the children of the two grand-daughters of the settlor, viz., Sb. Fatima Fouzia and Sb. Amina Marzia. The High Court, vide order dated 25-3-1981 in CRP No. 4025 of 1980, permitted the trustees to sell the entire jewellery specified in First and Second Schedules of the Trust Deed subject to confirmation by the Chief Judge, City Civil Court. Another request was also made in the petition that the trustees be directed to pay the interest that accrues on the investment of the sale proceeds to Fatima Fouzia and Amina Marzia as they were being deprived of the right of wearing the jewellery. The High Court declined to pass any order in this regard by observing as under : It may be noted that they did not wear the jewellery even on a single occasion previously and there i9 no likelihood of wearing the jewellery in future. At any rate such questions cannot be decided in this petition.
It is open for respondents 1 & 2 to raise such points as they desire with regard to payment of interest only after the sale of the jewellery by separate applications. Whether, in the interest of the beneficiaries interest is to be paid to respondents 1 & 2 or to be allowed to be accumulated to the corpus is a question to be decided as and when such applications are filed.
17. In pursuance of the permission granted by the High Court, the jewellery in the First Schedule relating to Sb. Fatima Fouzia was sold in the accounting year relevant to assessment year 1984-85 for a sum of Rs. 32,25,421 and the jewellery specified in the Second Schedule relating to Sb. Amina Marzia was sold in the accounting year relevant to assessment year 1985-86 for a sum of Rs. 33,21,000. Both these sales resulted in capital gains and the matter came up before the Tribunal in ITA Nos. 855 to 859/Hyd/1988. By the Tribunal's order dated 28-4-1994, it was held to be taxable in the hands of the trustees. A substantial portion of the sale proceeds of these jewelleries was invested in capital gains units of UTI and other specified assets.
18. On a petition by Sb. Fatima Fouzia, the Chief Judge, City Civil Court, Hyderabad, made an order under Section 34 of the Indian Trust Act to the effect that she be paid 1/5th share in the interest derived from the deposits of the sale proceeds of the jewellery under the National Rural Development Bonds. Sb. Amina Marzia also approached the Chief Judge, City Civil Court, Hyderabad, under Section 34 of the Indian Trust Act and uideorder dated 23-7-1986 in OP 165 of 1986, a payment of Rs. 5,000 per month to Sb. Amina Marzia for life and Rs. 2,000 per month to each of the children until they attained respective age of 21 years, was granted from the date of the petition. Sb. Fatima Fouzia, in the meantime, carried the matter to the High Court against the order of the Chief Judge, City Civil Court, dated 23-3-1985 wherein 1/5th interest was granted to be given to her and the High Court, vide order dated 19-8-1987, modified the order of the Chief Judge, City Civil Court, dated 23-3-1985, with a similar direction as to that given by the Chief Judge, City Civil Court, by his order dated 23-7-1986 in the case of Sb. Amina Marzia.
19. The assessee's claim is that the assessments made in the hands of the trustees representing Sb. Fatima Fouzia and Sb. Amina Marzia are not In accordance with law. According to the learned counsel of the assessee, Sri P. Muralikrishna, the two grand-daughters of the settlor have only a life interest in various assets of the respective Funds in the trust and, therefore, in view of the decision of the Andhra Pradesh High Court in the case of Sb. Anwar Begum [R.C. No. 69 of 1969 dated 5-11-1971], thatright was not an asset within the meaning of Section 2(e) of the WT Act and, therefore, in view of the decision of the Supreme Court in the case of CWT v. Trustees of HEH Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555, the same cannot be assessed under Section 21(1) of the WT Act in the hands of the trust.
The entire value of the various Funds of the trust belonged to the remainder beneficiaries, viz., the children of Sb. Fatima Fouzia and Sb. Amina Marzia and was offered directly in their hands and assessments were completed thereon though protectively. He submitted that the matter is concluded in assessee's favour by the decision of the Tribunal in the assessee's case in its order in Trustees of Wedding Gifts Trust of HEH the Nizam's Two Grand Daughters' case (supra).
20. As regards the observation of the CWT (Appeals) in his order for assessment years 1984-85 and 1985-86, directing to assess the trustees under Section 21 (4) of the WT Act, the learned counsel submitted that the CWT (Appeals) committed an error in understanding the issue in the right perspective. The observation of the Tribunal to the effect that "none of the beneficiaries, their particulars, their interest in the Trust, were ascertained or mentioned in the assessments", was not a finding to the effect that the beneficiaries were indeterminate or unknown so as to invoke the provisions of Section 21(4). It was a narration of the fact that the Income-tax Department has not ascertained these facts so that the provisions of Section 21(1) could have been applied with regard to the value of the interest of the remainder beneficiaries. He further submitted that on a reading of the various clauses, it is abundantly clear that the ultimate beneficiaries are known and their shares are determinate on the respective valuation dates.
21. The learned departmental representative, Sri P.T.N. Chart, assisted by the Assessing Officer, Sri Shiv Kumar, on the other hand, relied upon the decision of the Andhra Pradesh High Court in the case of CWT v. Trustees of H.E.H. the Nizam's Sahebzadi Anwar Begum Trust [1981] 129 ITR 796 and submitted that the decision relied upon by the assessee, in Sb. Anwar Begum's case (supra) has no application and the case is fully covered by the decision in Trustees of H.E.H. Nizam's Sahebzadi Anwar Begum Trust's case (supra). He, therefore, submitted that so long as the life beneficiaries were alive, no other person has a right in the various Funds of the trust and, therefore, the Assessing Officer was justified in bringing the entire value of the Funds to tax under Section 21(1) and alternatively, as directed by the CWT (Appeals), under Section 21(4) of the WT Act as the ultimate beneficiaries are not known and determinate.
22. The relevant portion of the order of the Tribunal in the case of the assessee reported in Trustees of Wedding Gifts Trust of HEH the Nizam's Two Grand Daughters' case (supra) at 498-499 is as under : 7. As against the above arguments advanced on behalf of the assessee, the learned Departmental Representative relied on very much upon CWT(A)'s order. After considering both sides arguments, we accept the contentions advanced on behalf of the assessee-Trust.
Firstly we hold that the decision in CWT v. Trustees of H.E.H. the Nizam's Sahebzadi Anwar Begum Trust [1981] 129 ITR 796 (AP) cannot be applied to the facts of this case. We further hold that the decision rendered by the Andhra Pradesh High Court in R.C. 67 of 1969 dated 5-11-197Q is the direct decision on the point. According to the said decision, the right to wear jewellery either on the occasion of the marriages or on festive and ceremonial occasions throughout their lives of Sb. Fatima Fouzia and Amina Marzia, does not confer any asset on them in the jewellery mentioned in either Schedule 1 or Schedule 2 to the Trust Deed titled on The Wedding Gift Trust of HEH the Nizam's two grand daughters'. Further let us see what was the ambit of Section 21(1).
In the case of assets chargeable to tax under this Act, which are held by any Trustee appointed under a Trust declared by a duly executed instrument in writing, the wealth-tax shall be levied upon and recoverable from the Trustee, 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.
Now let us recall to our minds who are all the beneficiaries under Trust as far as we are concerned. In view of the decision of Andhra Pradesh High Court in RC 67 of 1969 either Sb. Fatima Fouzia or Amina Marzia cannot be called to be beneficiaries as their right to wear jewellery cannot be considered to be 'property', however widely that expression may be interpreted. Then the beneficiaries contemplated under the Trust must be either the sons or daughters of Sb. Fatima Fouzia or Amina Marzia or in the event of their not marrying or dying before the valuation dates in question, the beneficiaries must be considered to be either the Nizam of Hyderabad or the eldest son of the settlor judged by the right of primogeniture. None of them, their particulars, their interest in the Trust, were ascertained or mentioned in the assessments.
Therefore, in our opinion, the assessments against the assessees cannot stand and we hold that the assessment purported to have been completed under Section 21(1) is not valid under law.
23. On a careful reading of the aforesaid passage of the Tribunal's order, we are of the opinion that what the Tribunal held was what the life interest of the two grand-daughters of the settlor to wear the jewellery settled in trust is not an asset within the meaning of Section 2(e) of the WT Act in view of the decision of the Andhra Pradesh High Court in Sb. Anwar Begum's case (supra), and, therefore, cannot be brought to tax under Section 21(1) of the Act. The beneficial interest of the remainder beneficiaries was held to be not assessable under Section 21(1) because the particulars as to who were the beneficiaries, what were their particulars and what were their respective interests in the trust were not ascertained by the Revenue and mentioned in the orders of assessment. We respect-fully concur with this finding and following the same hold that in view of the decision of the Andhra Pradesh High Court in the case of Sb. Anwar Begum (supra), neither Sb. Fatima Fouzia nor Sb. Amina Marzia could be called to be a beneficiary as their mere right to wear jewellery cannot be considered to be a 'property', however widely that expression may be interpreted. In that case before the Andhra Pradesh High Court, under one of the trusts created by the Nizam, viz., "Sahebzadi Anwar Begum's Trust", it was provided that the trustees shall allow Sahebzadi Anwar Begum to wear and use the jewels specified in Part I of the First Schedule on ceremonial or festive occasions and to allow her to wear and use the jewels specified in Part II of the First Schedule "for her ordinary and everyday use". The trustees were further empowered to convert any part of the "jewellery fund" into an income-yielding investment in which case the net income from the investment was to be paid to Anwar Begum. She was to be allowed to wear and use the jewels until her death, divorce or remarriage. In the event of her death, divorce or remarriage, the trustees were directed to sell the jewels, invest the sale proceeds and pay the income to the children and other remote issues of the said lady and Prince Muazzam Jah Bahadur. The question was whether the right to wear the jewellery was an asset and whether its value should be included in the wealth of Anwar Begum. This is what the court said : Even so we are not satisfied that the interest of Sahebzadi in the 'jewellery fund' is an asset within the meaning of Section 2(e) of the Wealth-tax Act. Under the terms of the trust deed, Sahebzadi is merely allowed to wear the jewels. She has no proprietary interest of any sort in the jewels. For instance, she cannot pledge the jewels; she cannot lend the jewels to friend or relative to be worn on occasions. The trustees are further given the right to withdraw the jewels from her any time they like and sell them. No doubt, the income from the sale proceeds will have to be paid to the Sahebzadi but the Sahebzadi herself has no voice on the question whether the jewels may or may not be sold. Her interest in the jewels is limited to being allowed to wear them if the trustees do not withdraw them from her. To our minds, the interest appears to be of a permissive nature and cannot be called property, however widely the expression may be interpreted.
24. Once this position is accepted, no assessment under Section 21(1) with regard to the life interest of merely wearing the jewellery can be made in view of the decision of the Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust's case (supra) wherein their Lordships held that the trustees can be assessed only if and to the extent the beneficiaries are liable to tax on the value of their respective interests. This is evident from the following extract from the head notes : Since under Sub-sections (1) and (4) of Section 21 it is beneficial interests which are taxable in the hands of the trustees in a representative capacity and the liability of the trustees cannot be greater than the aggregate liability of the beneficiaries, no part of the corpus of the trust property 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.
The proposition is further clear from the following extract from the head notes : In most cases, if not all, the aggregate of the values of the life interest and the remainderman's interest would be less than the value of the total corpus of trust property, since the value of the remainderman's interest would be the present value of his right to receive the corpus of the trust property at an uncertain future date and this would almost invariably be less than the value of the corpus of the trust property after deducting the value of the preceding life interest. The balance of the value of the corpus of the trust property would not, in the result, be subjected to assessment to wealth-tax. But that is the logical and inevitable effect of the scheme of Section 21. Once it is established that a trustee of a trust can be assessed only in accordance with the provisions of Section 21 and under these provisions, it is only the beneficial interests which are taxed in the hands of the trustee, it must follow as a necessary corollary that no part of the value of the corpus in excess of the aggregate value of the beneficial interests can be brought to tax in the assessment of the trustee. To do so would be contrary to the scheme and provisions of Section 21.
It would be clearly erroneous to assess the trustee to wealth-tax on the excess of the value of the corpus over the actuarial valuations of the life interest and the reversionary interest of the beneficiaries.
25. Their Lordships of the Supreme Court thus held that if a particular value of an asset is not assessable in the hands of the beneficiary, the same cannot be assessed in the hands of the trustees in their representative capacity. We, therefore, hold that the assessment under Section 21(1), in so far as their mere right to wear the jewellery for life is concerned, the same being not an asset in view of the decision of the Andhra Pradesh High Court in Sb. Anwar Begum's case (supra), cannot be assessed in the hands of the trustees under Section 21(1) of the WT Act.
26. In these appeals, however, we are not only concerned with the mere right to wear the jewellery of Sb. Fatima Fouzia and Sb. Amina Marzia.
As stated above, the jewellery of the First Schedule set apart for the benefit of Sb. Fatima Fouzia was sold before the valuation date relevant for assessment year 1984-85, i.e., 31-3-1984 and of the Second Schedule relating to Sb. Amina Marzia, before the valuation date relevant for assessment year 1985-86, i.e., 31-3-1985, in pursuance of the High Court's order dated 25-3-1981 and these two beneficiaries claimed and were directed to be given Rs. 5,000 per month each out of the interest income from investment of the sale proceeds of the said jewellery. That right cannot be said to be a mere right to wear the jewellery not amounting to an asset. It has been transformed into an income-yielding interest. On this interest, the beneficiaries have full right of enjoyment and use. They can spend this amount in any way they like, they have a proprietary right over that amount and, therefore, the test laid down in Sb. Anwar Begum's case, R.C. No. 69 of 1969, for holding it as not an asset, fails. In the light of the decision of the Supreme Court in the case of CWT v. Arvind Narottam [1988] 173 ITR 479, the capitalised value of this amount would be an asset includible in the net wealth under the WT Act. The life interest is to be valued as per the provisions of Rule 1B of the WT Rules, 1958 and that would be the value of their interest in the trust assessable to tax either under Section 21(1) of the WT Act in the hands of the representative-assessee or under Section (2) directly in the hands of the beneficiaries.
Admittedly, no direct assessment is made on the beneficiaries. The trustees, therefore, are to be assessed under Section 21(1) on the value of this interest. The assessments of the Jewellery Fund to this extent are thus to be upheld.27. As regards Pocket-money Fund, the two life beneficiaries became entitled to interest income earned on the corpus and the accumulations thereto on their attaining the age of 21 years. The fact that they have attained the age of 21 years on the respective valuation dates is not in dispute. Therefore, the capitalised value of this right on each valuation date is includible in the net wealth. We, therefore, uphold the assessment of the Pocket-money Fund made under Section 21 of the Act to this extent on the trustees.
28. Similarly, in respect of the Housing Fund, the two life beneficiaries became entitled to interest income on the Housing Fund upon their marriage until a house is provided to them for residence in which case alone it would not be an asset includible under Section 21(1) in view of the decision of the Andhra Pradesh High Court in the case of CWT v. Prince Muff'akkam Jah Bahadur [1990] 186 ITR 421. We accordingly direct the Assessing Officer to make the assessment under Section 21(1) only on the value of the life interest of the two beneficiaries, Sb. Fatima Fouzia and Sb. Amina Marzia, in the light of the discussion aforesaid and after giving an opportunity of being heard to the assessee.
29. As regards the remaindermen beneficiaries, as they have been directly assessed under Section 21(2), the value of their interest should not be included in the assessment under Section 21(1) in the hands of the representative-assessee. The value of interest under Section 21(1) of the life beneficiaries has, however, to be excluded from the value of the corpus directly assessed in the hands of the remaindermen beneficiaries under Section 21(2) of the Wealth-tax Act.
30. The question that remains is as to whether the remainder beneficiaries were indeterminate and unknown. The Revenue's contention is that this issue is decided by the Tribunal in the decision in Trustees of Wedding Gifts Trusts of HEH the Nizam's Two Grand Daughters' case (supra). But, in our opinion, it is not so. The statement of the Tribunal in para 7 of the said order, extracted above, to the effect that "none of them, their particulars, their interest in the trust, were ascertained or mentioned in the assessments", was only to demonstrate that the department has not ascertained these facts. It was not a finding of fact by the Tribunal on the basis of the Trust Deed. The present Trust Deed is almost a similarly worded deed as that considered by their Lordships of the Supreme Court in the case of Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (supra), wherein each and every contingency is provided for and the shares of each beneficiary are ascertainable and known at a particular point of time, viz., the relevant valuation date. A similar contention was raised by the Revenue before the Supreme Court that the shares of the remainder beneficiaries were not determinate and known and was negatived by the Supreme Court as is evident from the following extract of the head notes appearing at page 557 of the report : The question in regard to the applicability of Sub-section (1) or (4) of Section 21 has to be determined with reference to the relevant valuation date. The Wealth-tax Officer has to determine who are the beneficiaries in respect of the remainder on the relevant valuation date and whether their shares are indeterminate or unknown. It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution, depending upon contingencies which may come to pass in future. 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. The position has to be seen on the relevant valuation date as if the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinate shares, Sub-section (1) of Section 21 must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being.
If, on the relevant valuation date, it is not possible to say with certainty arid definiteness as to who would be the beneficiaries and whether their shares would be determinate and specific, if the event on the happening of which the distribution is to take place occurred on that date, the case will be governed by Sub-section (4) of Section 21.
Held, on the facts, that in this case it was possible to say with certainty or definiteness on each valuation date as to who would be the beneficiaries and in what specific shares, if the respective beneficiaries of the life interest to whom the particular unit or set of units had been allocated under the trust deed were to die and, therefore, the remainder in respect of each set of unit or units allocated to the respective beneficiary, was liable to be assessed under Section 21(1) and the applicability of Section 21(4) was plainly excluded.
31. Here, in this case also, the shares of the remainder beneficiaries are to be ascertained on the hypothesis that the life beneficiaries, Sb. Fatima Fouzia and Sb. Amina Marzia, expired on the relevant valuation dates and on that hypothesis, the children of the two life beneficiaries were known and their shares were determinate as per the terms of the trust deed on the respective valuation dates. We, therefore, hold that the CWT (Appeals) was not justified in holding in the appeals for assessment years 1984-85 and 1985-86 that the trust be assessed under Section 21(4) of the WT Act in view of the finding of the Tribunal in Trustees of Wedding Gifts Trust of HEH the Nizam's Two Grand Daughters' case (supra). We accordingly reverse his order on this point.
32. For statistical purposes, the appeals are treated as partly allowed.