COMMISSIONER OF WEALTH TAX VS SB. OOLIA KULSUM, 1998 PTD-ANDHRA-PRADESH-HIGH-COURT-INDIA 1192 (1996)

Wealth tax---

----Reference---Assessment---property held under trust ---Assessee named as sole beneficiary---Benefit to assessee contingent upon death of her father-- Not a case where beneficiaries unknown or shares indeterminate -- Assessment to be made under subsection (1), not subsection (4) of S. 21-- No referable question of law arises---Indian Wealth Tax, Act, 1957, Ss.21 & 27.

There is a distinction between a case where the beneficiaries of a trust are indeterminate and a case of defined beneficiaries having contingent interest. The concept of the beneficiaries being "indeterminate" will come in where on the valuation date it is not possible to say with any definiteness as to how many and who will be the beneficiaries, perhaps as in a general charitable trust. But in the case of a contingent interest, though the number and identity of the beneficiary will be certain, definite and defined, his taking of the benefit under the trust will depend on the happening or not happening of some event which may be uncertain.

Clauses (5) and (6) of a trust deed provided that the trustees were to accumulate the income from the trust property till the death of M, which occurred on September 14, 1987, and after his death, to pay the same to the assessee only for and during her lifetime and after her death to divide the income amongst her children and other issue, in accordance with the form prescribed therein. On the question whether on the valuation date relevant to the assessment year 1979-80, the beneficiaries were known and their shares were determinate, for purposes of assessment under subsection (1) of section 21 of the Wealth Tax Act, 1957:

Held, accordingly, that the beneficiary, the assessee, was named in the trust deed and was a definite person and she was the sole beneficiary under the trust. The clauses in question indicated that the interest of the beneficiary was contingent on her being alive on the death of M., Such interest could not be said to be indeterminate because the beneficiary was named. The assessment had to be made under subsection (1) of section 21 of Act, not under subsection (4) of section 21 of the Act.

S.R. Ashok for Appellant.

P. Murali Krishna for Respondent

JUDGMENT

SYED SHAH MOHAMMED QUADRI, J.---This is an application by the Revenue under section 27(3) of the Wealth Tax Act, 1957 (for short "the Act"), praying this Court to direct the Income-tax Appellate Tribunal, Hyderabad Bench "A", to state the case and refer the following questions as referable questions of law to this Court:

"(1) Whether, on the facts and in the circumstances of the case and particularly in view of clauses (5) and (6) of the trust deed which, inter alia, provided for accumulation of income till the date of death of Prince Moazam Jah Bahadur which took place only in September, 1987, the Appellate Tribunal is correct in holding that Sint. Oolia Kulsum was the sole beneficiary as on the valuation date?

(2) Whether, on the facts and in the circumstances of the case, can it be said that the beneficiaries are known and their shares are determinate as on the valuation date relevant to the assessment year 1979-80 so as to hold that the assessment was liable to be made only under section 21(1) and not under section 21(4) of the Wealth Tax Act?"

These questions are said to arise out of the order of the Tribunal in W.T.A. No.416/Hyd of 1988, dated April 26, 1989, which relates to the assessment year 1979-80. For the said assessment year, a wealth tax return was filed by the assessee, Sb. Oolia Kulsum Begum, showing the net wealth of Rs,3,62,637. The Wealth Tax Officer, however, determined the net wealth on the valuation, dated March 31, 1979, at Rs.20,03,818 and taxed the same under section 21(4) of the Act. She filed an appeal before the Commissioner of Wealth Tax (Appeals). The Commissioner held that after the death of Prince Moazam Jah Bahadur, the beneficiary, Sint. Sb. Oolia Kulsum, was entitled to receive the net income of the two share funds and she became the sole beneficiary; therefore, the funds were liable to be assessed under section 21(1) and not under section 21(4) of the Act. The Revenue went in appeal against the order of the Appellate Commissioner, dated January 29, 1983, before the Income-tax Appellate Tribunal. The Tribunal upheld the order of the Commissioner of Wealth Tax (Appeals) and dismissed the appeal on April 26, 1989. It is from that order the above two questions are said to arise.

Learned junior standing counsel for Income-tax contends that the 'assessee did not have any interest in the trust as her father was alive on the valuation date, her interest was indeterminate and the net assets were liable to be taxed under section 21(4) of the Act. Sri Murali Krishna, on the other hand, submits that the interest of the petitioner was defined in the trust and she was the only beneficiary; therefore, it cannot be said that the beneficiaries were indeterminate or unsettled; so, the Tribunal was right in coming to the conclusion that the assets were taxable under section 21(1) of the Act.

To appreciate the contentions of learned counsel, it would be appropriate to note the contents of clauses (5) and (6) of the trust deed, dated March 21, 1953. Clause (5) provides that the trustees shall hold and stand possessed of the shares specified in the second schedule upon the trusts to accumulate the income thereof up to the death of the said Prince Muazzam Jah Bahadur and on and after the death of the said Prince, to hold and stand possessed of the first share fund including the accumulations of the income thereof and the investments thereof for the following:

"(i) to pay the net income of the first shares fund to the Sahebzadi Oolia Kulsum for and during the term of her natural life.

(ii) On and after the death, of the said Sahebzadi Oolia Kulsum to pay and divide the net income of the first shares fund amongst the children and other issue howsoever remote of the said Sahebzadi Oolia Kulsum per stirpes from generation to generation in the proportion of two shares for every male to one share for every female standing in the same degree of relationship so that no person shall take a share in the net income of the first shares fund as long as his or her parent entitled to a share under this sub-clause shall be alive and so that persons standing in the same degree of relationship shall take between themselves in the proportion mentioned above their respective parent's share and so on from generation to generation.

(iii) On the failure of any child or children or other remoter issue of the said Sahebzadi Oolia Kulsum to pay and divide the net income of the first shares fund amongst the other children and other issue howsoever remote of the said Prince Muazzam Jah Bahadur by the said Razia Begum per Stripes from generation to generation in the proportion of two shares for every male to one share for every female standing in the same degree of relationship so that no person shall take a share in the net income of the first shares fund as long as his or her parent entitled to a share under this sub-clause shall be alive and so that persons standing in the same degree of relationship shall take between themselves in the proportion mentioned above their respective parent's share and so on from generation to generation. "

Clause (6) is in similar terms as clause (5), but relates to the second shares fund. A perusal of clauses (5) and (6) of the trust deed makes it clear that the trustees were to accumulate the income till the death of Prince Muazzam Jah Bahadur which occurred on September 14, 1987, and to pay the same to Sahebzadi Oolia Kulsum only for and during her lifetime and after her death to divide the income of the first shares fund amongst her children and other issue howsoever remote, in accordance with the form prescribed therein. The beneficiary Sahebzadi Oolia Kulsum is named in the trust and is a definite person, therefore, we are of the opinion that the Tribunal is right in coming to the conclusion that Sint. Oolia Kulsum was the sole beneficiary as on the valuation date.

Here we may point out that the distinction between sections 21(1) and 21(4) of the Act is material only for the purpose of rate of tax. Sub sections (1) and (4) of section 21 read as under:

"21. _Assessment when assets are held by Court of wards, administrators-general, etc.---(1) Subject to the provisions of sub section (1-A), 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.

Explanation.---A trust which is not declared by a duly executed instrument in writing (including a valid deed of wakf) shall be deemed, for the purposes of this subsection, to be a trust declared by a duly executed instrument in writing if a statement in writing, signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the Assessing Officer,---

(i) where the trust has been declared before the 1st day of June, 1981, within a period of three months from that day; and

(ii) in any other case, within three months from the date of declaration of the trust . . . . .

(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---

(a) at the rates specified in Part 1 of Schedule 1 ; or

(b) at the rate of three per cent.,

whichever course would be more beneficial to the Revenue

Provided that in a case where---

(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

(i-a) 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, superannuating funds, 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 person employed in such business or profession, wealth tax shall be charged at the rates specified in Part 1 of Schedule 1.

Explanation 1.---For the purpose of this subsection, the shares of the persons on whose behalf or for whose benefit any such assets are held shall be deemed to be indeterminate or unknown unless the shares of the persons on whose behalf or for whose benefit such assets are held on the relevant valuation date are expressly stated in the order of the Court or instrument of trust or deed of wakf, as the case may be, and are ascertainable as such on the date of such order, instrument or deed.

Explanation 2.---Nowithstanding anything contained in section 5, in computing the net wealth for the purposes of this subsection or subsection (4-A) in any case, not being a case referred to in the proviso to this subsection, any assets referred to in clauses (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii) and (xxix) of subsection (1) of that section shall not be excluded."

Subsection (1) of section 21, extracted above, applies when the beneficiaries are named and determinate in which case the wealth tax will be payable at the rate which is chargeable on such beneficiaries for whose benefit the assets are held by the trustee; but subsection (4) will be attracted where the beneficiaries are indeterminate and unknown and the assets are held by the trustees for such beneficiaries in which case the rate of tax will be higher, in the relevant year it was one and one and half per cent.

There is a distinction between indeterminate beneficiaries and defined beneficiaries having contingent interest. The concept of "indeterminate" will come in on the valuation date where it is not possible to say with any definiteness as to how many and who will be the beneficiaries, perhaps as in a general charitable trust. But in a case of contingent interest though the number and identity of the beneficiary will be certain, definite and defined, his taking of the benefit under the trust will depend on the happening or not happening of some event which may be uncertain.

The clauses, referred to above, indicate that the interest of the beneficiary, Sahebazadi Oolia Kulsum, was contingent on her being alive on the death of Prince Muazzam Jah Bahadur; such interest can never be said to be indeterminate because the beneficiary was named.

For the above reasons, we are of the view that the Tribunal is right in upholding the order of the Commissioner of Wealth Tax (Appeals) and holding that section 21(1) will apply. We, therefore, find no reason to direct the Tribunal to refer the above said questions as, in our view, no referable question of law arises from the order of the Tribunal.

The wealth tax case is, therefore, dismissed. No costs.

M.B.A./1442/FCOrder accordingly.