Wealth tax---

---- Net wealth ---Transfer of assets ---Settlor executing trust and settling properties for benefit of his minor children---Minors deemed to be beneficiaries only after they attained majority---Minors not given any beneficial interest during the time of their minority---There is no deferred beneficial interest of minors which can be included in net wealth of settlor-Indian Wealth Tax Act, 1957, S.4(1)(a)(iii).

The assessee by a deed of trust executed on March 26, 1974\ settled certain immovable properties on his seven children of whom six were minors at the time of execution of the trust deed. One of them was a major at the time of execution of the document and her share was ten per cent. The trust was to last for a period of ten years. Clause IV of the trust deed provided that each of the minors shall be deemed to be a beneficiary only after the respective minor had attained majority, i.e., he had completed eighteen years. Under clause VI of the trust deed which provided for accrual of the net profit for each year and as to how the same has to be shared by the beneficiaries, no minor got any benefit in the income of the property during his or her minority. The net profit of a particular year was allotted only to such of those majors who were specified in the clause as the recipients of the net profit for that particular year. Clause VI specified the recipients of the income for each of the ten years and all such recipients were only majors. Clause XIV provided that the trust shall stand determined on March 31, 1984, or even earlier provided that the trustees were satisfied that it should be so extinguished. It further provided that the immovable properties on the extinction of the trust be owned by the beneficiaries as co-owners and tenants-in-common according to the ratio of the beneficial interest of the beneficiaries. The assessee contended before the Wealth Tax Officer that as no benefit was provided for the minor during his or her minority, it could not be said that the trust was for the immediate or deferred benefit of any minor child. The Wealth Tax Officer did not accept the contention of the assessee and included the value of the properties relating to the minor's share for each of the assessment years 1974-75 to 1976-77 in the net wealth of the assessee under section 4(1)(a)(iii) of the Wealth Tax Act, 1957. The Appellate Assistant Commissioner confirmed the order of the Wealth Tax Officer. The Tribunal found that there was no vacuum created because if after five years the trust were to be extinguished, what clause XIV provided was that the major children alone would take their interest according to the ratio of the beneficial interest of the beneficiaries. The Tribunal further held that in any event the accrual of the interest was only a contingent interest and not a vested interest and no benefit was created in the minor during the period of minority. The Tribunal, therefore, allowed the appeal of the assessee. On a reference:

Held, that according to clause VII of the trust deed, if any of the beneficiaries died, his or her share of the beneficial interest shall devolve upon his or her legal heirs. Only the major children were provided with beneficial interest in the trust properties. The minors were not provided with any beneficial interest during their minority. Therefore if a minor child died, nothing would devolve upon his or her legal heirs. If only a major beneficiary died, then it was only his or her share that would devolve upon his or her legal heirs. On the determination of the trust, the assets of the trust had to be distributed in accordance with the shares held by the beneficiaries. This did not mean that the minors were also provided with the beneficial interest during their minority. If the trust came to an end before the appointed day, and if the beneficiaries were minors, they would get nothing. Therefore, since the minors were not given any beneficial interest during the period of their minority there could not be any deferred beneficial interest as contemplated under section 4(1)(a)(iii) of the Act to be included in the net wealth of the assessee.

CIT (Addl.) v. Doshi (M.K.) (1980) 122 ITk 499 (Guj.); CIT v Doshi (M.R.) (1995) 211 ITR 1 (SC); CIT v. Raman (T.G.K.) (1995) 214 ITR 11 (Mad.) and Yogindraprasad N. Mafatlal v. CIT (1977) 109 ITR 602

(Bom.) ref.

C.V. Rajan for the Commissioner.

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

K.A.THANIKKACHALAM, J. ---At the instance of the Department, the Tribunal referred the following question for the opinion of this Court under section 27(1) of the Wealth Tax Act, 1957:

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that section 4(1)(a)(iii) of the Wealth Tax Act, 1957, could not be applied as no benefit accrued to the minors during their minority?"

The assessment years involved in these tax cases are 1974-75 to 1976-17. The assessee by a trust deed called Ameerjan Trust executed on March 26, 1974, settled certain immovable properties on his seven children of whom six were minors at the time of execution of the trust deed. The assessee did not include these properties in his return of net wealth. Section 4(1)(a)(iii) of the Wealth Tax Act provides that in computing the net wealth of an individual, there shall be included, as belonging to that individual, the valued of the assets which on the valuation date are held by a person or an association of person to whom such asset have been transferred by the individual directly or indirectly otherwise than for adequate consideration for the immediate or deferred benefit of the individual, his or her spouse or minor child (not being a married daughter) or both. So, the Wealth Tax Officer on the basis of this provision was of the view that these properties should be included in the net wealth of the assessee.

The trust deed is dated March 26, 1974. The properties are settled on seven children of the assessee. One of them was a major even at the time of execution of document. Her share is 10 per cent. So, for all these assessment years her share had been excluded from net wealth. Only the balance has been included in the reassessments. ,Another minor with 17-1/2 per cent. share became major earlier to April 1, 1975. So that also has been excluded for the assessment years 1975-76 and 1976-77. Other minors became major only after the assessment year 1976-77. The trust is to last for a period of ten years. Clause IV of the document provides that each of the minors shall be deemed to be a beneficiary only after the respective minor has attained majority, i.e., he has completed eighteen years. Clause VI of the document provides for accrual of the net of the net profit for each year and as to how the same has to be share by the beneficiaries. As per this clause, no minor gets any benefit in the income of the property during his or her minority. The net profit of a particular year is seen allotted only to such of those majors who are specified in the clause as the recipients of the net profit for that particular year. In like manner that clause VI specifies the recipients of the incomes each of the ten years and all such recipients are only majors. Clause xiv provides for extinction of the trust. That provides that the trust shall stand determined on March 31, 1984, or even earlier provided that the trustees are satisfied that it should be so extinguished. It further provides that the immovable properties on the extinction of the trust be owned by the beneficiaries as co-owners and tenants-in-common according to the ratio of the beneficial interest of the beneficiaries.

The argument of the assessee was that as no benefit was provided for the minor during his or her minority, it could not be said that the trust was for the immediate or deferred benefit of any minor child. That submission was not accepted by the Wealth Tax Officer. Hence, he included the value of the properties relating to the minors' share for each of the three assessment years.

On appeal, the Appellate Assistant Commissioner confirmed the order of assessment made by the Wealth Tax Officer.

On further appeal before the Tribunal, the assessees contended that inasmuch as no benefit was provided for a minor during his or her minority it could not be said that the trust was for the immediate or deferred benefit of any minor child. The Tribunal following the Bombay High Court decision in the case of Yogindraprasad. N. Mafatal v. CIT (1977) 109 ITR 602 and of the Gujarat High Court decision in the case CIT (Addl.) v. Doshi (M.K.) (1980) 122 ITR 499, accepted the contention of the assessee and allowed the appeal of the assessee.

The Departmental representative also pointed out that as per clause XIV of the trust deed if the trust is extinguished, say after five years and if only the majors are. treated as beneficiaries an anomalous position would arise in that substantial portion of the immovable property would belong to no one and that, therefore, the real intention of the transferor in creating the trust is that in such an event all the seven inclusive of the minors should get the ownership in the property and that, therefore, the minors will get a benefit even during their minority by way of ownership in the property. That is how the Departmental representative attempted to distinguish these two High Court judgments. But the Tribunal rejected that argument. The Tribunal found that first of all there is no vacuum created because if after five years the trust is extinguished, what Clause XIV provides is that the majors alone will take it according to the ratio of the beneficial interest of the beneficiaries. The Tribunal further held that in any event as laid down by the two High Courts the accrual of interest on the minors in the manner suggested by the Departmental representative is only a contingent interest and not a vested interest. Therefore, the submission of the Department that a benefit is created in the minor even during the period of minority was not accepted by the Tribunal. Accordingly, the Tribunal allowed the appeals of the assessee.

Before, us, learned standing counsel for the Department submitted that even before attaining majority that is during the period of minority the minors will have a vested interest in the corpus of the trust. Clause XIV of the trust deed would go to show that the minors are provided with determinate shares. Under Clause XIV, it is stated that if one of the beneficiaries died, his or her interest in the corpus would devolve upon his or her legal heirs. This would go to show that the minors are also having vested interest in the trust properties. According to learned standing counsel, even the deferred benefit of the individual is includible in the net wealth of the minor in the hands of the assessee as per the provisions contained in section 4(1)(a)(iii) of the Wealth Tax Act. It was, therefore, submitted that the Tribunal was not correct in stating that no interest accrued to the minors from the trust during the period when they were minors. Hence, the minors' share in the trust property can be included in the net wealth of the assessee.

Learned counsel for the assessee while supporting the order passed by the Tribunal submitted that inasmuch as no interest had accrued to the minors during their minority, the minors' share in the trust properties cannot be included in the hands of the assessee. The provisions of section 4(1)(a)(iii) of the Wealth Tax Act, would not be applicable to the facts of this case. As per clause VII of the trust deed, if a major beneficiary dies, his or her share would devolve upon his or her legal heirs. Therefore, if a minor died during minority since the minor was not given any benefit in the trust property, nothing will devolve upon the death of the minor. According to clause xiv. the trust shall stand determined on March 31, 1984, or even earlier provided the trustees are-unanimously satisfied that the interest of the beneficiaries requires the determination of the trust earlier than the aforesaid date. On the determination of the trust, the assets of the trust shall be distributed in accordance with the balance standing in the respective accounts of the beneficiaries. The immovable properties shall on the extinction of the trust be owned by the beneficiaries as co-owners and tenants-in-common according to the ratio of the beneficial interest of the beneficiaries. The movable assets shall also be distributed in accordance with the amounts standing to the credit in the accounts of the beneficiaries. This clause would not lead to the conclusion that the minors were also having beneficial interest in the trust during their minority. It was, therefore, submitted that the Tribunal was correct in holding that section 4(1)(a)(iii) of the Wealth Tax Act would not be applicable to the facts of these cases.

We have heard the submissions made by learned standing counsel for the Department as well as learned counsel for the assessee. The fact remains that a trust was created by the assessee by executing a trust deed on March 26, 1974. The properties were settled on seven children of the assessee. One of them was a major even at the time of the execution of the document. Her share is 10 per cent. So far as these three assessment years are concerned, her share had been excluded from the net wealth. Only the balance has been included in the reassessment. Another minor with a 17 per cent. share became major earlier to April 1, 1975. That minor's share was also excluded for the assessment years 1975-76 and 1976-77. Other minors became majors only after the assessment year 1976-77. The trust is to last for a period of ten years. Clause IV of the document provides that each of the mirrors shall be deemed to be a beneficiary only after the respective minor has attained majority that is when the minor completed the age of 18 years. Clause VI of the document provides for accrual of the net profit for each year and as to how the same has to be shared by the beneficiaries. As per this clause no minor gets any benefit in the income of the property during his or her minority. The net profit of a particular year is allotted only to such of those majors who are specified in the clause as the recipients of the net profit for that particular year. In like manner clause VI specifies the recipients of the income of each of the ten years and all such recipients are only majors Clause XIV provides for extinction of the trust. It provides that the trust shall stand determined on March 31, 1984, or even earlier provided that the trustees are satisfied that -it should be so extinguished. It further provides that the immovable properties shall on the extinction of the trust be owned by the beneficiaries as co-owners and tenants-in-common according to the ratio of the beneficial interest of the beneficiaries.

According to the assessee, since no benefit was provided for the minor during his or her minority, it could not be said that the trust was for the immediate or deferred benefit of any minor child. According to the Department, the benefits of the minors are deferred and, therefore, the minors benefits are includible in the hands of the assessee. According to Clause VII, if any of the beneficiaries dies, his or her share of the beneficial interest shall devolve upon his or her legal heirs. Only the major children are provided with the beneficial interest in the trust properties. The minors are not provided with any beneficial interest during their minority. Therefore, if a minor child dies, nothing will devolve upon his or her legal heirs. If only a major beneficiary dies it is only his or her share that will devolve upon his or her legal heirs. Clause XIV relates to termination of the trust. The trust should come to an end on March 31, 1984, or even earlier provided the trustees are unanimously satisfied that the interest of the beneficiaries requires the determination of the trust earlier than the aforesaid date. On the determination of the trust, the assets of the trust shall be distributed in accordance with the shares held by the beneficiaries. This does not mean that the minors were also provided the beneficial interest during their minority: If the trust came to an end before the appointed day, if the beneficiaries are minors they would get nothing. In view of this factual position it is not correct to state that the deferred interest of the minors is includible in the hands of the assessee under section 4(1)(a)(iii) of the Wealth Tax Act.

A similar question came up before the Supreme Court of India in the case of CIT v. M.R. Doshi (1995) 211 ITR 1. According to the facts arising in that case, the assessee as an individual had executed two deeds of trust and a supplementary deed, the cumulative effect of which was that the income from the trusts was to be accumulated until the attainment of majority by his three sons and the accumulated income was then to be divided into three equal shares and the respective one-third share of each son was to be paid to him. The question was whether the income from the trusts could be included in the total income of the assessee under section 64(v) of the Income Tax Act, 1961, for the assessment years 1965-66 to 1969-70. On these facts the Supreme Court while considering the provisions of section 64(v) of the Income Tax Act, 1961, prior to amendment in 1971, held that the specific provisions of law under section 64(v)(as it stood before amendment in 1971) was that the immediate or deferred benefit should be for a minor child. As the deferment of benefit in that case was beyond the period of minority of the assessee's three sons, and the payment was to be made after each of the sons attained majority, the provisions of section 64(v) had no application and the income of the trusts was not to be included in the total income of the assessee.

A similar question also came up before this Court in the case of CIT v. T.G.K. Raman (1995) 214 ITR 11. According to the facts arising in that case in the accounting year relevant to the assessment year 1975-76, the assessee had transferred some share to a discretionary trust created on March 27, 1974, for the benefit of this minor son. The trust deed made it clear that the benefit of the trust would reach the son only after he attained majority. The trustees had no power to pay any money or transfer any asset or confer any benefit on the beneficiary before the minor attained the age of 21. The deed stated that the corpus and the interest accrued thereon did .not vest in the minor during his minority. Relying upon section 64(v) of the Income Tax Act, 1961, the Income Tax Officer included the income arising out of the shares in the hands of the assessee. On a reference, this Court held that a plain reading of the trust deed showed that the benefit was not given to the minor during his minority, but upon his attaining majority. Section 64(1)(a)(v) was not, therefore., applicable. The Tribunal was right in excluding the dividend from the shares from the total income of the assessee. Thus, in view of the facts arising in these cases, that the minors were not given any beneficial interest during the time of their minority, there cannot be any deferred beneficial interest as contemplated under section 4(1)(iii) of the Wealth Tax Act so as to warrant inclusion of the same in the total wealth of the assessee. Thus, considering the facts arising in these cases and in the light of the decisions cited supra, we hold that the order of the Tribunal is in order, in excluding the minors beneficial interest from the hands of the assessee and in that view of the matter we answer the question referred to-us in the affirmative and against the Department. There will be no order as to costs.

M.B.A./1696/FCOrder accordingly.