Andhra HC (Pre-Telangana)
Trustees Of Heh, The Nizarn'S ... vs Cwt on 20 December, 2001
Equivalent citations: [2002]122TAXMAN249(AP)
ORDER S.R. Nayak, J.
The Tribunal, Hyderabad Bench 'B', has referred the following question for the opinion of the High Court under section 27(1) of the Wealth Tax Act, 1957 (hereinafter referred to as the Act) :
"Whether, on the facts and in the circumstances of the case, the trust funds relating to Schedules I and VI for the assessment years 1969-70 to 1972-73, Schedules I to IV and VI for the assessment years 1973-74 to 1977-78, and Schedules I, IV, V and VI for assessment year 1978-79 can be merged into one single trust and assessment made upon the aggregate value of the jewellery specified in the aforesaid Schedules under section 21(4) of the Wealth Tax Act, 1957 ?"
2. The background facts leading to the reference of the above question be noted briefly as under: Late Nawab Mir Sir Osman Alikhan Bahadur created a trust called 'Supplemental Jewellery Trust' by an indenture dated 28-2-1952. The corpus of the trust fund consisted of jewellery, specified in the first six Schedules of the trust deed and 2,000 cumulative preference shares of Rs. 100 each of Graves Cotton & Co. Ltd., mentioned in the Schedule VII. In this R.C., we are concerned with the jewellery in Schedules II to VI. Clause 5 of trust deed deals with the jewellery in Schedule II. Under this clause Prince Muazzam Shah Bahadur has a right to wear and use the jewellery and ornaments specified in the Schedule II on ceremonial and festive occasions. Clause 6 deals with the jewellery in Schedule III. Under this clause the settlor's daughter Shahzadi Beguni Saheba has a right to wear and use the jewellery during ceremonial or festive occasions. Clause 7 deals with the jewellery in Schedule IV. Under this clause settlor's wife Smt. Eqbal Begum has a right to use the jewellery on ceremonial and festive occasions. Clause 8 deals with the jewellery in Schedule V. Under this clause settlor's wife Gowhar Begum has a right to use and wear the said jewellery on ceremonial or festive occasions. Clause 9 deals with the jewellery in Schedule VI. Under this clause sculor's daughter Mehrunnisa Begum has a right to wear and use the jewellery on ceremonial and festive occasions. Smt. Eqbal Begum died on 4-8-1972 without leaving any issues. Smt. Gowhar Begum died on 15-9-1977 issueless. Smt. Mehrunnisa Begum died on 6-10-1964 without leaving any issues. Under the trust deed after the death of the above three persons the jewellery, in Schedules VII, VIII and IX will be held upon the same trust as in the case of Schedule I properties as mentioned in clause 4 of the deed. The Wealth Tax Officer evaluated the value of interest held by beneficiaries, viz., Prince Muazzam Shah Bahadur and Smt. Shahzadi Begum Saheba at Rs. 10,000 which he included in their respective assessments under section 21 (1) of the Act. The remainder wealth after deducting the life interest was assessed under section 21(4). Similar procedure was followed in respect of Smt. Eqbal Begum up to the assessment year 1972-73 and from 1973-74 onwards, i.e., after the death of Eqbal Begum, in view of the specific provision of the trust deed that the properties will be held upon the same trust as in the case of Schedule I properties, the Wealth Tax Officer held that that has to be combined with Schedule I properties to be assessed under section 21(4). Similar treatment was given in respect of the properties in which life interest was given to Smt. Gowhar Begum up to 1977-78. Since she died issueless on 15-9-1977, for the assessment year 1978-79, the remaining properties were added to the Schedule I properties for assessment under section 21(4). The Wealth Tax Officer aggregated the properties and clubbed with Schedule I properties after the death of Smt. Eqbal Begum, Smt. Gowhar Begum and Smt. Mehrunnisa Begum and made assessments under section 21(4). On appeal, the Commissioner (Appeals), held that the Wealth Tax Officer was right in evaluating the life interest of each life tenant at Rs. 10,000 for each year. In respect of Schedules II and III properties, the Commissioner (Appeals) held that Prince Muazzam Shah Bahadur and Shahzadi Begum Saheba, being the immediate beneficiaries, were the only persons interested in the properties and so their interest, if any, has to be assessed under section 21(1) and that the interest of ultimate beneficiary is to be ignored. In respect of properties mentioned in Schedule IV up to the assessment year 1972-73 (since Eqbal Begum died on 4-8-1972), he held that Smt. Eqbal Begum will have to be treated as the only beneficiary and her interest has to be assessed under section 21(1). In respect of the properties given in the Schedule V, the Commissioner (Appeals) held that Smt. Gowhar Begum being the immediate beneficiary, the assessments up to 1977-78 (since Smt. Gowhar Begum died on 15-9-1977) will have to be made on the trustees by treating her as the only beneficiary in that Schedule property. After the death of the respective life tenants, the Commissioner (Appeals) held that the properties under each of the Schedules will have to be assessed by applying the provisions of section 21(4). He also held that there is no dispute regarding the manner of assessment of the properties given under Schedule VI, as Smt. Mehrunnisa Begum died before the relevant valuation dates. He then dealt with aggregation of beneficial interest held by the ultimate beneficiaries and the remaindermen in respect of Schedules II, III, IV, V and VI properties with the Schedule I property. The Commissioner (Appeals) further held that as far as Schedules II and III properties are concerned, the assessments have to be made by taking into account that Prince Muazzam Shah Bahadur and Smt. Shahzadi Begum Saheba are the only beneficiaries and as such question of aggregating the totality of the beneficial interest of the ultimate beneficiaries in Schedules II and III properties with Schedule I properties for the assessment years 1969-70 to 1978-79 does not arise. Similarly, in respect of Schedule IV property, which was settled for the immediate benefit of Smt. Eqbal Begum up to assessment year 1972-73, the Commissioner (Appeals) held that Smt. Eqbal Begum being the only immediate beneficiary, the question of aggregating the totality of the beneficial interest of the ultimate beneficiaries in the remainder wealth with Schedule I property does not arise. Further, he held that in the case of Schedule V property, which was settled for immediate benefit of Smt. Gowhar Begum, who died on 15-9-1977, the question of assessing the totality of the beneficial interest of the ultimate beneficiaries up to 1977-78 does not arise. He further held that the beneficial interest in respect of Schedule I property and the ultimate beneficiaries in respect of Schedules IV, V and VI properties are the same group of persons, i.e., relatives and family members of late Nizam. He held that though they are not specified by name, the group is one and the same and that the ultimate beneficiaries in respect of all these allotments are common. In the circumstances, the Commissioner (Appeals) opined that the Wealth Tax Officer was justified in assessing together the interest of this common group of beneficiaries in the properties as one whole and in a single assessment.
3. In the appeal filed by the assessee before the learned Tribunal, it was argued that the authorities below were not justified in making one single assessment under sub-section (4) of section 21 by aggregating the value of the jewellery specified in Schedules I to VI, that each Schedule was an independent Schedule under the trust deed and six separate assessments ought to have been made and that the aggregation in one assessment was not justified. The revenue contended that the aggregation in one assessment under section 21(4) was justified. The learned Tribunal in paragraph 4 of its order held that even if there were separate trusts during the lifetime of the beneficiaries, viz., Smt. Eqbal Begum, Smt. Gowhar Begum and Smt. Mehrunnisa Begum, after their death the properties in Schedules IV, V and VI reverted back to Schedule I and, therefore, they were merged with Schedule I properties, and as such all those properties had to be aggregated and a single assessment had to be made under section 21(4). The Tribunal, therefore, upheld the validity of the orders of the Commissioner (Appeals).
4. Sri P. Murali Krishna, the learned counsel appearing for the assessee, would contend that the authorities under the Act and the learned Tribunal are not justified in aggregating the value of the jewellery specified in the Schedules and making one assessment under section 21(4). The learned counsel would contend that each Schedule is an independent one under the trust deed and there are six separate trusts though all of them are created by the same trust deed, and, therefore, six separate assessments have to be made and the aggregation in one assessment is ex facie illegal and unjustified. The learned counsel, placing reliance on the judgment of the Supreme Court in CIT v. Trustees of H.E.H. the Nizam's Family Trust (1986) 162 ITR 286, would contend that it is permissible to create a number of trusts in a single trust deed.
5. On the other hand, the learned senior standing counsel for the Income Tax Department, Sri S.R. Ashok, would support the aggregation in one assessment under section 21(4).
Sub-sections (1) and (4) of section 21 read "21. Assessment when assets are held by courts of wards, administrators-general, etc.(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.
ExplanationA 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 sub-section, 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 1-6-1981, within a period of three months from that day; and (it) in any other case, within three months from the date of declaration of the trust.
(IA) to (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
(a) at the rates specified in Part I of Schedule I; or
(b) at the rate of three per cent;
whichever course would be more beneficial, to the revenue:
Provided that in a case where
(ii) 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 (iit) such assets are held under a trust created before the 1-3-1970, 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. Explanation 1.For the purposes of this sub-section, 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.Notwithstanding anything contained in section 5, in computing the net wealth for the purposes of this sub-section or sub-section (4A) in any case, not being a case referred to in the proviso to this sub-section, any assets referred to in clauses (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii) and (xxix) of sub-section (1) of that section shall not be excluded."
6. The consequences of the provision of section 21(1) that the trustee is assessable 'in the like manner and to the same extent' as the beneficiary are three-fold. In the first place, there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary. Secondly, the assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. And, lastly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he was assessed directly. To a case where property is held on trust for giving income for life to A and on his death, to such of the children of A as the trustee might think fit, section 21(4) would be clearly attracted so far as the reversionary interest is concerned, because on the relevant valuation date, the remaindermen and their shares would be indeterminate and unknown. Even if the beneficiaries themselves were indeterminate or unknown, sub-section (4) of section 21 would apply and the assessee would be liable to be assessed in respect of the totality of the beneficial interest in the remainder as if it belonged to one single beneficiary. When the beneficiaries are indeterminate or unknown, obviously their shares would also be indeterminate and unknown. 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 there 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. These principles are well-established by virtue of the judgment of the Apex Court in CWT v. Trustees of H.E.H. Nizams Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC). In the background of these principles, let us look at the facts of this case.
7. After the death of Smt. Eqbal Begum, Smt. Gowhar Begum and Smt. Mehrunnisa Begum, the properties in Schedules IV, V and VI were held by the members on par with Schedule I property as per the provisions of the trust deed. The beneficiaries under Schedule I property are the relatives and family members of late Nizam. The ultimate beneficiaries in respect of Schedules IV, V and VI properties are of the same group as in Schedule I, i.e., relatives and family members of late Nizam. Their shares are unknown, but the ultimate beneficiaries are common. After the death of Smt. Eqbal Begum, Smt. Gowhar Begum and Smt. Mehrunnisa Begum, the properties in Schedules IV, V and VI shall be held as specified in the last Schedule under clause 4 of the trust deed. The said properties in Schedules IV, V and VI have to be aggregated with Schedule I property and, therefore, one single assessment has to be made under section 21(4). Even if there are separate trusts during the lifetime of the beneficiaries, viz., Smt. Eqbal Begum, Smt. Gowhar Begum and Smt. Mehrunnisa Begum, after their death, the properties in Schedules IV, V and VI revert back to Schedule I and so they are merged with Schedule I properties and as such all those properties have to be aggregated and a single assessment has to be made under sub-section (4) of section 21. In that view of the matter, no exception can be taken to the opinion arrived at by the learned Tribunal on the question.
8. In the result and for the foregoing reasons, we answer the question in favour of the revenue and against the assessee. The R.C. is disposed of, accordingly, with no order as to cost.