The judgment of the court was delivered by
1. NARASIMHA REDDY J.-These four references are in relation to the same subject matter. The only difference is that R. C. No. 65 of 1995 is at the instance of the assessees, whereas remaining three are at the instance of the Revenue. The matter arises under the Wealth-tax Act (for short "the Act").
The H. E. H. Nizam's Wedding Gifts Trust was created for the benefit of H. E. H. Nizarns two grand daughters, by name Ameena Marzia and Fatima Fouzia. The trust was assessed to wealth-tax. The trust deed provided, inter alia, that the two women mentioned therein shall be entitled to wear the jewels, which are the subject matter of the trust, on ceremonial occasions, without any right of ownership. It is only the children of those two women that are conferred with the rights of beneficiaries in the form
of ownership in the respective shares.
Since the wealth is under the administration of the trust, the Wealth-tax Officer dealt with the same under section 21 of the Act. TIus provision maintains a dichotomy. In case the trust is created in favour of any specified persons, sub-section (1) places the obligation to pay the wealth-tax shall be on the Court of Wards, Administrator-General, Official Trustee, Receiver, Manager or Trustee, as the case may be, to the same extent, as it would have been recoverable from the person, on whose behalf or for whose benefit the assets are held (beneficiaries). Where, however, the trust deed or other similar document is silent about the particulars of beneficiaries, a different procedure is prescribed under sub-section (4) thereof, including the rate of tax.
In the instant case, the Wealth-tax Officer sought to levy tax, by taking recourse to section 21(4) of the Act. Aggrieved by that, the trustees, Le., the respondents filed appeals before the Commissioner. Three appeals preferred by the respondents before the Commissioner were allowed. Challenging the same, the Revenue preferred further appeals before the Income-tax Appellate Tribunal, Hyderabad Bench B (for short "the Tribunal"). The appeals were dismissed through a common order dated December 23, 1994. An effort made by the Revenue to get certain questions referred to this court did not fructify. Therefore, the Revenue approached this court seeking references. An order was passed directing the Tribunal to refer the following questions :
R. C. No. 236 of 1996
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the children of the two ladies, namely, Sb. Fatima Fouzia and Sb. Amina Marzia, get accelerated interest in the trust properties in spite of the clauses in the trust deed that they acquire interest in the trust property only after the life time of the ladies, namely, Sb. Fatima Fouzia and Sb. Amina Marzia ?
( (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in reversing the decision of the Commissioner of Income-tax (Appeals) who held that the interest of the beneficiaries in the trust property was assessable under section 164 of the Act ?"
R. C. No. 245 of 1996
//(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the right to wear the jewellery is not an asset in spite of the decision of the Andhra Pradesh High Court in the case of CWT v. The Trustees of H. E. H. Nizam's Sahebzadi Anwar Begum Trust reported in [1981] 129 ITR 796 (AP) wherein it was held that the interest in jewellery fund was assessable under section 21(1) of the Wealth-tax Act?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the children of the two ladies, namely, Sb. Fatima Fouzia and Sb. Amina Marzia, get accelerated interest in the trust properties in spite of the clauses in the Trust deed that they acquire interest in the trust property only after the life time of the ladies, namely, Sb. Fatima Fouzia and Sb. Amina Marzia ?
(3) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in reversing the decision of the Commissioner of Wealth-tax (Appeals) who held that the interest of the beneficiaries in the trust property was assessable under section 21(4) of the Act ?//
R. C. No. 263 of 1996
R. A. Nos. 156 and 157/Hyd/1996
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the children of the two ladies, namely, Sb. Fatima Fouzia and Sb. Amina Marzia, get accelerated interest in the trust properties in spite of the clauses in the trust deed that they acquire interest in the trust property only after the life time of the ladies, namely, Sb. Fatima Fouzia and Sb. Amina Marzia ?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in reversing the decision of the Commissioner of Income-tax (Appeals) who held that the interest of the beneficiaries in the trust property was assessable under section 164 of the Act ?"
R. A. Nos. 159 and 160/Hyd/1996
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the question of succession opens only on the death of Sb. Fatima Fouzia/Sb. Amina Marzia, the life time beneficiary after having held that her interest in the trust ceased on the sale of the jewellery ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the shares of the beneficiaries are unknown and indeterminate and, hence, the assessment should be made under section 164(1) of the Income-tax Act, 1961 ? "
Accordingly, they were framed and referred to this court through an order, dated July 17, 1995, by the Tribunal.
Independently, the income of the beneficiaries was also assessed under 5 the Income-tax Act. The effect of the order passed by the Wealth-tax Officer was reflected in the proceedings under the Income-tax Act and the asseesees, i.e., the beneficiaries were sought to be levied a higher rate of tax
by applying the concept referable to section 21(4) of the Act. That, in turn, resulted in R. C. No. 65 of 1995 at the instance of the assessees and the following questions are referred to this court : .
R. A. Nos. 360 and 363/Hyd/94
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the question of succession opens only on the death of Sb. Amina Merzia (Sb. Fatima Fouzia in R. A. No. 363/Hyd/94), the life time beneficiary after having held that her interest in the trust ceased on the sale of the jewellery ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the capital gain is a notional or deemed income under section 45 of the Income-tax Act, 1961, for the purpose of taxation and thereby making differentiation between other income and capital gains ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the capital gain if any got merged with the corpus and formed part of the corpus ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the children of Sb. Fatima Fouzia are only corpus beneficiaries and not income beneficiaries ignoring the term of the trust deed ?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding the view that the trustee did not receive the capital gains income or sale proceeds at the jewellery for on behalf of the children of Sb. Fatima Fouzia ?
(6) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the shares of the beneficiaries are unknown and indeterminate and, hence, the assessment should be made under section 164(1) of the Income-tax Act, 1961 ?"
R. A. Nos. 359 and 361/Hyd/94
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the question of succession opens only on the death of Sb. Fatima Fouzia, the life time beneficiary after having held that her interest in the trust ceased on the sale of the jewellery ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the representative assessments made in the hands of the children of Sb. Fatima Fouzia ?
(3) vVhether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding the view that the trustee did not receive the capital gains income or sale proceeds of the jewellery for and on behalf of the children of Sb. Fatima Fouzia ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the shares of the beneficiaries are unknown and indeterminate and, hence, the assessment should be made under section 164(1) of the Income-tax Act, 1961 ?"
R. A. No. 362/Hyd/94
11 (1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the shares of the beneficiaries are unknown and indeterminate and, hence, the assessment should be made under section 164(1) of the Income-tax Act, 1961 ?"
6 Sri S. R. Ashok, learned senior standing counsel for the Income-tax Department, submits that the conferment of the wealth under the trust, was in the form of life interest during the life time of the two ladies mentioned in the trust deed and there was no occasion for them to be treated as beneficiaries. He contends that though the trust deed provided for the succession of the jewellery to the children of the two women named in the trust deed, that event would arise only after the death of the ladies and the question of there being any beneficiaries during the life time of those ladies does not arise. He submits that the Commissioner and the Tribunal ignored certain undisputed facts and refused to apply the specific provisions of the Act.
Sri Ravindra Chenji, learned counsel for the assessees, on the other hand, submits that the dispute is no longer res integra and it is covered by the judgment of the hon'ble Supreme Court in CWT v. Trustees of H. E. H. Nizams Family (Remainder Wealth) Trust [1977] 108 ITR 555 (sq. He contends that in identical circumstances, the hon'ble Supreme Court took the view that even where a trust deed provides for a vested remainder in favour of some persons and no life estate as such is created, the authority under the relevant provisions of the Act has to be guided by the contents of the trust deed. He submits that once the trust deed has provided for devolution of the property to the children of the two women, the beneficiaries, are clearly identified and thereby, the occasion to invoke section 21(4) of the Act does not exist.
That there existed wealth, amenable to the tax, is beyond any pale of doubt. It is equally undisputed that the trustees were liable to be assessed under section 21 of the Act. The entire controversy is as to whether the assessment has to be made under sub-section (1) or sub-section (4) tn'ereof. It is almost through the process of elimination that one can arrive at a proper conclusion.
The procedure under section 21(1) of the Act is almost in the form of residual exercise. Specific procedure is prescribed under section 21(4) of the Act and the assessment thereunder invites a higher rate of tax. The relevant provisions read as under :
"21 Assessment when assets are held by courts of wards, administrators-general, etc.-(l) Subject to the provisions of sub-section (lA), 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 ...
(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"
(portion of the provision, not relevant for this case, is omitted).
10 The key expression that plays a pivotal role in attracting section 21(4) is indeterminate or unknown beneficiaries. In other words, if the beneficiaries under the trust are either unknown or it is difficult to determine them, the assessment must be made under that provision. For this purpose, one has invariably to look into the contents of the trust deed itself, and no other course is permissible.
11 In the instant case, the terms of the trust deed are very clear and unambiguous. Even while conferring a limited privilege of wearing the ornaments in favour of the named women, the trust deed has clearly mentioned that on the death of the two women, the jewellery shall devolve upon their children.
12 It is true that during the life time-of the two women, it is difficult to treat any particular individual as the immediate beneficiary, particularly when the right was restricted only to the one of wearing and returning the jewels. However, in law, what becomes necessary is whether there are any beneficiaries at all. It is immaterial whether they are the beneficiaries at present or in future. Once the deed has stipulated that on the death of the two womeI\ their children would become the beneficiaries, the occasion to invoke section 21(4) of the Act does not arise. The inescapable conclusion is that the assessment must be under section 21(1) of the Act. We derive support to this, from the judgment of the hon'ble Supreme referred to above. Their Lordships observed as under (page 598 of 108 TIR) :
"The expression 'where the shares of the beneficiaries are indeterminate or unknown' carried with it, by necessary implication, a situation where the beneficiaries themselves are indeterminate or unknown. Such, for example, would be the case in the modified illustration given above. There, the beneficiaries are such of the children of A as the trustee might think fit and the beneficiaries themselves would, therefore, be indeterminate and unknown and yet sub-section (4) of section 21 would apply in their case. To take any other view would be to deny full meaning and effect to the words 'where the shares of the beneficiaries are indeterminate or unknown' and to create a lacuna where, even though the beneficial interest in the remainder is disposed of under the trust deed, such beneficial interest would escape assessment. The correct interpretation of sub-section (4) of section 21 must, therefore, be that even where the beneficiaries of the remainder are indeterminate or unknown, the trustee can be assessed to wealth-tax in respect of the totality of the beneficial interest in the remainder, treating the beneficiaries fictionally as an individua1."
If the ratio contained in the above passage is applied to the facts of the present case, it becomes clear that the view taken by the Commissioner and the Tribunal is correct and the questions referred to us deserve to be answered against the Revenue and in favour of the assessees.
The References are accordingly answered.