Contingent trust interest keeps trust capital out of a minor beneficiary's net wealth until majority

Where a minor beneficiary's right under a trust depends on attaining majority, the interest remains contingent and not vested in possession. On that basis, the trust income was treated as not taxable in the beneficiary's hands until the stipulated age, and the capital standing in the trust was therefore not regarded as part of the minor's net wealth under the Wealth-tax Act. The governing principle is that trust capital is excluded from the beneficiary's net wealth until the beneficiary's interest becomes vested by the occurrence of the future event.

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Issues: Whether the capital of the trust created for the minor beneficiary was includible in the assessee-minor's net wealth under the Wealth-tax Act, where the trust income was to be accumulated and paid over only on attainment of majority.

Analysis: The assessee's entitlement under the trust was not immediate or vested in possession, but was dependent on her attaining the stipulated age. The Court treated the beneficiary's interest in the trust as contingent, and applied its earlier ruling on the same trust that the trust income was not taxable in the assessee's hands until she attained 18 years. On that footing, the capital standing in the trust could not be regarded as part of the assessee's net wealth.

Conclusion: The question was answered in the affirmative and against the Revenue; the trust capital was not includible in the assessee-minor's net wealth.

Final Conclusion: The reference was disposed of in favour of the assessee, with the Tribunal's view sustained and the Revenue's challenge rejected.

Ratio Decidendi: Where a beneficiary under a trust has only a contingent interest until a stipulated future event occurs, the trust capital is not includible in the beneficiary's net wealth until that interest becomes vested.

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