1966 (5) TMI 14 - SC - Wealth-tax

Shares not held for minor children's benefit. High Court judgment set aside. Justice Shah dissents.

The court held that the shares were not held for the benefit of the minor children on the relevant dates, thus excluding their value from the assessee's ... Meaning of 'for the benefit of ... minor child' in section 4(1)(a)(iii) of the Wealth tax Act - immediate benefit versus deferred benefit - inclusion of assets in net wealth where assets are held by transferees for the benefit of minors - construction of trust deed to determine beneficial interest on valuation date - effect of non obstante / saving clause in trust instrument on earlier dispositionsMeaning of 'for the benefit of ... minor child' in section 4(1)(a)(iii) of the Wealth tax Act - immediate benefit versus deferred benefit - Legal meaning of the expression 'for the benefit of ... minor child' in section 4(1)(a)(iii) of the Wealth tax Act as enacted in 1957. - HELD THAT: - The Court construed the provision as it stood prior to the 1964 amendment and held that 'benefit' in the original clause must be read as referring to the immediate benefit of the individual, his wife or minor child. The later 1964 amendment expressly added the words 'immediate or deferred benefit', and that insertion is a substantive change which cannot be treated as merely declaratory of the earlier law. The Court therefore refused to read deferred or contingent advantages into the 1957 wording; a transfer to trustees which vests the corpus and income for an intervening purpose (for example charity) during a period cannot be treated as being held for the benefit of a remainderman (the minor) during that intervening period.Under the 1957 enactment of section 4(1)(a)(iii), 'benefit' denotes immediate benefit and does not extend to deferred or contingent benefit.Construction of trust deed to determine beneficial interest on valuation date - effect of non obstante / saving clause in trust instrument on earlier dispositions - inclusion of assets in net wealth where assets are held by transferees for the benefit of minors - Whether, on true construction of the Sandur Ruler's Family (Second) Trust deed, the shares were held for the benefit of the settlor's three minor children on the valuation dates (March 31, 1958 and March 31, 1959) so as to be includible in the settlor's net wealth under section 4(1)(a)(iii). - HELD THAT: - Reading the instrument as a whole, the Court found that clauses 1-3 and clause 21 show an express scheme by which corpus and income of the scheduled shares are to be held for the charitable trust for specified periods (two, twelve and eight years respectively) and that the charitable trust is entitled to the income during those periods or, if not paid over during the period, to the accumulated income on expiry. Clause 9 vests interests immediately, but that vesting did not, on the majority construction, convert the trustees' obligations into holding the shares for the immediate benefit of the minors on the valuation dates. Clause 26, which authorised expenditure 'from out of the income accruing under this Settlement to each of the Beneficiaries', was construed not to override the express directions in clauses 1-3 and 21; the majority read clause 26 harmoniously (treating any apparent reference to clause 21 as a typographical mistake) and held it did not convert the trust property into assets held for the immediate benefit of the minors during the specified charity periods. Consequently, on the valuation dates the trustees held the shares for the charitable purpose in terms of the deed and not for the immediate benefit of the minor children within section 4(1)(a)(iii).On construction of the trust deed the shares were not held for the immediate benefit of the minor children on March 31, 1958 and March 31, 1959 and therefore were not includible in the settlor's net wealth under section 4(1)(a)(iii) as enacted in 1957.Final Conclusion: By a majority the Court allowed the appeals, set aside the High Court's affirmative answer, and held that (i) the 1957 wording of section 4(1)(a)(iii) requires immediate benefit (not deferred benefit) to the minor for inclusion in net wealth, and (ii) on true construction of the Second Trust the scheduled shares were not held for the immediate benefit of the settlor's minor children on the valuation dates 1958 59 and 1959 60; accordingly the shares were not includible in the settlor's net wealth. Appeals allowed with costs. Issues Involved:1. Interpretation of 'for the benefit of ... minor child' under Section 4(1)(a)(iii) of the Wealth-tax Act, 1957.2. Whether the shares transferred to the Sandur Ruler's Family (Second) Trust could be included in the net wealth of the assessee for the assessment years 1958-59 and 1959-60.Issue-wise Detailed Analysis:1. Interpretation of 'for the benefit of ... minor child' under Section 4(1)(a)(iii) of the Wealth-tax Act, 1957:The primary question was whether the shares held by the trustees under the Second Trust were for the benefit of the minor children as per Section 4(1)(a)(iii) of the Wealth-tax Act. The court had to interpret the term 'benefit' in this context. The original section did not specify whether the benefit had to be immediate or deferred. The Solicitor-General argued that 'benefit' included both immediate and deferred benefits, referencing an amendment made in 1964 which explicitly stated this. However, the court concluded that the amendment was not declaratory of the pre-existing law but made a deliberate change. Therefore, the term 'benefit' in the original section referred to immediate benefit only. The court held that if property is held in trust for a charitable purpose before benefiting minor children, it cannot be said to be held for the benefit of the minor children during that period.2. Inclusion of Shares in Net Wealth:The court examined the terms of the Second Trust deed to determine if the shares were held for the benefit of the minor children on the relevant valuation dates. The trust deed specified that the shares were to be held for the benefit of a charitable trust for a certain number of years before benefiting the minor children. Clauses 1, 2, and 3 of the trust deed indicated that the shares were to be held for the benefit of the charitable trust for two, twelve, and eight years, respectively, before benefiting the minor children. Clause 21 allowed the trustees to accumulate the income from the shares for the charitable trust during these periods. Clause 26, however, allowed the trustees to expend income for the maintenance, education, health, marriage, and advancement of the beneficiaries, notwithstanding clauses 21 to 25. The Solicitor-General argued that this clause indicated that the shares were held for the benefit of the minor children. However, the court held that clause 26 did not override the interest settled on the charitable trust and that the minor children had no interest in the income during the specified periods.Judgment:The court concluded that the shares were not held for the benefit of the minor children on March 31, 1958, and March 31, 1959. Therefore, the value of the shares could not be included in the net wealth of the assessee for the assessment years 1958-59 and 1959-60. The appeals were allowed, the judgment of the High Court was set aside, and the question referred to the High Court was answered in the negative. The assessee was entitled to costs here and in the High Court.Separate Judgment by Shah J.:Shah J. delivered a separate judgment, agreeing with the High Court's decision. He emphasized that the primary intention of the settlor was to make provision for his children, and the trustees had the power to expend income for the children's benefit during the specified periods. Therefore, the assets were transferred for the immediate benefit of the children, and the High Court was correct in including the value of the shares in the net wealth of the assessee. Shah J. concluded that the appeals should be dismissed with costs.Final Order:In accordance with the majority opinion, the appeals were allowed with costs here and in the High Court. One hearing fee was awarded. Appeals allowed.