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

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

His Highness Yeshwant Rao Ghorpade Versus Commissioner Of Wealth-Tax, Bangalore

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 ... Whether the shares in question held by the trustees under the Second Trust are held for the benefit of the three minor children mentioned in the Second Trust deed? Held that:- The word ' benefit ' in the context means for the immediate benefit of the individual or his wife or minor child. If a property is transferred to trustees to hold in trust for the life of A and then for B, we cannot hold that the property is held for the benefit of B during the lifetime of A. As will appear later, under the Second Trust, the trustees hold the trust property for the benefit of the charitable trust for a number of years before they start holding it for the benefit of the minor children. It is difficult to say that while the property is being held for the benefit of the charitable trust, it is also being held for the benefit of the minor children. Thus considering the document as a whole the shares were not held for the benefit of the three minor children as on March 31, 1958, and March 31, 1959. Accordingly the answer to the question referred by the Appellate Tribunal and set out above must be against the revenue 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.