Discretionary trust corpus taxed as individuals under amended Wealth-tax Act, 1957

The Tribunal upheld the taxing of the entire corpus of a discretionary trust under the amended section 21(4) of the Wealth-tax Act, 1957 by the Finance (No. 2) Act, 1980. The amendment made trustees liable to be assessed as individuals for wealth-tax purposes, emphasizing that wealth-tax shall be levied on trustees in the same manner as on an individual. This decision aligned with the Supreme Court's interpretation that beneficial interests are taxable in the hands of trustees in a representative capacity, ultimately dismissing the assessee's appeal.

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Issues:
Interpretation of section 21(4) of the Wealth-tax Act, 1957 regarding the taxation of a discretionary trust's corpus.

Analysis:
The judgment pertains to a wealth-tax appeal of an assessee, a discretionary trust, for the assessment year 1980-81, taxed under section 21(4) of the Wealth-tax Act, 1957. The bone of contention was the taxing of the entire corpus of the trust by the WTO, as amended by the Finance (No. 2) Act, 1980, leading to an appeal. The assessee argued that the value of the whole corpus should not be taxed, but rather the aggregate value of life interest and remainderman's interest determined by an actuary, citing the Supreme Court decision in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555. The assessee contended that the amendment did not provide for taxing the difference between total assets and the interests. The revenue, however, supported the amendment, stating that it brought section 21(4) in line with section 21(1), emphasizing the intention behind the amendment and referring to the case of Sole Trustee, Lokashikshana Trust v. CIT [1975] 101 ITR 234.

Upon examination, the Tribunal found that the view taken by the WTO was correct. The Supreme Court's interpretation of section 21(4) in the Nizam's Family Trusts case and subsequent amendments highlighted that beneficial interests are taxable in the hands of trustees in a representative capacity. The Tribunal noted that the amendment by the Finance (No. 2) Act, 1980, altered the scheme of section 21(4), making trustees liable to be assessed as individuals for wealth-tax purposes. The amendment emphasized that wealth-tax shall be levied on trustees in the same manner and to the same extent as it would be on an individual, removing the concept of treating beneficiaries as individuals. The Tribunal concluded that the amendment made trustees liable to wealth-tax as individuals, upholding the WTO's decision to tax the entire corpus of the trust.

In light of the above analysis, the Tribunal upheld the action of the WTO in taxing the entire corpus of the trust under the amended section 21(4) by the Finance (No. 2) Act, 1980, and dismissed the appeal of the assessee.

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