1984 (9) TMI 88 - AT - Wealth-tax

Beneficiaries' shares indeterminate, reassessment under section 21(4) required, valuation crucial.

The tribunal determined that beneficiaries' shares were indeterminate due to trustees' discretionary powers, leading to assessment under section 21(4) of ... Discretionary Trust Issues:Appeals and cross-objection arising from wealth-tax assessment for the year 1979-80; Interpretation of trust deed provisions; Applicability of section 21(1) and 21(4) of the Wealth-tax Act, 1957; Assessment of trustees based on discretion in trust deed; Proper valuation of shares held by trustees.Analysis:The judgment revolves around two appeals and a cross-objection stemming from wealth-tax assessment for the year 1979-80. The first appeal was filed by the department, the second by the assessee, and the cross-objection by the assessee pertained to the department's appeal. The primary issue was the interpretation of the trust deed provisions and the application of section 21 of the Wealth-tax Act, 1957. The trust deed specified the distribution of trust funds among beneficiaries, with a discretionary provision for trustees to allocate funds. The Wealth Tax Officer (WTO) initially assessed the entire wealth of the trust in the hands of trustees under section 21(1) of the Act.The Appellate Authority Commissioner (AAC) referred to a Supreme Court decision and directed the WTO to verify if beneficiaries had been assessed under section 21(2). The AAC's decision was based on the trustees' discretionary powers and the determination of beneficiaries' interests. The department's appeal challenged the AAC's reliance on the Supreme Court decision and the annulment of assessments. The cross-objection by the assessee raised concerns about the AAC's failure to determine share values and address other grounds.The key contention was whether the beneficiaries' shares were determinate based on the trust deed's provisions. The tribunal analyzed clause 3E of the trust deed, which granted trustees discretionary powers to allocate trust funds among beneficiaries. The tribunal held that since trustees had the discretion to determine beneficiaries' shares, the beneficiaries were unknown and their shares indeterminate on the relevant valuation date. Therefore, section 21(4) applied for assessment.The tribunal disagreed with the AAC's conditional annulment order and directed a reassessment under section 21(4). The tribunal emphasized that the beneficiaries' indeterminate shares on the valuation date necessitated assessment under section 21(4). The tribunal also instructed the AAC to address pending grounds, including the valuation of shares, before finalizing the appeal. Ultimately, the department's appeal was allowed, while the assessee's appeal and cross-objection were dismissed.