1968 (3) TMI 12 - HC - Wealth-tax

Inclusion of Trust Interest in Net Wealth for Wealth Tax

The court held that the interest of the assessee under the trust had value for wealth-tax purposes and should be included in the net wealth. The court ... Trust - Whether having regard to the terms of annexure 'A', the Tribunal was justified in holding that the interest of the assessee under the trust had no value - Held, no Issues Involved:1. Whether the interest of the assessee under the trust had any value for wealth-tax purposes.2. Whether the shares of the assessee under the trust were indeterminate or unknown under Section 21(4) of the Wealth-tax Act.Detailed Analysis:1. Whether the interest of the assessee under the trust had any value for wealth-tax purposes:The primary issue was whether the interest of the assessee under the trust deed had any value and could be taxed under the Wealth-tax Act. The Tribunal had concluded that the interest of the assessee had no value, based on the peculiar nature of the benefits under the trust deed, which were for the support, maintenance, and advancement in life of the assessee and his wife. The Tribunal reasoned that since the benefits were personal and non-transferable, they had no market value.The court, however, disagreed with this conclusion. It emphasized that the definition of 'assets' under Section 2(e) and 'net wealth' under Section 2(m) of the Wealth-tax Act is comprehensive and includes property of every description, movable or immovable. The court clarified that Section 7(1) of the Act, which deals with the valuation of assets, requires a hypothetical market scenario where the asset is assumed to be sold in an open market. The court held that the Tribunal erred in interpreting Section 7(1) by considering the actual market conditions and the actual state of the market.The court further analyzed the terms of the trust deed and concluded that the assessee had a substantial and valuable interest in the trust fund. The trust deed provided for the support, maintenance, and advancement in life of the assessee, and the trustees, including the assessee himself, had broad discretion to apply the trust funds for these purposes. Therefore, the court held that the interest of the assessee had value and should be included in the net wealth for wealth-tax purposes.2. Whether the shares of the assessee under the trust were indeterminate or unknown under Section 21(4) of the Wealth-tax Act:The second issue was whether the shares of the assessee and his wife under the trust were indeterminate or unknown, which would necessitate taxing the trustees under Section 21(4) of the Wealth-tax Act. The assessee argued that his share in the trust was indeterminate and unknown, and therefore, the wealth-tax should be levied on the trustees.The court noted that this contention was raised before the Wealth-tax Officer and the Appellate Assistant Commissioner but was not considered by the Tribunal because it had concluded that the interest of the assessee had no value. The court found that the Tribunal's decision on the primary issue precluded the need to address the question of indeterminate shares.However, the court held that the issue of whether the shares were indeterminate or unknown was relevant and should be considered. The court referred to the provisions of Section 21(4) and the relevant case law, indicating that if the shares of the beneficiaries are indeterminate or unknown, the wealth-tax should be levied on the trustees.The court decided that the Tribunal should have considered this issue and given a clear finding. Therefore, the court remanded the case to the Tribunal to determine whether the shares of the assessee and his wife under the trust were indeterminate or unknown and to give a clear-cut finding on this issue.Conclusion:The court answered the primary question in the negative, holding that the Tribunal was not justified in concluding that the interest of the assessee under the trust had no value. The court remanded the case to the Tribunal to determine whether the shares of the assessee and his wife under the trust were indeterminate or unknown under Section 21(4) of the Wealth-tax Act. The assessee was ordered to pay the costs of the reference to the Commissioner.