TaxTMI 
TaxTMI 
1985 (4) TMI 95
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....he trust fund every year. It is also open for the trustees not to apply the income at all but to accumulate the same. 3. Now, the determination of the trust would be on what is referred to as the 'vesting day'. There are two contingencies visualized in the trust deed and the earlier of the two contingencies would determine the vesting date. The first of the contingencies is the date on which the eldest of the beneficiaries mentioned in the trust deed and named as qualifying individuals reach the age of 71. The second contingency is when the income beneficiaries get reduced to two persons either by death, renunciation or otherwise. On the happening of any of these events, clause 8 of the trust deed provides that the trustees shall transfer and hand over to such of the beneficiaries of the first group referred to in the trust deed who would be living on the vesting date absolutely in such shares as the trustees shall in their discretion determine. In case there were no beneficiaries of the first group, then the trustees shall distribute the corpus at their discretion to those person or persons living on the vesting day among the beneficiaries of the second group. Failing any benef....
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....tion for discounting the value of the corpus. As the assessee was a discretionary trust, the trustees having unlimited discretion with regard to the distribution of the trust fund, they were assessable on the entire value of the corpus of the trust as on the valuation dates. With this finding, he dismissed the appeals. 8. The assessee is on further appeal before us. Shri Chokshi for the assessee-trust submitted that it is well settled in view of the decision of the Supreme Court in the case of CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 that the department could assess the trustees only under the provisions of section 21 of the Wealth-tax Act, 1957 ('the Act'). If the trust were to be a discretionary trust, then the provisions of section 21(4) would be applicable. Even if this provision were to be applied, he submitted that what is brought to assessment is not the value of the corpus of the trust but the value of the beneficial interest. Under section 21(1) where the beneficiaries and the shares are known, the valuation is made according to the shares specified. Where the shares are not known or the beneficiaries are indeterminate, he sub....
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.... part of the corpus of the trust properties can be assessed in the hands of the trustee under section 3 and any such assessment would be contrary to the plain mandatory provisions of section 21." 10. The question then would be what is the value of the interest of the beneficiary on the valuation date. Under section 21(4), a fiction has been created that there is only one beneficiary who will be an individual. So, it is necessary for us to find out the value of the interest of this beneficiary in the trust corpus. The valuation of the actuary has been made on the assumption that the properties would vest in the beneficiary only on the vesting day, i.e., a matter of 31 years from the valuation date. That is why property, the value of which is Rs. 4,28,903, has been evaluated at Rs. 19,608. Now, the actuary has assumed that the individual beneficiary will have no interest in the property for a period of 31 years. This is totally against the trust provisions. We have pointed out that the trust is discretionary both on income as well as on corpus. Therefore, it is within the discretion of the trustees to distribute the income till the vesting day. As per the provisions of section 21(....
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.... individual under sub-section (4) of section 21. The difference between the value of the corpus of the trust property and the aggregate of the actuarial valuations of the life interest of A and the remainderman's interest would not be assessable in the hands of the trustee because, as pointed out above, the trustee can be taxed only in respect of the beneficial interests and there being no other beneficiary apart from A and such of the children of A as the trustee might think fit, the balance of the value of the corpus cannot be brought to tax in the hands of the trustee under sub-section (1) or (4) of section 21." Thus, it will be seen from the above, that the observation would fit into a case only where there is a life beneficiary to be followed by a remainderman. In such case the remainderman has no interest at all till the lifetime of the life beneficiary. Under those circumstances, it will be justified in totally ignoring the income accruing till the date of vesting. But in a case like the one before us, where both the life interest and the corpus interest are discretionary, there is no question of the corpus beneficiary not having any interest at all prior to the vesting d....