# [1977] 3 S.C.R. 735

- **Citation:** [1977] 3 S.C.R. 735
- **Court:** Supreme Court of India
- **Decided:** 1977-05-03
- **Bench:** P. N. Bhagwati, N. L. Untwalia, S. Murtaza Fazal Ali
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1977-3-s-c-r-735-7243
- **Pages:** 23

## Headnote

Wealth Tax Act 1957-Ss. 3, 21(1) and 21(4)-Scope of.
Section 21(1) of the Wealth Tax Act provides that in case of assets chargeable to tax under the Act which are held by . . . . . . . . any trustee appointed
under a Trust, wealth tax shall be levied upon and recoverable from the
........ trustee in the like manner and to the same extent as it would be
leviable upon and recoverable from the person on whose behalf the assets are
held. Sub-section ( 4) provides that notwithstanding anything contained in this
section, where the shares of the persons on whose behalf or for ·whose benefit
a:ny such assets are held are indeterminate or unknown, wealth tax shall be
levied upon and recovered_ from the trustee as if the p~rsons on whose behalf
or for whose benefit the assets are held were an individual for the purposes of
this Act.
The corpus of a family trust created by the Nizam of Hyderabad was notionally divided into 175 equal
units, out of which
16lt units were allocated
amongst relatives mentioned in the Second Schedule to the Deed in the manner
specified therein. The essence of the Trust was that none of the beneficiaries
was entitled. to the corpus of the units allocated to him or her but was only
entitled to be paid the income from the units allocated to him or her. The trust
deed made detailed and elaborate provisions as to the disposition of the different
units allocated to the various beneficiaries and also provided for every other
contingency in such a manner that at any particular point of time one could
say, if the owner of the life interest were to die at that point of time, who
the beneficiaries entitled to the corpus would be.
The Wealth Tax Officer assessed wealth tax on the value of the respective
units allocated to each of the several beneficiaries.
- In appeal the Appellate Assistant Commissioner upheld the assessees' contention that since each of them was entitled only to a life interest in the corpus
of the units allocated, they could not be assessed in respect of the entire value
of the corpus. When assessments were made on this basis, the value of the
remainder wealth escaped tax. The \Vealth Tax Officer, therefore, assessed the
remainder wealth under s. 21(4) taking the view that the beneficiaries in
respect of the several remainder estates after the lives of the immediate beneficiaries were unknown and their shares were indeterminate.
On appeal the appellate Assistant Commissioner, without deciding the contention as to the applicability of s. 21(4), annulled the assessments on the
ground that though the trust deed was one,
it created several distinct
and
separate trusts, one in favour of each beneficiary with its own
indeoendent
and complete provision in regard to devolution after the death of each beneficiary and the Wealth Tax Officer was not justified in clubbing the
entire
remainder wealth in a single assessment.
A
B
c
D
E
F
G
Before the Appellate Tribunal the Revenue contended that the assessees
H
were liable to be assessed as an individual under s. 3 in respect of the entire
corpus of the trust fund and s. 21 ( 4) being merely a machinery provision
did not have the effect of overriding the charge imposed under s. 3.
A.
B
c
D
E
F
G
H
736
SUPREME COURT REPORTS
[1977] 3 S.C.R.
,The Tribunal he_ld (i) that s. 3 was subject to s. 21 and the assessees could
not be assessed to wealth tax under that section in respect of the entire corpus,
jgnoring the provisions of s. 21; (ii) thats. 21(1) was nQt applicable in this
case and (iii) that s. 21(4) was applicable because the beneficiaries in respect
of the remainder estate were unknowil.
.
The following questions, among others. were referr-ed by the Tribunal to
the High Court :
1. Whether the trustees were liable to be taxed under s. 3 in the status
of an "individual" ?
·
2. Whether the Tribunal was right in holding _that the provisions of
s. 3 should be considered as subject to the provisions of s. 21 ?
3. Whether the Tribunal was correct in holding that under

## Text

_Characters 0–39,929 of 79,270. This is a partial read: ask again with offset=39929 for what follows._

•
735
COMMISSIONER OF WEALTII TAX, ANDHRA PRADESH,
HYDERABAD
TRUSTEES OF H.E.H. NIZAM'S FAMILY
(REMAINDER WEALTH TRUST),
HYDERABAD
May 3, 1977
[P. N. BHAGWATI, N. L. UNTWALIA AND S. MURTAZA FAZAL ALI, JJ.]
Wealth Tax Act 1957-Ss. 3, 21(1) and 21(4)-Scope of.
Section 21(1) of the Wealth Tax Act provides that in case of assets chargeable to tax under the Act which are held by . . . . . . . . any trustee appointed
under a Trust, wealth tax shall be levied upon and recoverable from the
........ trustee in the like manner and to the same extent as it would be
leviable upon and recoverable from the person on whose behalf the assets are
held. Sub-section ( 4) provides that notwithstanding anything contained in this
section, where the shares of the persons on whose behalf or for ·whose benefit
a:ny such assets are held are indeterminate or unknown, wealth tax shall be
levied upon and recovered_ from the trustee as if the p~rsons on whose behalf
or for whose benefit the assets are held were an individual for the purposes of
this Act.
The corpus of a family trust created by the Nizam of Hyderabad was notionally divided into 175 equal
units, out of which
16lt units were allocated
amongst relatives mentioned in the Second Schedule to the Deed in the manner
specified therein. The essence of the Trust was that none of the beneficiaries
was entitled. to the corpus of the units allocated to him or her but was only
entitled to be paid the income from the units allocated to him or her. The trust
deed made detailed and elaborate provisions as to the disposition of the different
units allocated to the various beneficiaries and also provided for every other
contingency in such a manner that at any particular point of time one could
say, if the owner of the life interest were to die at that point of time, who
the beneficiaries entitled to the corpus would be.
The Wealth Tax Officer assessed wealth tax on the value of the respective
units allocated to each of the several beneficiaries.
- In appeal the Appellate Assistant Commissioner upheld the assessees' contention that since each of them was entitled only to a life interest in the corpus
of the units allocated, they could not be assessed in respect of the entire value
of the corpus. When assessments were made on this basis, the value of the
remainder wealth escaped tax. The \Vealth Tax Officer, therefore, assessed the
remainder wealth under s. 21(4) taking the view that the beneficiaries in
respect of the several remainder estates after the lives of the immediate beneficiaries were unknown and their shares were indeterminate.
On appeal the appellate Assistant Commissioner, without deciding the contention as to the applicability of s. 21(4), annulled the assessments on the
ground that though the trust deed was one,
it created several distinct
and
separate trusts, one in favour of each beneficiary with its own
indeoendent
and complete provision in regard to devolution after the death of each beneficiary and the Wealth Tax Officer was not justified in clubbing the
entire
remainder wealth in a single assessment.
A
B
c
D
E
F
G
Before the Appellate Tribunal the Revenue contended that the assessees
H
were liable to be assessed as an individual under s. 3 in respect of the entire
corpus of the trust fund and s. 21 ( 4) being merely a machinery provision
did not have the effect of overriding the charge imposed under s. 3.
A.
B
c
D
E
F
G
H
736
SUPREME COURT REPORTS
[1977] 3 S.C.R.
,The Tribunal he_ld (i) that s. 3 was subject to s. 21 and the assessees could
not be assessed to wealth tax under that section in respect of the entire corpus,
jgnoring the provisions of s. 21; (ii) thats. 21(1) was nQt applicable in this
case and (iii) that s. 21(4) was applicable because the beneficiaries in respect
of the remainder estate were unknowil.
.
The following questions, among others. were referr-ed by the Tribunal to
the High Court :
1. Whether the trustees were liable to be taxed under s. 3 in the status
of an "individual" ?
·
2. Whether the Tribunal was right in holding _that the provisions of
s. 3 should be considered as subject to the provisions of s. 21 ?
3. Whether the Tribunal was correct in holding that under s. 21(4) the
remainder wealth could be assessed in respect of each of the several
units or groups of units allocated in favour of the beneficiaries 1
4. Whether the Tribunal was right in holdinJ? that the provisions of
s. 21(4) are applicable?
-
The High Court held that (i) since the terms "individual" occurring in s. 3
is wide enough to include a group of persons forming a unit, the trustees were
liable to be assessed under s. 3 but, s. 3 being subject to the provisions of s. 21,
it was not permissible to tax the
trustees under s. 3 ignoring the provisions
of s. 21; (ii) it was not possible to say, on the valuation date, that the beneficiaries of the remainder estate in respect of each unit were unknown or their
shar~ were indeterminate so as to attract the applicability of s. 21(4); and
(iii) s. 21 (1) was applicable because it could be
predicated with
certainty
and definiteness on the relevant valuation date as to who would succeed to the
corpus of each set of unit and in what shares, if the conditions for the vesting
of the corpus who fulfilled on that date.
Dismissing the appeals in part,.
HELD : The trustees constituted an assessable unit and were liable to be
assessed to wealth tax as "individual" tmder s. 3. [747 E]
(1) (a) Section 3 imposes the charge of wealth tax subject to other provisions of the Act and these other provisions inc1ude s. 21. Section 3 is, therefore, made expressly subj'!ct to s. 21 and it must yield to that section in so
far as the latter makes special provision for assessment of a trustee. [748 D-E]
(b) Section 21 is mandatory.
On a combined reading of ss. 3 and 21,
it is clear that an assessment on a trustee must be made in accordance with
the provisions of s. 21.
Every ca,,e of assessment on a trustee must necessarily
fall under s. 21 and he cannot be assessed apart from and without reference
to that section. To hold otherwise would· be to refuse to give effect to the
words "subject to the other provisions Of this Act" in s. 3 and to deny mandatory force and effect to the provisions of s. 21. [749 E..0]
C. R. Nagappa v. Commissioner of Income-tax 73 I.T.R. 187, Commissioner
of Income Tax v. Nandlal Agar"""•al 59 I.T.R. 756 at 762 and Commissioner
of Wealth Tax, Bihar & Orissa v. Kripashankar Dayashanker Worah 81 I.T.R.
763 followed.
CommissioMr of lnco1ne-Tax,
Ahmedabad v. Balwantrai Jethalal
Vaidya
34 I.T.R. 187 approved.
( c) The assessment which is contemplated to be made on the trustee under
s. 21(1) ors. 21(4) is assessment in a representat~e capacity. It is really the
beneficiaries who are sought to be assessed in respect of their interest in the
trust properties through the trustee .. Section 21(1) can apply only where the
trust properties are held by the tmstee for the benefit of a single beneficlaiy .
•
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C.W.T. v. TRUSTEES OF NIZAM
'l 37
1 or Where. there are more beneficiaries than one, the individual shares of the
A
· ben'ehciaries in the trust properties are determinate and known. Where such
, is the case wealth tax can be levied on the trustee in respect of the interest
, of any particular beneficiary in ihe trust properties in the same manner and
·::<to the same extent as it would be lcviable upon the beneficiary and in respect
of such interest in the trust properties, the trustees would be assessed in a
.rt;:presentative capacity as representing the beneficiary. The beneficiary would
always be assessable in respect of his interest in the trust properties since such.
·interest belongs to him and the right of the Revenue to make direct asesss~
B
ment on him in respect of such interest stands unimpaired by the provisions
enabling assessment to be made on the trustees in a representative capacity.
[750 G-H, 751 A-B, CJ
(d) The Revenue has thus two modes of assessn1ent : (a) it may ei~her
assess such interest in the hands of the
trustee in a rep:r:esentative
capacity
under sub s. (1); or (b) assess it directly in the hands of the beneficiary by
including it in the net wealth of the beneficiary. In either case what is taxed
is the interest of the beneficiary in the trust properties and not the corpus of
C
the trust properties.
So also where beneficiaries are more than one and their
sllares are indeterminate or unknown, the trustee would be assessable in respect
of their total beneficial interest in the trust propertie11.
In the instant case it is the beneficial interest which is assessed to· \V·ealth
tax in the hands of the trustee and not the corpus of the trust properties. Since
under sub~ss. ( 1) and ( 4) of s. 21 it is the beneficial interest. which is taxable
in the hands of the trustee in a representative capacity and the Jiab'.lity of
the trustee cannot be greater than the aggregate liability of the beneficiaries, no
D
part of the corpus of the trust properties can be assessed in tlie hands of the
trustee under s. 3 and any such assessment would be contrary to the plain
mandatory provisions of s. 21. [751 D-E, G-H]
(e) The consequences that flow from the proposition laid down ins. 21(1)
tltat the trustee is assessable "in the like manner and to the same extent" a~
the beneficiary, are : (i) There would have to be as many assessments on
the trustee as there are beneficiaries with determinate and known shares, thoi.;..!l:h
for the sake of convenience, there may be only one assessment order specifying
E
separately the tax due in respect of the wealth of each beneficiary; (ii) The
.assessment of the tnlStee would have to be made in the same status as that
df the beneficiary whose interest is sought to be taxed in the hand of the
t:nlltne; and (iii) The amount of tax payable by the trustee would be the same
as· that payable by each beneficiary in respect of his beneficial interest, if he
were a.~sessed directly. f752 B-Dl
N. V. Sl1anmugham & Co., v. Commissioner of Tncome-Tax, Madras,
81
J.T.R. 310, Padmavati Jaykrishna
Trust v.
Commissioner of
Wealth-Tax,
F
Gujarat 61 l.T.R. 66, at 73-4, Trustees of Putliba1' R. F. Mulla Trusr v. Com1niJwioner of Wealth-Tax 66 I.T.R. 653, at 657-8 and Chintamani Ghosh v.
Commissioner of Wealth-Tax 80 I.T.R. 331 at 341 referred to.
(f) Once it is established that a trustee can be assessed only in accordance
with the provisions of s. 21 and under these provisions, it is only the beneficial
interests which are taxed in the hands of the trustee, it must follow that no
part of the value of the corpus in excess of the aggregate value of the beneficial interests can be brought to tax in the assessment of the trustee.
To do
so. would be contrary to the scheme and
provisions of s. 21. It would be
clearly erroneous to assess the trustee to wealth tax on the excess of the vatue
of the corpus over the acturial valuations of the life interest and the reversionary interest of the beneficiaries. [753 C-D]
Commissioner of Wealth-Tax, Gujarat v. Smt. Arundhati Balkrishna Trust
IOI J.T.R. 626 approved.
G
(g) No part of the corpus of the trust funds could be assessed in the
H
hands of the trustees but· the assessment could be made on them only in resoect
of the beneficial interests of the beneficiaries in the trust funds under ss. 21 (I)
and (4). [754 Al
A
•
B
c
D
E
F
G
H
738
SUPREME COURT REPORTS
[1977] 3 S.C.R·
(2)(a) Even if the beneficiaries were indeterminate or unknown, s. 21(4)
wouhl apply and the trustees would be liable to be assessed in respect of the
totality of the beneficial interest in the remainder as if it belonged to one singlo
beneficiary. The expression 'where the shares of the beneficiaries are indeter..-
minatc or unknown' carries with it by necessary implication a situation whero
the beneficiaries themselves are indeterminate or unknown. (754 F-G]
(b) ·The correct interpretation of s. 21(4) must be that even where the
beneficiaries of the remainder are indeterminate or unknown, the trustees can
be assessed to wealth tax in respect of the totality of the beneficial interest in
the remainder, treating the beneficiaries fictionally as an individual. [755-B]
( c) The Wealth Tax Officer has to determine as to who tho beneficiaries
are in respect Of the remainder on the relevant date and whether their shares
are determinate and known.
So long as it is possible to say on the relevant
valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason -of subsequent events such as birth or death would not take the case out of the ambit
of s. 21(1), [755 D-E]
Khan Bahadur M. Habibur Rehman v. Cpmmissioner of Income-Tax, Bjhar
& Orissa 13 I.T.R. 189.
Subashini Karuri v. Wealth-Tax Officer, Calcutta
'46 1.T.R. 527, Commissioner of Wealth
Tax, Bombay v. Trustees of Mrs.
Hansabai Tribhuwandas Trust 69 I.T.R. 527 and Padmawati Jaykrishna Trust
v. Commissioner of Wealth-Tax, Gujarat 61 I.T.R. 66, at 73-4 approved.
(d) In order to determine the applicability of s. 21(1) on the relevant
valuation date~ it bas to be seen whether it is possible to- say with certainty
and definiteness as to who would be the beneficiaries and whether their shares
would be determinate and specific, if the event on the happe_ning of which the
distribution is to take place occurred on that date. If it is, s. 21(1) would
apply, if not, the case will be governed by s. 21(4).
In the instant case the trust
deed provided for every contingency
and
whenever a relative specified in Second Schedule, who is the owner of the life
interest in the set of unit or units allocated to him or her dies, there would
always be beneficiaries capable of being easily ascertained and identified who
would be entitled to the corpus of such unit or units in determinate and
specific shares, either immediately on the death of such life tenant . or after
another life interest. The remainder in respect each set of unit or units
allocated to the respective relative specified in the Second Schedule was; therefore, liable to be assessed in the hands of the trustees under s. 21 (1) "in the
same manner and to the same extent" as each beneficiary· in respect of. ·his
determinate and known share in
such remainder. That excluded the applicability of s.21(4) in the assessment of the remainder. (756 D-E, F, H, 757 A-CJ
CIVIL APPELLATE JURISDICTION :
470A of 1971.
Civil Appeal Nos. 467-470 &
(Appeals by Special Leave from the Judgment and Order dated
3-3-l970 of the Andhra Pradesh High Court in case Ref. No. 8 of
1967.)
G. C. Sharma, P. L. Juneja and R. N. Sachthey, for the appellant
in all the appeals.
N. A. Palkhivala, Y. V. Anjaneyulu, Mrs. A. K. Ver11111, A. Subba
Rao, Ravinder Narain, J. B . .Dadachanji, ~and 0. C. Mathur, for the
respondents in all the appeals.
The Judgment of the Court was delivered by
BHAGWATI, J. These appeals by speciail leave are directed against a
judgment of the High Court o,f Andhra Pradesh answering certain ques,
tions referred to it by the Tribunal in favour of the assessee. The ques,
tions are of some importance and complexity and they turn on the·twe
..
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"
).
t
C.W.T. v. 'TRUSTEES OF NIZAM (Bllizgwati, J.)
7 39
interpretation of sections 3 and 21 ·Of the Wealth Tax Act, 1957 but
since they can be answered only by applying the correct interpretation
to the facts of the case, it is necessary to briefly recapitulate the facts
giving rise to these appeals.
In the year 1950 the late Nawab Sir Mir Osman A.Ii Khan Bahadur,
The Nizam of Hyderabad and Berar created seve.ral trusts out of which
we are concerned in these appeals with the trust knowu as the Family
Trust. The Nizam, by a Deed of Trust dated 16th May, 1950, created
the Family Trust by transferring a corpus of Rs. nine crores in Government securities to the trustees constituted by him.
The corpus wasnotionally divided into 175 equal units, of out of which five units consti(uted a Fund called the 'Reserve Fund', 3t units constituted a 'Family
Trust Expenses Fund' and the remaining 166t units were allocated
amongst the relatives mentioned in the first column of the Second
Schedule in the manuer specified in that Schedule, the number of units
allocated to each individual relative being that mentioned in the second
column. The Second Schedule was divided into two parts.
Part I
specified the names of the Nizam's wife Laila Begum, her five sons and
two daughters and his another wife Jani Begum and her minor son as
beneficiaries and in Part II were mentioned the names of the other
wives, sons, daughters, daughters-Jn-law, sons-in-law, would-be sons-in•
law and certain other ladies of the Palace. None of the beneficiaries
mentioned in the Second Schedule, whether in Part I or Part IT, was
to be entitled to the corpus of the units allocated to him or her. Each
was entitled to be paid the income from the units allocated to him or
her and detailed provisions were made for the manner in which the units
were to devolve after his or her death.
Clause ( 4). of the Trust Deed
pro>Jided that 30 out of 1661· units shall be allocated amongst the relatives mentioned in Part I of the Second Schedule in such manner that
one unit each shall be allocated to Laila Begum and Jani Begum, two
units each shall be allocated to the daughters of Laila Begum and four
units each shall be allocated to the five sons of Laila Begum and the
mi.nor son of Jani Begum. So far as one unit allocated to Laila Begum
was concerned, the trustees were directed by sub-clause (a) of clause
( 4) to pay the income of this one unit to Laila Begum during her life
time and after her death, it ·was to be divided into 12 equal parts and
2 equal parts each were to be added to the four units allocated to each
of her five sons and one equal part each was to be added to the two
units allocated to each of her two daughters to be held upon the same
trusts as those declared in respect of the original units a!loc .. ted to each
son or daughter as the case may be.
Each of the five sons of Laila
Begum was allocated four units and under sub-clause (b) of clause ( 4)
it was pr9vided th~t the income !rom these four units, supplemented
by parts out of Laila Begum's mnt on her death, shall be paid to the
respective son during his llie time and on and after his death, the corpus
of the four units allocated to him together with the parts out of Laila
Begum's unit added to it, shall be divided alll.Ol1gst his children or remoter issues per stirpes in the pmportion of two shares for·every male
child to one share for every female child standing in the same degree
of relationship. If such son died without leaving any child or remoter
issue him surviving, sub-clause (b) of clause (4) provided that the
trustees shall divide the four units allocated to him together with the
1!,-707SCl/77
A •
B
c
D
E
r
G
H
A
•
B
c
D
E
F
G
H
740
SUPREME COURT REPORTS
[1977] 3 S.C.RsubsequellJly added parts out of Laila Begum's unit into such sub-parts
and in such manner th~t they shall allocate two equal sub-parts each to
each of the then surviving sons of Laila Begum by the settlor an<l the
issue then surviving of any pre-deceased son and one equal sub-part
each to each of the then surviving daughters of Laila Begum by the
settlor and the issue then surviving of any pre-deceased daughter. The
parts of such surviving sons and daughter of Laila Begum as are specified in the Second Schedule were to be added to and amaJgamated with
· the basic units, four or two as the case may be, allocated to them .and
they were to be held on the same trusts as those declared in respect of
such basic units. So far as concerns the sub-parts allocated to the sur~
viving sons and daugl1ters of Laila Begum who were born after the cfate
of the Trust Deed, it was directed that such sub-parts would be taken
by them absolutely and so also the sub-parts allocated to the issue of
any pre-deceased son or daughter of Laila Begum were to be divided
between them absolutely per stirpes in the proportion of two shares for
every male child to one share for every fema.Je child standing_in same
degree of relationship. Suh-clause (c) of clause (4) made similat
provisions with regard to the two units allocated to each of the two
daughters of Laila Begum. The income of the two units together with
the subsequently added parts out of Laila Begum's unit was to be given
to the respective daughter for her life time and on her death, ·the corpus.
was to be divided amongst her children and remoter issue per stirpes in
the proportion of two shares for every male child to one share for every
female child standing in the same degree of relationship and.if she died
without leaving any issue her surviving, the corpus w~s to he divided
into such sub-parts and in such manner that one equal sub-part was to
go to each of the then surviving chi.idren of Laila Begum by the settlor
and the issue then surviving of any pre-deceased son or daughter. The
other provisions in regard to the interest taken by these beneficiaries
in the corpus were the same as in sub-clause (b) of clause (4). Subclause (a) of clause (4) dealt with the unit allocated to Jani Begum
and provided that the income of this un.it would go to Jani Begum du.ring her life time and on her death, the corpus of this unit wonld be
added to and amalgamated with the four units allocated to her minor
son Imdad Ali Khan to be held upon the same trusts as those declared
in respect of those four units and if neither Imdad Ali Khan nor any
child or remoter issne of his was living at the date of the death of Tani
Begum, then this one unit of Jani Begum was to be held upon the same
trusts as the one unjt allocated to Laila Begum on he.r death. Similarly,
sub-clause (e) of clause (4) provided that the income of the four units
allocated to Imdad Ali Khan shall be paid to him during his life time
ahd on his death, the corpus shall be divided amongst his children and
remoter issue per stirpes in the proportion of two shares for every male
child to one share for every female chHd standing in the same degree·
of relationship and if he docs without leaving any child or remoter issue
him surviving, the corpus shall be held on the same trusts as those upon
which the four units allocated to any of the five sons of Laila Begum
are held on the death of such son without leaving any child or remoter
issue him surviving. It will thus be seen that detailed and elaborate
provisions were made in the Trust Deed regarding the disposition of
the different units allocated to the various beneficiaries specified in Part
t
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C.W.T. v. TRUSTEES OF NIZAM (Bhagwati, !.)
741
I ohhe Second Schedule and every contingency was taken care of in
A •
laying down the mode of devolution, so that at any particular point of
tini.e, one could always say who would be the beneficiaries entitled to
the corpus, if the owner of the life interest were to die at that point of
time.
The remaining 136! units left after the allocation of 30 units as set
out in clause (4) were dealt with in clause (5) of the Trust Deed.
B
These 136± units were allocated to the respective relatives of the scttlor
specified in Part II of the Second Schedule in the respective proportions
set out against their names. Sub-clause (a) of clause (5) provided that
the.income of the respective unit or units or fraction thereof allocated
to the respective relative shall be paid to them respectively for life. But
so far as the 15 daughters of the settlor were concerned, to each of
whom three units were allocated, it was provided that out of the income c
of such three units, each daughter was to be paid only 2/3rd part ot
the income and the remaining 1 /3rd part was to be set apart by way of
a 'f"eserve fund. Such reserve fund was to be utilised for any special,
unusual, unforeseen or emergency expenses relating to the particular
danghter from whose income the reserve fund was created and on her
death, the reserve fund or the unutilised portion thereof was to be
amalgamated with the three units of the corpus allocated to her, to be
D
held on the same trusts as those declared in respect of such three units.
There was also a special provision made regarding • Nawab Rashid
Nawaz Jung, the son-in-law of the settlor, that, though allocated one
unit, he was not to receive the income of that unit so long as he received
the allowance as Amir of the Vikar-al-Mulk-Paigah and till then, the
income of this unit was to be added to the five uni!s allocated to the
Reserve Fund created under clause ( 6) to be held upon the same trust's
E
as those declared in respect of such Reserve Fund.
The other son-inlaw and the future husbands of the 13 other daughters of the settlor
were also allocated t unit each and it was provided that until the marriage of each of these 13 daughters, the income of t unit allocated to
her future husband should be set apart as a reserve fund and utilised in
the same manner as the Reserve Fund of such daughter created out of
o.ne-third part of the income of the three units allocated to her and after
F
her marriage, the income of such t unit should be paid to her husband.
So far as Fauzia Begum, the daughter of the second son of the sett1or
was concerned, a special provision was made that the income of two
units aMocated to her should be set apart and credited in her account
called 'Fauzia Begum Reserve Fuud' and on the death of the second
son of the settlor during the minority of Fauzia Begum, the income of
these two units should be paid to a committee of management for the
G
maintenance, education, welfare, advancement in life and benefit of
Fa\Jzia Begum until she attained the age of majority and during the
minority of Fauzia Begum, the trustees were also authorised to spend
out of the Reserve Fund such sums as may be necessary for any special.
unusual, unforeseen or emergency expenses for her benefit and
on Fauzia Begum attaining the age of majority, the trustees were
to hand over the reserve fund or the unutilised portion thereof
H
to her absolutely and also to pay to her the income of the two units
during her life time.
Sub-clause (b) of clause (5) provided for the
devillulion of the respective u0it or units or fraction thereof allocated
I
742
SUPREME COURT REPORTS
[1977] 3 S.C.R·
A
to the respective relatives on the;r death. It was directed that on
the death of any of these relatives, the corpus of the unit ·or units
or fraction thereof allocated to him or her should be divided and
dil>tributed, ·subject to some. restrictions, amongst the children . .i\Dd
i\
remoter issue per stirpes in the ratio of 2 : 1 as between male lμld
female children· standing in the same degree of relationship.
The
B
contingency of any of these relatives dying without leaving any child
or remoter. issue him or her snrviving was dealt with in sub-clause
(c) of clause (5) .which provided that in the event the unit or units
or the fraction thereof allocated to such relative should be divided
amongst' the other relatives of the settlor but in accordance with cenhln
specified rules. Sub-clause (d) of Clause (5) made a special provision
in regard to Dulhan Pasha Be~m, namely, that on her death, the five
c
units allocated to her should e added to and amalgamated with the
four units allocated to her daughter. Sbahzadi Begum, to be held upo.n
the same trusts as those declared in respect of such four unifs. It wm
thus be seen that according to the scheme envisaged in clause (5), each
of the settlors specified in Part II of the Second Schedule was given life
interest in the unit or units or fraction thereof allocated to him or her
and on his or her death, subject to certain special provisions in regard
D
to some of the relatives, the corpus of such unit or units or fraction
thereof was to be divided and distributed amongst the children or. rerooter issue and if any of the relatives died without leaving any child
or remoter issue him or her surviving, the corpus allocated to him or
her was to go to the other relatives in accordance with certain specified
rules.
Clause ( 6) of the Trust Deed directed the trustees to hold 5 units
E
out of the corpus of the trust fund as and by way of a Reserve Fund,
This Reserve Fund was primarily intended to meet special, unusual, unforeseen or emergency expenses of or for the benefit of the relatives
of the settlor specified in the Second Schedule and it was also provided
that if there was any deficit in the Family Trust Expenses Account in
•
meeting the charges of collection, the remuneration of the trustees and
F
the members of the committee of management and other costs, charges,
expenses and outgoing in connection with the trust, such deficit should
be made good out of the income or the corpus of the Reserve Fuiid.
There was also a provision made that on and after the death of any of
the. relatives of the sett!or specified in the Second Schedule, a corresponding proportion of the Reserve Fund should be added to and amalgamated with the unit or. units or fraction thereof allocated to ~uch reG
lative and held on trusts similar to the original trust.·
·1
\
The remaining 3t units were allocated under clause (7) of the Trust
Deed to a fund called !Tue Family Trust Expenses Account'. This fund
..
was.intended to meet all the charges for the collection of the income of ..
the trust fund and Che remuneration of the trustee• and the members of
the committee of management and all the costs, charges and expenses
and outgoings relating to the trust and its administration. It was .also
H
directed that after all the aforesaid trusts relating to the 30 units, l 36t
uni~ '!nd 5 units out ?f the corpus of the trust fund had been . fully.
adrmmstered and carried out and the corpus of all such units .had been .
handed over and transferred absolutely to the ultimate beneficiaries, the
C.W.T. v. TRUSTEES OF NIZAM (Bhagwati, J.)
7 43
trustees should transfer and hand over 3! units comprising this fund to
A
the Then successor-in-title of the settlor or to the eldest male descendant
in the. direct male line of succession of the settlor according to the rule
of primogenature.
During the course of assessment of the trustees (hereinafter referred
to as·the assessees) to wealth tax for the assessment year 1957-58, a
question arose as to how the assessment to wealth tax should be made.
B
The Wealth Tax Officer assessed the assessees to wealth tax on the
value of 13± units of the trust fund comprising 5 units allocated to the
Reserve Fund, 3± units allocated to the Family Trust Expenses Account
and 5 units representing the units allocated to the future husbands of
the•'then unmarried daughters of the settlor. The wealth corresponding
to the remaining 161! units was assessed in the hands of the several
beneficiaries specified in the Second Schedule, who were assessed to
C
wealth tax on the value of the respective units allocated to them under
the Trust Deed.
Similar assessments were also made for the assess•
ment year 1958-59 with this difference that by the time these assessment$ came to be made, one other daughter was also married and the
Wealth Tax Officer, therefore, assessed the assessees to wealth tax only
in respect of the value of 13 units of the Trust Fund and the values of
the other units were assessed in the hands of the respective beneficiaries
D
to whom they were allocated as specified in the Second Schedule.
There were appeals to the Appellate Assistant Commissioner against
the assessments for the assessment years 1957-58 and 1958-59 and in
these appeals, the Appellate Assistant Commissioner held !hat the inclusion of 5 units constituting the Reserve Fund, 3J units constituting
the Family Trust Expenses Account and the units allocated to the future
E
husbands of the unmarried daughters in one single assessment was unjustified, since the clauses constituting the Reserve Fund and the Family .
Trust Expenses Account and creating a trust in favour of the future
song.in-law constituted three distinct trusts and hence separate assessments must be made in respect of the several units forming the subject
matter of these olauses. The Wealth Tax Officer accordingly made
separate assessments on the assessees in respect of 5 units constituting
F
the Research Fund and 3t units constituting the. Family Trust Expenses
Accoont for the assessment years 1957-58 and 1958-59 and similar
assessments were also made on the assessees in respect of the assessment years 1960-61 and 1961-62.
We are not concerned in these
appeals with the assessments made on the assessees in respect of 5 units
constituting the Reserve Fund and 3t units constituting the Family
Trust Expenses Account since these assessments have become final.
G
The several beneficiaries specified in the Second Schedule also
appealed against their assessments to wealth tax on the ground that
each of them was entitled only to a life interesf in the corpus of the
units .allocated to him or her and he or she could not, therefore, be
assessed in respect of the entire value of the corpus. This contention
:vas accepted byhthe Appellate Assistant Commissioner who held ththat
H
masmuch as eac beneficiary was entitled ortly to the income of.
e
uru~·l!llocated to him or her during his or her life time, he or she could
be assessed to wealth tax only on the value of his or her life interest
A
B
c
D
E
F
G
H
744
SUPRfuVIE COURT REPORTS
. [1977] 3 S.C.R.
in the respective units and not on the value of the corpus and in this
view, the .Appellate Assistant Commissioner set aside the assessments
made on the beneficiaries and directed the Wealth Tax Officer to make
fres b assessments by including only the value of the life interest of each
of the beneficiaries in his or her assessment. The Wealth Tax Officer
accordingly valued the life interest of each of the beneficiaries in the
respective unit or units allocated to him or her and made assessment to
wealth tax by including the value of such life interest But the result
of making assessments on this basis on the several beneficiaries was
. that the value of the 'remainder wealth' in respect of l 66t units escaped
tax. The Wealth Tax Officer was of the view that -the beneficiaries in
respect of the several remainder estates after the lives of the immediate
beneficiaries mentioned in the Second Schedule were unknown and their
shares undeterminate and the assessees were, therefore, liable to be
assessed in respect of the remainder wealth under section 21, sulr
section (4) of the Wealth Tax Act. The Wealth Tax Officer accordingly reopened the assessments made on the assessees for the assessment
years 1957-58 to 1960-61 and made fresh assessments on the assessees
in respect of the 'remainder wealth' by applying the provisions of section 21, sub-section ( 4). He arrived at \he value of the remainder
wealth by taking the value of the entire original corpus and deducting
therefrom the value of 5 units allocated to the Reserve Fund, the value
of· 3! units allocated to the Family Trust Expenses Account and the
aggregate of the values of the life interests assessed in the hands of the
several beneficiaries. Similar assessment was also made on the assess~es in respect of the remainder
wealth for
the assessment year
1961-62.
The assessees appealed to the Appellate Assistant Commissioner
against the assessments made on them in respect of the remainder
wealth and in the appeals, they contended that the Trust Deed created
distinct and separate trusts for the benefit of the several beneficiaries
mentioned in the Second Schedule and the Wealth Tax Officer was,
therefore, not justified in_ clubbing the entire remainder wealth relating
to these distinct and separate trusts in a single assessment on the assessees and a further contention was also urged by them that, in any event,
the assessments were bad in law inasmuch as the provisions of section
21, sub-section (4) were not applicable to the facts and circumstances
of the case. The Appellate Assistant Commissioner agreed with the
-first contention· of the assessees and held that though there was only
one single Deed of Trust, it created several distinct and separate trusts,
one in favour of each beneficiary mentioned in· the Second Schedule
with its own independent and complete provision in regard to devolu- (
tion after the death of such beneficiary and on this view, the Appellate
Assistant Commissioner annulled the assessments made on: the assessees
in respect of the remainder wealth, leaving it open to the Wealth Tax
Officer "to take such steps as he may consider necessary to· assess the
remainder wealth pertaining to each distinct trust separately"_ This
view taken by the Appellate Assistant Commissioner rendered it unnecessary to decide the second contention as to the applicability of
section 21, sub-section ( 4).
· · The Revenue being aggrieved by the order passed by the Appellate
Assistant Commissioner preferred appeals before the Tribunal on the
\
'
I
'
C.W.T. v. TRUSTEES OF NIZAM (Bhagwati, J.)
745
main ground that there was only one single trust created by the Trust
Deed and not several distinct and separate tru.sts. Two further contentions were also sought to be urged on behalf of the Revenue at the
hearing of the appeals and one of them was, and that is the only contention material for our purpose, that the Appellate Assistant Commissioner should have "given a definite finding regarding the applicability
of section 21, sub-section (4) or section 3 to the facts of the case".
The argument of the Revenue in regard to this contention was that the
assessees were liable to be assessed as an 'individual' under section 3 in
respect of the entire corpus of the trust fund and section 21, sub-section
( 4) being merely a machinery section did not have the effect of over-
;iding the charge imposed on the assessees under section 3. The Tribunal allowed the Revenue to raise this new contention, but made it clear
that it would be only "for the purpose of supporting the assessments
.already made and not for the purpose of enhancing the assessments".
The answer given by the asscssees to this contention was that section 3
had no application at all, because the assessees as trustees would be an
. 'association of persons' and under the Wealth Tax Act an 'association
of persons' is not an assessable entity and they went on further to say
that they could not be assessed even under sub-section (1)
or subsection ( 4) of section 21, since in respect of the remainder estate after
the death of each relative, the beneficiaries were unknown. The asses-
·sces also contended that, in any event, even if section 3 were applicable,
the assessment on the assessee could be made only in accordance with
the provisions of section 21, since section 3 was subject to the other
provisions of the Act including section 21. It was also urged on behalf
of the assessees that the Trust Deed created distinct and separate trusts
in respecl of lhe several units allocated to the beneficiaries mentioned in
the Second Schedule and in any event, even if the trust was a single
indivisible trust, the remainder estate in respect of the several units was
required to be assessed separately in the hands of the assessees and to
the assessment of such remainder, it was sub-section (1) of section 21
which applied and not sub-section (4) of section 21.
The Tribunal,
on a proper construction of section 3 and 21, came to the conclusion
that these two sections have to be read together and so read it was clear
that section 3 was subject to section 21 and the assessees could not,
therefore, be assessed to wealth tax under section 3 in respect of the
entire corpus, ignoring the provisions of section 21. Sub-section (1) of
section 21 was, in the view of the Tribunal, not applicable and the only
question, therefore, was whether assessment could be mape on the
assessees under sub-section (4) of section 21.