WTR No.2 of 1996 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH WTR No.2 of 1996 DATE OF DECISION: January 8, 2010 M/S BRIJMOHAN LAL TRUST NO.1 LUDHIANA ...PETITIONER VERSUS THE COMMISSIONER OF WEALTH TAX(C) ...RESPONDENT LUDHIANA CORAM: HON'BLE MR. JUSTICE ASHUTOSH MOHUNTA. HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR. PRESENT: MR. AKSHAY BHAN, ADVOCATE FOR THE PETITIONER. MR. KRISHAN MEHTA, SR. STANDING COUNSEL FOR THE RESPONDENT. ASHUTOSH MOHUNTA, J. By mean of these reference application relating to the assessment year 1983-84 and 1984-85 the following common questions have been raised:- “1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the shares of the beneficiaries of the trust were not known and determinate as on the relevant valuation date? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment made in the status of AOP was valid? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment made u/s WTR No.2 of 1996 -2- 21 (4) of the Wealth tax Act is valid inspite of the fact that section 21(4) covers only the case of official trustees and not trustees appointed under a trust deed?” Briefly the facts of the case are that the petitioner voluntarily filed return of wealth tax declaring wealth ion 6.8.1983 and 29.9.1984. The assessing officer assessed the net wealth on protective basis vide order dated 11.3.1988. The appellant had settled certain properties comprising of 4000 equity shares of Hero Cycles Pvt. Ltd., a deposit of Rs.2 lacs with Brijmohan Lal Om Parkash, Ludhiana and a cash amount of Rs.1000/- on the trust known as Brijmohan Lal Trust vide trust deed dated 9.2.1982. Smt. Santosh Munjal, Raman Kant Munjal and Pawan Kant Munjal were the trustees of the Trust. The said property was settled on the Trust at the first instance with an obligation to hold, to receive and distribute income from the said property for the benefits of the creditors, namely M/s Brijmohan Lal & Sons (HUF), Raman Kant Munjal and Pawan Kant Munjal and Santosh Munjal from whom a loan of Rs. 4 lacs had been taken by the Settlor. Shri Raman Kant and Smt. Santosh Munjal were both the trustees and prime beneficiaries. As per Trust deed, beneficiaries to the income till satisfaction of the creditors were; (a) M/s Brijmohan Lal & Sons (HUF) 37½% share b) Raman Kant Munjal 37½ share % and c) Smt. Santosh Munjal 25% share. They were designated as primary beneficiaries to income. After the primary beneficiaries had been paid off, the trustees were obliged to receive, hold and distribute income of the Trust as follows:- i) M/s Puja Investment Pvt. Ltd. : 87½% ii) M/s Anadi Investment Pvt. Ltd. : 12½% WTR No.2 of 1996 -3- Beneficiaries to the corpus as per definition in Chapter II were; a) M/s Puja Investments Pvt. Ltd. b) M/s Anadi Investments Pvt. Ltd. The duration of the Trust was also defined in para 3 of Chapter II as under:- "Date of distribution or date of termination or date of closing of the trust shall be the date of death of the last survivor lineal descendants of Lala Bahadur Chand Munjal who are living as on the date of settlement or such other earlier date as the trustees may, in their discretion, decide." The distribution of the corpus was to take place as per clause 2 of Chapter IV of the Trust Deed. Clause 2(II) of distribution of corpus provided as under:- “ii. On and from the day the Primary beneficiaries cease to be the beneficiaries of this Trust that is to say from the day the Trustees are under no obligation to hold, receive and distribute the income of the Trust Fund/Corpus for the benefit of the creditors for their repayment and they the Trustees have to hold, receive and distribute the income of the Trust Fund/Corpus for the benefit of the secondary beneficiaries, they shall hold and distribute the income for the benefit of the secondary beneficiaries, they shall hold and distribute the corpus for the benefit of and amongst the secondary beneficiaries as under:- i) M/s Puja Investments Pvt. Ltd., Ludhiana : 87½ % ii) M/s Anadi Investments Pvt. Ltd., Ludhiana : 12½%” WTR No.2 of 1996 -4- The petitioner pleaded before the Assessing Officer that assessment had to be made u/s 21 (1) of the Wealth Tax Act, 1957 and not u/s 21 (4) of the Act. The AO rejected the contentions of the applicant and made assessment in the status of AOP u/s 21(4) of the Wealth Tax Act. Against the AOP's decision, the applicant filed an appeal before the Commissioner of Income Tax (Appeals), Jalandhar vide order dated 27.3.1990, who rejected the contentions of the applicant and held that wealth tax has been rightly charged u/s 21(4) of the Wealth Tax Act. Against CWT (A)'s order, the applicant filed appeal before the Hon'ble Income Tax Appellate Tribunal which was disposed off by the Hon'ble Tribunal vide order dated 8.12.95 holding that the assessment was correctly made u/s 21(4) of the Wealth Tax Act. The relevant findings of the Hon'ble Tribunal are recorded in para 13 of the order as under:- “13. In the context of section 21 of the Wealth Tax Act, it has been held that the question in regard to the applicability of section 21(1) of that Act, which is on the lines of section 161 of 1961 Act, or section 21 (4) of the Wealth -tax Act which is on the lines of section 164(1) of the 1961 Act, has to be determined with reference to the relevant valuation date. We have, therefore, to see in the present case as to whether the shares of the beneficiaries upto the payment of Rs. 4 lakhs to the creditors i.e. to the primary beneficiaries were known and determinate or they were not known and determinate. From the relevant extracts of the trust deed reproduced above, it is clear that upto the payment of the credits to the primary WTR No.2 of 1996 -5- beneficiaries, a lot of discretion has been given to the trustees and the shares of the beneficiaries in the corpus of the trust are indeterminate. As per Explanation 1 to section 21, the shares of the persons on whose behalf or for whose benefit such assets are held on the relevant valuation date are expressly stated in the instrument of transfer and are ascertainable as such on the date of the instrument. If one goes by the provisions of the trust deed, it is clear that for the period upto which the primary beneficiaries have interest, there is lot of discretion given to the trustees and the shares of the beneficiaries are indeterminate. In such a situation which prevails in the instant case, the assessment has to be made under section 21(4) of the Wealth Tax Act and not under Section 21(1) of the Act. The first objection of the learned counsel is, therefore, overruled. The ld. counsel for the assessee relied upon the Tribunal's order in the case of Jalota Family Trust (supra). That was, however, a case where the shares of the beneficiaries were known and determinate and hence it was held that the assessment had to be made not on the trustees but on the beneficiaries. The facts of that case are clearly distinguishable from those of the assessee." The Hon'ble Tribunal recorded that the shares of the beneficiaries upto payment of Rs. 4 lacs to the creditors i.e. to primary beneficiaries, were not known and determinate as on the relevant valuation date. It was also contended by the applicant that the share of the beneficiaries were known and determinate as on the relevant valuation date because the position has WTR No.2 of 1996 -6- been seen as if the trust had expired on the relevant valuation date and submitted that there arose important question of law which should be referred for the esteemed opinion of the Hon'ble Punjab and Haryana High Court. The WTO has made the assessment on the Trust in the status of AOP and has applied the provisions of Sec. 21 (4) of the Wealth Tax Act as according to him the shares of the beneficiaries were un-defined and in- determinate and the issue raised is whether the provisions of Sec.21(1) or 21 (4) are applicable to the facts of the case. Section 21(4) applies to cases where the shares of the persons on whose behalf or for whose benefit the assets are held, are indeterminate or un-known. However, under this section, the tax is to be levied upon and recoverable from: a) Court of wards b) Administrative General c) Official Trustee d) Receiver e) Manager, or f) any other person appointed under any order, by a court to manage the property on behalf of others. In the instant case, the assests are held by none of the above six categories of persons. They are held by trustees appointed under a Trust declared by a duly executed instrument in writing. The learned counsel for the assessee Mr. Bhan relies upon the decision of the Hon'ble Supreme Court in CWTVs. Trustees of HEH Nizam's Family (Remainder Wealth) Trust, (1977) 108 ITR 555 has held that: WTR No.2 of 1996 -7- “Section 21 (1) can apply only where the Trust properties are held by the Trustees for the benefit of single individual or, where there are more beneficiaries than one, and shares of the beneficiaries in the Trust properties are determinate and known. On the other hand, and their shares are indeterminate or unknown, the provisions of section 21(4) are attracted.” In other words, it was submitted by Mr. Bhan that where the shares of the beneficiaries of a Trust, etc. are indeterminate or unknown, assessment has to be made in the case of the trustees under section 21(4). However, where specific amounts are determined to be paid at certain interval, the interest of such beneficiaries in the Trust is known and in such case section 21(1) is attracted and not section 21(4) as in the present case. Further the learned counsel for the assessee Mr. Bhan also relied upon the Kerala High Court judgment in the case of CWT vs. Dr. David Joseph, Executor of Trust No. 1 (1995) 213 ITR 156 (Kerala) held that :- “The position has to be seen on the relevant valuation date as if the event which leads to the expiration of the Trust, took place on that date, and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries.” On the other hand, the learned counsel for the revenue has stated that since there was discretion given to the trustees upto the payment of the primary beneficiaries, their shares were indeterminate and the assessment was correctly made under section 21(4) of the Wealth Tax Act. In the instant case, as held by the Hon'ble Kerala High Court in Dr.David Joseph's case (supra) the position had to be seen on the relevant WTR No.2 of 1996 -8- valuation date taking into consideration the final termination of the Trust where the shares of the secondary beneficiaries were determinate. Therefore, in this case, assessment is to be made under 21 (1) of the Wealth Tax Act and not under 21(4) of the Wealth Tax Act, because mere vesting of discretion would not make the position indeterminate. Since, in the present case, the shares of the beneficiaries of the trust were known and determinate, hence the provisions of Section 21(1) of the Wealth Tax Act would be attracted and not Section 21(4) of the Wealth Tax Act. Consequently, the questions raised are answered in favour of the petitioner and against the revenue. (ASHUTOSH MOHUNTA) JUDGE January 8, 2010 (MEHINDER SINGH SULLAR) Gulati JUDGE