V.S. Gailonde, Accountant Member
1. These appeals have been filed by the assessee against the order of the CWT (A) Belgium dated 4-10-1985 for assessment years 1975-76 and 1976-77 and 22-5-1986 for A.Y. 1977-78 and 1978-79.
2. The first point in appeal is regarding the valuation of the property which is self-occupied at Rs. 1,89,460 in place of Rs. 87,700 for A.Y. 1975-76 and Rs. 1,97,600 in place of Rs. 98,700. Shri Inamdar submitted that as it is now settled law that Rule IBB is applicable to pre-1979-80 assessments also, although this plea was not specifically taken before the lower authorities, he would seek permission to raise the same as it is a purely legal issue. Besides, even the Valuation Officer is now considered bound by Rule IBB.
3. The D.R. opposed the raising of such issue at such a late stage, particularly because all the data required for the purpose is not on record. Reliance was placed on Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 (SC). Although, issue is a legal one, as the position was fairly well settled at the time of hearing before CWT(A) we do not see any justification for embarking on a new exercise of gathering all new data and applying the same now. This ground is rejected on this basis.
4. The second point in appeal is regarding the valuation of property at Ruo Afonso Albuguerque Road, Panaji at Rs. 2,28,700 in place of Rs. 65,800 for A.Y. 1975-76 and Rs. 2,39,000 in place of returned value of Rs. 1,30,670. Shri Inamdar proposed deduction of the reversionary values from the gross value of the property in view of CIT v. Smt. Ashima Sinha [1979] 116 ITR 26 (Cal.) which though given for Section 269C of IT Act would apply to WT also. After hearing the D.R. we hold that as the property is already tenanted, no separate addition on account of reversionary value need be added. This ground is partly allowed for 1975-76 and 1976-77.
5. The next ground of appeal is regarding inclusion’ of certain agricultural lands owned by two trusts in the hands of the asses-see. This is a peculiar case where the roles of revenue and assessee are reversed. Generally the revenue alleges a trust to be discretionary but in this case the assessee contends that the trust is discretionary and that he has no valuable interest for inclusion in his wealth in respect of the wealth of the two trusts. The facts are as below :
6. The assessee, a minor till 8-5-1976, was owning certain properties in the form of agricultural lands at Panaji. He was being assessed on the value of these properties in the past. On 9-8-1973, taking into consideration the interest of the assessee, the guardians of the assessee Rajaram Wagle and Smt. Anandibai (natural parents) settled the above properties on trust with the prior approval of the Court appointing themselves and two others Dinanath Bhandari and Vinayak Rata Bali as trustees. The main features are:
(1) Beneficiary is the assessee and his wife and children if any. To avoid the impact of rule against property the wife and children become beneficiaries only if they were born before the distribution date (9-8-1988).
(2) Clause 3 is regarding income :
The Trustees shall hold and stand possessed of the said land and hereditament more particularly described in the Schedule and the investment or investments for the time being representing the same and the rents income, profits, dividends and interest hereinafter referred to as to the Trust Fund, upon Trust and with and subject to the powers and provisions hereunder contained and concerning the same, that is to say :
(a) Upon Trust in the first instance to collect the dividends, interest, rents and other income of the Trust Fund and from and out of the same in the first place pay or cause to be paid, charges and expenses of and incidental to the collections thereof and all outgoings in respect of trust fund including any income-tax, wealth-tax, expenditure tax and other taxes levied or assessed upon the Trust and including all the outgoings, municipal taxes and other rates, costs of the ordinary repairs of the immoveable properties and any immoveable property or properties for the time being subject to the Trust hereof and also all costs, charges and expenses except the Stamp duty of and incidental to the execution of the Trust and powers hereunder contained ;
(b) Subject to the provisions of Sub-clause (a) of this Clause, and till the date of Distribution, the Trustees shall accumulate the income of the Trust Fund for the benefit of any one or more of the beneficiaries as the Trustees may at their absolute discretion think fit, and, until the date of distribution hereinafter mentioned, the Trustees may either accumulate the whole or part of the income of the Trust Fund or, at their discretion, pay and/or apply the same or part thereof to or amongst the beneficiaries, or, to anyone or more of them to the exclusion of others or other of them, for their, his or her absolute use and benefit, in such proportion and in such manner as the Trustees may in their absolute discretion think fit.
Provided always that during the minority of the aforesaid Manguesh Rajaram Wagle he shall be the sole beneficiary.
Provided however that the whole or any part of the income of the Trust Fund as may not have been distributed by the Trustees, in any year, shall at the end of the year be added to and be held as accretion to capital and form part of the corpus of the Trust Fund, and, shall be dealt with accordingly. For the purpose of this proviso the word ‘Year’ means the period ending on the 31st March of each calendar year.
(3) Clause 4 is regarding the Trust fund :
On the date of Distribution, the Trustees shall hold the Trust Fund or such part thereof as shall not have been paid, transferred or applied under any Trust or power herein contained, along with the income thereof and all accumulations and accretions thereto upon trust for such of the beneficiaries or for any one or more of them to the exclusion of others or other of them in such shares as the Trustees shall on or before the Date of Distribution determine, Provided however that, if, any of the beneficiaries shall die before the Date of Distribution, the Trustees may allot in their discretion such share or shares to such deceased beneficiary or beneficiaries and shall hold the same for such of the legal heirs of such deceased beneficiaries or beneficiary respectively other than the Settlors who may be alive at the Date of Distribution as may be determined by the Trustees in their absolute discretion. In default, however, of -such determination by the Trustees under powers contained in this clause, on or before the Date of Distribution, the Trustees shall hold the Trust Fund for the benefit of the beneficiaries in the following shares :
The whole of the Trust Fund-then existing on the Date of Distribution shall be equally divided amongst the aforesaid Manguesh Rajaram Wagle, his wife and/or the male children of the aforesaid Manguesh Rajaram Wagle.
We are primarily concerned with Clause 4 which being not happily worded, has created the controversy about the nature of property held by the Trustees for the benefit of the assesses. According to Shri Inamdar trustees hold the property for all the beneficiaries who can come into the picture later than the valuation date. This means that the trustees have the power not to distribute anything to the assessee on valuation date and even to mark the same fully for the future beneficiaries whether they are known by name or relationship or not. The assessee was married only in 1983 but the trustees could hold the full property to the exclusion of the assessee right from the beginning. Clause 28 which applies in respect of 1977-78 and 1978-79 is as below :
28. After Manguesh Rajaram Wagle attains majority he may direct the Trustees to wind up this Trust whereupon the date of distribution shall be accelerated as directed by the aforesaid, Manguesh Rajaram Wagle.
According to Shri Inamdar even for these years, the Trusts remained discretionary notwithstanding the power of wind up given to the assessee. Consequently Section 21(4) alone would apply to the trusts which have filed their own returns, which are duly processed by the WTO some as protective and some as main assessments. As long as power under Clause 28 is not exercised, the trust remains subject to the same earlier provisions as prevailed before majority.
7. Taking us through the WTO’s order Shri Inamdar submitted that the WTO has not appreciated the impact of the various clauses of the trust deed. WTO allowed himself to be swayed by irrelevant aspects, viz. (i) the situation before the property was settled and after being practically the same; (ii) reduction of incidence of tax; (iii) provision in the trust deed regarding income distribution. WTO overlooked the fact that the trust was created with the approval of the Court in the larger interest of the family which the assessee might raise in future. Tax benefit, if any, is marginal and was certainly not foreseen or worked for the guardians-cum-settlors. The provisions of Section 164 of IT Act and 21(4) are not pan materia in that the latter refers to shares of persons whereas the former refers to relevant income. Thus unless specific assets of the trusts are referred to as receivable by the assessee or are held in trust wholly for the benefit of the assessee Section 21(1) and consequently Section 21(2) would not be applicable. Shri Inamdar submitted that the order of the CWT(A) suffers from the same deficiencies. The shares should be specified in the assets including vested and contingent interest and not necessarily in income.
8. On the legal side Shri Inamdar submitted that trusts directing accumulation have always been treated as discretionary with indeterminate shares even regarding income. Reference was made to GIT v. Puthiya Ponmanichintakam Walcf [1962] 44 ITR 172 (SO) (page 176). Further referring to CWT v. Kripashankar Dayashanker Worah [1971] 81 ITR 763 (SO) Shri Inamdar proposed that the trustees hold for the beneficiary, who in the present context include persons other than the assessee also though such others could not have been identified by name on the valuation date. Same view is held in CIT v. Arvind Naroltam [1969] 73 ITR 490 (Guj.). In this case, trust provided for accumulation of income in excess of actual payments to beneficiaries, minimum being provided with provision for distribution of entire accumulation of income after 30 years. It was held that the balance of income in excess of actual payment could not be treated as income of the beneficiary in a direct assessment under Section 1G6. Shri Inamdar then referred to Nirmala Bala Sarkar v. CIT [1969] 74 ITR 268 (Cal.) and Panna Sanjay Trust v. CIT [1969] 74 ITR 396 (Guj.). In the former, it was held that whenever a contingency requiring distribution does not arise, the shares would remain indeterminate. In the latter, it was held that undistributed income is assessable in the hands of trustees themselves. Thus, according to Shri Inamdar whenever earmarking can be made for future beneficiaries in terms of the trust deed the trust would remain discretionary. If by chance the future beneficiaries do not come in time the earmarking or reservation becomes in fructuous and would go to assessee if none else eligible turns up till the date of distribution.
9. Shri Inamdar then explained how the other case law relied upon by the authorities below is not apt. In particular CWT v. Trustees of H.E H. Nizam’s Family (Remainder Wealth) Trust [1977] 108 ITR 555 (SC) no doubt envisages examination of the actual position on the relevant valuation dates with reference to vested and contingent interest, but this applies only to cases where all contingencies are provided for. In R.H. Pandit v. CIT [1972] 83 ITR 136 (Bom.) each of the life-tenant was in existence and it was on these facts that the trust was held to be specific trust. The provisions of law to be seen are these prior to amendment from 1-4-1980 introducing Explanation 1 to Section 21(4). Even after amendment CBDT circular No. 281 clarifies that it is not necessary that the beneficiary in the relevant year should be actually named. All that is necessary is that the beneficiary should be identifiable with reference to the order of the Court.
10. In reply Shri Joshi submitted that since on the valuation date no beneficiary existed except the assessee, the assessee’s interest would extend to the whole of the assets held by the trustees. The picture emerges still more clearly after the assessee attained majority (clause 28) but the situation prior to this date, though a little nebulous would be no different. The trustees could not have even imagined the existence of other beneficiaries like wife and child, during the minority of the assessee (clause 4). The case law regarding share of income being relevant has to be applied mutatis mutandis the share in assets. The Supreme Court judgment in Trustees of H.E.H. Nizam’s Family (Remainder Wealth) Trust’s case (supra) is a clear authority for the proposition that on every valuation date a notional distribution has to be assumed. Even where interest passes on death of a beneficiary, the same has to be considered assuming a notional civil death of the beneficiary. The WTO was thus fully justified in holding that Section 2.1(1) is applicable and that consequently WTO could frame direct assessment on the assessee in terms of Section 21(2). The wife and children could not even be taken to have had a contingent interest as they did not exist. Shri Joshi further submitted that the acts of omission and commission by WTO in the trust assessments should not be allowed to colour the issue. In Trust No. 1 the WTO has made protective assessment. In Trust No. 2 the revenue effect is negligible and there is no double taxation of the same wealth.
11. In his rejoinder, Shri Inamdar disputed the proposition regarding existence of no other beneficiary on the valuation date and consequent extension of assessee’s interest to the whole of the trust property. Even after attaining majority as long as the assessee does not actually exercise option of winding up under Clause 28 the original trust deed continues unaffected [reliance is placed on B.P. Mahalaxmiwala v. CIT [1954] 26 ITR 177 (Bom.)]. He further disputed the proposition that Trustees of H.E.H. Nilam’s Family (Remainder Wealth) Trust’s case (supra) proposes in every case a deeming distribution on each valuation date. This can be done only if all contingencies are provided for in the trust deed itself. Lastly, he submitted that Section 21(2) can be applied only if Section 21(1) applies.
12. We have examined the issues. To determine the character of the trust (specified or discretionary) one has to interpret fairly the various provisions of the trust deed. Clause Ha) makes the assesses by name and his wife and children, if any, by designation the beneficiary subject to a rider that the wife and children should have been born before 1988 the date of distribution. Clause 3 doubtless makes the assessee the sole beneficiary during minority but this is as far as income is concerned. Thus, whatever be the position in IT assessment, Clause 4 has to be seen for WT purposes. The first part of Clause 4 refers to action to be taken on the date of distribution (1988). Such distribution is doubtless discretionary. The second part reads :
In default however of such determination by the trustees under powers contained in this clause on or before the date of distribution, the trustees should hold the trust fund for the benefit of the beneficiaries in the following shares :
The whole of the trust fund shall be equally divided amongst the M.R. Wagle, his wife and/or male children.
On the date of distribution the trust fund may or may not exist because in Clause 3, the trustees have discretion not to accumulate the whole income and use the same for the beneficiary who was the assessee himself.
13. The question to be seen however is who are the possible beneficiaries on the valuation date ? The answer is that none other than the assessee himself is beneficiary. The difference in the languages regarding income and wealth (clause 3 and Clause 4) will in the ultimate analysis be found to be having no impact. If the trustees on the valuation date were to refuse to hold the property in favour of the assessee and the earmark the same for any person, they should be in a position to identify such other person with fair certainty. During the minority there is no question of the assessee having any wife. Even thereafter, one has to see not merely actual but possible events. Thus, on the respective valuation dates the interest of all the potential beneficiaries were so remote that they could not even be said to be contingent. Thus, although the trust deed not have any provision for distribution prior to 8-5-1976, it is clear that the assets were held on the relevant valuation date for the sole benefit of the assessee. The so-called other beneficiary wife who would get the benefit only if she was born before the termination of the trust is not identifiable even though she might be existing physically. For a beneficiary to exist identification with reference to actual person or relationship on each of the valuation dates is essential.
Thus the fact of the case are no different from that of Trustees of H.E.H. Nizam’s Family (Remainder Wealth) Trust’s case (supra) as far as the final conclusion is concerned.
14. The other case law referred to by Shri Inamdar is distinguishable. Puthiya Ponmanichintakam Wakf’s case (supra) and Kripashankar Dayashanker Worah’s case (supra) had more than one existing beneficiary at the respective periods as on relevant valuation dates and the only question was whether the shares were indeterminate, CWT v. Ganganagar Sugar Mills Ltd. [1969] 73 ITR 450 (Raj.) is also distinguishable, in that, it dealt with assessment of actual payments to the beneficiaries vis-a-vis accumulation. In Nirmala Bala Sarkar’s case (supra) also there were many actual beneficiaries and the trustees had several specific direction regarding construction, distribution, etc., Panna Sanjay Trust’s case (supra) dealt with the question whether amount paid to beneficiary could be included in the income. In the case before us, as far as income is concerned, there is no dispute thanks to Clause 3 of the Trust deed. There are no specific direction for accumulation.
15. It is true that Section 21 of the TP Act visualises existence of contingent interest in favour of a person. But even that provision does not dispense with the requirement of identification of the person. The fact that it can become vested on an unascertainable or unknown data is no ground for crediting such unidentified person with even contingent interest. In this connection, one may also refer to the Section 23 of TP Act which refers to interest of “specified person” if a specified uncertain event happens.
16. In respect of valuation dates falling after 8-5-1976 the situation is still more clear. Clause 28 enables the assessee to exercise full domain over all the properties of the trust whereupon the date of distribution shall be accelerated as directed by the aforesaid Manguesh Rajaram Wagle. The interest of the assessee thus extends to the entire property of the trust. Consequently, the inclusion of the entire wealth of trust would be justified. A prospective buyer would offer to the assessee full market values of the trust properties, if only the assessee is persuaded to exercise his power under Clause 28. The actual exercise of the right is immaterial. The assessments on the trust are protective and are liable to be cancelled when the main assessments become final. The inclusion for these years is equally right.
17. 1975-76 and 1976-77 appeals are partly allowed and 1977-78 and 1978-79 appeals are dismissed.