Deputy Commissioner of Wealth Tax, Special Range-I vs Shri A. Tenzing

P.P.S. Janarthana Raja, J.—Income Tax Appellate Tribunal, Madras, ''B'' Bench, referred the matter u/s 27(2) of the Wealth Tax Act at the

instance of the assessee, for opinion of this Court, raising the following question of law:

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assets of the Trust by name

Tenzing Family Trust could not be included in the net wealth of the assessee-beneficiary and that the same should be considered in the hands of the

Trust?

The facts leading to the above question of law are as under:

The assessment years are 1976-77, 1977-78 and 1978-79 for which the valuation dates are 31.03.1976, 31.03.1977 and 31.03.1978,

respectively. The Trust known as ""Tenzing Family Trust"" was formed by Sri K.A.A. Sankaralingam on 01.06.1974. Shri A. Tenzing is the sole

beneficiary of the Trust. In case he remains unmarried till the end of 18 years from the date of execution of the deed, the corpus as well as the

accumulated income shall be handed over and delivered to him to be enjoyed by him absolutely. In the event of his marrying, the corpus as well as

the accumulated income shall be handed over and delivered to the wife of Shri A. Tenzing from the date of marriage. The trustee shall accumulate

the surplus income after deducting all the necessary outgoings for earning the income, and preserve the property of the Trust. The trustee is entitled

to apply the income of the Trust for the benefit of Shri A. Tenzing in his absolute discretion till the date of marriage of Shri A. Tenzing and for the

exclusive benefit of his wife immediately thereafter. Clause 5 of the Trust Deed declares that none of the beneficiaries shall have any vested interest

either in the corpus or in the income of the Trust fund of this settlement, except as otherwise provided in the Deed. The assessee''s interest in the

Trust property until the expiry of the abovesaid period was included in his net wealth by the Assessing Officer and brought to tax, rejecting the

assessee''s contention that the net wealth of the Trust should be assessed only in the hands of the Trust. Aggrieved by the order of the assessment,

the assessee filed an appeal to the Commissioner of Wealth Tax (Appeals). The Commissioner of Wealth Tax (Appeals) held that, as the Trust

properties were already assessed to wealth tax in the hands of the trustee for these assessment years, the same would not again be included in the

hands of the assessee. Aggrieved by the order, Revenue filed an appeal to the Income Tax Appellate Tribunal. Income Tax Appellate Tribunal

dismissed the Revenue''s appeal and allowed the case in favour of the assessee by following its own order relating to the assessment year 1979-

80.

The learned Standing Counsel appearing for the Revenue submitted that the assessment was rightly made in the hands of the assessee. The

learned counsel for the assessee submitted that the assessments were made in the hands of the Trust and hence it is wrong making the assessment

again in the hands of the assessee.

We heard the counsel. From the Trust Deed it is seen that after 18 years are completed, the corpus and income would vest with the beneficiary

or on his marriage, with his wife, absolutely. It is the fact that the beneficiary was not married nor the period of 18 years completed till the valuation

date. Therefore, the corpus would not vest with the beneficiary. The beneficiary was not entitled to any income as of right, but the application of

the income of the Trust is the absolute discretion of the trustee. We also found that the Tribunal relied on its own order for the assessment year

1979-80. The said main order came up before this Court in T.C. No. 830 of 1988 and this Court, by its judgment dated 23.11.1998, decided the

issue in favour of the assessee and held as follows:

The Tribunal has found that the beneficiary had no vested interest in the assets owned by the Trust as its rights would arise after 18 years or on

the date of his marriage and when such event happens, the assets would vest with his wife absolutely. There is no error in the reasoning or in the

conclusion of the Tribunal. The question referred to us is answered in favour of the assessee and against the Revenue.

By following this Court judgment cited supra, we answer the above question of law in favour of the assessee and against the Revenue. No costs.