Law:

Section:

Section 21 of the Wealth-tax Act, 1957 - Trustees - Assessment of beneficiaries of a trust who were minors were entitled to have income in certain proportions as per trust deed - WTO assessed the beneficiaries under section 21(2) directly and also assessed under section 21(1) the trustees representing the beneficiaries - Whether assessment made under section 21(1) was valid - Held, no Facts Under a trust created by the Nizam for the benefit of his three grandchildren, the beneficiaries were entitled to have interest accrued on the corpus in certain proportion as per the trust deed. However, the trustees were directed to pay during the minority of the beneficiaries for 18 years, only half the income derived from the corpus. The balance amount accumulated and due to them was to be paid to them after the expiry of 18 years. The WTO for the assessment years 1970-71 and 1971-72 made assessment of the beneficiaries directly under section 21(2). Subsequently, the WTO made assessment under section 21(1) on the trustees representing the beneficiaries. On appeal against such subsequent assessment, the AAC, upheld the assessment made by the WTO under section 21(2) and further directed that on capitalistion basis the residue and the corpus should also be assessed. On second appeal, the Tribunal reversed the order of the AAC on the ground that assessment once again on the trustees under section 21(1) would amount to double assessment which was not permissible under law. On reference: Held Under the provisions of sub-sections (1) and (2) of section 21, the reve- nue has two modes of assessment available for assessing the interest of a beneficiary in the trust property: it may either assess such inter- est in the hands of t he trustee in a representative capacity under sub-section (1) or assess it directly under sub-section (2). If the assess- ing authority chose to exercise its power under sub-section(2) of section 21 and makes direct assessment of the net wealth of the person on whose behalf or for whose benefit the assets have been held by the trustee, then to the extent so assessed, the corresponding power given to the assessing authority under sub-section (7) of section…

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