Law: Wealth Tax Act, 1957

Section: 27,16(3),21(1),3

(a) Wealth tax---Representative assessee---Trustee---Assessment under S.21(4)---Mode of assessment---Indian Wealth Tax Act, 1957, S,21(4). (b) Wealth tax--- ----Representative assessee---Trustee---Discretionary trusts in favour of daughter and grandsons of settlor- -Trust funds to be transferred to beneficiaries on completion of a specified age---Interest of beneficiaries was indeterminate or unknown---Assessment to be made under S.2 1(4)---Entire value of trust fund cannot be assessed---Trustee's liability cannot be greater than aggregate liability of beneficiaries---Indian Wealth Tax Act, 1957, S.21---[CWT v. A. V. Reddy Trust (1989) 180 ITR 263 partly affirmed and partly reversed]. In CWT v: Trustees of (H. E. H.) Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC), it has been held thus: (a) Charging section 3 of the Wealth Tax Act, 1957, is made expressly subject to section 21 and it must yield to that section in so far as the latter makes a special provision for assessment of a trustee of a trust. Section 21 is mandatory in its terms. (b) Once it is established that a trustee of a trust can be assessed only in accordance with the provisions of section 21 and under these provisions, it is only the beneficial interests which are taxed in the hands of the trustee, it must follow as a necessary corollary that no part of the value of the corpus in excess' of the aggregate value of the beneficial interest can be brought to tax in the assessment of the trustee. (c) Under the scheme of section 21, the Revenue has two modes of assessment available for assessing the interest of a beneficiary in the trust properties; it may either assess such interest- in the hands of the trustee in a representative capacity under subsection (1) or assess it directly in the hands of the beneficiary by including it in the net wealth of the beneficiary. What is important to note is that in either case, what is taxed is the interest of the beneficiary in the trust properties and not the corpus of the trust properties. So also where beneficiaries are more than one,, and their shares are indeterminate or, unknown, the trustees would be assessable in respect of their total…

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