Commissioner of Wealth Tax vs R.M. Soma Sundaram (HUF)

R. Jayasimha Babu, J.—The question requiring our consideration is as to whether the contingent interest of the beneficiary can be regarded

as an asset for the purpose of levy of wealth-tax. The assessment years are 1976-77 to 1982-83. The assessees had claimed that, such interest

was not taxable, and that in the event of it being considered capable of being brought to tax, the same will have to be valued in accordance with the

mode of valuation set out in the decision of the Supreme Court in the case of The Commissioner of Wealth Tax, Andhra Pradesh, Hyderabad Vs.

Trustees of H.E.H. Nizam''s Family Hyderabad, The fact that the assessees have a contingent interest in the trust properties, which are coffee

estates is not in dispute. It is not also in dispute that the interest of a beneficiary in the trust property can be subjected to tax. The Supreme Court in

the case of Trustees of H.E.H. Nizam''s Family (Remainder Wealth) Trust (supra) has observed that:

...The beneficiary would always be assessable in respect of his interest in the trust properties, since such interest ''belongs to'' him and the right of

the revenue to make direct assessment on him in respect of such interest stands unimpaired by the provision enabling assessment to be made on the

trustee in a representative capacity....

In the assessment made by the WTO, the beneficial interest of the assessees in the trust property was not valued in accordance with the mode

of valuation set out in the judgment of the Supreme Court in the case of Trustees of H.E.H. Nizam''s Family (Remainder Wealth) Trust (supra) at

pages 595 to 596. That mode of valuation results in certain discounts on the present market value as the present value of the future right to receive

the asset would be less than the present market value of the property. The Deputy Commissioner (Appeals) on appeals by the assessees, directed

that the valuation be redone in conformity with what had been stated by the Supreme Court in the case of Trustees of H.E.H. Nizam''s Family

(Remainder Wealth) Trust (supra). The assessees as also the revenue having appealed to the Tribunal, the Tribunal did not deal with the question

of valuation, but proceeded to hold that asset (sic). For so holding it relied on the judgment of the Bombay High Court in the case of

Commissioner of Wealth Tax, Bombay City-II Vs. Master Jehangir H.C. Jehangir,

With respect, we are unable to agree with the view expressed in that judgment that a contingent interest is not an asset. The fact that the asset is

contingent is relevant for the purpose of valuation. But, it remains an asset which requires to be valued as it constitutes an asset of the assessees

who admittedly have a right to receive the corpus of the trust at a future point of time.

In this case, the trust deed is dated 31-3-1978. Clause 3B of the trust deed provides that the assessees, Soma Sundaram and Meenakshi Achi

and another person shall be the beneficiaries of the trust and that the assessees will be entitled to a 1/4th share each in the income of the trust, other

than the income which forms part of the corpus or the capital fund of the trust. The trust is constituted for a period of 15 years during which the

corpus of the trust is not to be divided. The beneficiaries are, however, to have the, ""beneficial interest and right in the corpus or capital fund of the

trust in the ratio of their beneficial interest inter se, as on the date of determination of the trust....

It is clear from the terms of the trust that the each one of the assessees had a right to 1/4th of the income during the subsistence of the trust, had

1/4th beneficial interest in the corpus of the trust, and were entitled to receive the corpus of the trust at the end of the 15 year period to the extent

of 1/4th each of that corpus.

The mere fact that the rights of the assessees to receive the corpus of the trust stood postponed by 15 years, during which the assessees were

only entitled to a share in the income of the trust, does not render the beneficial interest of the assessees in the corpus an interest incapable of being

regarded as an asset of the beneficiaries. The fact that the corpus as it was at the time of the formation of the trust may not be the same at the time

of its distribution, does not in any way alter the fact that in the year of assessment in the corpus then available to the trust, the assessees had a

beneficial contingent interest to the extent provided in the trust. We, therefore, answer the question referred to us regarding the correctness of the

Tribunal''s view as to whether the contingent interest of the assessees was not an asset, in the negative and hold that the contingent interest was one

which was capable of being valued, and that such valuation should be made in the manner set out in the illustration given in the judgment of the

Supreme Court in the case of Trustees of H.E.H. Nizam''s Family (Remainder Wealth) Trust (supra). The revenue shall be entitled to costs of a

sum of Rs. 1,500.