Commissioner of Wealth Tax vs Trustees of Prince Moazam Trust

Challa Kodanda Ram, J.—This reference case for the assessments years 1978-79 to 1988-89 arising out of the orders of the Income-tax Appellate Tribunal, Hyderabad Bench A (hereinafter referred to as "the Tribunal") in W.T.A. Nos. 304 and 335 to 344/Hyd./1991. Below four questions have been referred said to be arising out of the order of the Tribunal:

"(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in holding that the trust is a specific one and that the beneficiaries are known and their shares are determinate and whether this finding is contrary to its decision in W.T.A. Nos. 208 to 217/Hyd./1988, dated April 30, 1990, in the case of Prince Shahmat Ali Khan wherein it was held that the interest of the remainder man, Prince Shahmat Ali Khan, was remote and illusory?

(ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in holding that the provisions of section 21(4) are not applicable to the facts of this case in spite of the finding 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, that the position as on a valuation date is to be presumed for the purpose of application of the provisions of section 21(4) of the Act and such factual position would obviously include the court litigation carried on by Sk. Fatima Fauzia, one of the daughters of the Prince Meazam Jah Bahadur, and in that event, the beneficiaries would be unknown and their shares would be indeterminate?

(iii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the Assessing Officer was not justified in invoking the provisions of section 21(4) of the Wealth-tax Act?

(iv) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in cancelling the assessments made on the trustees under section 21(4) of the Wealth-tax Act?"

The issue debated before the Tribunal is whether the assessee-trust, i.e., Prince Moazam Jah Trust, Hyderabad (hereinafter referred to as the "trust") to be assessed under section 21(4) or under section 21(2) of the Wealth-tax Act. Section 21 is extracted hereunder:

"21. Assessment when assets are held by courts of wards, administrators-general, etc.--(1) In the case of assets chargeable to tax under this Act, which are held by a court of wards or an administrator-general or an official trustee or any receiver or manager or any other person, by whatever name called, appointed under any order of a court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of wakf), the wealth-tax shall be levied upon and recoverable from the court of wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf or for whose benefit the assets are held, and the provisions of this Act shall apply accordingly.

(2) Nothing contained in sub-section (1) shall prevent either the direct assessment of the person on whose behalf or for whose benefit the assets above referred to are held, or the recovery from such person of the tax payable in respect of such assets.

(3) Omitted intentionally as not necessary.

(4) Notwithstanding anything contained in this section, where the shares of the persons on whose behalf or for whose benefit any such assets are held are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager, or other person aforesaid as if the persons on whose behalf or for whose benefit the assets are held were an individual who is a citizen of India and resident in India for the purposes of this Act, and--

(a) at the rates specified in Part I of the Schedule; or

(b) at the rate of one and one-half per cent, whichever course would be more beneficial to the Revenue:

Provided that in a case where--

(i) such assets are held under a trust declared by will; or

(ii) such assets are held under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Wealth-tax Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settler or where the settler is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settler for their support and maintenance; or

(iii) such assets are held by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, wealth-tax shall be charged at the rates specified in Part I of Schedule I.

Explanation.--Notwithstanding anything contained in section 5, in computing the net wealth for the purposes of this sub-section in any case, not being a case referred to in the proviso, any assets referred to in clauses (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii) and (xxix) of sub-section (1) of that section shall not be excluded.

(5) Omitted intentionally as not necessary."

As can be seen from the statutory provision, for the purpose of applying section 21(4) of the Act, the basic principle requisite condition that has to be satisfied is that the shares of the persons on whose behalf or for whose benefit any such assets are held are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager, or other person aforesaid as if the persons on whose behalf or for whose benefit the assets are held were an individual who is a citizen of India and resident in India for the purpose of this Act. In the present case, if section 21(4) of the Act to be applied, the wealth-tax can be levied and assessed on the trust. It is not in dispute that the Prince Moazam Jah Bahadur was the beneficiary of the trust with remainder interest conferred on the Prince Shahmat Ali Khan. The trustees filed the returns offering interest in the beneficiaries under section 21(1) of the Act without declaring the remainder man, the Prince Shahmat Ali Khan and of the residuary interest. The assessments of the trust were reopened including the residuary interest under section 21(4) of the Act. The protective assessments were made under section 21(4) of the Act on the ground that there was an alleged dispute regarding the beneficiaries raised by the assessee in the assessment of the Prince Shahmat Ali Khan before the Commissioner (Appeals). This was based on a claim made by Sb. Fatima Fouzia for a piece of six acres of land out of Ac. 15-28 gts., of land, which was one of the assets of the trust. As a matter of fact, O.S. No. 92 of 1979 was filed by Sb. Fatima Fouzia before the civil court based on an oral gift (hiba) said to have been acknowledged by the prince. Based on this dispute, the contention of the Department is to the effect that in the facts of the case, the shares and beneficiaries of the trust being uncertain and indeterminable, the Department has option of making an assessment under section 21(4) of the Act on the trustees rather than on the beneficiaries. The Tribunal, after elaborately considering the material on record and on appreciation of evidence, came to the conclusion that Prince Shahmat Ali Khan is the sole beneficiary of the remainder interest of the trust and there being no other rightful claimants under the trust deed on the relevant date had found section 21(4) of the Act is inapplicable and the trust is required to be assessed under section 21(1) of the Act. In other words, the Tribunal, as a matter of fact, found that Prince Shahmat Ali Khan alone has remainder interest, definite and determinable interest in the assessee-trust. Inasmuch as this aspect of the matter being a pure question of fact and in the absence of a specific plea being raised by the Revenue assailing this fact as perverse, we are afraid, this court cannot interfere with the finding of the fact as recorded by the Tribunal particularly, in view of the judgment of the Supreme Court reported in Commissioner of Income Tax, Bombay Vs. Scindia Steam Navigation Co. Ltd., . Hence, we decline to answer the question No. 1 as the same is a pure question of fact.

In the light of our findings with regard to question No. 1, questions Nos. 3 and 4 are required to be answered in favour of the assessee and against the Revenue and so far as question No. 2 is concerned the same is academic and does not arise out of order of the Tribunal. The reference is answered accordingly. No order as to costs.