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PETITIONER: COMMISSIONER OF WEALTH TAX, ALLAHABAD

       Vs.

RESPONDENT: ARVIND.NAROTTAM (INDL.)

DATE OF JUDGMENT09/08/1988

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) MUKHARJI, SABYASACHI (J)

CITATION:  1988 AIR 1824            1988 SCR  Supl. (2) 266  1988 SCC  (4) 113        JT 1988 (3)   423  1988 SCALE  (2)401  CITATOR INFO :  RF         1990 SC 202  (11)

ACT:     Wealth Tax Act, 1957-5. 21(2)-Assets held under  Trusts- Mere   right to be considered for distribution of income  or corpus  cannot be regarded as an ’interest’-There must be  a right, present or contingent, before it can be said that  an assessee has an interest.

HEADNOTE:     The  respondent  who  was  entitled  to  minimum  annual payments of specified amounts under the three trust deeds in question  was assessed to tax under sub-s. (2) of s.  21  of the  Wealth Tax Act, on the entire value of the assets  held by   the   trusts.  On  appeal,  the   Appellate   Assistant Commissioner  confined  the  liability of  the  assessee  to wealth  tax on the capitalised value of the minimum  amounts payable  under  the  trust  deeds,  and  his  decision   was affirmed,  on second appeal, by the Appellate  Tribunal.  At the  instance of the Revenue, the opinion of the High  Court was  sought on the question whether the finding that it  was only  the capitalised value of the interest of the  assessee that  had to be included in the net wealth of  the  assessee was 5justified. The High Court answered the question in  the affirmative,  in  favour  of the assessee  and  against  the Revenue.     Dismissing the appeals,     HELD: A mere right to be considered for distribution  of the  income  or of the corpus of the Trust  Fund  cannot  be regarded  as  an  ’interest’  since it  is  not  capable  of valuation.  There  must be a right, present  or  contingent, before it can be said that an assessee has an interest.  The instant  case is one where beyond the specified minimum  the assessee was not entitled to anything more. [273F-GI     Gartside   &  Anr.  v.  Inland  Revenue   Commissioners, LR,[1968] Appeal Cases 553, relied on.     Padmavati Jaykrishna Trust & Another v. Commissioner  of Wealth  Tax, Gujarat, [1966] 61 I.T.-R. 66; Commissioner  of Wealth-Tax  Bombay v. Trustees of Mrs. Hansbai  Tribhuwandas Trust, [l968] 68 I.T.R. 527; Commissioner of Wealth-Tax,  A. P. v. Trustees of H. E.H.

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                                                 PG NO 266                                                   PG NO 267     Nizam  ’s  Family (Remainder Wealth) Trust,  [1977]  108 I.T.R  555; Commissioner  of Wealth-tax A.P. v. Trustees  of H.E.H.  The Nizam’s Sahabzadi Anwar Begum Trust, [1981]  129 I.T.R. 796; Leedale (Inspector of’ Taxes] v. Lewis, [1982] 3 All  E.R.  808 and McDowell and Co. Ltd. v.  Commercial  Tax Officer, [1985] 154 I.T.R. 148, distinguished.     2. There is no doubt that the expression ’property’ must bear  a comprehensive import. The question  remains  whether what is conveyed under the three deeds of settlement to  the assessee  is  a right to anything more than  the  prescribed minimum  under each deed. It is apparent that  the  assessee was  entitled only to the minimum prescribed in each of  the deeds of settlement. Whether or not he received any  further amount  out  of the net income of the Trust  Fund  was  left entirely  in  the discretion of the Trustees. There  was  no right  in the assessee to any portion of the net  income  in excess of the minimum guaranteed to him. It is  the  minimum alone which he could claim as his property. So also, on  the distribution  of the accumulated balance as capital  at  the end  of the stipulated period there was no right in  him  to receive  any part thereof. It was open to the   Trustees  to ignore  him altogether and they could pay it to  such  other members of the family as they chose. [272H; 273.A-B]     Ahmed G.H. Arriff and Others v. Commissioner of  Wealth- tax Calcutta [1970] 76 I.T.R. 471. referred to.     Per Suhyusuchi Mnkhurji. J.     On  behalf of the Revenue an appeal was made  before  us that  we  should  really  construe  the  three   Trust-Deeds together  and  see ’the game of the hidden  purpose’  behind these  Trust-Deeds  which were. in fact. for  the  sole  and exclusive  benefit  of  the assessee. It is  true  that  tax avoidance  an under-developed developing economy should  not be  encouraged on practical as well as ideological  grounds. One would wish, that one could get the enthusiasm of Justice Holmes  that  taxes are the price of  civilization  and  one would  like to pay that price to buy civillzation.  But  the question  which  many ordinary tax-payers very  often  in  a country   of  shortages  with  ostentious  consumption   and deprivation  for the large masses ask, is does he with taxes buy  civilization  or  does he  facilitate  the  wastes  and ostentiousness  of the few. Unless waste and  ostentiousness in Government’s spendings are avoided or eschewed, no amount of  moral  sermons  would change people’s  attitude  to  tax avoidance.  In any event, however, where the true effect  on the construction of the Deeds is clear, as in this case, the appeal  to  discourage  tax  avoidance  is  not  a  relevant consideration. [274E-H; 275A-C]                                                  PG NO 268     McDowell  &  Company Limited v. Commercial  Tax  Office, [l985] 154 I.T.R 148 referred to.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal  Nos.  2034- 2036 of 1974.     From  the  Judgment  and Order dated  1.10.1973  of  the Gujarat High Court in Wealth Tax Reference No. 16 of 1971.     Dr. Gauri Shankar, Miss A. Subhashini for the Appellant.     Harish Salve and Mrs. A.K. Verma for the Respondent.     The following Judgments of the Court were delivered:     PATHAK, CJ. These appeals by certificate granted by  the Gujarat High Court are directed against the judgment of  the

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High  Court disposing of three wealth-tax References.     The three trust deeds were executed by Narottam  Lalbhai for the benefit of the assessee,  his wife and his  children and  grand children The deed dated March 19. 1955 created  a trust  known  as the Arvind Narottam Trust. The  deed  dated April  9,  1955  created a trust called  the  Arvind  Family Trust.  And  the deed dated March 18, 1961 created  a  trust described  as the Arvind Kalyan Trust. All the  three  trust deeds  are couched in identical terms, except in  regard  to the minimum amounts payable to the beneficiaries out of  the income  of  each year. There was one further  difference  in detail. The first two deeds. specified a period of 18  years from  the date of execution as the period during  which  the net  income could be distributed to the assessee.  his  wife and  children,  while  the third specified a  period  of  30 years.  The  minimum annual payments to be  made  under  the three trust deeds to the assessee by way of maintenance were Rs. 250, Rs. 150 and Rs.250 respectively. Under each of  the trust  deeds  the  settlor specified  the  interest  of  the beneficiaries in the trusts. The  pertinent terms of one  of them, the Arvind Narottam Trust Deed. may be set forth here. Clauses 7 and 8 of that Trust Deed provide:     "7(a) Whatever income by way of interest or otherwise is received  each  year  by the trustees from  the  trust  fund should be first applied in meeting with the expenses of the                                                  PG NO 269 management  of the trust and the payment of  taxes  thereof. For a period of 18 years hereafter, the trustees may pay  to Arvind  or  if  Arvind gets married  during  the  period  to Arvind,  his  wife and children or to one or more  of  these persons, such portion of the net income remaining thereafter as the trustees deem fit. However, the trustees shall pay to Arvind, or if Arvind gets married during the period to  each Arvind and his wife, at least Rs.150 every year. After  such distribution,  if there remains any surplus from the  income of any year, it shall be added to the corpus of the fund. if in any year the net income accuring to the fund is less than Rs.300  the  whole amount should be paid to  Arvind  and  if Arvind gets married during the period to Arvind and his wife in  equal shares. If Arvind expires during the period of  18 years hereafter or if Arvind gets married during the  period and  both Arvind and his wife expire, the whole of  the  net income of the trust fund should be added to the corpus for a period of 18 years hereafter.     (b)  Whatever  may  be the corpus  and  the  accumulated balance  remaining undistributed out of the income  of  each year,  shall  be paid (as capital) at the end  of  18  years hereafter  to Arvind, his wife and his children or  survivor or such of them in such proportion as the trustees deem fit. If  the trustees are not able to decide Upon the persons  to whom  or  the  proportion  in  which  the  said  corpus  and accumulated balance of income is to be distributed or it  is not  possible  legally  to give effect to  the  decision  of trustees  or it is illegal to do so, then the proportion  in which  the distribution will be made will be an equal  share for  each of the persons or survivors comprising of  Arvind, his  wife and his children. If none of the said persons  are alive at the time of distribution then the distribution will be made to Niranjan. his wife and children or survivors. all or such of them and in such proportion as the trustees  deem fit.  If none of the said persons are alive at the  time  of distribution then the corpus and the balance of income  will be  given over by the trustees  on such conditions  as  they deem fit as donation to the Gujarat University or any  other educational institution or an institution giving medical aid

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or attending to, the health of public in general.                                                   PG NO 270     8. If the trustees so think fit the trustees are  hereby 74  to  distribute as capital even before the expiry  of  18 years  whatever  property and income is at  the   particular time accumulated in the trust fund to Arvind, his  wife  and his children or survivor or such of them in such  proportion as  the trustees deem fit. If the trustees are not  able  to decide  upon the persons to whom or the proportion in  which the  said corpus and accumulated balance of income is to  be distributed or it is not possible legally to give effect  to the  decision of trustees or it is illegal to do   so,  then the  proportion in which the distribution will be made  will be  an  equal  share for each of the  persons  or  survivors comprising of Arvind, his wife and his children. If none  of the said persons are alive, at the time of distribution then the distribution will be made to Niranjan, his wife and  his children  or  survivors,  all or such of them  and  in  such proportion  as  the trustees deem fit. If none of  the  said persons  are  alive at the time of  distribution,  then  the corpus  and the balance of income will be given over by  the trustees on such conditions as they deem fit as donation  to the Gujarat University or any other educational  institution or  an  institution giving medical aid or attending  to  the health of public in general. But if Arvind and his wife  are the  trustees at that time then they have no right  to  give vote  in  the  above  matter.  But  if  the  other  trustees unanimously agree to allow them to vote then they can."     The  Wealth Tax Officer made assessment orders  for  the assessment  years  1963-63, 1963-64 and  1964-65  under  the Wealth Tax Act, the relevant valuation dates being  December 31,  1961,  December  31, 1962 and  December  31,  1963.  He assessed  the  assessee  under sub-s. (2) of s.  21  of  the Wealth Tax Act on the entire value of the assets held by the trusts.  On  appeal  the  Appellate  Assistant  Commissioner confined the liability of the assessee to wealth tax on  the capitalised  value of the minimum amounts payable under  the trust deeds for his maintenance. that is to say say  Rs.250, Rs.150  and  Rs.250  respectively per  year.  The  Appellate Tribunal,  on second appeal, affirmed the view taken by  the Appellate  Assistant  Commissioner. At the instance  of  the Revenue.  the three cases were carried in reference  to  the High  Court  for its opinion in each case on  the  following question,n of law:     "Whether,  on the facts and in the circumstances of  the case,  the finding that it is only the capitalised value  of the interest of the assessee that has to be included in  the net wealth of the assessee is in law justified?"                                                   PG NO 271     The High Court answered the question in each case in the affirmative,  in  favour  of the assessee  and  against  the Revenue. And now these appeals.     Admittedly,  on all relevant dates of  these  assessment years,  the assessee was a bachelor, and was alone  entitled therefor to the benefit of the three trusts. It is  accepted also   that  the  trusts  are  discretionary   trusts.   The controversy between the parties arises on the application of s. 21 of the Wealth Tax Act. Section 21, as it stood at  the relevant time provided:     "S.  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

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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-genera1,  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-s. (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) xx        xx        xx        xx     (4) Notwithstanding anything contained in (the foregoing provisions of) this section, where the shares of the persons on  whose behalf or for whose benefit any such   assets  are                                                   PG NO 272 held  are indeterminate or unKnown, the wealthtax  shall  be levied   upon  and  recovered  from  the  court  of   wards, administrator-genera1, official trustee, receiver,  manager, or other person aforesaid, (as the case  may be, in the like manner  and to the same extent as it would be leviable  upon and recoverable from an individual who is a citizen of India and resident in India) for the purpose of this Act.     The contention of Dr. V. Gauri Shankar on behalf of  the Revenue  is  that the settlor had  specifically  made  these three  trusts  for  the  benefit of  his  son,  Arvind,  the assesee, and has declared unequivocally that the  settlement is for the benefit of the assessee, and on the asses-  see’s marriage, also for the benefit of his wife and children.  It is urged that the High Court has erred in failing to collect the  real intention of the settlor from the entire  document and  has erroneously  confined itself to paragraph 7 of  the deed.  According  to learned counsel, what  the  High  Court should  have  done  was to ascertain the  state  of  affairs existing on the relevant valuation date. It should not  have been  influenced  by  what  could  possibly  happen  in  the indefinite future on the happening of certain contingencies. The submission is that on the valuation dates there was only one beneficiary, the assessee, his share was determined  and known,  and it extended to the entire interest in the  trust properties. It is urged that in the case of a  discretionary trust  the interest of the beneficiary extends not  only  to the  actual  share  paid  to him but  to  his  right  to  be considered  as  a  potential recipient  of  the  net  income remaining after defraying the managment expenses and  paying the taxes. It extends, he says, to an interest in the  Trust accumulation  both  before  or  after  the  expiry  of   the stipulated  period  when  the  Trustees  are  empowered   to distribute  the  accumulated  balance  as  capital.  Learned counsel urges that the whole deed of settlement in each case should  be  read  and understood  comprehensively  and  only thereupon  can  a true answer be returned  to  the  question framed in the reference. Considerable emphasis has been   on the  submission  that the capital value  of  the  contingent intereset  in  the entire property must be kept in  view.  I have no difficulty in accepting the submission of Dr.  Gauri Shankar that for a proper understanding of a case before  us we  must  consider  the entire  deed  of  settlement.  That, however,  does  not  lead to the  conclusion  which  learned counsel  wishes  us to accept. What is the interest  of  the

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assessee  under  the  deed of  settlement  on  the  relevant valuation  date? We are concerned with the capital value  of that interest. It is apparent that the assessee was entitled only  to  the  minimum prescribed in each of  the  deeds  of settlement.   Whether or not be received any further  amount                                                   PG NO 273 out of the net income of the Trust Fund was left entirely in the  discretion of the Trustees. There was no right  in  the assessee  to any portion of the net income in excess of  the minimum guaranteed to him. It is the minimum alone which  he could claim as his property. So also, on the distribution of the  accumulated  balance  as  capital at  the  end  of  the stipulated  period there was no right in him to receive  any part  thereof.  It was open to the Trustees  to  ignore  him altogether  and they could pay it to such other  members  of the family as they chose.     In  support  of  the  proposition  that  the  expression ’property’ is a term of the widest amplitude and that  every possible  interest is includible therein we are referred  to Ahmed  G.H. Ariff’and Others v. Commissioner of  Wealth-Tax, Calcutta,  [1970]  76 I.T.R. 471. I have no doubt  that  the expression ’property’ must bear a comprehensive import.  The question  remains whether what is conveyed under  the  three deeds  of settlement to the assessee is a right to  anything more  than  the prescribed minimum under each  deed.  I  may reiterate  that  the interest extends to no more  than  that minimum.     It  is contended on behalf of the Revenue that the  fact that  a beneficiary may change on the happening  of  certain contingencies will not make the share of the beneficiary un- determined  or  unknown.  and reliance has  been  placed  on Padmavati  Jaykrishna  Trust & Another  v.  Commissioner  of Wealth-Tax,  Gujarat [l966] 61 I.T.R. 66;  Commissioner   of Wealth-Tax, Bombay v. Trustees of Mrs. Hansbai  Tribhuwandas Trust, [l968] 68 I.T.R. 527; Commissioner of Wealth-Tax,  A. P.  v. Trustees of H.E.H. Nizam’s Family (Remainder  Wealth) Trust. [1977] 108 I.T.R. 555 and Commissioner of Wealth-Tax, A.P. v. Trustees of H.E.H. The Nizam’s Sahebzadi Anwar Begum Trust,  [1981]  129  I.T.R. 796. These cases can  be  of  no assistance  to us, for,  unlike the facts in each  of  those cases,  the instant case is one where beyond  the  specified minimum  the  assessee was not entitled  to  anything  more. There must be a right, present or contingent, before it  can be said that an assessee has an interest, and I am supported in this by what was said by the House of Lords in Gartside & Anr.  v. Inland Revenue Commissioners. LR 1968 Appeal  Cases 553  where  it  was also observed that a mere  right  to  be considered  for distribution of the income or of the  corpus of the Trust Fund cannot be regarded as an ‘interest’  since it was not capable of valuation. Dr. Gauri Shankar relies on Leedale  (Inspector of Taxes) v. Lewis., [l982] 3  All  E.R. 808.  But the decision in that case turned on the  principle language  of the English Statute, where an approximation  of the value is permitted by  the "just and reasonable"  clause and  by  the words "as near as may be" in S.  42(2)  of  the Finance Act.                                                   PG NO 274     It  is  vehemently urged by Dr. Gauri Shankar  that  the approach to be adopted in this case is not that which  finds favour    under   the   Income-tax   law,   and    different considerations  prevail  under the Wealth Tax Act. As  I  am proceeding  on  the basis of the true  construction  of  the Deeds  of  Settlement, I fail to see any substance  in  that contention. Reliance war also placed by learned counsel  for the  Revenue  on  McDowell and Co. Ltd.  v.  Commercial  Tax

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Officer, [1985] 154 I.T.R. 148. That decision cannot advance the case of the Revenue because the language of the deeds of settlement is plain and admits of no ambiguity.     In the result I endorse the view taken by the High Court and dismiss these appeals with costs.     SABYASACHI MUKHARJI, J. I agree with the judgment of the learned Chief Justice. There is, however, one aspect of  the matter on which some arguments were advanced at the time  of hearing of this case, to which I would like to advert.     Dr. V. Gauri Shankar appearing on behalf of the  revenue made  an  appeal  before us stating that  we  should  really construe the three Trust-Deeds together and see ’the game of the hidden purpose’ behind these Trust-Deeds which were,  in fact, for the sole and exclusive benefit of the assessee. He drew our attention to the observations of Justice  Chinnappa Reddy,  with  which other learned Judges of the  Full  Bench agreed  in  McDowell & Co. Ltd. v. Commercial  Tax  Officer, [1985] 154 ITR 148. He invited us to hold that having regard to  the  taxing Statute the tax avoidance device  should  be exposed.  Justice Chinnappa Reddy has noticed the change  in judicial  attitude  to the tax  avoidance  devices.  Justice Reddy  mentioned  that  in  the country  of  its  birth  the principles  of Westminister of condoning tax avoidance  have been given a decent burial. In that very country the  phrase ’taxavoidance’  is  no longer condoned or looked  upon  with sympathy.     It  is  true that tax avoidance  in  an  under-developed developing economy should not be encouraged on practical  as well  as  ideological grounds. One would wish, as  noted  by Reddy,  J.  that  one could get the  enthusiasm  of  Justice Holmes  that  taxes are the price of  civilization  and  one would  like to pay that price to buy civilization.  But  the question  which  many ordinary tax-payers very  often  in  a country   of  shortages  with  ostentious  consumption   and                                                   PG NO 275 deprivation  for  the large   masses ask, is  does  he  with taxes buy civilization or does he facilitate the wastes  and ostentiousness of the few. Unless wastes and  ostentiousness in Government’s spendings are avoided or eschewed, no amount of  moral  sermons  would change people’s  attitude  to  tax avoidance.     In  any  event, however, where the true  effect  on  the construction  of  the Deeds is clear, as in this  case,  the appeal  to  discourage  tax  avoidance  is  not  a  relevant consideration. But since it was made it has to be noted  and rejected. With these observations I agree. H.L.C.                         Appeals dismissed.