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PETITIONER: COMMISSIONER OF WEALTH TAX, ANDHRAPRADESH,HYDERABAD

       Vs.

RESPONDENT: TRUSTEES OF H.E.H. NIZAM’S FAMILY(REMAINDER WEALTH TRUST),HY

DATE OF JUDGMENT03/05/1977

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. UNTWALIA, N.L. FAZALALI, SYED MURTAZA

CITATION:  1977 AIR 2103            1977 SCR  (3) 735  1977 SCC  (3) 362  CITATOR INFO :  D          1987 SC 522  (14)  D          1988 SC1824  (8)

ACT:         Wealth Tax Act 1957--Ss. 3, 21(1) and 21(4)--Scope of.

HEADNOTE:             Section  21(1)  of the Wealth Tax Act provides  that  in         case  of  assets chargeable to tax under the Act  which  are         held  by   ........  any trustee appointed  under  a  Trust,         wealth  tax  shall be levied upon and recoverable  from  the         trustee  in  the like manner and to the same  extent  as  it         would  be leviable upon and recoverable from the  person  on         whose behalf the assets are held.  Sub-section (4)  provides         that  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  un-         known,  wealth tax shall be levied upon and  recovered  from         the  trustee as if the persons on whose behalf or for  whose         benefit  the  assets  are held were an  individual  for  the         purposes of this Act.             The  corpus  of a family trust created by the  Nizam  of         Hyderabad was notionally divided into 175 equal  units,  out         of  which   1611/2 units were  allocated  amongst  relatives         mentioned  in the Second Schedule to the Deed in the  manner         specified  therein.  The essence of the Trust was that  none         of the beneficiaries was entitled to the corpus of the units         allocated to him or her but was only entitled to be paid the         income  from the units allocated to him or her.   The  trust         deed made detailed and elaborate provisions as to the dispo-         sition  of  the  different units allocated  to  the  various         beneficiaries and also provided for every other  contingency         in  such a manner that at any particular point of  time  one         could say, if the owner of the life interest were to die  at         that  point of time, who the beneficiaries entitled  to  the         corpus would be.             The Wealth Tax Officer assessed wealth tax on the  value         of  the  respective units allocated to each of  the  several         beneficiaries.             In  appeal the Appellate Assistant  Commissioner  upheld         the assessees’ contention that since each of them was  enti-

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       tled  only  to a life interest in the corpus  of  the  units         allocated,  they  could not be assessed in  respect  of  the         entire  value of the corpus.  When assessments were made  on         this  basis, the value of the remainder wealth escaped  tax.         The  Wealth Tax Officer, therefore, assessed  the  remainder         wealth under s. 21(4) taking the view that the beneficiaries         in respect of the several remainder estates after the  lives         of the immediate beneficiaries were unknown and their shares         were indeterminate.             On appeal the appellate Assistant Commissioner, without,         deciding the contention as to the applicability of s. 21(4),         annulled the assessments on the ground that though the trust         deed  was  one,  it created several distinct   and  separate         trusts,  one  in  favour of each beneficiary  with  its  own         independent and complete provision in regard to  devolution.         after  the  death  of each beneficiary and  the  Wealth  Tax         Officer was not  justified in clubbing the  entire remainder         wealth in a single assessment.             Before  the  Appellate Tribunal the.  Revenue  contended         that the assessees were liable to be assessed as an individ-         ual under s. 3 in respect of the entire corpus of the  trust         fund and s. 21(4) being merely a machinery provision did not         have the effect of overriding the charge imposed under s. 3.         736              The  Tribunal held (i) that 8. 3 was subject to  s.  21         and the assessees could not be assessed to wealth tax  under         that  section in respect of the entire corpus  ignoring  the         provisions  of s. 21; (ii) that s. 21(1) was not  applicable         in this case and (iii) that s. 21(4) was applicable  because         the  beneficiaries in respect of the remainder  estate  were         unknown.                The following questions, among others, were  referred         by the Tribunal the High Court:                           1. Whether the trustees were liable to  be                       taxed  under  s.  3 in  the  status     of  an                       "individual"?                          2. Whether the Tribunal was right in  hold-                       ing  that the provisions of   s. 3  should  be                       considered as subject to the provisions of  s.                       21 ?                           3.  Whether  the Tribunal was  correct  in                       holding  that  under s.  21(4)  the  remainder                       wealth could be assessed in respect of each of                       the several units or groups of units allocated                       in favour of the beneficiaries ?                       4.  Whether the Tribunal was right in  holding                       that  the provisions of s. 21(4) are  applica-                       ble?              The High Court held that (i) since the terms "individu-         al"  occurring in s. 3 is wide enough to include a group  of         persons  forming  a  unit, the trustees were  liable  to  be         assessed  under s. 3 but, s. 3 being subject to  the  provi-         sions of s. 21, it was not permissible to tax the   trustees         under s 3 ignoring the provisions of s. 21; (ii) it was  not         possible  to say, on the valuation date, that the  benefici-         aries  of the remainder estate in respect of each unit  were         unknown or their shares were indeterminate so as to  attract         the  applicability of s. 21(4); and (iii) s. 21(1)  was  ap-         plicable because it could be  predicated with  certainty and         definiteness on the relevant valuation date as to who  would         succeed  to  the  corpus of each set of  unit  and  in  what         shares, if the conditions for the vesting of the corpus  who         fulfilled on that date.         Dismissing the appeals in part,             HELD:  The trustees constituted an assessable  unit  and

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       were  liable  to be assessed to wealth tax  as  "individual"         under s. 3. [747 E]             (1)(a)  Section 3 imposes the charge of wealth tax  sub-         ject  to other provisions of the Act and these other  provi-         sions include s. 21.  Section 3 is, therefore, made express-         ly subject to s. 21 and it must yield to that section in  so         far as the latter makes special provision for assessment  of         a trustee. [748 D-E]               (b)  Section  21 is mandatory  On a  combined  reading         of  ss 3 and 21,it is clear that an assessment on a  trustee         must  be  made in accordance with   the provisions of  s  21         Every  case  of  assessment on a  trustee  must  necessarily         fall  under s. 21 and he cannot be assessed apart  from  and         without reference to that section.  To hold otherwise  would         be  to  refuse to give effect to the words "subject  to  the         other provisions of this Act" in s. 3 and to deny  mandatory         force and effect to the provisions of s. 21. [749 E-G]         C.R.  Nagappa v. Commissioner of Income-tax 73  I.T.R.  187,         Commissioner of Income Tax v. Nandial  Agarwal 59 I.T.R. 756         at  762  and Commissioner of Wealth Tax, Bihar &  Orissa  v.         Kripashankar Dayashanker Worah 81 I.T.R. 763 followed.         Commissioner of Income-Tax,  Ahmedabad v. Balwantrai  Jetha-         lal  Vaidya 34 I.T.R. 187 approved.             (c)  The assessment which is contemplated to be made  on         the  trustee under s. 21(1) or s. 21(4) is assessment  in  a         representative capacity.  It is really the beneficiaries who         are  sought to be assessed in respect of their  interest  in         the trust properties through the trustee.  Section 21(1) can         apply only where the trust properties are held by the  trus-         tee for the benefit of a single beneficiary         737         or where there are more beneficiaries than one, the individ-         ual  shares of the benenciaries in the trust properties  are         determinate  and known.  Where such is the case  wealth  tax         can  be levied on the trustee in respect of the interest  of         any  particular beneficiary in the trust properties  in  the         same  manner and to the same extent as it would be  leviable         upon the beneficiary and in respect of such interest in  the         trust properties, the trustees would be assessed in a repre-         sentative  capacity  as representing the  beneficiary.   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  asesss-         ment on him in respect of such interest stands unimpaired by         the  provisions enabling assessment to be made on the  trus-         tees in a representative capacity.                                        [750 G-H, 751 A-B, C]             (d) The Revenue has thus two modes of assessment: (a) it         may either assess such interest in the hands of the  trustee         in  a  representative   capacity under sub s.  (1);  or  (b)         assess  it directly in the hands of the beneficiary  by  in-         cluding  it in the net wealth of the beneficiary. 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 trustee  would  be         assessable in respect of their total beneficial interest  in         the trust properties.             In the instant case it is the beneficial interest  which         is  assessed to wealth tax in the hands of the  trustee  and         not the corpus of the trust properties.  Since under sub-ss.         (1) and (4) of s. 21 it is the beneficial interest which  is         taxable  in  the hands of the trustee  in  a  representative         capacity and the liability of the trustee cannot be  greater         than  the aggregate liability of the beneficiaries, no  part

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       of the corpus of the trust properties can be assessed in the         hands  of  the trustee under s. 3 and  any  such  assessment         would  be contrary to the plain mandatory provisions  of  s.         21. [751 D-E, G-H]             (e) The consequences that flow from the proposition laid         down in s. 21(1) that the trustee is assessable "in the like         manner and to the same extent" as the beneficiary, are:  (i)         There would have to be as many assessments on the trustee as         there  are beneficiaries with determinate and known  shares,         though  for the sake of convenience, there may be  only  one         assessment  order specifying separately the tax due  in  re-         spect of the wealth of each beneficiary; (ii) The assessment         of  the trustee would have to be made in the same status  as         that of the beneficiary whose interest is sought to be taxed         in  the  hand of the trustee; and (iii) The  amount  of  tax         payable by the trustee would be the same as that payable  by         each  beneficiary in respect of his beneficial interest,  if         he were assessed directly. [752 B-D]           N.V.  Shanmugham  & Co., v.  Commissioner  of  Income-Tax,         Madras,   81  I.T.R. 310, Padmavati  Jaykrishna    Trust  v.         Commissioner of  Wealth-Tax, Gujarat 61 I.T.R. 66, at  73-4,         Trustee  of  Putlibai R.F. Mulla Trust  v.  Commissioner  of         Wealth-Tax  66 I.T.R. 653, at 657-8 and Chintamani Ghosh  v.         Commissioner of Wealth-Tax 80 I.T.R. 331 at 341 referred to.         (f)  Once it is established that a trustee can  be  assessed         only  in accordance with the provisions of s. 21  and  under         these provisions, it iS only the beneficial interests  which         are  taxed in the hands of the trustee, it must follow  that         no  part of the value of the corpus in excess of the  aggre-         gate value of the beneficial interests can be brought to tax         in  the assessment of the trustee.  To do so would  be  con-         trary to the scheme and  provisions of s. 21.  It  would  be         deafly erroneous to assess the trustee t.o wealth tax on the         excess of the value the corpus over the actuarial valuations         of  the life interest and the reversionary interest  of  the         beneficiaries. [753 C-D]             Commissioner  of  Wealth-Tax, Gujarat  v.  Smt.Arundhati         Balkrishna Trust 101 I.T.R. 626 approved.             (g)  No part of the corpus of the trust funds  could  be         assessed  in  the hands of the trustees but  the  assessment         could  be  made on them only in respect  of  the  beneficial         interests of the beneficiaries in the trust funds under  ss.         21 (1) and (4).  [754 A]         738             (2)(a)  Even if the beneficiaries were indeterminate  or         unknown,  s.  21(4) would apply and the  trustees  would  be         liable  to  be assessed in respect of the  totality  of  the         beneficial  interest in the remainder as if it  belonged  to         one single beneficiary.  The expression ’where the shares of         the beneficiaries are indeterminate or unknown’ carries with         it by necessary implication a situation where the  benefici-         aries themselves are indeterminate or unknown. [754 F-G]             (b) The correct interpretation of s. 21(4) must be  that         even where the beneficiaries of the remainder are indetermi-         nate or unknown, the trustees can be assessed to wealth  tax         in respect of the totality of the beneficial interest in the         remainder,  treating  the beneficiaries  fictionally  as  an         individual. [755-B]             (c)  The Wealth Tax Officer has to determine as  to  who         the  beneficiaries  are in respect of the remainder  on  the         relevant  date and whether their shares are determinate  and         known.   So  long as it is possible to say on  the  relevant         valuation  date that the beneficiaries are known  and  their         shares are determinate, the possibility that ’the  benefici-         aries  may  change by reason of subsequent  events  such  as

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       birth  or death would not take the case out of the ambit  of         s. 21(1), [755 D-El         Khan  Bahadur M. Habibur Rehman v. Commissioner  of  Income-         Tax,  Bihar  & Orissa  13 I.T.R.  189. Subashini  Karuri  v.         Wealth-Tax Officer, Calcutta 46 I.T.R. 527, Commissioner  of         Wealth   Tax, Bombay v. Trustees  of  Mrs. Hansabai  Tribhu-         wandas Trust 69 I.T.R. 527 and Padmawati Jaykrishna Trust v.         Commissioner  of Wealth-Tax, Gujarat 61 I.T.R. 66,  at  73-4         approved.             (d) In order to determine the applicability of s.  21(1)         on the relevant valuation date, it has to be seen whether it         is possible to say with certainty and definiteness as to who         would be the beneficiaries and whether their shares would be         determinate  and specific, if the event on the happening  of         which  the  distribution is to take place occurred  on  that         date.  If it is, s. 21(1) would apply, if not, the case will         be governed by s. 21(4).         In  the  instant  case the trust  deed  provided  for  every         contingency   and  whenever a relative specified  in  Second         Schedule,  who is the owner of the life interest in the  set         of  unit or units allocated to him or her dies, there  would         always be beneficiaries capable of being easily  ascertained         and  identified who would be entitled to the corpus of  such         unit  or  units in determinate and specific  shares,  either         immediately on the death of such life tenant or after anoth-         er  life   interest.  The remainder in respect each  set  of         unit or units allocated to the respective relative specified         in  the  Second Schedule was, there fore, liable to  be  as-         sessed  in the hands of the trustees under s. 21(1) "in  the         same  manner and to the same extent" as each beneficiary  in         respect of his determinate and known share in  such  remain-         der.   That  excluded the applicability of s.21 (4)  in  the         assessment of the remainder. [756 ’D-E, F, H, 757 A-C]

JUDGMENT:         CIVIL APPELLATE JURISDICTION: Civil Appeal NOS. 467-470 &         470A of 1971.         (Appeals by Special Leave from the Judgment and Order dated         3-3-1970 of the Andhra Pradesh High Court in case Ref. No. 8         of 1967.)         G.C.  Sharma, P.L. Junels and R.N. Sachthey, for the  appel-         lant in all the appeals.         N.  A.  Palkhivala, Y.V. Anjaneyulu, Mrs. A.  K.  Verma,  A.         Subba Rao, Ravinder Narain, I. B. Dadachanji, and O.C. Math-         ur, for the respondents in all the appeals.         The Judgment of the Court was delivered by         BHAGWATI,  J.  These appeals by special leave  are  directed         against  a  judgment  of the High Court  of  Andhra  Pradesh         answering  certain questions referred to it by the  Tribunal         in favour of the assessee.  The questions are of some impor-         tance and complexity and they turn on the true         739         interpretation  of sections 3 and 21 of the Wealth Tax  Act,         1957  but ,since they can be answered only by  applying  the         correct  interpretation  to  the facts of the  case,  it  is         necessary  to briefly recapitulate the facts giving rise  to         these appeals.             In  the year 1950 the late Nawab Sir Mir Osman Ali  Khan         Bahadur,  The Nizam of Hyderabad and Berar  created  several         trusts  out of which we are concerned in these appeals  with         the trust known as the Family Trust. The Nizam, by a Deed of         Trust  dated  16th May, 1950, created the  Family  Trust  by         transferring  a  corpus  of Rs. nine  crores  in  Government

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       securities  to the trustees constituted by him.  The  corpus         was notionally divided into 175 equal units, of out of which         five  units  constituted a Fund called  the  ’Reserve  Fund’         31/2  units constituted a ’Family  Trust Expenses  Fund  and         the  remaining 166-1/2 units  were  allocated   amongst  the         relatives  mentioned  in the first column  of   the   Second         Schedule  in  the  manner specified in  that  Schedule,  the         number of units allocated to each individual relative  being         that  mentioned in the second column.  The  Second  Schedule         was divided into two parts.   Part  I specified the names of         the  Nizam’s wife Laila Begum, her five sons and two  daugh-         ters  and his another wife Jani Begum and her minor  son  as         beneficiaries  and in Part II were mentioned the  names   of         the   other   wives,  sons,   daughters,   daughters-in-law,         sons-in-law, would-be sons-inlaw and certain other ladies of         the  Palace.   None of the beneficiaries  mentioned  in  the         Second Schedule, whether in Part I or Part II, was     to be         entitled to the corpus of the units allocated to him or her.         Each  was  entitled  to be paid the income  from  the  units         allocated  to him or her and detailed provisions  were  made         for the manner in which the units were to devolve after  his         or her death.  Clause (4) of the Trust Deed provided that 30         out of 1661/2 units shall be allocated amongst the relatives         mentioned  in Part I of the Second Schedule in  such  manner         that  one  unit each shall be allocated to Laila  Begum  and         Jani Begum, two units each shall be allocated to the  daugh-         ters  of Laila Begum and four units each shall be  allocated         to  the five sons of Laila Begum and the minor son  of  Jani         Begum.  So  far  as one unit allocated to  Laila  Begum  was         concerned,  the trustees were directed by sub-clause (a)  of         clause (4) to pay the income of this one unit to Laila Begum         during  her  life  time and after her death, it  was  to  be         divided  into 12 equal parts and 2 equal parts each were  to         be  added  to the four units allocated to each of  her  five         sons  and  one equal part each was to be added  to  the  two         traits  allocated to each of her two. daughters to  be  held         upon  the  same trusts as those declared in respect  of  the         original units allocated to each son or daughter as the case         may be.  Each of the five sons of Laila Begum was  allocated         four  units  and under sub-clause (b) of clause (4)  it  was         provided that the income from these four units, supplemented         by  parts out of Laila Begum’s unit on her death,  shall  be         paid  to the respective son during his life time and on  and         after his death, the corpus      of the four units allocated         to  him  together with the parts out of Laila  Begum’s  unit         added to it, shall be divided amongst his children or remot-         er  issues per stirpes in the proportion of two  shares  for         every male child to one share for every female child  stand-         ing  in the same degree of relationship.  If such  son  died         without  leaving any child or remoter issue  him  surviving,         sub-clause  (b)  of clause (4) provided  that  the  trustees         shall  divide the four units allocated to him together  with         the         8--707 SCI/77         740         subsequently added parts out of Laila Begum’s unit into such         sub-parts  and in such manner that they shall  allocate  two         equal  sub-parts each to each of the then surviving sons  of         Laila  Begum by the settlor and the issue then surviving  of         any pre-deceased son and one equal sub-part each to each  of         the  then surviving daughters of Laila Begum by the  settlor         and  the issue then surviving of any pre-deceased  daughter.         The parts of such surviving sons and daughter of Laila Begum         as are specified in the Second Schedule were to be added  to         and  amalgamated  with the basic units, four or two  as  the

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       case  may be, allocated to them and they were to be held  on         the  same trusts as those declared in respect of such  basic         units.   So far as concerns the sub-parts allocated  to  the         surviving  sons and daughters of Laila Begum who  were  born         after the date of the Trust Deed, it was directed that  such         sub-parts would be taken by them absolutely and so also  the         sub-parts allocated to the issue of any pre-deceased son  or         daughter  of  Laila Begum were to be  divided  between  them         absolutely per stirpes in the proportion of two shares  for’         every male child  to one share for every female child stand-         ing  in  same  degree of relationship.   Sub-clause  (c)  of         clause  (4)  made similar provisions with regard to the  two         units allocated to each of the two daughters of Laila Begum.         The  income of the two units together with the  subsequently         added parts out of Laila Begum’s unit was to be given to the         respective daughter for her life time and on her death,  the         corpus  was to be divided amongst her children  and  remoter         issue per stirpes in the proportion of two shares for  every         male  child to one share for every female child standing  in         the  same  degree of relationship and if  she  died  without         leaving any issue her surviving, the corpus was to be divid-         ed  into  such sub-parts and in such manner that  one  equal         sub-part was to go to each of the then surviving children of         Laila  Begum by the settlor and the issue then surviving  of         any  pre-deceased son or daughter.. The other provisions  in         regard  to the interest taken by these beneficiaries in  the         corpus  were  the same as in sub-clause (b) of  clause  (4).         Subclause (d) of clause (4) dealt with the unit allocated to         Jani  Begum and provided that the income of this unit  would         go to Jani Begum during her life time and on her death,  the         corpus  of this unit would be added to and amalgamated  with         the four units allocated to her minor son Imdad Ali Khan  to         be held upon the same trusts as those declared in respect of         those four units and if neither Imdad Ali Khan nor any child         or remoter issue of his was living at the date of the  death         of  Jani Begum, then this one unit of Jani Begum was  to  be         held upon the same trusts as the one unit allocated to Laila         Begum on her death. Similarly,. sub-clause (e) of clause (4)         provided  that  the income of the four  units  allocated  to         Imdad Ali Khan shall be paid to him during his life time and         on his death, the corpus shall be divided amongst his  chil-         dren and remoter issue per stirpes in the proportion of  two         shares  for every male child to one share for  every  female         child standing in the same degree of relationship and if  he         does without leaving any child or remoter issue him  surviv-         ing,  the corpus shall be held on the same trusts  as  those         upon which the four units allocated to any of the five  sons         of  Laila  Begum are held on the death of such  son  without         leaving  any child or remoter issue him surviving.  It  will         thus  be  seen that detailed and elaborate  provisions  were         made  in  the Trust Deed regarding the  disposition  of  the         different  units  allocated  to  the  various  beneficiaries         specified in Part         741         I  of  the Second Schedule and every contingency  was  taken         care  of in laying  down the mode of devolution, so that  at         any particular point of  time could always say who would  be         the  beneficiaries entitled to the corpus, if the  owner  of         the life interest were to die at that point of time.             The remaining 1361/2 units left after the allocation  of         30 units as set out in clause (4) were dealt with in  clause         (5)  of the  Trust  Deed. These 1361/2 units were  allocated         to the respective relatives of the settlor specified in Part         II of the Second Schedule in the respective proportions  set         out.against  their  names.   Sub-clause (a)  of  clause  (5)

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       provided that  the income of the respective unit or units or         fraction thereof allocated to the respective relative  shall         be paid to them respectively for life. But so far as the  15         daughters  of  the settlor were concerned, to each  of  whom         three units were allocated, it was provided that out of  the         income  of  such three units, each daughter was to  be  paid         only  2/3rd part of the income and the remaining 1/3rd  part         was to be set apart by way of a reserve fund.  Such  reserve         fund was to be utilised for any special, unusual, unforeseen         or  emergency expenses relating to the  particular  daughter         from  whose income the reserve fund was created and  on  her         death,  the,reserve fund or the unutilised  portion  thereof         was   to. be amalgamated with the three units of the  corpus         allocated  to  her, to be held on the same trusts  as  those         declared  in respect of such three units. There was  also  a         special provision made  regarding  Nawab  Rashid Nawaz Jung,         the  son-in-law of the settlor, that, though  allocated  one         unit, he was not to receive the income of that unit so  long         as  he received the allowance as Amir of the  Vikar-al-Mulk-         Paigah  and  till then, the income of this unit  was  to  be         added to the five units allocated to the Reserve Fund creat-         ed under clause (6) to be held upon the same trusts as those         declared  in respect of such Reserve Fund.  The  other  son-         inlaw  and the future husbands of the 13 other daughters  of         the  settlor  were also allocated 1/2 unit each and  it  was         provided that until the marriage of each of these 13  daugh-         ters, the income of 1/2 unit allocated to her future husband         should  be set apart as a reserve fund and utilised  in  the         same manner as the Reserve Fund of such daughter created out         or one-third part of the income of the three units allocated         to  her and after her marriage, the income of such 1/2  unit         should  be paid to her husband. So far as Fauzia Begum,  the         daughter  of the second son of the settlor was concerned,  a         special  provision  was made that the income  of  two  units         allocated  to  her should be set apart and credited  in  her         account called ’Fauzia Begum Reserve Fund’ and on the  death         of  the  second son of the settlor during  the  minority  of         Fauzia  Begum, the income of these two units should be  paid         to a committee of management for the maintenance, education,         welfare,  advancement  in life and benefit of  Fauzia  Begum         until she attained the age of majority and during the minor-         ity  of Fauzia Begum, the trustees. were also authorised  to         spend out of the Reserve Fund such sums as may be  necessary         for  any special. unusual, unforeseen or emergency  expenses         for  her  benefit and on Fauzia Begum attaining the  age  of         majority, the trustees were to hand over the reserve fund or         the unutilised portion thereof to her absolutely and also to         pay to her the income of the two units during her life time.         Sub-clause (b) of clause (5) provided for the devolution  of         the respective unit or units or fraction thereof allocated         742         to the respective relatives on their death.  It was directed         that  on the death of any of these relatives, the corpus  of         the  unit or units or fraction thereof allocated to  him  or         her  should  be  divided’and distributed,  subject  to  some         restrictions,  amongst  the children and remoter  issue  per         stirpes  in  the  ratio of 2:1 as between  male  and  female         children  standing in the same degree of relationship.   The         contingency of any of these relatives dying without  leaving         any  child or remoter issue him or her surviving. was  dealt         with in sub-clause (c) of clause (5) which provided that  in         the event the unit or units or the fraction thereof allocat-         ed  to such relative  should  be  divided amongst the  other         relatives  of  the settlor but in  accordance  with  certain         specified  rules.  Sub-clause (d) of clause (5) made a  spe-

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       cial provision in regard to Dulhan Pasha Begum, namely, that         on  her  death, the five units allocated to  her  should  be         added  to and amalgamated with the four units  allocated  to         her  daughter Shahzadi Begum, to be held upon thus  be  seen         that  according to the scheme envisaged in clause (5),  each         of the settlors specified in Part II of the Second  Schedule         was  given  life interest in the unit or units  or  fraction         thereof  allocated  to him or her and on his or  her  death,         subject  to certain special provisions in regard to some  of         the relatives, the corpus of such unit or units or  fraction         thereof was to be divided and distributed amongst the  chil-         dren  or  remoter  issue and if any of  the  relatives  died         without  leaving any child or remoter issue him or her  sur-         viving, the corpus allocated to him or her was to go to  the         other relatives in accordance with certain specified  rules.             Clause  (6) of the Trust Deed directed the  trustees  to         hold  5 units out of the corpus of the trust fund aS and  by         way  of  a  Reserve Fund, This Reserve  Fund  was  primarily         intended  to meet special, unusual, unforeseen or  emergency         expenses  of  or  for the benefit of the  relatives  of  the         settlor  specified  in the Second Schedule and it  was  also         provided  that if there was any deficit in the Family  Trust         Expenses  Account in meeting the charges of collection,  the         remuneration of the trustees and the members of the  commit-         tee  of  management and other costs, charges,  expenses  and         outgoing  in connection with the trust, such deficit  should         be made good out of the income or the corpus of the  Reserve         Fund. There was also a provision made that on and after  the         death  of any of the relatives of the settlor  specified  in         the  Second  Schedule,  a corresponding  proportion  of  the         Reserve  Fund  should be added to and amalgamated  with  the         unit or units or fraction thereof allocated to such relative         and held on trusts similar to the original trust.             The remaining 31/2 units were allocated under clause (7)         of  the  Trust Deed to a fund called ’The Family  Trust  Ex-         penses  Account’.  This fund was intended to  meet  all  the         charges  for the collection of the income of the trust  fund         and the remuneration of the trustees and the members of  the         committee  of  management  and all the  costs,  charges  and         expenses and outgoings relating to the trust and its  admin-         istration.   It was also directed that after all the  afore-         said  trusts relating to the 30 units, 136-1/2 units  and  5         units  out  of the corpus of the trust fund had  been  fully         administered  and  carried out and the corpus  of  all  such         units had been handed over and transferred absolutely to the         ultimate beneficiaries, the         743         trustees should transfer and hand over 31/2 units comprising         this  fund to the then successor-in-title of the settlor  or         to  the  eldest male descendant in the direct male  line  of         succession of the settlor according to the rule of  primoge-         nature.             During the course of assessment of the trustees (herein-         after  referred to as the assessees) to wealth tax  for  the         assessment  year  1957-58, a question arose as  to  how  the         assessment  to  wealth tax should be made.  The  Wealth  Tax         Officer assessed the assessees to wealth tax on the value of         131/2  units of the trust fund comprising 5 units  allocated         to  the  Reserve Fund, 31/2 units allocated  to  the  Family         Trust  Expenses Account and 5 units representing  the  units         allocated  to  the  future husbands of  the  then  unmarried         daughters  of the settlor.  The wealth corresponding to  the         remaining  1611/2  units was assessed in the  hands  of  the         several beneficiaries specified in the Second Schedule,  who         were  assessed to wealth tax on the value of the  respective

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       units  allocated  to  them under the  Trust  Deed.   Similar         assessments  were also made for the assessment year  1958-59         with this difference that by the time these assessments came         to  be  made, one other daughter was also  married  and  the         Wealth  Tax  Officer, therefore, assessed the  assessees  to         wealth  tax only in respect of the value of 13 units of  the         Trust  Fund and the values of the other units were  assessed         in  the hands of the respective beneficiaries to  whom  they         were allocated as specified in the Second Schedule.             There  were appeals to the Appellate  Assistant  Commis-         sioner  against  the assessments for  the  assessment  years         1957-58  and  1958-59 and in these  appeals,  the  Appellate         Assistant  Commissioner held that the inclusion’ of 5  units         constituting  the Reserve Fund, 31/2 units constituting  the         Family Trust Expenses Account and the units allocated to the         future  husbands  of the unmarried daughters in  one  single         assessment  was unjustified, since the clauses  constituting         the  Reserve Fund and the Family Trust Expenses Account  and         creating a trust in favour of the future sons-in-law consti-         tuted  three distinct trusts and hence separate  assessments         must  be  made in respect of the several units  forming  the         subject  matter  of these clauses.  The Wealth  Tax  Officer         accordingly   made separate assessments on the assessees  in         respect  of 5 units constituting the Research Fund and  31/2         units constituting the Family Trust Expenses Account for the         assessment  years 1957-58 and 1958-59  and  similar  assess-         ments  were  also made on the assessees in  respect  of  the         assessment years 1960-61 and 1961-62.  We are not  concerned         in these appeals with the assessments made on the  assessees         in respect of 5 units constituting the Reserve Fund and 31/2         units  constituting the Family Trust Expenses Account  since         these assessments have become final.             The  several  beneficiaries  specified  in  the   Second         Schedule  also appealed against their assessments to  wealth         tax  on the ground that each of them was entitled only to  a         life interest in the corpus of the units allocated to him or         her  and  he  or she could not, therefore,  be  assessed  in         respect of the entire value of the corpus.  This  contention         was  accepted  by the Appellate Assistant  Commissioner  who         held that inasmuch as each beneficiary was entitled only  to         the  income of the Units allocated to him or her during  his         or her life time, he or she could be assessed to wealth  tax         only on the value of his or her life interest         744             the respective units and not on the value of the  corpus         and  in this view, the Appellate Assistant Commissioner  set         aside the assessments made on the beneficiaries and directed         the Wealth Tax Officer to make fresh assessments by  includ-         ing  only  the  value of the life interest of  each  of  the         beneficiaries  in  his or her assessment.   The  Wealth  Tax         Officer accordingly valued the life interest of each of  the         beneficiaries  in the respective unit or units allocated  to         him  or her and made assessment to wealth tax  by  including         the  value of such life interest.  But the result of  making         assessments  on this basis on the several beneficiaries  was         that  the  value  of the ’remainder wealth’  in  respect  of         1661/2 units esCaped tax.  The Wealth Tax Officer was of the         view  that the beneficiaries in respect of the  several  re-         mainder  estates after the lives of the immediate  benefici-         aries  mentioned  in the Second Schedule  were  unknown  and         their  shares undeterminate and the assessees  were,  there-         fore,  liable  to be assessed in respect  of  the  remainder         wealth under  section 21,  subsection (4) of the Wealth  Tax         Act. The Wealth Tax Officer accordingly reopened the assess-         ments made on the assessees for the assessment years 1957-58

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       to  1960-61 and made fresh assessments on the  assessees  in         respect of the ’remainder wealth’ by applying the provisions         of section 21, sub-section (4).  He arrived at the value  of         the  remainder  wealth  by taking the value  of  the  entire         original corpus and deducting therefrom the value of 5 units         allocated  to the Reserve Fund, the value    of 3-1/2  units         allocated  to  the  Family Trust Expenses  Account  and  the         aggregate  of the values of the life interests  assessed  in         the hands of the several beneficiaries.  Similar  assessment         was  also made on the assessees in respect of the  remainder         wealth for  the assessment year 1961-62.             The  assessees appealed to the Appellate Assistant  Com-         missioner  against the assessments made on them  in  respect         of  the  remainder wealth and in the appeals, they contended         that the Trust Deed created distinct and separate trusts for         the  benefit of the several beneficiaries mentioned  in  the         Second  Schedule and the Wealth Tax Officer was,  therefore,         not justified in clubbing the entire remainder wealth relat-         ing  to these distinct and separate trusts in a  single  as-         sessment on the assessees and a further contention was  also         urged  by them that, in any event, the assessments were  bad         in law inasmuch as the provisions of section 21, sub-section         (4)  were not applicable to the facts and  circumstances  of         the case.  The Appellate Assistant Commissioner agreed  with         the  first contention of the assessees and held that  though         there was only one single Deed of Trust, it created  several         distinct and separate trusts. one in favour of each  benefi-         ciary  mentioned in the Second Schedule with its  own  inde-         pendent and complete provision in regard to devolution after         the  death of such beneficiary and on this view, the  Appel-         late Assistant Commissioner annulled the assessments made on         the assessees in respect of the remainder wealth, leaving it         open to the Wealth Tax Officer "to take such steps as he may         consider necessary to assess the remainder wealth pertaining         to each distinct trust  separately". This view taken by  the         Appellate Assistant Commissioner rendered it unnecessary  to         decide  the  second contention as to  the  applicability  of         section 21, sub-section (4).             The  Revenue being aggrieved by the order passed by  the         Appellate  Assistant Commissioner preferred  appeals  before         the Tribunal on the         745         main ground that there was only one single trust created  by         the Trust Deed and not several distinct and separate trusts.         Two  further  contentions were also sought to  be  urged  on         behalf of the Revenue at the hearing of the appeals and  one         of  them was, and that is the only contention  material  for         our  purpose,  that  the  Appellate  Assistant  Commissioner         should have "given a definite finding regarding the applica-         bility  of section 21, sub-section (4) or section 3  to  the         facts of the case". The argument of the Revenue in regard to         this  contention  was that the assessees were liable  to  be         assessed  as an ’individual’ under section 3 in  respect  of         the  entire  corpus of the trust fund and section  21,  sub-         section  (4) being merely a machinery section did  not  have         the effect of overriding the charge imposed on the assessees         under  section 3. The Tribunal allowed the Revenue to  raise         this new contention, but made it clear that it would be only         "for the purpose of supporting the assessments already  made         and  not for the purpose of enhancing the assessments".  The         answer  given by the assessees to this contention  was  that         section  3 had no application at all, because the  assessees         as  trustees would be an "association of persons’ and  under         the  Wealth  Tax Act an ’association of persons’ is  not  an         assessable entity and they went on further tO say that  they

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       could not be assessed even under sub-section (1)  or subsec-         tion  (4) of section 21, since in respect of  the  remainder         estate  after the death of each relative, the  beneficiaries         were  unknown.  The asses.sees also contended that,  in  any         event, even if section 3 were applicable, the assessment  on         the  assessee  could  be made only in  accordance  with  the         provisions of section 21, since section 3 was subject to the         other   provisions of the Act including section 21.  It  was         also  urged on behalf of the assessees that the  Trust  Deed         created  distinct  and separate trusts ’in  respect  of  the         several  units allocated to the beneficiaries  mentioned  in         the Second Schedule and in any event, even if the trust  was         a single indivisible trust, the remainder estate in  respect         of the several units was required to be assessed  separately         in the hands of the assessees and to the assessment of  such         remainder,  it  was  sub,section (1 ) of  section  21  which         applied  and not sub-section (4) of section 21.  The  Tribu-         nal, on a proper construction of section 3 ,and 21, came  to         the  Conclusion  that  these two sections have  to  be  read         together and so read it was clear that section 3 was subject         to  section 21 and the assessees  could not,  therefore,  be         assessed  to  wealth tax under section 3 in respect  of  the         entire  corpus, ignoring the provisions of section 21.  Sub-         section (1) of section 21 was, in the view of the  Tribunal,         not applicable and the only question, therefore, was whether         assessment  could be made  on  the assessees under  sub,sec-         tion  (4) of section 21.  The Tribunal held that it was  not         correct to say that sub-section (4) of section 21  was   not         applicable in the present case on the ground that the  bene-         ficiaries  in respect of the remainder estate  were  unknown         and  proceeded to apply the provisions of section  21,  sub-         section (4) in the assessment of the assessees.  The  Tribu-         nal  accepted the contention of the Revenue that  there  was         only  one single trust created by the Trust Deed and not  as         many trust as there were beneficiaries, but all the same  it         held, on the application of section 21, sub-section (4) that         "even  if the Trust Deed be viewed as a single trust,  sepa-         rate  assessments should be made on the trustees in  respect         of the several units allocated to the groups  of the several         beneficiaries mentioned in the Second Schedule".  The result         was that the appeals filed by the Revenue were dismissed.         746             The Revenue thereupon applied to the Tribunal for refer-         ring  to  the High Court certain questions of  law  said  to         arise  out of the order of the Tribunal and on the  applica-         tion  of  the Revenue, the Tribunal referred  the  following         questions for the decision of the High Court:                             "(i) Whether the Trustees are liable  to                       be assessed under section 3 of the  Wealth-tax                       Act in the status of an individual’ ?                             (ii)  Whether,  on the acts and  in  the                       circumstances  of  the  case,  the   Appellate                       Tribunal was right in holding that the  provi-                       sions  of  section  3 of the  Wealth  Tax  Act                       should  not  be considered as subject  to  the                       provisions of section 21 of the above Act ’?                             (iii)  Whether, on the facts and in  the                       circumstances  of  the  case,  the   Appellate                       Tribunal was correct in refusing to admit  the                       additional  ground filed on behalf of the  De-                       partment (in W.T.A. No. 690 to 694 of 1963-64)                       except to the extent of supporting the assess-                       ment as made ?                             (iv)  Whether, on a proper  construction                       of  the trust deed in question,  the  Tribunal

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                     was  correct in holding that the  settlor  had                       created  only one trust in favour  of  several                       beneficiaries and not separate and independent                       trust  in favour of several  beneficiaries  or                       groups of beneficiaries ?                             (v)  Whether, having held that a  single                       trust  was  created by the  trust  deeds,  the                       Tribunal  was correct in law in  holding  that                       under section 21 (4) of the Act the  remainder                       wealth could be assessed in respect of each of                       the several units or groups of units allocated                       in favour of the beneficiaries specified under                       the relevant trust deeds ?                             (vi)  Whether, on the facts and  in  the                       circumstances  of  the case and  on  a  proper                       construction of the  provisions  of section 21                       of the Act, the Tribunal was right in  holding                       that  the  provisions of section  21  (4)  are                       applicable  in the circumstances of this  case                       ?"         So  far as the first question is concerned, the  High  Court         answered  it  in favour of the Revenue by holding  that  the         trustees  are  liable  to  be assessed  as  an  ’individual’         under section 3, because the word ’individual" in section  3         is wide enough to include a group of persons forming a unit.         But section 3 being subject to the provisions of section 21,         the High Court held, in answer to the second question,  that         it  was not permissible to the Revenue to tax  the  trustees         under section 3 ignoring the provisions of section 21.   The         High Court held that the assessment on the trustees could be         made only in accordance with the provisions of section  2’1.         The question then was as to which sub-section of section  21         applied in the present case: sub-section (1) or  sub-section         (4).  The  High  Court took the view that  on  the  relevant         valuation date,’ it: was not possible to say that the  bene-         ficiaries of the remainder estate in respect of each set  of         unit or units allocated to the respective relatives         747         Specified  in  the  Second Schedule were  unknown  or  their         shares were indeterminate so as to attract the applicability         of  sub-section (4) of section 21.  The High  Court.observed         that it could be predicated with certainty and  definiteness         on the relevant valuation date as  to  who would succeed  to         the corpus of each set of unit or units and in what  shares,         if  the conditions for the vesting of the corpus  were  ful-         filled  on that date.  The High Court accordingly held  that         sub-section (1) of section 21 was applicable to the facts of         the  case and the assessment on the assessees was liable  to         be  made in conformity with that provision.  The High  Court         then  addressed itself to the fourth question and held  that         the  Tribunal was not right in holding that the  Trust  Deed         created  one single indivisible trust but there were  really         several  distinct and separate trusts created by  the  Trust         Deed  in  favour of each of the relatives mentioned  in  the         Second  Schedule.  This view taken by the High Court  neces-         sarily  resulted  in questions Nos. (v) and (vi)  being  an-         swered  in  favour of the assessees.  That  left  the  third         question,  but so far as that is concerned, the  High  Court         took  the view that it was not necessary to consider  it  in         view  of  the answers given to the other questions.   It  is         this  decision  of the High Court on the  various  questions         referred  by the Tribunal which is impugned in  the  present         appeals preferred by special leave.             Before  we take up the questions of law that  arise  for         consideration  in these appeals, we may clear the ground  at

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       the  outset  by  pointing out that though  before  the  High         Court, it was contended on behalf of the assessees that they         were  not  liable to be assessed to wealth under  section  3         since  unlike the charging section in the Income-tax  Act  3         did  not  provide for levy of wealth tax on  association  of         persons his  contention was not pressed before us and it was         conceded,  and  in our opinion rightly, that  the  assessees         constituted  an  assessable unit and opinion  liable  to  be         assessed to wealth tax as ’individual’ under section 3. This         position indeed could not be disputed after the decision  of         this Court in Trustees of Gordhandas Govindram Family Chari-         ty Trust v. Commissioner of Income-Tax, Bombay. (1) But  the         question  is whether assessment could be made on the  asses-         sees  under  section 3 apart from and without  reference  to         section  21. That depends on the true meaning and effect  of         sections  3 and 21 and the inter-relation between these  two         sections.   SectiOn 3 is the charging section and it  levies         the  charge of Wealth tax on the net wealth of the  assessee         on the relevant valuation date.  ’Net wealth’ is defined  in         section  2  (m) to mean "the amount by which  the  aggregate         value computed in accordance with the provisions of this Act         of all the assets, wherever located, belonging to the asses-         see on the valuation date------is in excess of the.aggregate         value of all the debts owed by the assessee on the valuation         date------".   It  is clear from this  definition  that  any         property,  wherever located, ’belonging to’ the assessee  on         the  relevant valuation date would be includible in the  net         wealth of the assessee assessable to wealth tax.  One  argu-         ment based on semantics advanced on behalf of the  assessees         was that assets held by a trustee in trust for others cannot         be  said to be assets belonging to the, trustee so as to  be         includible  in his net wealth.  The assets so held "are  not         trustee’s property in any real sense": they are         (1) 88 I.T.R. 47         748         the  property of the beneficiaries and, to use the words  of         Lord  Mac  Naughton in Heritable Reversionary  Co.  Ltd.  v.         Millar, (1) the beneficiaries are the true owners all along.         The  trustee  of a trust cannot, therefore, be  assessed  to         wealth tax in respect of the trust properties under  section         3.   It was for this reason, contended the  assessees,  that         special provision had to be made in section 21 for assessing         the  trustee  and hence assessment on the trustee  could  be         made  only in accordance With such special provision.   This         was  precisely  the  argument which found  favour  with  the         Gujarat High Court in Commissioner of Wealth-Tax, Gujarat v.         Kum.  Manna  G. Sarabhai(2) which was a case  decided  by  a         Division  Bench presided over by one of us (Bhagwati, J.  as         the  Chief  Justice).  On this argument, the  trustee  of  a         trust  would not be liable to be assessed to wealth  tax  in         respect  of  the trust properties under  section 3.   It  is         only by reason of section 21 that he would be assessable and         hence assessment cannot be made on him except in  accordance         with the provisions of section 21.  Prima facie, there seems         to be force in this argument, but we do not think it  neces-         sary to express any final opinion upon it, since there is an         alternative  argument  advanced on behalf of  the  assessees         which  is quite substantial and leave no room  for  judicial         doubt or hesitation.             Let  us  assume  that the trustee of a  trust  would  be         assessable in respect of the trust properties under  section         3, even in the absence of section 21.  But section 3 imposes         the  charge of wealth tax ’subject to the other  provisions’         of  the Act and these other provisions include  section  21.         Section  3 is, therefore, made expressly subject to  section

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       21 and it must yield to that section in so far as the latter         makes  special  provision for assessment of a trustee  of  a         trust.  Section 21 is mandatory in its terms and as it stood         at the material time it provided as follows:                             "21(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 testa-                       mentary  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  trus-                       tee,  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 the assets are held, and the provisions                       of the Act shall apply accordingly.                             (2) Nothing contained in sub-section (1)                       shall prevent either the direct assessment  of                       the  person on whose behalf the  assets  above                       referred  to  are held, or the  recovery  from                       such  person of the tax payable in respect  of                       such assets.                       (1) (1892) A.C. 598.                       (2) 86 I.T.R. 153                       749                             (3) Where the guardian or trustee of any                       person being a minor, lunatic or idiot (all of                       which  persons  are hereinafter in  this  sub-                       section  included in the  term  "beneficiary")                       holds  any assets on behalf of such  benefici-                       ary,  the tax under this Act shall  be  levied                       upon  and  recoverable from  such guardian  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 any such                       beneficiary  if of full age or sound mind  and                       in direct ownership of-such assets.                             (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 for the purposes of this Act."                       Sub-section  (5) was not a part of section  21                       at  the material time since it was  introduced                       only  with effect from 1st April, 1965 but  it                       throws some light on the interpretation of the                       other sub-sections of section 21 and hence  it                       may be reproduced here:                             "21(5)  Any person who pays any  sum  by                       virtue  of the provisions of this  section  in                       respect of the net wealth of any  beneficiary,                       shall  be entitled to recover the sum so  paid

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                     from such beneficiary, and may hold on  behalf                       or  for  the benefit of such  beneficiary,  an                       amount equal to the sum so paid."                       It  would, therefore, be clear on  a  combined                       reading  of  sections 3 and 21  that  whenever                       assessment  is made on a trustee, it  must  be                       made  in  accordance with  the  provisions  of                       section  21.  Every case  of assessment  on  a                       trustee must necessarily fall under section 21                       and  he  cannot  be assessed  apart  from  and                       without  reference to the provisions  of  that                       section.   To  take  a  contrary  view  giving                       option  to the Revenue ’to assess the  trustee                       under  section 3 without following the  provi-                       sions of section 21 would be to refuse to give                       effect  to  the words "subject  to  the  other                       provisions  of  this  Act’ in  section  3,  to                       ignore  the  maxim  genralia  specialibus  non                       derogent  and  to  deny  mandatory  force  and                       effect  to the provisions enacted  in  section                       2|.  It may be noted that, while  interpreting                       the corresponding provisions in section 41  of                       the  Indian Income-Tax Act, 1922  and  section                       161 of the  Income-Tax Act, 1961-, this  Court                       in    C.R.   Nagappa   v.   Commissioner    of                       IncomeTax(1)  approved the following  observa-                       tions  made by Chagla, C.J. in regard  to  the                       scheme of section 41 of the Indian Income  Tax                       Act,  19v22  in  Commissioner  of  Income-tax,                       Ahmedabad v. Balwantrai Jethalal Vaidya(2):                              "If the assessment is upon a   trustee,                       the  tax as to be levied and recovered in  the                       manner provided in section 41.                       (1) 73 I.T.R. 187.                       (2) 34 I.T.R. 187.                       750                       The only option that the Legislature gives  is                       the  option  embodied in  sub-section  (2)  of                       section  41, and that option is that  the  de-                       partment may assess, the beneficiaries instead                       of the trustees, or having assessed the  trus-                       tees  it may proceed to recover the  tax  from                       the  beneficiaries.   But  on  principle   the                       contention of the department cannot be accept-                       ed  that, when a trustee is being assessed  to                       tax,  his  burden which will  ultimately  fall                       upon the beneficiaries should be increased and                       whether that burden should be increased or not                       should  be left to the option of  the  depart-                       ment.  The basic idea underlying  section  41,                       and which is in conformity with principle,  is                       that  the liability of the trustees should  be                       co-extensive  with that of  the  beneficiaries                       and in no sense a wider or a larger liability.                       Therefore,  it is clear that every case of  an                       asessment  against a trustee must  fall  under                       section 41, and it is equally clear that, even                       though  a trustee is being assessed,  the  as-                       sessment must proceed in the manner laid  down                       in  Chapter  III. Section 41 only  comes  into                       play  after  the income has been  computed  in                       accordance  with Chapter III.  Then the  ques-                       tion  of  payment of tax arises and it  is  at                       that stage that section 41 issues a mandate to                       the  taxing  department that,  when  they  are

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                     dealing  with the income of a  trustee,   they                       must levy the tax and recover it in the manner                       laid  down in section 41." (Emphasis  supplied                       by us).         This Court also observed that "the some considerations  must         apply in the interpretation of section 161 (2) of the Income         Tax  Act, 1961". The same view, it may be pointed  out,  was         taken  by this Court in an earlier decision in  Commissioner         of Income  Tax v. Nandial Agarwal.(1)  These decisions given         under the Income Tax law must apply equally in the interpre-         tation of section 21, since the relevant provisions of  both         the statutes are almost identical.  That was pointed out  by         this  Court in Commissioner of  Wealth Tax,  Bihar &  Orissa         v.  Kripashankar  Dayashanker Worah(2) where  it  was  said:         "Section 21(1) of the Act is analogous to section 41 of  the         Income-Tax  Act, 1922.  The only difference between the  two         sections  is that whereas the former deals with assets,  the         latter  deals with income.  Subject to this difference,  the         two provisions are identically worded. Hence, the  decisions         rendered under section 41 (1) of the Indian Income-tax  Act,         1922, have a bearing on the question arising for decision in         this case". It must therefore, be held to be  incontroverti-         ble   that whenever a trustee is sought to be assessed,  the         assessment must be made in accordance with the provisions of         section 21.         It  must also be noted that the assessment which is  contem-         plated  to be made on the trustee under sub-section  (1)  or         sub-section (4) of section 21 is assessment in a representa-         tive  capacity.   It is really the  beneficiaries  who   are         sought  to be assessed in  respect of their interest in  the         trust  properties  through  the  trustee.   Sub-section  (1)         provides  that  in  respect of trust properties  held  by  a         trustee, wealth tax         (1) 59 I.T.R. 756 at 762.         (2) 81 I.T.R. 763.         751         shall be levied upon him ’in the like manner and to the same         extent’ as it would be leviable on the beneficiary for whose         benefit  the  trust  properties are  held.   This  provision         obviously can apply only where the trust properties are held         by  the trustee for the benefit of a single beneficiary  or.         where there are more beneficiaries than one, the  individual         shares  of  the beneficiaries in the  trust  properties  are         determinate  and known.  Where such is the case, wealth  tax         can  be levied on  the trustee in respect of the interest of         any  particular beneficiary in the trust properties ’in  the         same manner and to the same extent’ as it would be  leviable         upon the beneficiary and in respect of such interest in  the         trust properties, the trustee would be assessed in a  repre-         sentative  capacity as representing the beneficiary.   This,         of course, does not mean that the Revenue cannot proceed  to         make direct assessment on the beneficiary. in respect of the         interest  in the trust  properties which ’belongs  to’  him.         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  unim-         paired  by the provision enabling assessment to be  made  on         the trustee in a representative capacity.  Sub-section   (2)         makes  this  clear provided that nothing contained  in  sub-         section  (1) shall prevent either the direct  assessment  of         the beneficiary for whose benefit the trust  properties  are         held  or  the recovery from the  beneficiary of  the  wealth         tax in respect of his interest in the trust properties which         is  assessed in the hands of the trustee.  The  Revenue  has

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       thus  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   sub-section  (1)  or         assess  it directly in the hands of the beneficiary  by  in-         cluding  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  inde-         terminates  or unknown, the trustees would be assessable  in         respect  of  their total beneficial interest  in  the  trust         properties.  Obviously in such a case. it is not possible to         make direct assessment on the beneficiaries respect of their         interest  in the trust properties, because their shares  are         indeterminate or unknown and that is why it is provided that         the assessment may be made on the trustee as if the  benefi-         ciaries for whose benefit the trust properties are held were         on individual.  The beneficial interest is treated as if  it         belonged  to  one individual beneficiary and  assessment  is         made  on  the trustees in the same manner and  to  the  same         extent  as  it would be on such fictional  beneficiary.   It         will  therefore,  be seen that in this case too, it  is  the         beneficial  interest which is assessed to wealth tax in  the         hands of the trustee and not the corpus of the trust proper-         ties.  This position becomes abundantly clear if we look  at         sub-section (5) which clearly postulates that where a  trus-         tee  is’ assessed under sub-section (1) or sub-section  (4),         the assessment is made on him ’in respect of the net wealth’         of the beneficiary, that is, the beneficial interest belong-         ing  to him.  Now wherever there is a trust, it  is  obvious         there must be beneficiaries under the trust because the very         concept  of  a trust connotes that though  the  legal  title         vests in the trustee, he does not own or hold the trust pro-         752         perties  for his personal benefit but he holds the same  for         the benefit of others, whether individuals or purposes.   It         must  follow inevitably from this premise, that since  under         sub-section  (1) and (4) of section 21 it is the  beneficial         interests which are taxable in the hands of the trustee in a         representative  capacity  and the liability of  the  trustee         cannot be greater than the aggregate liability of the  bene-         ficiaries no part of the corpus of the trust properties  can         be assessed in the hands of the trustee under section 3  and         any such assessment would be contrary to the plain mandatory         provisions of section 21.             It  is  also necessary to notice the  consequences  that         seem  to flow from the preposition laid down in section  21,         sub-section (1) that the trustee is assessable ’in the  like         manner  and  to the same extent’ as  the  beneficiary.   The         consequences  are three fold. In the first place it  follows         inevitably from this proposition that there would have to be         as  many assessments on the trustee as there  are  benefici-         aries   with  determinate and known shares, though  for  the         sake of convenience, there may be only one assessment  order         specifying  separately the tax due in respect of the  wealth         of each beneficiary. Secondly, the assessment of the trustee         would  have  to be made in the same status as  that  of  the         beneficiary  whose  interest is sought to be  taxed  in  the         hands of the trustee.  This was recognised and laid down  by         this  Court  in  N.V. Shanmugham & Co.  v.  Commissioner  of         Income-Tax Madras (1) And lastly, the amount of tax  payable         by  the  trustee would be the same as that payable  by  each         beneficiary  in  respect of his beneficial interest,  if  he         were assessed directly.  Vide Padmavati Jayakrishna Trust v.

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       CommiSsioner   of   Wealth-Tax,   Gujarat(2)   Trustees   of         Putlibai R.F. Mulla Trust v. Commissioner of  Wealth-Tax.(3)         and Chintamani Ghosh v. Commissioner of Wealth-Tax.(4)   Let         us,  by way of illustration, take a case where  property  of         the  value of Rs. ten lacs is held in trust under which  the         income  of  the property is given to A for life and  on  his         death,  the property is to be divided equally between B  and         C.  The beneficiaries in this case are clearly A,  B and  C,         A  having  life interest in the trust property and B  and  C         having equal shares in the remainder. The Revenue has option         to  assess  the beneficial interests of A, B and  C  in  the         trust property in the hands of the trustee or to make direct         assessment  on  each  of the three  beneficiaries.   If  the         trustee  is assessed  under sub-section (1)  of section  21,         three separate assessments would have to be made on him, one         in respect of the acturial valuation of the life interest of         A, which’ may be, to take an ad hoc figure, say, Rs. 5  lacs         and the other two in respect of the acturial  valuations  of         the  remaindermen’s interests of B and C, which may  be,  to         take  again an  ad hoc figure,  say, Rs. 2 lacs each.   But,         as pointed out above, the Revenue may, instead of  assessing         the  trustee, proceed to make direct assessment on  each  of         the  three beneficiaries A, B and C and in that case, Rs.  5         lacs, Rs. 2 lacs and Rs. 2 lacs would be included in the net         wealth of A,          (1) 81 I.T.R. 310          (2) 61 I.T.R. 66; at 73-4.          (3) 66 I.T.R. 653, at 657-8          (4) 80 I.T.R. 331 at 341.         753         B  and C respectively.  The result would be that though  the         value  of the corpus of the trust property is Rs.  10  lacs,         the  assessments, whether made on the trustee or on each  of         the  three beneficiaries, Would be only in respect of Rs.  5         lacs, Rs. 2 lacs and Rs. 2 lacs and the balance of Rs. 1 lac         would not be subject to taxation.  In fact in most cases, if         not  all, the aggregate of the values of the  life  interest         and the remaindermen’s interest would be less than the value         of  the total corpus of the trust property, since the  value         of the remaindermen’s interest would be the present value of         his right to receive the corpus of the trust property at  an         uncertain  future date and this would almost  invariably  be         less  than  the value of the corpus of  the  trust  property         after  deducting the value of the preceding  life  interest.         The balance of the value of the corpus of the trust  proper-         ty would  not, in the result, be subjected to assessment  to         wealth tax.  But that  is the logical and inevitable  effect         of the schemes of section 21.  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  corol-         lary  that no part of  the value of the corpus in excess  of         the  aggregate  value  of the beneficial  interests  can  be         brought  to tax in the assessment of the trustee.  To do  so         would  be contrary to the scheme and provisions  of  section         21.  It would be clearly erroneous to assess the trustee  to         wealth tax on the excess of the value of the corpus over the         acturial valuations of the life interest and the  reversion-         ary  interest of the beneficiaries.  We find that  the  same         view has been taken by the Gujarat High Court in Commission-         er  of  Wealth  Tax, Gujarat v.  Smt.  Arundhati  Balkrishna         Trust(1)  and  this  view, in our  opinion,  represents  the         correct law on the subject.              We  have given in the preceding paragraph  illustration

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       of  a case falling within section 21, sub-section  (1),  but         the  illustration can be slightly modified by taking a  case         where  property is held in trust for giving income for  life         to  A and on his death, to such of the children of A as  the         trustee might think fit.  Section 21, sub-section (4)  would         be clearly attracted in such a case so far as the reversion-         ary  interest is concerned, because, on the relevant  valua-         tion date, the remaindermen and their shares would be  inde-         terminate and unknown.  But here also two assessments  would         have to be made on the trustee: one in respect of the  actu-         rial  valuation of the life interest of A under  sub-section         (1)  of section 21 and the other in respect of the  acturial         valuation of the totality of the beneficial interest in  the         remainder  as  if it belonged to one individual  under  sub-         section (4) of section 21.  The difference between the value         of the corpus of the trust property and the aggregate of the         acturial  valuations of the life interest of A and  the  re-         maindermen’s  interest would not be assessable in the  hands         of  the trustee because, as pointed out above,  the  trustee         can be taxed only in respect of the beneficial interests and         there  being no other beneficiary apart from A and  such  of         the  children of A as the trustee might think fit, the  bal-         ance of the value of the corpus cannot         (1) 101 I.T.R. 626         754         be  brought to tax in the hands  of the trustee  under  sub-         section (1) or (4) of section 21.              It is, therefore, obvious that no part of the corpus of         the trust funds could be assessed in the hands of the asses-         sees, but the assessment could be made on the assessees only         in respect of the beneficial interests of the  beneficiaries         in the trust funds under sub-section (1) and (4) of  section         21.  Now so far as the beneficiaries specified in the Second         Schedule are concerned, each of them had a life interest  in         the unit or units allocated to him or her and the assessees.         were  liable under sub-section  (1)  of section 21   to.  be         assessed  in  respect  of such life interest  ’in  the  same         manner  and to the same extent’ as the respective  benefici-         aries.  But the question is as to how the beneficial  inter-         est in the remainder in respect of each set of unit or units         was  liable to be taxed in the hands of the assessees.   The         argument of the Revenue wag that it could not be said on the         relevant valuation date as to who would be the beneficiaries         entitled  to  the remainder on the death  of  the  concerned         relative and hence the beneficiaries were indeterminate  and         unknown  on the relevant valuation date and in  the  circum-         stances,  sub-section (1) of section 21 had no  application.         Sub-section  (4) of section 21 was also not attracted,  said         the Revenue, because that sub-section could apply only where         the  shares of the beneficiaries were indeterminate  or  un-         known and not where the beneficiaries themselves were  inde-         terminate and unknown.  The Revenue contended, on the  basis         of this argument, that since the beneficial interest in  the         remainder  in respect of each set of unit or units  was  not         taxable  either under sub-section (1) or sub-section (4)  or         section  21,  the assessees were liable to  be  assessed  in         respect  of the value of the corpus  of such unit  or  units         minus  the valuation of the life interest under  section  3.         But  this contention is plainly erroneous, because,  on  the         view we have taken as regards the interpretation of  section         3  and 21, a trustee can be assessed to wealth tax  only  in         respect  of the beneficial  interests of  the  beneficiaries         and no assessment can be made on him in respect of any  part         of  the  corpus of the trust funds apart  from  and  without         reference to section 21.  We shall presently show that under

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       the Trust Deed on each relevant valuation date the shares of         the beneficiaries in the remainder in respect of each set of         unit  or units were determinate and known and the case  was,         therefore, governed by sub-section (1) of section 21, but we         may point out that even if the beneficiaries were indetermi-         nate  or unknown, sub-section (4) of section 21 would  apply         and the assessee would be liable to the assessed in  respect         of the totality of the beneficial interest in the  remainder         as  if  it  belonged to one single  beneficiary.   When  the         beneficiaries  are indeterminate or unknown, then  obviously         their  shares would also be indeterminate and  unknown.   We         cannot conceive of a case where the shares would be determi-         nate or known while  the beneficiaries are indeterminate and         unknown.  The expression ’where the shares of the  benefici-         aries  are  indeterminate  or unknown’ carried  with  it  by         necessary implication, a situation where  the  beneficiaries         themselves are indeterminate or unknown.  Such, for example,         would be the case in the modified illustration given  above.         There.  the beneficiaries are such of the children of  A  as         the trustee might think fit         755         and the beneficiaries themselves would, therefore, be  inde-         terminate and unknown and yet sub-section (4) of section  21         would apply to their case.   To take any other view would be         to  deny  full meaning and effect to the  words  "where  the         shares  of the beneficiaries  are indeterminate or  unknown"         and  to create a  lacuna where,  even though the  beneficial         interest  in the remainder is disposed of  under  the  Trust         Deed, such beneficial interest would escape assessment.  The         correct  interpretation  of sub-section (4)  of  section  21         must,   therefore, be that even where the  beneficiaries  of         the remainder are indeterminate or unknown, the trustee  can         be assessed to wealth tax in respect of the totality of  the         beneficial interest in the remainder, treating the benefici-         aries fictionally as an individual.             This immediately takes us to the question as to which of         the  two sub-sections, (1) or (4) of section 21 applies  for         the  purpose  of assessing the assessees to  wealth  tax  in         respect of the beneficial interest in the remainder qua each         set of unit or units allocated to the relatives specified in         the Second Schedule.   Now it is clear from the language  of         section 3 that the charge of wealth tax is in respect of the         net  wealth on the relevant valuation date, and,  therefore,         the  question    in regard to the applicability of  sub-sec-         tion  (1)  or (4) of section  21 has to be  determined  with         reference  to the relevant valuation  date. The  Wealth  Tax         Officer  has to determine who are the beneficiaries  in  re-         spect  of  the remainder on the relevant  date  and  whether         their shares are indeterminate or unknown.  It is not at all         relevant whether the beneficiaries may change in  subsequent         years  before the date of distribution, depending upon  con-         tingencies  which may come to pass  in future.   So long  as         it  is possible to say on the relevant valuation  date  that         the  beneficiaries are known and their shares  are  determi-         nate,the  possibility that the beneficiaries may  change  by         reason of subsequent events such as birth or death would not         take  the case out  of the ambit of sub-section (1) of  sec-         tion.  21.    It is no answer to the applicability  of  sub-         section (1) of section 21 to say that the beneficiaries  are         indeterminate;  and unknown because it cannot be  predicated         who  would be the beneficiaries in respect of the  remainder         on the death of the owner of the life interest.   The  posi-         tion has to be seen on the relevant valuation date as if the         preceding life interest had come to an end on that date  and         if,  on  that hypothesis, it is possible  to  determine  who

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       precisely would be the beneficiaries and on what determinate         shares,  sub-section  (1) of section 21 must  apply  and  it         would  be   a matter of no consequence that  the  number  of         beneficiaries  may  vary in the future either by  reason  of         some  beneficiaries ceasing to exist or some  new  benefici-         aries  coming into being.   Not only does this appear to  us         to be the correct approach in the application of  subsection         (1)  of section 21, but we find that this has also been  the         general  concensus  of judicial opinion in this  country  in         various  High  Courts during the last  about  thirty  years.         The first decision in which this view was taken was rendered         as far back as 1945 by the Patna High Court in Khan  Bahadur         M.  Habibur Rahman v.  Commissioner  of Income-Tax, Bihar  &         Orissa(1)  and since then, this view has  been  followed  by         the Calcutta High Court in Subhashini Karuri v. Wealth         (1) 13 I.T.R. 189. 9--707SCI/77         756         Tax  Officer Calcutta(1)  the Bombay High Court in  Trustees         of  Putlibai R.F. Mulla Trust v. Commissioner of  Wealth-Tax         (supra)  and Commissioner of Wealth Tax, Bombay v.  Trustees         of Mrs. Hansabai. Tribhuwandas Trust(2) and the Gujarat High         Court  in  Padmavati  Jaykrishna Trust  v.  Commissioner  of         Income Tax, Gujarat  (supra). The Calcutta High Court point-         ed out in Subhashini Karuri’s case: "The share of a  benefi-         ciary  can  be said to be indeterminate if at  the  relevant         time  the share cannot be determined but merely because  the         number  of beneficiaries vary from time to time, one  cannot         say  that  it is ideterminate".   The same  proposition  was         formulated in slightly different language by the Bombay High         Court in Trustees of Putlibai R.F. Mulla Trust’s case:  "The         question whether the shares of the beneficiaries are  deter-         minate or known has to be judged as on  the relevant date in         each respective year of taxation.   Therefore, whatever  may         be  the position as to any future date, so far as the  rele-         vant  date in each year is concerned, it is upon ’the  terms         of  the trust deed always possible to determine who are  the         shares  and  what    their shares  respectively  are."   The         Gujarat  High  Court also observed in  Padmavati  Jaykrishna         Trust’s case:  "  ......  in order to ascertain whether  the         shares  of beneficiaries and their numbers were  determinate         or not, the Wealth-Tax Officer has to ascertain the facts as         they prevailed on the relevant date and therefore any varia-         tion  in  the number of beneficiaries in  future  would  not         matter  and  would not make sub-section (4)  of  section  21         applicable."    These observations represent correct  state-         ment of the law and we have no doubt that in order to deter-         mine  the  applicability of sub-section (1) of  section  21,         what  has  to be seen is whether on the  relevant  valuation         date, it  is possible to say with certainty and definiteness         as  to  who would   be the beneficiaries and  whether  their         shares  would be determinate  and specific, if the event  on         the  happening of which the distribution is  to  take  place         occurred  on that date.   If it is, sub-section (1) of  sec-         tion  21 would apply: if not, the case will be  governed  by         sub-section (4) of section 21.             Now in the  resent case it is clear from the  provisions         of  the Trust Deed that,  in the case of each set of unit or         units, it is possible to say with certainty and definiteness         on  each  relevant  valuation date as to who  would  be  the         beneficiaries  and in ’what specific shares, if the  respec-         tive relative mentioned in the Second Schedule to  whom such         set of unit or units is allocated under the Trust Deed  were         to  die     on that date.   That is the view taken  ,by  the         High  Court in   the judgment impugned in these appeals  and         we  think it is a correct view on the interpretation of  the

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       provisions of the Trust Deed.  We may point out in  fairness         to the learned counsel appearing on behalf   of the  Revenue         that he did not seriously contest this position.   There  is         not  a single contingency unprovided for in the  Trust  Deed         and  whenever a relative specified in the  Second  Schedule,         who  is  the owner of life interest in the set  of  unit  or         units allocated to him or her dies, there would  always   be         beneficiaries   capable  of  being  easily  ascertained  and         identified who would be entitled to the corpus of such  unit         or units in determinate and specific shares, either  immedi-         ately on the         (1) 46 I.T.R. 527         (2) 69 I.T.R. 527.         757         death  of such life tenant or after another  life  interest.         The remainder in respect of each set of unit or units  allo-         cated  to  the respective relative specified in  the  Second         Schedule  was,  therefore, liable to   be  assessed  in  the         hands of the assessees under section 21, sub-section (1)  in         the same manner and to the same extent’ as each  beneficiary         in  respect of his determinate and known share in  such  re-         mainder.  That  plainly excluded the applicability  of  sub-         section (4) of section   21 in the assessment of the remain-         der.   The High Court also examined the question whether the         Trust  Deed created one single indivisible trust or  several         distinct and separate trusts and,  disagreeing with the view         taken by the Tribunal, came to the conclusion that "the Deed         of  Trust created several trusts in favour of the  relatives         specified in the Second Schedule and their issues."   But.on         the  view taken by us that it is sub-section (1) of  section         21 and not sub-section (4) of that section which applies  in         the  assessment of the remainder in respect of each  set  of         unit or units in the hands of the assessees, it is  unneces-         sary   to pursue this question and decide whether the  Trust         Deed created one single indivisible trust or as many  trusts         as  the  number  of beneficiaries specified  in  the  Second         Schedule.             We  accordingly agree with the High Court that  question         No.  (i)  should be answered in favour of  the  Revenue  and         Question  Nos.  (ii),  (v) and (vi) should  be  answered  in         favour of the assessees.   We do not propose to answer Ques-         tions  Nos.  (iii) and (iv), since in view  of  the  answers         given  by  us to the other questions, it is  unnecessary  to         decide them.   The appeals are accordingly dismissed.    The         Commissioner  will  pay the costs of these  appeals  to  the         assessees in one set.         P.B.R.                                               Appeals         dismissed.         758