AV. REDDY TRUST AND ORS. versus COMMISSIONER OF WEALTH TAX

Citation: [1999] SUPP. 3 S.C.R. 580 · Decided: 08-10-1999 · Supreme Court of India · Bench: D.P. WADHWA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
B 
AV. REDDY TRUST AND ORS. 
v. 
COMMISSIONER OF WEALTH TAX 
OCTOBER 8, 1999 
(D.P. WADHWA AND M.B. SHAH, JJ.] 
Wealth Tax Act, 1957-S.21(1), (2) and (4}-Trust-Wealth Tax-Levy 
of-Mode of Assessment-Detennination of-Trusts created for the benefit of 
grand children and daughter-Sett/or constituted as sole trustee-Trust deed 
C creating contigent interest on beneficiaries in the corpus of Trust fund-Interest 
of beneficiaries indetenninate and unknown-Held, tax to be assessed on the 
beneficial interest of the trustee in representative capacity-Assessment not on 
the entire value of trust fund in the status of an individuaHiigh Court jus-
tified in holding that the provisions of S.21(4) and not S.21(1) or (2) were 
D applicable. 
One 'A' created four trusts for the benefit of his three grand 
children and daughter and constituted himself as the sole trustee. The 
terms and conditions of the trust deed stipulated certain contingencies 
on fulfilment of which the beneficiaries' Interest would come into exist· 
E ence. Settlor's wealth tax returns showing the entire value of assets of the 
trust was rejected by the wealth tax officer and assessments were made 
under S.16(3) of the Wealth Tax Act, 1957. On appeal, the Appellate 
Assistant Commissioner and Income Tax Appellate Tribunal held that 
only the value of the interest of the beneficiary in the Trust could be 
Included in the net wealth and not the value of the corpus of the Trust 
F itself. However, on reference the High Court held that the assessment was 
to be made under S.21(4) of the Act and the trustee was to be assessed 
on the entire value of the Trust fund in the status of an individual. Hence 
the present appeal. 
G 
On behalf of the appellants it was contended that wealth tax assess· 
ment was required to be made under the provisions of S.21(1) or Z1(4) 
of the. Act and the assessment was not to be made on the basis of the 
corpus of the trust fund but was to be made on the basis •of•·the 
beneficiaries' interest. 
H 
Partly allowing the appeals, the Court 
580 
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A.V.REDDYTRUSTv. COMMR.OFWEALTHTAX[SHAH,J.] 
581 
HELD : 1.1. High Court was justified in holding that the appellant A 
. trust is to be assessed to wealth tax under S.21(4) of the Wealth Tax Act, 
19S7. [S88·E] 
1.2. It is apparent from the terms and conditions of the trust deed 
that rights of the beneficiaries to get the corpus of the trust fund come 
into existence at the future date when the condition regarding the survival . B 
is fulfilled. The High Court, therefore, rightly arriv~d at the conclusion 
that interest of beneficiary is indeterminate or unknown and is contingent 
and, therefore, S.21(4) of the Act would be applicable. Consequently, the 
contention of the appellant that the trust should be assessed under S.21(1) 
of the Act cannot be accepted. [S8S·B·CJ 
2. High Court erred in holding that the trustee will have to be assessed 
on the entire value of the trust fund in the status of individual. Once it is 
c 
held that assessment is to be made under S.21(4) of the Act, there is no 
question of assessing the wealth tax on the entire value of the trust fund. 
Under sub· section (1) or (4) of S.21 of the Act, it is beneficial interests D 
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 beneficiaries and no part of corpus of the trust property can be 
assessed in the hands of the trustees under S.3 of the Act. [S87·A; B; E; F] 
Commissioner of Wealth Tax v. Trustees of Nizam's Family Trust, 
(1977) 108 ITR SSS, relied on. 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6077-
6080 of 1990. 
From the Judgment and Order dated 3.12.87 of the Andhra Pradesh 
High Court in R.C. No. 37-40 of 1983. 
K. Ram Kumar for the Appellants. 
E 
F 
K.N. Shukla, G. Venkatesh Rao, Shankar Divate, S.K. Dwivedi for G 
the Respondent. 
The Judgment of the Court was delivered by 
SHAH, J. These appeals are filed against the Common Judgment and 
Order dated 8th December, 1987 passed by the High Court of Andhra H 
582 
SUPREME COURT REPORTS (1999] SUPP. 3 S.C.R. 
A Pradesh in Referred Case Nos. 37-40 of 1983 in reference made to the High 
Court under Section 27 of the Wealth Tax Act, 1957. The Income-Tax 
Appellate Tribunal referred the following question for decision in all the 
four cases :-
B 
"Whether on the facts and in the circumstances ·of the case, the 
Tribunal was justified in h
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