COMMISSIONER OF WEALTH TAX, ANDHRA PRADESH, HYDERABAD versus TRUSTEES OF H.E.H. NIZAMS FAMILY (REMAINDER WEALTH TRUST), HYDERABAD

Citation: [1977] 3 S.C.R. 735 · Decided: 03-05-1977 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

• 
735 
COMMISSIONER OF WEALTII TAX, ANDHRA PRADESH, 
HYDERABAD 
TRUSTEES OF H.E.H. NIZAM'S FAMILY 
(REMAINDER WEALTH TRUST), 
HYDERABAD 
May 3, 1977 
[P. N. BHAGWATI, N. L. UNTWALIA AND S. MURTAZA FAZAL ALI, JJ.] 
Wealth Tax Act 1957-Ss. 3, 21(1) and 21(4)-Scope of. 
Section 21(1) of the Wealth Tax Act provides that in case of assets charge-
able 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 
a:ny such assets are held are indeterminate or unknown, wealth tax shall be 
levied upon and recovered_ from the trustee as if the p~rsons 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 notion-
ally divided into 175 equal 
units, out of which 
16lt 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 disposition 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' con-
tention that since each of them was entitled 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 \Vealth 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 bene-
ficiaries were unknown and their shares were indeterminate. 
On appeal the appellate Assistant Commissioner, without deciding the con-
tention 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 
indeoendent 
and complete provision in regard to devolution after the death of each bene-
ficiary and the Wealth Tax Officer was not justified in clubbing the 
entire 
remainder wealth in a single assessment. 
A 
B 
c 
D 
E 
F 
G 
Before the Appellate Tribunal the Revenue contended that the assessees 
H 
were liable to be assessed as an individual 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. 
A. 
B 
c 
D 
E 
F 
G 
H 
736 
SUPREME COURT REPORTS 
[1977] 3 S.C.R. 
,The Tribunal he_ld (i) that s. 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, 
jgnoring the provisions of s. 21; (ii) thats. 21(1) was nQt applicable in this 
case and (iii) that s. 21(4) was applicable because the beneficiaries in respect 
of the remainder estate were unknowil. 
. 
The following questions, among others. were referr-ed by the Tribunal to 
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 holding _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 1 
4. Whether the Tribunal was right in holdinJ?

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