LexCOMMISSIONER OF WEALTH TAX, RAJKOT versus ESTATE OF LATE HMM VIKRAMSINHJI OF GONDAL
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[20141 9 s.c.~ .. 1
COMMISSIONER OF WEALTH TAX, RAJKOT
v.
ESTATE OF LATE HMM VIKRAMSINHJI OF GONDAL
(Civil Appeal No. 2312 of 2007)
APRIL 16, 2014
[R.M. LODHA AND SHIVA KIRTI SINGH, JJ.]
Income Tax Act, 1961/Wealth Tax Act - Income from
Foreign Trust - Tax liability of the sett/or of the Trust - Held:
A
B
In view of the facts of the case, the character of the trust is C
discretionary and not specific - The discretionary trust gives
discretion to the trustee to distribute the income of the tn1st to
trust-beneficiaries - But if the trustees fail to distribute in due
time, the power to distribute is not extinguished -
In the
present case, merely because the income has been retained' D
and not disbursed to the beneficiaries because th?J seWor
failed to appoint the discretion exercisers, the character of the
subject trust does not get altered - Therefore, the settler is
not liable to pay either income tax on the income from the
Trust or wealth tax -
The value of the assets cannot be E
assessed on the estate of the deceased sett/or.
The questions fbr consideration in the present
appeals which were filed by Revenue related to income
tax and wealth tax liability of the settlor of a foreign trust.
Dismissing the appeals, the Court
F
HELD: 1. A discretionary trust is one which gives a
beneficiary no right to any part of the income of the trust
property, but vests in the trustees a discretionary power G
to pay him, or apply for his benefit, such part of the
income as they think fit. The trustees must exercise their
discretion as and when the income becomes available,
but if they fail to distribute in due time, the power is not
1
H
2
SUPREME COURT REPORTS
[2014) 9 S.C.R.
A extinguished so that they can distribute later. They have
no power to bind themselves for the future. The
beneficiary thus has no more than a hope that the
discretion will be exercised in his favour. [Para 18] [12-
C-E]
B
2. In view of the fact that the income has been
retained and not disbursed to the beneficiaries, the view
taken by the High Court cannot be said to be legally
flawed. Merely because the Settlor and after his death, his
C son did not exercise their power to appoint the discretion
exercisers, the character of the subject trusts does not
get altered. Thus, in view of the facts, the two U.K. trusts
continued to be 'discretionary trust' for the subject
assessment years. [Para 19] (12-F-G]
D
3. The above position with regard to the discretionary
trust is equally applicable to the controversy in appeals
under the Wealth Tax Act. The High Court has taken a
correct view that the value of the assets cannot be
assessed on the estate of the deceased Settlor. [Para 20]
E [12-G; 13-A]
4. 16 Civil Appeals arising from substantive
assessment under the Income Tax and Wealth Tax,
accordingly, have no substance and are dismissed.
Since the Appeals arising from the substantive
F assessments have no merit and have been dismissed,
nothing remains in Civil Appeal under the Wealth Tax Act
arising from 'protective assessment' for 18 assessment
years, and it is dismissed as well. [Paras 21 and 22] [13-
8-C]
G
H
Commissioner of Income Tax, Gujarat, Ahmedabad vs.
Kamalini Khatau (Smt.) 1994 (4) SCC 308; Jyotendrasinhj{
vs. S./. Tripathi and Others 1993 Supp. (3) SCC 389: 1993
(2) SCR 938 - referred to.
COMMISSIONER OF WEALTH TAX, RAJKOT v. ESTATE OF
3
LATE HMM VIKRAMSINHJI OF GONDAL
Snell's Principles of Equity, 28th Edition - referred to.
A
Case Law Reference:
1994 (4) sec 308
1993 (2) SCR 938
referred to
referred to
Para 4
Para 10
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2312 of 2007.
From the Judgment and Order dated 05.08.2004 of the
High Court of Gujarat at Ahmedabad in Tax Appeal No. 31 of
B
2004 to 48 of 2004.
C
Will'!
C. A. Nos. 329 of 2009, 204, 203, 202, 201, 200, 199, 198,
2158 of 2010, 4561, 4562, 4564, 4565, 566, 4567, 4568 of
2014.
D
Arijit Prasad, W. A. Quadri, Sadhna Sandhu, Rahul
Kaushik, Anil Katiyar for the Appellant.
R. P. Bhatt, Chirag M. Shroff, Sumit Goel, Kumar
Shashank, Abhishek V. Deshmukh, Shashaank Bhansali, Bina
E
Madhavan, Shashaank Bhansali, (for Lawyer's Knit & Co., )
Shashaank Bhansali, ( Parekh & Co.) for the Respondent.
The Judgment of the Court was delivered by
R.M. LODHA, J. : 1. Leave granted in the special leave
petitions.
F
2. This is a group of 17 Appeals -
8 arising from the
Income Tax Act, 1961 and 9 arising froExcerpt shown. Read the full judgment & AI analysis in Lexace.