1. This is an appeal by the revenue against the order of the A.A.C.dated 20-1-1986. Assessment year involved is 1980-81. The only issue for our consideration in this appeal is whether the A.A.C. has erred in directing the W.T.O. to allow the deduction Under Section 5(1)/5(1A) of the W.T. Act, 1957, before invoking the provisions of Section 21(1A) of the W.T. Act, 1957.
2. The relevant facts are that the return of wealth was filed on 25-10-1980. Before the W.T.O. the assessee claimed that deduction Under Section. 5(1A) should be allowed in view of the decision of the Tribunal in the case of Shalini Trust No. 1. As the decision has not been accepted by the Department, the W.T.O. did not allow the deduction as allowed by the Tribunal in the case of Shalini Trust No. 1. Being aggrieved, the assessee carried the matter before the A.A.C. The AAC had followed the said decision of the Tribunal in the case of Shalini Trust No. 1 [WT Appeal No. 1094 (Bom.) of 1983] and allowed the claim of the assessee.
3. Being aggrieved, the Revenue came in appeal before us. The learned Departmental Representative Sri Raju submitted that the Trust held the property on behalf of the beneficiaries, i.e. life interest, remainderman's interest and the residue. When the deduction is allowable in the hands of the individual, the Trust is not entitled for deduction under Section 5(1)/5(1A) and Section 21(1A) of the W.T. Act.
He emphasised on the words in Section 21(1A) "as if such excess value were the net wealth of an individual". According to him, the words 'net wealth' is used by the legislature with the intention that the entire net wealth in the form of residue should be assessed ; no deduction of any sort should be allowed in the hands of the trust. On the other hand, learned representative for the assessee, Sri Nair, submitted that there are three types of interests in the property held by the trust-life interest, remainderman's interest and residue-as introduced by the legislature in the form of Section 21(1A) to overcome the difficulty arising from the decision of their lordships of the Supreme Court in the case of CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 and legislature has created the fiction under Sub-section (1A) of Section 21 that if the value of interest or interests of the person or persons on whose behalf or for whose benefit the assets are held, falls short of the value of any such assets, then to that extent, the value or aggregate value of such interest or interests as if such excess values were the net wealth of the trust and the trust should be treated as an individual who is a citizen of India for the purpose of this Act. This provides that the trust is treated as individual and the residue should be assessed in its hands as net wealth of the individual who is a citizen of India.
Though the residue can be treated as net wealth of the trust, but when the trust is treated as individual and citizen of India, the trust is equally entitled for deduction Under Section. 5(1)/5(1A) as available to other individuals. He also drew our attention at the definition of net wealth given in Section 2(m) of the Act.
4. We have heard the rival submissions and considered the material on record. The facts are not disputed before us that the beneficiaries have their specific shares in the corpus of the trust. The provisions of Sub-section. (1A) of Section 21 reads as under : (1A) Where the value or aggregate value of the interest or interests of the person or persons on whose behalf or for whose benefit such assets are held, falls short of the value of any such assets, then, in addition to the wealth-tax leviable and recoverable under Sub-section (1), the wealth-tax shall be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person or trustee aforesaid in respect of the value of such assets, to the extent it exceeds the value or aggregate value of such interest or interests, as if such excess value were the net wealth of an individual who is a citizen of India and resident in India for the purposes of the Act, and- The fiction created by the Legislature under the above sub-section, treating the trust as an individual who is the citizen of India and resident of India for the purpose of the Act, in our view, provides that the trust should be assessed as an individual for the residue, which remains after excluding the interest of persons having life interest and remainderman's interest which are assessable in their respective wealth-tax assessment. When those persons having life interest and remainderman's interest are eligible for exemption Under Section5(1)/5(1A) when the assessment is made in their individual cases, in our view, when the Legislature has created the fiction by treating the trust as individuals, the trust is eligible for exemption Under Section 5(1)/5(1A) at the time of assessment of wealth assessable Under Section 21(1A) of the Act.
Their Lordships of the Bombay High Court have also considered the similar issue in the case of CWT v. Vasudeva V. Dempo [1981] 131 ITR 291, though there are slightly different facts in the case before their Lordships of the Bombay High Court, but the principal issue is regarding the exemption Under Section. 5, to whom and at what stage it should be allowed was considered by their Lordships. Their Lordships observed as under : Section 5 of the W.T. Act, 1957, which provides for exemption in respect of certain assets, in its opening words under Sub-section.
(1), indicates that exemption is to be considered at the stage of assessment of the net wealth of the assessee. Under Section 3, charge of wealth-tax is made on the net wealth of an individual, Hindu undivided family and company, which means that the assessee contemplated under Section 5(1) would be an individual and not a body of individuals or an association of persons. Therefore, the stage at which exemption is to be considered and allowed is the stage after the share of wealth from the communion is brought to the individual's assessment and each of the spouses married under the Portuguese Civil Code is entitled to deduction under Section 5 of the Act separately.
The above observation of their Lordships reveals that exemption in respect of Section 5 is available at the time of assessment when the wealth is being taxed and for the wealth which is being taxed in respective hands. Therefore the trust property which includes the share of the persons having life interest, persons having remainderman's interest and the trust which is liable for the residue remains after excluding life interest and remainderman's interest from the property.
Therefore, the deduction or exemption Under Section. 5(1) 5(1A) cannot be given from the property of the trust which includes all the above three interests. In case of trust, the deduction or exemption is permissible under Section 5(1)/5(1A) after excluding the life interest or remainderman's interest in the trust property. In other words, the deduction in case of trust is permissible only out of the residue which is taxable in the assessment made on the trust Under Section. 21(1A) of the Act.
5. Sri Raju emphasised on the words 'net wealth' referred in Section.
21(1A) of the Act. According to him, nothing can be excluded or deducted from the net wealth which is taxable Under Section. 21(1A) of the Act. Net wealth is defined in Section 2(m) of the W.T. Act, which reads as under :- 2(m) Net wealth means the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than....
The above definition provides that the net wealth means the amount by which the aggregate value computed in accordance with the provisions of this Act. This means the provisions of this Act provided Under Sections. 21(1A) that the trust should be treated as individual for the purpose of taxing it for the residue remaining after excluding the share of life interest and remainderman's interest and once the trust is treated as 'individual' its wealth for which the trust is liable to pay tax, the exemption or deduction permissible to 'individual' should be allowed at the time when the trust is assessed for its wealth.
6. Further, if we see Pjxplanation 2 of Sub-section. (4) of Section.
21, we find that in Section 21, wherever the Legislature has the intention to include or not to include or allow exemption provided in Section. 5 has been expressed, Explanation 2 reads as under :- Notwithstanding anything contained in Section 5, in computing the net wealth for the purposes of this sub-section or Sub-section (4A) in any case, not being a case referred to in the proviso to this Sub-section any assets referred to in clauses (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii) and (xxix) of Sub-section. (1) of that section shall not be excluded.
The exemptions contained in Section 5 are not to be allowed for the purpose or in the cases covered by Sub-section (v) or Sub-Section (4A).
The legislature has not included Sub-section (1A) of the Act. This also further supports our view that when in the case of assessment of a trust, while the legislature has not prohibited the exemption provided in Section 5; they have restricted or denied the exemption, in the cases which come under Sub-section (4) or (4A) of Section. 21. When the exemption is not denied to the trust specifically, in our view, the trust is entitled for exemption under Section 5.
7. In the result, we are of the view, that in spite of the words 'net wealth' used in sub-sec. (1A) of Section 21, the trust is entitled for exemption under Section 5(1)/5(1A) of the Act.