| SooperKanoon Citation | sooperkanoon.com/60178 |
| Court | Income Tax Appellate Tribunal ITAT Ahmedabad |
| Decided On | Jan-27-1984 |
| Reported in | (1984)8ITD651(Ahd.) |
| Appellant | H. H. Rajmata Shri Gulabkunverba |
| Respondent | Wealth-tax Officer. |
2. It may be mentioned that for the assessment year 1980-81, the AAC did not admit the appeal on a technical ground that the assessee did not pay the tax before filing the appeal. However, the assessee had clearly indicated that the return of wealth is submitted as a matter of procaution and, hence, payment under section 15B of the Wealth-tax Act, 1957 (the Act) has not been made. After hearing both the parties on this issue, we were of the view that the AAC was not justified in not admitting the appeal filed before him. Since the points involved for the assessment year 1980-81 are similar to the points involved in respect of the assessment year 1981-82, we have decided not to remit the appeal for the assessment year 1980-81 to the AAC for his decision on merits in order to minimise the litigation.
3. The assessee is assessed in the status of an AOP. The assessment years are 1980-81 and 1981-82 and the relevant valuation dates are 31-3-1980 and 31-3-1981, respectively.
4. The common points in dispute are : (i) whether the shares of the beneficiaries are specific and determinate, and (ii) whether the assessee is entitled to exemption as contemplated under section 5(1) (xxiii) of the Act in respect of the assets held by it.
5. The material facts are : (a) the assessee - trust was created under an indenture dated 25-3-1970 entered into between Her Highness Rajamata Saheba Shri Gulabkunverba Saheba of Nawanagar (the settlor) and S/Shri Premani Prabhulal Hirachand, Modi Mafatlal Manganlal and Hajarnis Prushottam Vasudev (the trustees). (b) Initially, Rs. 1 lakh was settled in trust. Subsequently, 670 shares of Tata Engineering and Locomotive Co. Ltd. valued at Rs. 1,50,000 were gifted and transferred in favour of the trustees by the settlor. (c) The beneficiaries of the assessee trust were 11 individuals and Shri Ranjit Charity Trust. The individuals were income beneficiaries while Shri Ranjit Charity Trust was income/corpus beneficiary. (d) Clause 3 of the indenture is relevant for the points involved and reads as under : "3. The trustees shall hold and stand possessed till the date of distribution and said amount of Rs. 1,00,000 (Rs. one lakh only) and all other moneys, shares of all joint stock companies, donations, contributions and all property on profits, movable or immovable, tangible or intangible which may hereinafter be paid, revived or transferred to them and the investment or investments for the time being representing the same and the rents, income and profits, dividends and interest hereinafter referred to as the trust fund upon the trust and with and subject to the powers and provisions here under contained and concerning the same that it to say : (a) The trustees shall receive the annual income of the trust fund and in the first place reimburse or pay and discharge all the costs and expenses which may be incurred in or about the administration of the trusts of these presents including any income-tax or wealth-tax or expenditure tax or other tax levied or assessed upon the trustees and including all outgoing and municipal and other rates, assessments and duties and costs or ordinary repairs to immovable property, if any, forming the part of the trust fund and subject therein and also costs, charges and expenses except the stamp duty of and incidental to the execution of trusts and powers herein contained.
(b) Subject to the provisions of clause (a) the net income of the trust fund shall first be applied towards the payment of the following stipulated respective amount to each one of the beneficiaries (i) and (xi) during his/her lifetime as mentioned below : If any surplus remains out of the net income of the trust fund for the year after effecting the payments to the beneficiaries mentioned above, the same shall be handed over to the trustees of Shri Ranjit Charity Trust. The trustees can make an account payment to the beneficiaries (i) and (xi) every month subject to the adjustment that may be needed at the end of the every year. In case, the net income of the trust fund is not sufficient for the payment of the stipulated amounts to the beneficiaries (i) to (xi) mentioned above the trustees shall be entitled to use the corpus, i.e., trust fund to make good the deficit.
On the death of the survivor of the beneficiaries (i) to (xi) mentioned above the income and the trust fund shall be handed over the trustees of shri Ranjit Charity Trust." 6. During the course of assessment proceedings, the assessee took up a stand that since the shares of the beneficiaries were specific and determinate it cannot be treated as discretionary trust and that shares worth 1,50,000 were not eligible to tax by virtue of the provisions of section 5(1) (xxiii). the WTO, however, did not accept the assessees contentions in the following manner : "The assessee has claimed that the shares of the beneficiaries are specific and that, therefore, this is not a discretionary trust.
However, no profits in support of the claim has been placed on record.
Moreover, it will be seen that corpus of the trust is to be given on Shri Ranjit Charity Trust on the death of all the beneficiaries. In other words, till all the beneficiaries are no longer alive, there is uncertainty regarding wealth of he trust and, hence, it has to be held that trust is a discretionary one without specific shares of the beneficiary. In the circumstance, the trusts wealth is subjected at maximum rate, i.e., 3 per cent.
2. The assessee had claimed exemption under section 5(1) (xxiii) in respect of shares amounting to Rs. 1,50,000. However, the status being that of the discretionary trust, provisions of section 21(4) are applicable, has been decided, it is obvious that the exemptions as enumerated in Explanation 2 are not admissible, as has been expressly provided. In the circumstances the assessees claim for exemption under section 5(1) (xxiii) in respect of shares is not admissible." The WTO applied the maximum rate of tax of 3 per cent to the net wealth determined by him without giving any basic exemption.
7. Before the AAC, the assessee submitted that (i) it was not a discretionary trust as the shares of the beneficiaries are specific and determinate, (ii) since the corpus was to go to a charitable trust, the WTO was not justified in assessing it under section 16(3) of the Act at the maximum rate of 3 per cent, (iii) by virtue of the provisions of section 21(1A) of the Act, which came into force from 1-4-1980, it was entitled to the exemption up to Rs. 1,50,000 in respect of the shares held by it as Explanation 2 to section 21(4) was not made applicable to section 21(1A). It was, therefore, urged that the appeal filed by the assessee should be allowed. The AAC, however, confirmed the action of the WTO in the following manner : "3. I have considered the matter. The question whether the trust is a discretionary or not has been decided earlier by the AAC vide order dated 1-7-1981. It was held that the trust is a discretionary one without specific shares of he beneficiaries and as such the provisions of section 21(4) of the Act would apply to the case of the assessee.
Following type same view, it has to be held for the year also that the trust is a discretionary trust and the wealth of the trust would be subjected to tax as per section 21(4) of the Act.
4. Once it is decided that the provisions of section 21(4) are applicable, it is obvious that the exemption as enumerated in Explanation 2 ar not admissible to the assessee. The contention of the assessee that after the introduction of section 21(1A), there was nothing to deny the exemption as was in section 21(4) is not correct.
The Explanation 2 holds goods for the purpose of taxing the wealth of the assessee under section 21(4) and the said Explanation expressly provided that any assets referred to in clauses (xv), (xvi), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii) and (xxix) of the sub-section (1) of section 5 shall not be excluded. In this view of the matter, it has to be held that the WTO has rightly denied the exemption under section 5(1) (xxiii) to the assessee." 8. Being aggrieved by the orders of the AAC, the assessee has come up in the appeal before the Tribunal. The learned counsel for the submitted that the wealth-tax authorities were not justified in holding that the provisions of section 21(4) were applicable to the assessee.
Inviting the attention of the Tribunal to clause (3) of the indenture dated 25-3-1970 (reproduced above), the learned counsel for the assessee contended that since the share of the income/corpus beneficiaries were not indeterminate or unknown, the provisions of section 21(4) were not attracted and the WTO should have framed the assessments, if at all, in the light of the provisions of section 21(1) and (1A). He further submitted that since the provision of Explanation 2 to section 21(4) were not incorporated in section 21(1A), the assessee was entitled to exemption contemplated under section 5(1) (xxiii) in respect of the shares held by it. In this connection, he invited the attention of the Tribunal to the letter dated 27-6-1972 addressed to the WTO as well as the statements of net wealth (including notes) filed before him. The learned counsel for the assessee also placed before the Tribunal a copy of the counsels opinion dated 21-8-1981. The learned counsel for the assessee also placed before the Tribunal copies of the orders of the ITO in income-tax proceedings and highlighted the fact that the ITO had accepted that the shares of the beneficiaries were specific and determinate and that the income of the assessee-trust were allocated amongst the beneficiaries who were assessed accordingly. He also placed before the Tribunal the copies of the assessments in the cases some of the beneficiaries as well as in the case of Shri Ranjit Charity Trust and pointed out that the letter was granted exemption under section 11 of the Income-tax Act, 1961 (the 1961 Act). He, therefore, urged that the wealth-tax authorities ought to have accepted the stand taken by the assessee. In support of his various submissions, the Honble Calcutta High Court in the case of Ahmed G. H. Ariff v. CWT [1966] 59 ITR 230 of the Honble Supreme Court in the case of CWT v. Trustees of H. E. H. Nizams Family (Reminder Wealth) Trust [1977] 108 ITR 555. The learned representative for the department, on the other hand, strongly relied on the orders of the wealth-tax authorities and justified their action.
9. We have carefully considered the rival submissions of the parties and we find considerable force in the stand taken on behalf of the assessee. On the plain reading of clause 3 of the deed of indenture under consideration (reproduced above), it is very clear to us that the shares of the income corpus beneficiaries are specific and determinate.
Therefore, it is difficult to hold that the assessee-trust is a discretionary trust as held by the wealth-tax authorities. In fact, the ITO assessing the assessee-trust under the 1961 Act has treated the assessee as non-discretionary trust and also has held that the shares of the beneficiaries are specific and determinate. In an integrated tax stricture like the one in our country, we fail to appreciate how the revenue could take two different stand under two separate taxing statute where the relevant provisions are almost in pari materia.
10. We find from the order of the AAC under appeal that in deciding the appeal against the assessee he has followed his consolidated appellate order dated 1-7-1981 for the assessment years 1974-75 to 1979-80.
During the course of hearing we were informed that against the said consolidated order of he AAC, the assessee had gone in revision before the Commissioner under section 25(1) of the Act, and the matter is still pending before him foe disposal.
11. On the facts and circumstances obtaining in the he present case, we are of the view that the assessee is not a discretionary trust and that the shares of the beneficiaries are specific and determinate and, therefore, the wealth-tax authorities were not justified in applying the provisions of section 21(4) to the assessee. Further, we are of the view that in the instant case, the provisions of section 21(1), at all, would be attracted no the provisions of section 21(4).
12. The consequential common issue is whether the assessee would be entitled to exemption as contemplated under section 5(1) (xxiii) in respect of the shares held by it. In order to decide this issue, it would be necessary to reproduce below the relevant provisions of section 21 : "(1) Subject to the provision of sub-section (1A), in the case of the assets chargeable to tax under this Act, which are held by the Court of words or an administrator-general or on official trustees 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 trustees appointed under a trust declared by a duly executed instrument in writing, whether testamentary 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 trustee, as the case may be, in the like manner an to the same extent as it would be leviable upon the recoverable from the person on whose behalf or for whose benefit the assets are held, the provisions of this Act shall apply accordingly.
(1A) Where the value of 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 the recoverable from the court of words, administrator-general, official trustee, receiver, manager or other person or trustee aforesaid in respect of the value of such assets, tot he 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 purpose of this Act, and - (4) Notwithstanding anything contained in the foregoing provisions of this section, where the shares of the persons on whose behalf 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 the case may be, in the like manner and to the same extent as it would be leviable upon the recoverable from an individual who is a citizen of India and resident tin India for the purposes of this Act, and - Explanation 2 : Notwithstanding anything contained in section 5, in computing the net wealth for the purpose 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." It would be seen from the above that the withdrawal of exemption as contemplated under section 5(1) (xxiii) is in respect of the assessments framed under sub-section (4) of section 21 and not in respect of the assessment framed under sub-section (1A) of section 21.
If the Legislature wanted to withdraw the exemption even under sub-section (1A) of section 21, provision similar to Explanation 2 to sub-section (4) of section 21 would have found place after sub-section (1A) of section 21 or the alternative sub-section (1A) should have been mentioned in he said Explanation. In the absence of this, we are of the view that once the assessment is to be framed under sub-section (1A) of section 21 the assessee would be entitled to claim exemption under section 5(1) (xxiii) in respect of the shares held by it.
13. In this view of the matter, we set aside the orders of the wealth-tax authorities and restore the case once more to the file of the WTO with a direction to frame assessments afresh in the light of our aforesaid decision and after giving an opportunity of being heard to the assessee in this regard.