| SooperKanoon Citation | sooperkanoon.com/62007 |
| Court | Income Tax Appellate Tribunal ITAT Delhi |
| Decided On | May-12-1986 |
| Judge | A Prakash, S Grover |
| Reported in | (1986)18ITD373(Delhi) |
| Appellant | Anurag Dalmia Family Trust |
| Respondent | Wealth-tax Officer |
2. The appellants are trusts, whose original assessments Under Section 16(3) of the Wealth-Tax Act, 1957 ('the Act'), read with Section 21(3) of the Act were completed on 31-10-1974, on total wealth of Rs. 2,03,585 in the case of Anurag Dalmia Family Trust and Rs. 64,400 in the case of Parag Dalmia Family Trust. Subsequently these assessments were reopened by the WTO in terms of Clause (b) of Sub- Section (1) of Section 17 of the Act and reassessments were completed by the WTO on the following wealth : by invoking the provisions of Sub- section (4) of Section 21. The assessee appealed against the aforesaid orders to the Commissioner (Appeals) challenging (i) the validity of the reopening of the assessment and (2) the quantum of wealth determined.
3. The Commissioner has not accepted the assessee's appeals. The present appeals have, therefore, been filed by the assessees before the Tribunal against the orders of the Commissioner (Appeals).
4. To appreciate the reasonings on which the grievance of the assessee is based, it would be appropriate at this stage to note the facts of the cases first. We will mention the facts of Anurag Dalmia Family Trust first. Shri Vishnu Hari Dalmia created the trust known as 'Anurag Dalmia Family Trust' vide trust deed dated 6-6-1964. Shri Jaidayal Dalmia, Shri Parmeshwar Prasad Bogla and Shri Jagdish Prasad Poddar were appointed trustees vide this trust deed. The settlor transferred to the aforesaid trustees 70 per cent shares of Hari Bros. (P.) Ltd., Scindia House, New Delhi and directed the trustees vide Clause 2 of the trust deed to divide the trust fund into two moieties. One moiety, together with the accretions thereto less the outgoings such as expenses for carrying on the trust, taxes, etc and the amounts expended therefrom in the manner provided for in paragraph 7 of the deed was to be referred to as Part A of the trust fund. The other moiety, together with the accretions thereto less the outgoings such as expenses for carrying on the trust, taxes, etc. and the amounts expended therefrom in the manner provided for in paragraph 8 of the deed was to be referred to as Part B of the trust fund. Vide Clause 3 of the trust deed, Part A of the trust fund was to be distributed and/or apportioned by the trustees at the close of the trust period in the manner provided in paragraph 4 of the trust deed. Paragraph 4 which provides for the application of Part A of the trust fund reads as below : The said Part A of the trust fund shall be settled and disposed of by the trustees at the close of the trust period as defined in paragraph 3 above in the manner following, namely : (i) if the said Anurag Dalmia marries within 18 years from the date hereof, the said Part A of the Trust fund shall be settled and disposed of absolutely to the wife of the said Anurag Dalmia on her marriage ; (ii) if the said Anurag Dalmia dies unmarried within a period of 18 years from the date of this deed, then on his death ; or, if he does not marry till the completion of 18 years from the date of this deed, then on completion of 18 years from the date of this deed ; the said Part A of the trust fund shall be settled and disposed of absolutely by the trustees for the following persons and purposes in such portion as the trustees think proper-All the children of Sanjay Dalmia (brother of Anurag Dalmia) ; all the children of the brothers of the settlor ; the wife of Sanjay Dalmia ; who may be in existence on the said date and for any religious purposes or charitable purposes such as relief of the poor, education, medical relief and advancement of any other object of general public utility.
Clause 5 of the deed provided for the distribution of Part B of the trust fund at the close of the trust period indicated therein. Clause 6 provided the manner of distribution of the trust fund and reads as below : The said Part B of the trust fund shall be settled and disposed of by the trustees in the manner following, namely : (i) if the said Anurag Dalmia marries and gets a child or children within 18 years from the date hereof, the said Part B of the trust fund or any part thereof shall be made over in such proportion as the trustees may decide to the said child or children, as the case may be, at any time between the birth of the first child and the completion of 18 years for the date hereof, at the discretion of the trustees ; but if the said Part B of the trust fund has not been made over to any child of the said Anurag Dalmia as aforesaid and no child of the said Anurag Dalmia is in existence at the expiry of 18 years from the date hereof, the said Part B of the trust fund shall be made over to the wife of Anurag Dalmia at the expiry of 18 years from the date hereof or on the death of the said Anurag Dalmia if he dies childless before the expiry of 18 years from the date hereof ; and if no wife of the said Anurag Dalmia be living at the expiry of 18 years from the date hereof the said Part B of the trust fund shall be disposed of in accordance with the provisions of sub-paragraph (ii) below. A child on ventra so mere if and when born shall be deemed to be a child in existence for the purpose of this deed (sic.); (ii) if the said Anurag Dalmia dies unmarried within a period of 18 years from the date of this deed, then on his death ; or, if he does not marry till the completion of 18 years from the date of this deed, then on the completion of 18 years from the date of this deed ; the said Part B of the trust fund shall be settled and disposed of absolutely by the trustees for the following persons and purposes in such proportion as the trustees think proper- All the children of Sanjay Dalmia (brother of Anurag Dalmia) ; all the children of the brothers of the settlor ; the wife of Sanjay Dalmia ; who may be in existence on the said date and for any religious purposes or charitable purposes such as relief of the poor, education, medical relief and advancement of any other object of general public utility.
Clauses 7 and 8 dealt with the disposal of the income of the trust funds during the trust period and read as below : 7. During the trust period as defined in paragraph 3 above in respect of the said Part A of the trust fund, the said Part A of the trust fund or any part thereof may until it is finally vested in accordance with the provisions of paragraphs 3 and 4 above, be applied at the discretion of the trustees, for all or any of the following purposes, namely, the benefit, maintenance, health, recreation or education of or for making ornaments, jewellery or apparel or acquiring any other articles or movable or immovable properties for the use or benefit of the girl to whom the said Anurag Dalmia shall be betrothed and the balance, if any, of the income of the said Part A of the trust fund shall be accumulated.
8. During the trust period, as defined in paragraph 5 above in respect of Part B of the trust fund, the said Part B of the trust fund or any part thereof may until it is finally vested in accordance with the provisions of paragraphs 5 and 6 above, be applied at the discretion of the trustees for all or any of the following purposes, namely, the benefit, maintenance, health, recreation or education of or for making ornaments, jewellery, or apparel or acquiring any other articles or movable or immovable properties for the use or benefit of the girl to whom the said Anurag Dalmia shall be betrothed ; and for the benefit, maintenance, health, recreation, or education or for making ornaments, jewellery, apparel or acquiring any other articles or movable or immovable properties for the use or benefit of the children of Anurag Dalmia and the balance, if any, of the income of the said Part B of the trust fund shall be accumulated.
The trust deed was made on 12-6-1964. The settlor of this trust was Shri Nar Hari Dalmia son of Shri Jaidayal Dalmia and the following persons were the trustees : 100 full paid ordinary shares of Rs. 100 each of Hari Bros. (P.) Ltd. were the trust property which were settled on trustees by the settlor.
Vide Clause 2 of the deed, the trustees were directed to divide the trust fund into two moieties, referred to as Part A and Part B of the trust fund, as in the case of Anurag Dalmia Family Trust. Part A of the trust fund vide Clause 3 of the trust deed was to be distributed and/or applied by the trustees at the close of the trust period in the manner provided in Clause 4 and the said Clause 4 reads as below : The said Part A of the trust fund shall be settled and disposed of by the trustees at the close of the trust period as defined in paragraph 3 above in the manner following, namely : (i) if the said Parag Dalmia marries within 18 years from the date here of, the said Part A of the trust fund shall be settled and disposed of absolutely to the wife of the said Parag Dalmia on her marriage ; (ii) if the said Parag Dalmia dies unmarried within a period of 18 years from the date of this deed, then on his death ; or, if he does not marry till the completion of 18 years from the date of this deed, then on completion of 18 years from the date of this deed ; the said Part A of the trust fund shall be settled and disposed of absolutely by the trustees for the following persons and purposes in such proportion as the trustees think proper- All the children of Archana Dalmia (sister of Parag Dalmia) ; all the children of the brothers of the settlor ; who may be in existence on the said date and for any religious purposes or charitable purposes such as relief of the poor, education, medical relief and advancement of any other object of general public utility.
6. Clause 5 of the trust deed provided for the distribution and/or application of the trust fund referred to as Part B at the close of the trust period in the manner provided in paragraph 6 of the trust deed.
The said paragraph 6 reads as below : The said Part B of the trust fund shall be settled and disposed of by the trustees in the manner following, namely : (i) if the said Parag Dalmia marries and gets a child or children within 18 years from the date hereof, the said Part B of the trust fund or any part thereof shall be made over in such proportion as the trustees may decide to the said child or children, as the case may be, at any time between the birth of the first child and the completion of 18 years from the date hereof, at the discretion of the trustees ; but if the said Part B of the trust fund has not been made over to any child of the said Parag Dalmia as aforesaid and no child of the said Parag Dalmia as is in existence at the expiry of 18 years from the date thereof, the said Part B of the trust fund shall be made over to the wife of Parag Dalmia at the expiry of 18 years from the date hereof or on the death of the said Parag Dalmia if he dies childless before the expiry of 18 years from the date hereof ; and if no wife of the said Parag Dalmia be living at the expiry of 18 years from the date hereof the said Part B of the trust fund shall be disposed of in accordance with the provisions of sub-paragraph (ii) below. A child on ventra in more if and when born shall be deemed to be a child in existence for the purpose of this deed (sic) ; (ii) if the said Parag Dalmia dies unmarried within a period of 18 years from the date of this deed, then on his death ; or, if he does not marry till the completion of 18 years from the date of this deed, then on the completion of 18 years from the date of this deed, the said Part B of the trust fund shall be settled and disposed of absolutely by the trustees or following persons and purposes in such proportion as the trustees think proper- All the children of Archana Dalmia (sister of Parag Dalmia) ; all the children of the brothers of the settlor ; who may be in existence on the said date and for any religious purposes or charitable purposes as relief of the poor, education, medical relief and advancement of any other object of general public utility.
Clauses 7 and 8 of the trust deed provided for the disposal of the income of the trust fund during the trust period and the same read as below : 7. During the trust period as defined in paragraph 3 above in respect of the said Part A of the trust fund, or any part thereof may until it is finally vested in accordance with the provisions of paragraphs 3 and 4 above, be applied at the discretion of the trustees, for all or any of the following purposes, namely, the benefit, maintenance, health, recreation or education of or for making ornaments, jewellery or apparel or acquiring any other articles or movable or immovable properties for the use or benefit of the girl to whom the said Parag Dalmia shall be betrothed and the balance, if any, of the income of the said Part A of the trust fund shall be accumulated.
8. During the trust period as defined in paragraph 5 above in respect of Part B of the trust fund, the said Part B of the trust fund or any part thereof may until it is finally vested in accordance with the provisions of paragraphs 5 and 6 above, be applied at the discretion of the trustees for all or any of the following purposes, namely, the benefit, maintenance, health, recreation or education of or for making ornaments, jewellery or apparel or acquiring any other articles or movable or immovable properties for the use or benefit of the girl to whom the said Parag Dalmia shall be betrothed ; and for the benefit, maintenance, health, recreation or education or for making ornaments, jewellery, apparel or acquiring any other articles or movable or immovable properties for the use or benefit of the children of Parag Dalmia and the balance, if any, of the income of the said Part B of the trust fund shall be accumulated.
7. In the case of Anurag Dalmia Family Trust, computation of net wealth for the assessment year 1974-75 filed along with the original return declared net taxable wealth of Rs. 2,03,585. The said computation appears at page 1A of the paper book. It does not indicate separately moieties A and B of the trust fund. The totality of the trust fund has been returned and, therefrom, exemption Under Section 5(1A) of the Act to the extent of Rs. 1,50,000 has been claimed, with regard to the value of the shares. Assessment as noted earlier was completed accepting the above returned wealth on 31-10-1974. A copy of the original assessment order has been placed at page 1 of the assessee's paper book. From a perusal thereof, it appears that the WTO did not examine the details of the trust deed and the composition of moieties A and B and their purposes. He completed the assessments in question by accepting the figure of wealth as declared by the assessee, namely, Rs. 2,03,585.
8. In the case of Parag Dalmia Family Trust, computation of net wealth for the assessment year 1974-75 was filed declaring net wealth of Rs. 64,400. In this computation again, there is no reference to moieties A and B separately and the computation has been done after claiming exemption Under Section 5(1A) in respect of shares to the extent of Rs. 1,11,064. Along with the return a balance sheet of the trust was, however, filed where on the liabilities side, there is a reference to trust fund Part A and to trust fund Part B. From a perusal of the assessment order originally made by the WTO, it appears that the said assessment was completed by the WTO accepting the assessee's returned wealth and, there is no reference in the body of the assessment order to the various clauses of the trust deed and two parts of the trust fund as noted above.
9. It appears that some time after the assessments had been completed as above, internal audit party audited the assessments made and they pointed out to the WTO that while completing the assessments in question note had not been taken of the various provisions of the trust deed and of the fact that the shares of the beneficiaries in the trust in question were indeterminate. On receipt of the said audit notes, the WTO appears to have examined his record once again and after being convinced that what was being pointed out to him was correct, he initiated proceedings Under Section 17(1)(b) against both the trusts.
The reasons recorded are more or less similar and it will, therefore, do if we take note of the reasons recorded in the case of one of the trusts, namely, Parag Dalmia Family Trust.
The said reasons appeared at page 4 of the paper book and read as below : It has been brought to my notice by revenue audit vide memo No. 16 dated nil, that the assessee is a private trust where beneficiaries are neither known nor their share determined. Accordingly, exemption of Rs. 1,50,000 Under Section 5 in respect of financial assets like shares, bank deposits, etc., would not be available to the assessee in view of Explanation given below Section 21(iv) of the Wealth-Tax Act, 1957. In the assessment for this year completed on 31-10-1974, it is noted that the assessee was allowed exemption of Rs. 1,11,064 on this account. It is thus evident that the net wealth chargeable to tax has escaped assessment to the extent of Rs. 1,75,464. Issue notice Under Section 17 of the Act as under : The assessee challenged the correctness of the initiation of proceedings and pointed out that the information received from the audit could not be regarded as information in accordance with the decision of the Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996. It was also pointed out in the reassessment proceedings before the WTO that Part A of the trust fund was to be absolutely settled on the wifes of Shri Anurag Dalmia and Parag Dalmia respectively and that in case of Shri Anurag Dalmia or Parag Dalmia not marrying or dying unmarried, trust fund was to be handed over to the children of Shri Sanjay Dalmia and Archana Dalmia and, therefore, it could not be said with regard to Part A that the interests of the beneficiaries were indeterminate. Even in the case of Part B, it was stated that the amount was to be applied for the children of Shri Anurag Dalmia, Shri Parag Dalmia and so, it could not be said that the shares were not determinate. It was, therefore, urged that the original assessments as completed were correct. The above submissions of the assessee were, however, not accepted by the WTO, assessee thereupon appealed to the AAC who also rejected the assessee's contention with regard to the invalidity of the initiation of proceedings Under Section 17(1)(b) but upheld the contention of the assessee that so far as Part A of the fund was concerned, the shares of the beneficiaries therein were determinate as regards Part B, however, the learned AAC pointed out that the shares of the beneficiaries were entirely discretionary depending on the discretion of the trustees and the same were not determinate. Therefore, in respect of Part B, it was held by the learned AAC that the appellant trust was not entitled to deduction Under Section 5(1A).
10. The present appeals have been filed by the assessees against the aforesaid orders of the learned AAC. On merits, the learned counsel for the assessee was fair enough to concede that he could not dispute the finding of the learned AAC with regard to Part B of the trust fund in both the cases. We confirm this finding. The shares of the beneficiaries in Part B of the trust fund are indeterminate. So far as Part A was concerned, the AAC had already accepted the assessees' submissions that the shares of the beneficiaries were determinate and the revenue not being in appeal against the said finding of the AAC, the said finding had to stay and it is not the scope of the present appeals to go into the character of Part A of the trust fund. Part B of the trust funds are, however, liable to be assessed under Sub- section (4) of Section 21 as the shares of the beneficiaries therein were entirely indeterminate. It was not meant for one child of either Shri Parag Dalmia or Shri Anurag Dalmia but for their children and the discretion was given to the trustees to divide the income as well as the corpus of the trust amongst the various children in whatever manner the trustees deemed fit. Therefore, so far as Part B of the trust fund was concerned, the shares of the beneficiaries therein were indeterminate and so the provisions of Sub- section (4) of Section 21 were clearly attracted thereto.
11. In view of the above position, the attack of the learned counsel for the assessee was mainly concentrated at the initiation of the proceedings Under Section 17(1)(b) and the same pleas as were taken by the learned counsel before the authorities below were repeated before us and it was pointed out that the audit party could not be the source of information of law to the WTO and the WTO had erred in initiating proceedings Under Section I7(1)(b) on the basis of the report of the audit. According to the learned counsel for the assessee, the trust deed was very much on record and it would be incorrect to presume that the learned WTO had not gone through the trust deed before completing the assessments in question. Once he completed the assessments on the basis of the returned wealth after examining the trust deed, he had formed his opinion about the assessee's assessability and it would be mere change of opinion, if subsequently, on the same material, he held a different opinion. The orders of the WTO were clearly bad and were directly hit by the ratio of Indian & Eastern Newspaper Societys case (supra).
12. On behalf of the revenue, the above submissions were opposed and it was pointed out that the revenue audit merely conveyed the information to the WTO with regard to the various provisions of the trust deed and they were not the source of any information of law to the WTO. The law was contained in Sub- section (4) of Section 21 itself and by merely pointing out to the provisions of Sub- section (4) of Section 21 it could not be said that the revenue audit had propounded any proposition of law which was treated by the WTO as the source of information for initiating the proceedings under consideration. The WTO, after examining the revenue audit, saw the law for himself and when he was convinced that prima facie a mistake had taken place not due to the omission or failure on his own part to note the relevant provisions of the law as contained in the statute, he reopened the assessments and such reopening was valid as per their Lordships of the Hon'ble Supreme Court vide Indian & Eastern Newspaper Society's case (supra) itself. To presume that the WTO had examined the trust deeds was, on the facts of the present case, totally erroneous because whatever had been before the WTO was mentioned by him in his order and a perusal of the original assessment order would clearly show that he did not go through the provisions of the trust deed enumerated above and his mind was not cognizant of two parts of the trust funds one being determinate and the other being indeterminate.
He, therefore, urged that we should uphold the validity of the initiation of proceedings in the present cases.
13. We have given careful consideration to the facts of the case and the rival submissions. We have also gone through the judgments of their Lordships of the Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society (supra) at pages 1000 and 1001 of the aforesaid judgment, their Lordships have quoted with approval the observations of the Hon'ble Supreme Court in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11 wherein the scope of the expression 'information' as used in Section 147(6) of the Income-tax Act, 1961 was elaborated. It is what justice Shah, speaking for the Court, had stated : . . . jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information, must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected.
In view of the above definition of information, it is not relevant that the trust deeds were on the record of the WTO, nor is it relevant that the assessees had filed balance sheets of the trust wherein Part A and Part B of the trust funds had been separately demarcated. Mere demarcation of the trust funds into Part A and Part B would not bring to the knowledge of the WTO that Part A was determinate and Part B was indeterminate. That knowledge could have been gathered by him only if he had cared to read the relevant provisions of the trust deed which he did not do while finalising the orginal assessment orders. His failure to do so would not as per the above observations of their Lordships of the Hon'ble Supreme Court, bar jurisdiction for action Under Section 147(1)(6) which is analogous to the provisions of Section 17(1)(b).
Even in the case of Indian & Eastern Newspaper Society (supra), their Lordships have acknowledged this position. This is what their Lordships observed : But although an audit party dose not possess the power to so pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying Section 147(6) may by avoided. While the law may be enacted, or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose.
... In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law, which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO. (p. 1003) Thus, what has to be seen in the present case is as to whether the ITO himself examined the law as contained in Section 21(4) and applied that to the facts of the case or whether he was guided by the information of the audit party alone. In this case, the WTO had not originally noted the various proceedings of the trust deeds which went to show that Part A was determinate and Part B was indeterminate. The information as to this aspect of the matter could be had only by examining the trust deeds which were examined by the WTO only after receiving audit note.
After examining the said provisions of the trust deed, it became clear to him that the provisions of Sub- section (4) of Section 21 were applicable in the present cases and that the same had not been originally applied. It is true that he felt that Sub- section (4) of Section 21 might be applicable with regard to the entire trust fund including Part A and Part B. That view has been modified by the AAC to the extent that, according to him, Section 21(4) was applicable only with regard to Part B of the trust fund and not with regard to Part A.The opinion of the WTO was, thus, prima facie not wholly incorrect even otherwise what has to be seen for the purpose of initiating proceedings Under Section 17(1)(b) is the other prima facie situation obtaining on record to induce reasons to believe in the WTO, the belief of the WTO at this stage has to be with the nature of it tentative and the same cannot be equated with the final conclusion which would be arrived at by him only after examining the submissions of the assessee in the course of the assessment proceedings. In our opinion, there is no occasion for holding on the facts of the present case that the WTO has changed his opinion on the same subject and on the same material. There was no formation of belief by him to begin with regard to the facts which could be had only by gleaning to trust deed and the application of law there to. He did not undertake this exercise at the time of the original assessment. He discovered those facts only after the original assessments had been completed. On receipt of the audit note and on examination of the said note, he found that the law as communicated to him by the audit party was in fact applicable to the facts of the present case and so he applied the provisions of Sub- section (4) of Section 21. The facts found the reopening of the proceedings in such a situation is, in our opinion, entirely valid and we, accordingly, uphold the initiation of proceedings in the present cases.
That without prejudice to the above grounds, the learned AAC ought to have directed the WTO to apply the rates of wealth-tax to Part A of the trust fund as if the said Part A was an independent trust and should not have merged the same with the Part B of the trust fund for the purposes of wealth-tax inasmuch as according to the AAC the two parts of the trust are independent of each other, one of which is a specific and determinate and the other one is allegedly indeterminate.
The submissions made above are correct. Two separate assessments have to be made with regard to the trust funds, one of Part A under Sub- section (3) of Section 21 and another of Part B in terms of Sub- section (4) of Section 21. The orders of the AAC imply this yet in view of the aforesaid ground of appeal, we do clarify the position as desired by the assessee's learned counsel.