2004 (1) TMI 39 - HC - Wealth-tax

Whether Tribunal was right in law in holding that public charitable trust had been validly created by the will executed by the deceased and as such exemption under section 5(1)(i) was allowable? - the author of the trust settled upon the trust all his immovable and movable properties for the benefit of the three institutions and, therefore, the trust came into being upon the death of the testator. The Tribunal, therefore, rightly held that the trustees were entitled to get exemption under section 5(1)(i)

Summary

Issues:
Validity of a charitable trust created by a will for exemption under section 5(1)(i) of the Wealth-tax Act.

Analysis:
The case involved the creation of a charitable trust by a deceased individual through a will for the benefit of three institutions and other charitable purposes. The executors and trustees of the estate claimed exemption under section 5(1)(iv) of the Wealth-tax Act for the assessment year 1981-82. However, the Wealth-tax Officer and Deputy Commissioner of Wealth-tax (Appeals) denied the claim, stating that since no formal trust deed was executed, the properties were not held under any trust for charitable purposes.

The Tribunal, on the other hand, held that the trust was validly created under the will itself, and there was no requirement for a separate trust deed by the executors. The Tribunal concluded that the trustees were entitled to claim exemption under section 5(1)(i) as the trust was effectively created through the will, even without a formal deed of trust being executed.

The Revenue contended that without the execution of a formal deed of trust, no trust could come into existence, citing a decision by the apex court in a similar matter. However, the High Court referred to the Indian Trusts Act, 1882, specifically sections 5 and 6, which outline the requirements for the creation of a trust. Section 6 states that a trust is created when the author of the trust indicates an intention to create a trust, the purpose, beneficiary, and trust property, without the need for a formal transfer to the trustee if declared by will.

The High Court emphasized that once the conditions specified in section 6 were met, the trust came into existence upon the death of the testator, and no formal deed of trust was necessary. Unlike the case cited by the Revenue, where properties were converted into cash for charitable purposes, in this instance, the deceased had settled all his immovable and movable properties for the benefit of specific institutions, leading to the trust's creation upon his death.

Ultimately, the High Court ruled in favor of the assessee, stating that the trust was validly created through the will, meeting the requirements of the law, and thus, the trustees were entitled to exemption under section 5(1)(i) of the Act. The judgment disposed of the reference in favor of the assessee against the Revenue.