2002 (11) TMI 39 - HC - Wealth-tax

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that since the assessee is to be taxed as an individual for the purpose of the Wealth-tax Act under section 21(4), the benefit under section 5 of the Act cannot be denied to the assessee? - We therefore hold that the Tribunal was correct in holding that the assessee-trust was entitled to all the deductions that are available to the individual under section 5 of the Wealth-tax Act. We find no infirmity in the view of the Tribunal. Accordingly, the common question of law referred to us for various assessment years is answered in the affirmative against the Revenue and in favour of the assessee.

Summary

Issues:
Interpretation of section 21(4) of the Wealth-tax Act regarding assessment of a discretionary trust and entitlement to exemptions under section 5 of the Act.

Analysis:
The case involved a trust being assessed as an individual under section 21(4) of the Wealth-tax Act for the assessment years 1982-83 to 1987-88. The main question was whether the trust, as a discretionary trust with unknown individual beneficiaries, was entitled to the exemptions under section 5 of the Act. The Wealth-tax Officer and the Commissioner of Income-tax (Appeals) held that since the trust was assessed as an association of persons, it was not eligible for exemptions available to an individual. However, the Tribunal ruled in favor of the trust, stating that under section 21(4), the trust should be treated as an individual for the purpose of exemptions.

The court analyzed the provisions of section 5 and section 21 of the Wealth-tax Act. It noted that certain deductions under section 5 were specifically for individuals, such as exemption for shares held by individuals or Hindu undivided families. The court highlighted section 21(4), which states that a discretionary trust should be assessed and taxed as if it were an individual citizen of India. This means that the trust should be entitled to all exemptions available to an individual for determining net wealth.

Referring to a previous case, the court emphasized that the status of a trustee of a discretionary trust should be treated as that of an individual for tax purposes. The court concluded that the trust in question was entitled to all deductions available to an individual under section 5 of the Wealth-tax Act. It held that section 21(4) should be interpreted to include all exemptions granted to an individual, without any selective application of statutory provisions in tax assessment.

Therefore, the court upheld the Tribunal's decision, ruling in favor of the trust and against the Revenue. The judgment clarified that the trust should be treated as an individual for tax assessment purposes under section 21(4) and should receive all exemptions available to individuals under section 5 of the Wealth-tax Act.