1998 (2) TMI 80 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the assessee's wealth is exempt from the levy of wealth-tax under section 5(1)(i) of the Wealth-tax Act, 1957.

Detailed Analysis:

1. Trust Property and Its Usage:
The property in question, "Dharmaprakash," was used for social, cultural, religious, and educational purposes, including renting for weddings and receptions. The trust deed, executed by Smt. Gangabai, established the property for public use. The property was assessed to wealth-tax up to 1975, and the appellate authority allowed the appeal for the year 1975-76, granting exemption on the grounds that the property was held in trust for religious and charitable purposes.

2. Interpretation of Trust Deed:
The Supreme Court, in Gangabai Charities v. CIT [1992] 197 ITR 416, interpreted the trust deed and held that the trust was not exclusively for charitable and religious purposes. The trust deed did not specify how the income derived from the property was to be utilized, and the public used the building on payment of rent. The trust deed was silent on the mandate that the income was to be spent on religious or charitable purposes.

3. Applicability of Wealth-tax Act:
For exemption under section 5(1) of the Wealth-tax Act, it must be shown that:
- The property is held under a trust or other legal obligation.
- The purpose is a public purpose.
- The public purpose is of a charitable or religious nature.

The Wealth-tax Act does not require the property to be held exclusively for charitable or religious purposes. The Bombay High Court in Trustees of K. B. H. M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709 held that if the primary or predominant purpose is charitable or religious, exemption can be claimed.

4. Supreme Court's Test for Charitable Purpose:
The Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufactures Association [1980] 121 ITR 1 stated that if the primary or dominant purpose is charitable, ancillary or incidental non-charitable purposes would not prevent the trust from being a valid charity. This test is applicable to the Wealth-tax Act as well.

5. Terms of the Trust Deed:
The trust deed allowed the property to be used for religious, charitable, social, cultural, and other allied purposes, giving wide discretion to the trustee. The building was let out for weddings, and rents were collected. The predominant purpose was not exclusively charitable or religious, as the property could be used for social and cultural purposes.

6. Legal Interpretation and Focus:
The focus under section 5(1) of the Wealth-tax Act is on the property, not the owner. The property must be burdened with an obligation to be utilized primarily for charitable or religious purposes. If the property can be used at the trustee's discretion for other purposes, exemption cannot be claimed.

7. Court's Conclusion:
The court concluded that the property was not held exclusively for charitable or religious purposes. The trust deed allowed for wide discretionary use, including social and cultural purposes. Thus, the assessee's claim for exemption under section 5(1)(i) of the Wealth-tax Act was not valid.

Judgment:
The question was answered in the negative, in favor of the Revenue and against the assessee. The Revenue was entitled to costs of Rs. 1,000.