1992 (1) TMI 45 - HC - Wealth-tax

Summary

Issues:
Interpretation of section 21A of the Wealth-tax Act, 1957 regarding exemption of net wealth for a charitable trust under section 5(1)(i).

Analysis:
The case involved a reference under section 27(3) of the Wealth-tax Act, 1957, for the assessment year 1973-74, where the main question was whether the provision of section 21A of the Act was applicable to the assessee-trust, thereby affecting the exemption of net wealth under section 5(1)(i). The Wealth-tax Officer contended that section 21A was attracted due to investments made by the trust, leading to the computation of the net wealth of the assessee at a certain amount.

The assessee appealed to the Commissioner of Wealth-tax (Appeals), arguing against the applicability of section 21A to their case. The Tribunal, after considering the submissions, held that section 21A was not attracted and ruled in favor of the assessee, exempting their net wealth under section 5(1)(i). The Tribunal relied on a previous order in the assessee's case for the assessment years 1972-73 and 1973-74, where it was established that the assessee did not advance any loans to companies in which donors were interested, thus justifying the exemption under section 11 of the Income-tax Act.

The Tribunal's decision was based on the principle established in the case of CIT v. Birla Charity Trust, where it was determined that if any part of the property or income of the trust benefits individuals specified in section 13(3) of the Income-tax Act, wealth-tax would be levied. However, since the trust in this case did not advance loans to interested companies and received loan bonds as donations, the provisions of sections 13(2)(a) and 13(2)(b) were deemed inapplicable, aligning with the principles outlined in the Birla Charity Trust case.

Ultimately, the judgment affirmed the Tribunal's decision, answering the reference question in the affirmative and in favor of the assessee, thereby granting exemption from wealth tax under section 5(1)(i) due to the shares being exempt under the Income-tax Act. The judgment was agreed upon by both judges, and no costs were awarded.