1987 (4) TMI 36 - HC - Wealth-tax

Summary

Issues Involved:
1. Jurisdiction of the Wealth-tax Officer in making fresh assessments.
2. Exemption of wealth held by the assessee-trust under section 5(1)(i) of the Wealth-tax Act.
3. Inclusion of items not considered in the original assessments during reassessments.
4. Method of valuation for determining the value of properties occupied by tenants.

Detailed Analysis:

1. Jurisdiction of the Wealth-tax Officer in making fresh assessments:

The Tribunal held that the Wealth-tax Officer (WTO) did not exceed his jurisdiction in making fresh assessments for the years 1961-62 to 1969-70. The Appellate Assistant Commissioner (AAC) had set aside the original assessments and directed the WTO to redo the assessments according to law, without imposing any restrictions. The court observed that the AAC's remand order was in the widest terms, allowing the WTO to include amounts not originally considered and to reassess the validity of claims for exemption under section 5(1)(i) for all assessment years. Therefore, the WTO was within his jurisdiction to make fresh assessments, and the Tribunal rightly upheld this. Accordingly, questions Nos. 1 and 3 were answered in the affirmative, in favor of the Revenue and against the assessee.

2. Exemption of wealth held by the assessee-trust under section 5(1)(i) of the Wealth-tax Act:

The main contention was whether the portion of the wealth held under trust for charitable purposes was exempt under section 5(1)(i). The court noted that the trust created by the will of Abdul Sathar Haji Moosa Sait was previously construed by the Kerala High Court and the Supreme Court, which held that only a quarter of the income was for public charitable purposes, while the rest was for private purposes. The court emphasized that for wealth-tax purposes, the predominant purpose of the trust is crucial, and assets cannot be apportioned based on the income applied to charity. The court concluded that since the dominant purpose of the trust was not charitable, no portion of the wealth held by the assessee-trust qualified for exemption under section 5(1)(i). Thus, question No. 2 was answered in the affirmative, in favor of the Revenue and against the assessee.

3. Inclusion of items not considered in the original assessments during reassessments:

The Tribunal held that the WTO could include items not considered in the original assessments during reassessments. The court reiterated that the AAC's remand order did not limit the WTO's jurisdiction, allowing him to consider all relevant aspects while making fresh assessments. This included the inclusion of amounts not originally assessed. Therefore, the WTO acted within his jurisdiction, and the Tribunal's decision was upheld. Question No. 3 was answered in the affirmative, in favor of the Revenue and against the assessee.

4. Method of valuation for determining the value of properties occupied by tenants:

The Tribunal noted that the assessee did not challenge the valuation made by the approved valuer using the land and building method. The Tribunal considered the age and location of the buildings and reduced the value accordingly. The court found no merit in the assessee's challenge against the Tribunal's finding, which was based on the approved valuer's report. Therefore, the method of valuation adopted by the Tribunal was upheld. Question No. 4 was answered in the affirmative, in favor of the Revenue and against the assessee.

Separate Judgment by Radhakrishna Menon J.:

Question No. 2:

Radhakrishna Menon J. disagreed with the majority view on question No. 2. He emphasized that the right of the beneficiaries to receive a portion of the income for public charitable purposes constitutes an asset eligible for exemption under section 5(1)(i). He argued that the trust created under paragraph 8 of the will was a public charitable trust, and the income derived from it should be exempt from wealth-tax. Thus, he answered question No. 2 in the negative, against the Department and in favor of the assessee.

Opinion by V. Bhaskaran Nambiar J.:

Question No. 2:

Bhaskaran Nambiar J. agreed with Radhakrishna Menon J. and concluded that the income derived from the trust properties under paragraph 8 of the will was for public charitable purposes. He emphasized that the trustee's liability is co-extensive with that of the beneficiary, and if the beneficiary is exempt under section 5(1), the trustee should also be exempt. Therefore, he answered question No. 2 in the negative, against the Department and in favor of the assessee.