1978 (8) TMI 4 - HC - Wealth-tax

Summary

Issues Involved:
1. Validity of the trust created by the Nizam in June 1961.
2. Relationship between the trust created in June 1961 and the trust formed earlier on August 12, 1957.
3. Ownership of shares worth Rs. 23,50,000 for inclusion in the Nizam's net wealth for the assessment years 1962-63 and 1963-64.

Issue-Wise Detailed Analysis:

1. Validity of the Trust Created by the Nizam in June 1961:
The main contention revolves around whether a valid trust was created by the Nizam in June 1961 concerning shares worth Rs. 23,50,000. The Revenue argued that the applications to transfer the shares were not made in any known form of law, trustees were not appointed, there was no acceptance by the trustees, beneficiaries were not specified, and the ultimate vesting of the corpus was not indicated. Therefore, they claimed the provisions of Sections 5 and 6 of the Indian Trusts Act were not satisfied. The Tribunal, however, found that all the ingredients of a valid trust were present. The Nizam had earmarked the amount, transferred the shares, and maintained a list of beneficiaries. The Financial Adviser managed the corpus, and the Nizam acted as a trustee. The Tribunal concluded that the transfer of shares was validly effected and the trust was valid.

2. Relationship Between the Trust Created in June 1961 and the Trust Formed Earlier on August 12, 1957:
The Tribunal examined whether the trust formed in June 1961 was part of the trust created on August 12, 1957. The Nizam had initially created a trust in 1957, which was later deemed null and void. However, a resolution in 1959 led to the creation of a new account, "Nizam's Khanazads," where the corpus was transferred. The Nizam intended to create another trust for the remaining khanazads, which was realized in June 1961. The Tribunal found that the trust created in June 1961 was part and parcel of the original trust created in 1957. Clause 5 of the trust deed allowed for additional funds to be settled upon the same trusts. The Tribunal concluded that the trust created in June 1961 formed part of the original trust dated August 12, 1957.

3. Ownership of Shares Worth Rs. 23,50,000 for Inclusion in the Nizam's Net Wealth for the Assessment Years 1962-63 and 1963-64:
The Tribunal addressed whether the shares worth Rs. 23,50,000 should be included in the Nizam's net wealth for the assessment years 1962-63 and 1963-64. Given that a valid trust was created in June 1961, the amount ceased to be the Nizam's asset and was not available for inclusion in his net wealth. The Tribunal referenced CIT v. Motilal Ramswaroop, which held that once wealth is transferred out of the hands of an assessee, it is not available for assessment in their hands. The Tribunal concluded that the shares worth Rs. 23,50,000 should be excluded from the Nizam's net wealth for the relevant assessment years.

Conclusion:
The Tribunal held that a valid trust was created by the Nizam in June 1961 concerning shares worth Rs. 23,50,000, which formed part of the original trust created on August 12, 1957. Consequently, the shares were not part of the Nizam's net wealth for the assessment years 1962-63 and 1963-64. The parties were directed to bear their own costs, and the advocates' fee was set at Rs. 250 in each case.