1981 (4) TMI 32 - HC - Wealth-tax

Summary

Issues Involved:
1. Effective date of transfer of 300 shares.
2. Validity of the charitable trust created by the assessee.
3. Inclusion of the value of 300 shares in the assessee's wealth for the assessment year 1959-60.

Detailed Analysis:

1. Effective Date of Transfer of 300 Shares
The primary issue was whether the transfer of 300 shares to Sardar Baldev Singh Charitable Trust became effective on 18th February 1959 or 8th July 1959, the date of the deed's execution. The court noted that the shares were transferred on 10th February 1959, and the trustees accepted the transfer on 27th February 1959. The transfer was registered in the company's books on the same date. The Tribunal concluded that the transfer became effective on 27th February 1959, prior to the valuation date of 31st March 1959. The court upheld this finding, stating that the deed executed on 8th July 1959 was merely a declaration of trust.

2. Validity of the Charitable Trust
The second issue was whether the assessee was competent to create a charitable trust revocable after 10 years and whether the trust was valid in law. The court referred to Mulla's Hindu Law and the Indian Trusts Act, noting that Section 5 of the Trusts Act did not apply to charitable endowments. It emphasized that a Hindu could create a charitable endowment by expressing the purpose and setting apart the property for the endowment without needing a formal trust deed. The court found that the trust was validly created as the assessee had divested himself of the ownership of the shares, and the trust was irrevocable within the meaning of Explanation (b) to Section 4 of the Wealth Tax Act, 1957.

3. Inclusion of the Value of 300 Shares in the Assessee's Wealth
The third issue was whether the value of the 300 shares should be included in the assessee's wealth for the assessment year 1959-60. Given that the transfer was effective from 27th February 1959, the court held that the shares were not part of the assessee's wealth on the valuation date of 31st March 1959. The Tribunal's decision to exclude the value of these shares from the assessee's wealth was upheld.

Conclusion
The court answered all three questions in favor of the assessee:
1. The transfer of 300 shares became effective on 27th February 1959.
2. A valid charitable trust was created in law.
3. The value of the 300 shares was rightly excluded from the assessee's wealth for the assessment year 1959-60.

The parties were directed to bear their own costs.