1973 (12) TMI 21 - HC - Wealth-tax

Summary

Issues Involved:
1. Applicability of the Wealth-tax Act to the trustees.
2. Exemption status of the trust under the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Applicability of the Wealth-tax Act to the Trustees:

The first question addressed whether the Wealth-tax Act applies to the trustees functioning under annexure 'A'. Both sides agreed that this issue was resolved by the Supreme Court decision in Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax [1973] 88 ITR 47 (SC). Consequently, the High Court affirmed that the Wealth-tax Act is applicable to the trustees, ruling in favor of the revenue.

2. Exemption Status of the Trust under the Wealth-tax Act:

To understand the second question, the court examined the facts surrounding the Khan Bahadur H.M. Bhiwandiwalla Trust. The trust was assessed for wealth-tax for the assessment year 1957-58, with the trustees arguing for exemption under section 5(1)(i) of the Wealth-tax Act, claiming the trust was a public charitable trust. The Wealth-tax Officer, however, determined that only a portion of the trust's wealth was exempt, applying a ratio similar to the income tax exemption under section 4(3)(i) of the Indian Income-tax Act, 1922.

Upon appeal, the Appellate Assistant Commissioner partially upheld the trustees' contentions but did not grant full exemption. The Income-tax Appellate Tribunal later ruled that since one of the trust's objects was to benefit the settlor's family, it could not be considered wholly for a public charitable purpose, thus denying the exemption entirely.

The trustees then presented three propositions to the High Court:
1. The trust property should be considered wholly for a public charitable purpose.
2. If not wholly, it should be considered primarily or predominantly for such a purpose.
3. At the very least, the trust should receive proportional exemption.

The court analyzed the trust deed, noting five primary objects, with the first object (providing allowances to the settlor's family) being non-charitable. The other four objects were agreed to be charitable. The court had to determine if the trust could still qualify for exemption despite the non-charitable object.

Section 5(1)(i) of the Wealth-tax Act exempts property held under trust for any public charitable or religious purpose. Unlike section 4(3)(i) of the Indian Income-tax Act, 1922, which requires the property to be held "wholly" for such purposes, section 5(1)(i) does not include the word "wholly". The court concluded that this omission was intentional, allowing for trusts that are primarily or predominantly charitable to qualify for exemption.

The court referenced the decision in Trustees of Gordhandas Govindram Family Charitable Trust v. Commissioner of Income-tax [1968] 70 ITR 600 (Bom), which supported the view that a trust need not be wholly charitable to receive exemption under the Wealth-tax Act. The court held that the primary or predominant nature of the trust's objects should determine its eligibility for exemption.

The court found that the objects of the Khan Bahadur H.M. Bhiwandiwalla Trust, when considered as a whole, were primarily for a public charitable purpose. Thus, the trust property was deemed wholly exempt under section 5(1)(i) of the Wealth-tax Act.

Conclusion:

The High Court answered the first question in the affirmative, favoring the revenue. For the second question, the court ruled that the trust property is wholly exempt under section 5(1)(i) of the Wealth-tax Act, 1957. The Commissioner was ordered to pay the costs of the reference to the assessee.