1984 (3) TMI 101 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the interest of the respondent-assessees in the trust income is an asset as defined in section 2(e) of the Wealth-tax Act, 1957.
2. Whether the exemption under section 5(1)(xxiii) of the Wealth-tax Act, 1957, is allowable to the beneficiaries.

Detailed Analysis:

Issue 1: Whether the interest of the respondent-assessees in the trust income is an asset as defined in section 2(e) of the Wealth-tax Act, 1957.

The Tribunal examined whether the interest of the respondent-assessees (beneficiaries) in the trust income qualifies as an "asset" under section 2(e) of the Wealth-tax Act, 1957. The definition of "net wealth" in section 2(m) and "assets" in section 2(e) was scrutinized. Section 2(e) defines "assets" as property of every description, movable or immovable, but excludes any interest in property where the interest is available to the assessee for a period not exceeding six years.

The Tribunal referred to several precedents to establish that assets held by trustees under trust for others are considered the property of the beneficiaries, not the trustees. The Gujarat High Court in CWT v. Kum. Manna G. Sarabhai [1972] 86 ITR 153 held that assets held by the trustee under trust for others cannot be said to belong to the trustees and are instead the property of the beneficiaries. Similarly, the Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 clarified that section 3 is subject to section 21, which makes special provisions for the assessment of trustees in a representative capacity. The Supreme Court emphasized that the assessment made on the trustee is really an assessment of the beneficiaries' interest in the trust properties.

The Tribunal concluded that the beneficial interest of the beneficiaries in the trust property is assessable in their hands as an asset, includible in their net wealth. The beneficiaries are the true owners of the property, and the trustee holds the property for their benefit, not for personal gain.

Issue 2: Whether the exemption under section 5(1)(xxiii) of the Wealth-tax Act, 1957, is allowable to the beneficiaries.

Section 5(1)(xxiii) of the Wealth-tax Act provides an exemption for shares in any Indian company where the assessee is an individual or a Hindu undivided family. The Tribunal analyzed whether the beneficiaries' interest in the shares held by the trust qualifies for this exemption.

The Tribunal noted that the assessment of the trustee is in a representative capacity, and it is essentially the beneficiaries who are assessed in respect of their interest in the trust property. The Tribunal referred to several cases to support this view, including CWT v. V. Thiruvenkata Reddiar [1981] 128 ITR 689, where the Kerala High Court held that the beneficial interest of the beneficiary in the trust property is deemed to be held by the beneficiary for the purpose of tax exemption.

The Tribunal also cited Addl. CWT v. Smt. Kamalabai [TR Case No. 10 of 1976], where the Karnataka High Court held that the value of life interest in a house property is exempt from tax under section 5(1)(iv). Applying similar logic, the Tribunal concluded that the beneficial interest of the beneficiaries in the shares held by the trust is exempt under section 5(1)(xxiii).

The Tribunal found that the beneficiaries are entitled to the exemption under section 5(1)(xxiii) for shares in Indian companies held by the trusts, as their beneficial interest is an asset includible in their net wealth. The exemption was rightly allowed, and the appeals by the revenue were dismissed.

Conclusion:
The Tribunal dismissed the appeals, affirming that the beneficiaries' interest in the trust income is an asset under section 2(e) and that they are entitled to the exemption under section 5(1)(xxiii) of the Wealth-tax Act, 1957.