1982 (3) TMI 102 - AT - Wealth-tax

Issues Involved:

1. Inclusion of assessee's beneficial interest as a remainderman in four trusts in the total wealth of the assessee.
2. Application of section 21(1) and 21(2) of the Wealth-tax Act, 1957.
3. Double taxation of the same wealth in the hands of trustees and beneficiaries.
4. Valuation of the assessee's life interest in the trusts.
5. Deduction of bad debts from the value of the assets of the trust.

Detailed Analysis:

1. Inclusion of Assessee's Beneficial Interest as a Remainderman in Four Trusts in the Total Wealth of the Assessee:

The revenue filed appeals for the assessment years 1968-69 to 1972-73, arguing that the AAC erred in holding that the assessee's beneficial interest as a remainderman in four trusts could not be included in the total wealth of the assessee. The trusts in question were:
- Sheth Hargovindas Jiwandas Family Trust
- Bai Harkorebai Hargovindas Trust
- Shantabai Dharamdas Trust
- Dharamdas Hargovindas and Gordhandas Dharamdas Joint Trust

The AAC had held that since the trusts were being separately assessed to tax, the assessee's interest should not be included in his wealth. The revenue's contention was that under section 21(1), wealth-tax should be levied upon the trustees directly in the same manner and to the same extent as it would be recoverable from the beneficiaries.

2. Application of Section 21(1) and 21(2) of the Wealth-tax Act, 1957:

The WTO included the value of the assessee's life interest in these trusts in his wealth, interpreting section 21(2) to justify this inclusion. However, the AAC, relying on CBDT Circulars and the Bombay High Court's decision in Trustees of Chaturbhuj Raghavji Trust v. CIT, held that once the trusts were assessed directly under section 21(1), there was no scope for levying wealth-tax on the assessee under section 21(2).

3. Double Taxation of the Same Wealth in the Hands of Trustees and Beneficiaries:

The AAC noted that the same wealth could not be taxed both in the hands of the trustees and the beneficiaries. The CBDT Circulars explicitly stated that once an assessment choice is made (either trustee or beneficiary), it is not open to assess the other party for the same income. Thus, the AAC concluded that the WTO's assessment of the assessee's interest was incorrect.

4. Valuation of the Assessee's Life Interest in the Trusts:

For the assessment years 1973-74 and 1974-75, the AAC upheld the direct assessment of the assessee's life interest in the Sheth Hargovindas Jiwandas Family Trust, directing the valuation to be done actuarially. The revenue objected, arguing that the assessee's interest should be included at its full value, not actuarial value. The Tribunal found that the valuation should be done as per rule 1B of the Wealth-tax Rules, 1957, which is mandatory.

5. Deduction of Bad Debts from the Value of the Assets of the Trust:

The AAC had directed that loans due to the Sheth Hargovindas Jiwandas Family Trust from Dharamdas Hargovindas should be excluded from the trust's assets if found irrecoverable. The Tribunal held that rule 1B does not provide for such a deduction and vacated the AAC's direction, stating that only factors permitted under rule 1B should be considered.

Conclusion:

The appeals filed by the revenue for the assessment years 1968-69 to 1972-73 were dismissed, affirming that the same wealth could not be taxed in the hands of both trustees and beneficiaries. For the assessment years 1973-74 and 1974-75, the appeals were partly allowed, modifying the AAC's directions to ensure valuation as per rule 1B without deductions for bad debts.

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