1987 (4) TMI 103 - AT - Wealth-tax

Summary

Issues Involved:

1. Validity of the oral declaration of trust.
2. Inclusion of 2,000 bonus shares in the assessee's net wealth.
3. Inclusion of Rs. 1,20,000 fixed deposit in the assessee's net wealth.
4. Valuation of unquoted equity shares under Rule 1D of the Wealth-tax Rules, 1957.

Issue-wise Detailed Analysis:

1. Validity of the Oral Declaration of Trust:

The assessee claimed to have created a trust by an oral declaration on March 21, 1977, appointing himself and his wife as trustees and transferring 2,000 equity shares in M/s. Gharda Chemicals Pvt. Ltd. to the trust. The Wealth-tax Officer found that the shares remained in the assessee's name, along with the bonus shares and dividends. The Tribunal noted that the trust was revocable, and the assessee retained control over the shares, indicating no genuine transfer. The Tribunal concluded that the oral declaration and the minutes of the trustees' meeting were a facade, and the shares continued to belong to the assessee.

2. Inclusion of 2,000 Bonus Shares in the Assessee's Net Wealth:

The Commissioner of Wealth-tax (Appeals) excluded the value of the 2,000 bonus shares from the assessee's net wealth. The revenue appealed, arguing that the shares remained in the assessee's name, and the Tribunal agreed, holding that the bonus shares and dividends also belonged to the assessee. The Tribunal emphasized that the true state of affairs was that the shares were never genuinely transferred to the trust.

3. Inclusion of Rs. 1,20,000 Fixed Deposit in the Assessee's Net Wealth:

The Wealth-tax Officer included Rs. 1,20,000, deposited in the name of the assessee's wife, in the assessee's net wealth. The Commissioner of Wealth-tax (Appeals) excluded this amount, but the Tribunal found that the fixed deposit, derived from dividends on the shares, also belonged to the assessee. The Tribunal directed the Wealth-tax Officer to verify and rectify any double addition of this amount in the assessments for 1981-82 and 1982-83.

4. Valuation of Unquoted Equity Shares under Rule 1D of the Wealth-tax Rules, 1957:

The assessee contested the deduction of advance tax payments from the tax payable with reference to book profits for valuing shares under Rule 1D. The Tribunal upheld the Commissioner of Wealth-tax (Appeals)'s decision that the advance payment of tax should be deducted. The Tribunal rejected the assessee's alternative contention to value the shares under the yield capitalization method, citing the Supreme Court ruling in Gurjargravures (P.) Ltd., as the assessee had not made this claim before the Wealth-tax Officer.

Conclusion:

The Tribunal allowed the revenue's appeals, including the value of 2,000 bonus shares and Rs. 1,20,000 fixed deposit in the assessee's net wealth. The assessee's appeals were dismissed, and the valuation of shares under Rule 1D was upheld. The Tribunal emphasized the need to look beyond form and uncover the true state of affairs, rejecting the assessee's claims of genuine transfer and trust creation.