1984 (11) TMI 130 - AT - Wealth-tax

Summary

Issues:
1. Whether the trust is entitled to exemption under section 5(1)(i) of the Wealth-tax Act, 1957?
2. Whether the provisions of section 13(2)(a) and section 13(2)(h) apply to the assessee's case?
3. Whether the assessee is entitled to exemption under section 5(1)(xxiii)?
4. Whether the assessee should be treated as an individual under section 21A for the purpose of exemption?

Analysis:
1. The Wealth-tax Officer (WTO) held that the trust's funds invested in a business concern where two trustees had substantial interest, leading to the assessment of income-tax. The trust was not registered as required under section 12A of the Income-tax Act, 1961. The Appellate Assistant Commissioner (AAC) ruled that the trust was entitled to exemption up to a certain year but not thereafter due to section 21A, as the funds were invested in a firm with interested trustees. The AAC also denied exemption under section 5(1)(xxiii) for certain shares. The trust appealed against this decision.

2. The counsel for the assessee argued that sections 13(2)(a) and 13(2)(h) should not apply as lending does not equal investment, and interest was paid adequately. The departmental representative contended that no security was taken for the deposits, and the interest was insufficient, invoking sections 13(2)(a) and 13(2)(h). The tribunal found that the trust had lent money without adequate security or interest to interested trustees, falling under section 13(3), thus attracting section 13(2)(a) and disqualifying for exemption under section 5(1)(i).

3. The tribunal admitted additional grounds raised by the assessee, considering the trust as an individual under section 21A. By treating the trust as an individual, exemption under section 5(1)(xxiii) was granted. This alternative contention was upheld, directing the WTO to allow the exemption.

4. The tribunal concluded that the trust was liable for wealth-tax due to violations under section 13, denying exemption under section 5(1)(i). However, by treating the trust as an individual under section 21A, exemption under section 5(1)(xxiii) was granted. The appeals were partly allowed based on these findings.