2004 (3) TMI 374 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of the respondent-assessee trust for exemption under Section 5(1) of the Wealth Tax (WT) Act.
2. Classification of the trust as a private or charitable trust.
3. Inclusion of business assets in the net wealth of the trust.
4. Applicability of Section 21A of the WT Act concerning violations of Section 13(1)(d) read with Section 11(5) of the Income Tax (IT) Act.

Detailed Analysis:

1. Eligibility for Exemption under Section 5(1) of the WT Act:
The primary issue was whether the respondent-assessee trust is eligible for exemption under Section 5(1) of the WT Act. The Department argued that the trust was a private trust and not a charitable trust, and thus not eligible for exemption. The Tribunal, after reviewing the trust deed and the objects of the trust, concluded that the trust was indeed a charitable trust. The Tribunal referred to the Bombay High Court decision in CWT vs. State Bank of India (1995) 213 ITR 1 (Bom) which clarified that a trust for a public purpose of charitable nature is eligible for exemption under Section 5(1)(i) of the WT Act. The Tribunal upheld that the trust is entitled to exemption under Section 5(1)(i) of the WT Act.

2. Classification of the Trust:
The AO had classified the trust as a private trust, arguing that the beneficiaries were not clearly identifiable and their shares were not distinct. The CIT(A) reversed this finding, holding that the trust was a charitable trust based on the trust deed and its objectives. The Tribunal agreed with the CIT(A), noting that the trust's objectives included education, medical relief, and other charitable activities, thus qualifying it as a charitable trust.

3. Inclusion of Business Assets in Net Wealth:
The CIT(A) had directed the AO to levy wealth-tax only on the property forming part of the business of the trust, excluding other assets. The Tribunal supported this decision, noting that Section 5(1)(i) of the WT Act exempts property held under trust for charitable purposes, but the proviso excludes business assets from this exemption. The Tribunal affirmed the CIT(A)'s directive to recompute the net wealth of the trust with reference to the market value of the business property.

4. Applicability of Section 21A of the WT Act:
The Department argued that there was a violation of Section 13(1)(d) read with Section 11(5) of the IT Act, which should attract the provisions of Section 21A of the WT Act. The Tribunal noted that Section 21A, substituted by the Finance (No. 2) Act, 1996, w.e.f. 1st April 1993, was not applicable to the assessment years under consideration (1987-88 to 1992-93). Furthermore, the Tribunal emphasized that the conditions for exemption under the WT Act are distinct from those under the IT Act, and any violation under the IT Act does not automatically negate the exemption under the WT Act.

Conclusion:
The Tribunal dismissed the Department's appeals, upholding the CIT(A)'s order that the respondent-assessee trust is a charitable trust and entitled to exemption under Section 5(1)(i) of the WT Act. The Tribunal also confirmed that business assets of the trust should be included in the net wealth for wealth-tax purposes, as directed by the CIT(A).