2009 (3) TMI 502 - HC - Wealth-tax

Representative Assessee Instrument under wealth tax excess of value of of the corpus of the trust over the value of the interest of the beneficiaries under the trust Held that - we find it difficult to hold that the official trustee who is the assessee in the present case can be said to be a person appointed under a trust declared by a duly executed instrument in writing . In our view, the word instrument does not include statute. The Wealth-tax Act does not define the word instrument and does not specifically include statute within the meaning of the term. In the present case, the official trustee was not appointed under any rule-making power which may amount to statutory instrument but under the statute itself. - Once it is held that section 21(1) which is the main charging section does not apply to the assessee, it must necessarily follow that section 21(1A) would also not be applicable to him.

Issues Involved:
1. Interpretation of Section 21(1A) of the Wealth-tax Act, 1957.
2. Applicability of Section 21(1) of the Wealth-tax Act to trusts created by statute.
3. Definition of "instrument" under the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Interpretation of Section 21(1A) of the Wealth-tax Act, 1957:
The primary question referred to the court was whether the assessee was liable to tax on the excess value of the corpus of the trust over the value of the interest of the beneficiaries under Section 21(1A) of the Wealth-tax Act, 1957. The court noted that Section 21(1A) applies when the value of the interest of the beneficiaries falls short of the value of the assets held in trust. In such cases, wealth-tax is levied on the excess value as if it were the net wealth of an individual. However, this provision is contingent upon the applicability of Section 21(1), which specifies the conditions under which trustees are liable to wealth-tax.

2. Applicability of Section 21(1) of the Wealth-tax Act to Trusts Created by Statute:
The court examined whether Section 21(1) of the Wealth-tax Act applies to the assessee, an official trustee appointed under a statute. Section 21(1) states that wealth-tax shall be levied on assets held by trustees appointed under a trust declared by a duly executed instrument in writing. The court concluded that the official trustee, appointed by statute, does not fall under this provision. The court emphasized that Section 21(1) is an exclusive and comprehensive charging section applicable only to trustees appointed under a court order or a duly executed instrument in writing. Since the official trustee in this case was appointed by statute and not by an instrument in writing, Section 21(1) does not apply.

3. Definition of "Instrument" under the Wealth-tax Act:
The court addressed the contention that a statute could be considered an "instrument" under Section 21(1). The court referred to previous judgments, including Emperor v. Rayangouda Lingangouda Patil and Vishnu Pratap Sugar Works (P.) Ltd. v. Chief Inspector of Stamps, to determine the meaning of "instrument." It was established that an "instrument" generally refers to a formal legal writing and does not include statutes unless explicitly defined as such within the statute. The court concluded that the term "instrument" in Section 21(1) does not encompass statutes, and therefore, the official trustee appointed by statute cannot be considered as holding assets under a trust declared by a duly executed instrument in writing.

Conclusion:
The court held that the official trustee, appointed by statute, is not covered by Section 21(1) of the Wealth-tax Act. Consequently, Section 21(1A) is also inapplicable to the assessee. The assessment of the applicant could not be effected under Section 21 of the Wealth-tax Act. The question referred to the court was answered in the negative and in favor of the assessee, concluding that the assessee was not liable to wealth-tax on the excess value of the corpus of the trust over the value of the beneficiaries' interests. The wealth-tax reference was disposed of with no order as to costs.

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