9911796707
TMI Blog1998 (9) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... n 100(Mad.) are against the assessee. The decision in the case of CIT v. Escorts Employees' Welfare Trust [1989] 175 ITR 105/[1990] 49 Taxman 286 (Delhi) only states that a question of law arises where such a trust is treated as a public charitable trust by the Tribunal. In this background it appear that the assessee cannot succeed on this point. 3. The facts relevant to the second contention of the assessee are as follows : The provisions of Income-tax Act originally allowed in the hands of the company the contribution made to the trust as an expenditure laid out for the purpose of business. The Finance Act, 1984 however introduced sections 40A(9), 40A(10) and 40A(11) with retrospective effect from 1-4-1980. Sub-section (9) provided that the contributions made by the company to the trust for providing a provident fund or gratuity or other benefit to the workmen will not be allowed as a deduction. Sub-section (10) stated that the amounts spent by the trust before 1st March, 1984 will be treated as an expenditure made by the company for the purpose of its income-tax assessment. Sub-section (11) provided that the company may claim repayment of unutilised contribution and when the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond's conception of "ownership" in the following passage:- "'Ownership', according to Salmond, denotes the relation between a person and an object forming the subject-matter of his ownership. It consists of a complex of rights, all of which are rights in rem, being good against all the world and not merely against specific persons. Firstly, Salmond says, the owner will have a right to possess the thing which he owns. He may not necessarily have possession. Secondly, the owner normally has the right to use and enjoy the thing owned; the right to manage it, i.e. the right to decide how it shall be used; and the right to the income from it. Thirdly, the owner has the right to consume, destroy or alienate the thing. Fourthly, ownership has the characteristic of being indeterminate in duration. The position of an owner differs from that of a non-owner in possession in that the latter's interest is subject to be determined at some future time. Fifthly, ownership has a residuary character." Keeping these principles in view we have to consider how the provisions of section 40A(9), (10) and (11) of the Income-tax Act affected the assets belonging to the assessee. 6. As we have seen ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislation contemplated. The Finance Minister in his Budget Speech [146 ITR (St.) 65 at 68] stated:- "Another undesirable practice noticed is the tendency of some corporate bodies to make large contributions to the so-called welfare funds. I further understand that utilisation of these funds is discretionary and subject to no discipline. I am, therefore, providing that deductions will be available only in respect of contributions to such funds as are established under statute or an approved provident fund, superannuation fund or gratuity fund. I am making this change with retrospective effect to avoid unnecessary litigation." The Finance Bill provided by clause 10 the introduction of sub-section (9) only in the following terms:- "(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up of, or as contribution to, any fund or trust for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) or clause (v) of sub-section (1) of section 36 or, as required by or under any other law for the time being in force." However, the Finance Act introduced three sub-sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him'." The Memorandum explaining this amendment stated as follows (Circular No. 387, dated 6-7-1984):- "Imposition of restrictions on contributions by employers to non-statutory funds- 16.1 Sums contributed by an employer to a recognised provident fund, an approved superannuation fund and an approved gratuity fund are deducted in computing his taxable profits. Expenditure actually incurred on the welfare of employees is also allowed as deduction. Instances have come to notice where certain employers have created irrevocable trusts, ostensibly for the welfare of employees, and transferred to such trusts substantial amounts by way of contribution. Some of these trusts have been set up as discretionary trusts with absolute discretion to the trustees to utilise the trust property in such manner as they may think fit for the benefit of the employees without any scheme o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provided that notwithstanding anything contained in any other law for the time being in force or in the instrument creating the trust or fund, the assessee may, at his option, claim that the unexpended amount shall be returned by the trustee to the assessee as early as possible. The assessee may also claim that any asset being land, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or any other institution out of the sums paid by the assessee be transferred to the assessee as early as possible. 16.5 The aforesaid provisions take effect retrospectively from 1st April, 1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 10(c) of the Finance Act]" 8. A study of this legislative background shows that Parliament was aware of the inequity of disallowing the expenditure allowed in respect of an irrevocable trust and provided that even the balance of the amount unspent will be treated as belonging to the company which created the irrevocable trust. In other words, the effect of these three sections is to statutorily revoke the irrevoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether that pre-existing title or right to possession extended prior to the enactment of the Finance Act, 1984 we have only to see the effect of the section on transactions of the trust prior to that date. For instance, if the trust had alienated the property acquired with the sum paid by the company, the provisions of section 11 do not enable such property to be traced and transferred back. This is because while sub-section (9) treates only expenditure laid out for the benefit of the employees as the expenditure of the company and sub-section (11) allows a claim for repayment of the unutilized contribution, whether held in moneys or in the form of other assets, there is nothing in these subsections with reference to other expenditure incurred by the trust for the administration of the trust or even alienation made by the trust. This situation is analogous to creation of benami transaction within the scope of section 82 of the Indian Trusts Act. The direct consequence of such a situation would be to treat the trust as benami for the company from the date on which section 40A(9), (10) and (11) came into force. 10. The situation is further complicated by the promulgation of the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile the income of that fund (which is the right to dispose of the income by means of expenditure) is granted to the company w.e.f. 1-4-1980 itself. Under this well understood canon of construction it has to be accepted that the fund itself must be taken to belong to the company from 1-4-1980 when the company was entitled to adopt the expenditure as its own thereby appropriate the income. 12. There is also a question of the liability to wealth-tax. While sub-section (10) deems expenditure incurred by the trust for the welfare of the employees as the expenditure of the company, the other expenditure incurred by the trust are left without consideration in these sections. It is probably because the sections related only to question of allowance of the expenditure as deduction in computing the income of the company. But the wealth-tax liability with reference to the fund could also be regarded as an expenditure indirectly for the welfare of the employees because, if the liability is not met, the fund itself may be wiped off by penal action and the surplus of the fund is to be preserved for the welfare of the employees. Secondly, the provisions of sub-section (11) were brought into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the Act to include repayment of the contribution by the trust to the company. The other objective was to defeat the attempt to use the trust as a cloak for the transactions of the company so that it is the company which is regarded as real owner of the fund and the person who is incurring the expenditure for the welfare of the employees. This law was made justly and for the benefit of the community and therefore it related to a time antecedent to the commencement. Moreover, unless the sections were given retrospective operation from 1-4-1980, it would prejudicially affect vested right and the legality of past transactions, inasmuch as in the context of the Benami Prohibition Act those transactions would become illegal. We are, therefore, satisfied that the intention of Parliament was to convert the trust into an agent from 1-4-1980 itself and this effect, if it may be called retrospective, is inherent in the section as in tone these provisions are declaratory in nature. The tests propounded by the Supreme Court are all satisfied and hence it is not possible to accept the contention of the revenue that the assets must be regarded as belonging to the assessee trust until they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had vested interest at the inception, it became a contingent interest upon the enactment of sub-section (11) w.e.f. 1-4-1980 and the assessee had no interest exceeding six years even from 1-2-1980 the date of the trust deed, if not from 1-4-1980, because up on the amendment being made by the Finance Act, 1984, the company could make a claim at any moment from 1-4-1984 or any of the relevant valuation dates. The title of the assessee became precarious by operation of law. It has been held by the Supreme Court in the case of CWT v. Smt. R.A. Muthukrishna Ammal [l969] 72 ITR 801 that precarious assets are not liable to wealth-tax. In our considered opinion the properties even if considered to be held by the trust cannot be regarded as assets exigible to tax within the meaning of the Wealth-tax Act. 16. Thus from any point of view, the funds which were liable to be returned in accordance with the provisions of section 40A(9), (10) and (11) w.e.f. 1-4-1980 could not be regarded as forming part of the net wealth of the assessee for the purpose of Wealth-tax Act from that date onwards. We, therefore, direct the W.T.O. to exclude the value of such funds from the net wealth o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument advanced in this case about the retrospectivity of section 40A(11). No amount of hair splitting can help any one to get away from this argument advanced by the CIT (Appeals). It is worth reproducing from the order of the CIT (Appeals) before going further in this case:- "A liability between two contracting parties cannot be created with retrospective effect. No doubt the provisions of section 40A(11) of the Income-tax Act with retrospective effect from 1-4-1980 empowers the company to call back their contributions remaining unspent with the trust. But such a provision by itself does not create a liability. The liability is created only when the company informs the trust that they are calling back their contribution by virtue of section 40A(11). As the liability in this case was created only on 23-8-84 after the valuation dates, relevant for the assessment years 1983-84, 1984-85 and 1985-86, I hold that the Wealth-tax Officer has rightly rejected the claim for deduction of the sum of Rs. 14 lakhs as a liability in the hands of the appellant. The orders under appeal are therefore confirmed." It is worth-noting that under section 40A(11), where any claim is so made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable under the Wealth-tax Act. Reference may be made to the rulings in CWT v. Ashokkumar Ramanlal [1967] 63 ITR 133 (Guj.), Bhogilal Maganlal Shah's case and CWT v. Anarkali Sarabhai [1971] 81 ITR 375 (Guj.). 4. The definition of "net wealth" in section 2(m) also refers to debts owed by the assessee on the valuation date. The Madras High Court explained in CWT v. Pierce Leslie Co. Ltd. [1963] 48 ITR 1005 that a debt has to be distinguished from what can only be described as something which will probably or possibly ripen into a debt. A future contingent liability is not a debt due or owning or owing. It is not only not due, but being contingent, never may become due. An inchoate liability with a fair prospect of maturity into a debt in future and still in its embryo stage, would not answer the description of a debt. Till it is born, it is not a debt. Every kind of liability, immature, formative and in the course of evolution to become a debt, cannot be called a debt in anticipation of the ultimate. The Supreme Court considered the definition of the term "debt" in Kesoram Industries Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 and observed- "The principle of the matter is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he properly of rightful possession of". It is the property of a person or that which is in his possession as of right, which is liable to wealth-tax. It is adiomatic in the case of arbitrator's award only a contingent liability is created and only when it is made a rule by the Court and decree is passed that the same becomes a debt due for the purpose of wealth-tax deduction as held in A.P.S. Cold Storage Ice Factory v. CIT [1979] 119 ITR 709/2 Taxman 459 (All.). A gratuity provision made in the balance-sheet is not deductible for purposes of ascertaining net wealth. It is not a debt owed on the valuation date vide Standard Mills Co. Ltd. v. CWT [1967] 63 ITR 470 (SC). It has been clarified in a number of rulings that the concept of debt postulates an existing liability as distinguished from a liability which is contingent - CWT v. Associated Cement Co. Ltd. [1981] 128 ITR 626/[1980] 4 Taxman 556 (Bom.). 6. Conversely an asset to be included must belong to the assessee on the valuation date, i.e., a lottery prize won in a raffle will be includible only when the amount is officially declared as won by the assessee and gazetted accordingly and not earlier - CWT v. Smt. Premilabai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d destroy any proceeding whether not yet begun or whether pending at the time of the enactment of the Repealing Act and not already prosecuted to a final judgment so as to create a vested right : Vide Crawford on Statutory Constitution, pp. 599-600. To obviate such results, a practice came into existence in England to insert a saving clause in the repealing statute with a view to preserve rights and liabilities already accrued or incurred under the repealed enactment. Later on, to dispense with the necessity of having to insert a saving clause on each occasion, section 38(2) was inserted in the Interpretation Act of 1889, which provides that a repeal, unless the contrary intention appears, does not affect the previous operation of the repealed enactment or anything duly done or suffered under it and any investigation, legal proceeding or remedy may be instituted, continued or enforced in respect of any right, liability and penalty under the repealed Act as if the Repealing Act had not been passed. Section 6 of the General Clauses Act, as is well-known, is on the same lines as section 38(2) of the Interpretation Act of England." 8. A right that accrued to the assessee-trust over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). In the recent ruling of the Supreme Court in CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 155 ITR 711/23 Taxman 8 the effect of the legal fiction is explained at page 718. The Court reiterated with approval its views declared in the Bengal Immunity Case [1957] 2 SCR 203 at 206 that the legal fictions are created only for some definite purpose and this must be limited to that purpose and should not be extended beyond that limited field. Any number of authorities can be quoted in support of the view that in trying to give a harmonious interpretation of the amendment, repealing and other enactments, no violence should be done to existing provisions under the guise of giving full effect to the amended law. Every amendment in the law will have to confine to the provisions of section 6 of the General Clauses Act. Reference may be made in this connection to the ruling of the Supreme Court in CIT v. Godavari Sugar Mills Ltd AIR 1967 SC 556. This case related to an order under section 23A of the 1922 Act at a time when the Public Companies (Limitation of Dividends) Ordinance, 1948 was in operation. The Supreme Court held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was never meant to confer any benefit on one or other of the parties involved in the avoidance device. A measurement to plug the loophole in the Income-tax Act by denying the benefit of deduction for contribution to dubious welfare trust cannot be interpretated as conferring a benefit to the trust itself in the matter of wealth-tax assessment. To quote the Supreme Court again, it is neither fair nor desirable to expect Parliament to intervene and take care of every device and scheme to avoid taxation. It is upto the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction. The acceptance of the argument of the appellant in this case will amount to giving such judicial benediction to another tax avoidance scheme not permitted by the amended legislation. It is a salutary principle of interpretation that provisions of two enactments must be construed harmoniously without doing offence to one of the two enactments while applying the other. 10. My conclusions are- (1) On the relevant valuation dates, namely 30-6-1982, 30-6-1983 and 30-6-1984, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "Whether, on the facts and in the circumstances of the case, the retrospective operation of section 40A(11) of the Income-tax Act, 1961 w.e.f. 1-4-1980 affects the liability of the assessee-trust to Wealth-tax?" 2. The President, ITAT, nominated himself as the Third Member and it was communicated to the Madras Office vide Registrar's U.O. No. F. 12-JD (AT)/89(SZ) dated 20-11-1989. Therefore, in view of that order, as President, ITAT, I took up the difference of opinion for consideration and give my orders hereunder. 3. The assessee is M/s. Cumi Employee's Welfare Trust, Madras. Admittedly, M/s. Carborandum Universal Ltd., contributed Rs. 14 lakhs for the welfare of the employees to this Public Charitable Trust. The assessee trust was created by M/s. Carborandum Universal Ltd. for the welfare of its employees by Deed dated 20-2-1980. The provisions of section 40A(11) of the Income-tax Act, was inserted by the Finance Act with retrospective effect from 1-4-1980. The said provisions along with heading of section 40A read as follows: "40A. Expenses or payments not deductible in certain circumstances... (11) Where the assessee has, before the 1st day of March, 1984 paid any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judicial Member in his order had taken into consideration the concept of 'ownership' in the Salmond's Jurisprudence. The learned author, Salmond states that 'ownership' denotes the relation between a person and an object forming the subject matter of his ownership. It consists of a complex of rights, all of which are rights in rem, being good against all the world and not merely against specific persons. The ingredients to the concept of ownership consist of the following: (i) the owner will have a right to possess the thing which he owns; though he may not necessarily have possession; (ii) the owner has the right to use and enjoy the thing owned; further he has the right to decide how it shall be used; and the right to derive income from it; (iii) the owner has the right to consume, destroy or alienate the things; (iv) 'Ownership' has the characteristic of being indeterminate in duration; (v) the ownership has a residuary character. Applying the above tests, the learned Judicial Member considered the retrospective effect of section 40A(11) already quoted above. Before arriving at this conclusion the learned Judicial Member had duly kept in mind the principles enunciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial Member after discussing the combined effect of the section 40A(11) as well as the promulgation of Benami Transactions (Prohibition) Act, 1988 (174 ITR St. 37) and after duly taking into consideration the effect of the Hon'ble Supreme Court judgment in Mithilesh Kumari's case where it is held that the said Act was retrospective and must be applied to all transactions prior to the date of coming into force of that Act, held the following: "The funds of the trust are by statute given back to the company on the contingency of a claim being made under section 40A(11) while the income of that fund (which is the right of dispose of the income by means of expenditure) is granted to the company w.e.f. 1-4-1980 itself. Under this well understood cannon of construction, it has to be accepted that the fund itself must be taken to belong to the company from 1-4-1980 when the company was entitled to adopt the expenditure as its own thereby appropriate the income." 6. In para 12, the learned Judicial Member held that the provisions of section 40A(11) are retrospective in operation and should be applied even from 1-4-1980. While examining the claim of liability from 1-4-1980 of returnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the fund belongs to the assessee trust only, till the claim is made by the company, is untenable. According to him, this argument amounts to reading the provisions of section 40A(11) in isolation and also depends upon the assumption that there is a transfer of title only when the funds are repaid. The learned Judicial Member opined that the transfer of title is affected, therefore, by operation of law and not by the act of parties under the provisions of section 40A(11). He held that such transfer of property by operation of law must be certain and should not be left to speculation. The fiction under section 40A(11) when construed, properly creates, certain liability but not a contingent liability. Under the said provision the unspent amount from 1-4-1980 belongs to the donor and no longer belongs to the assessee-trust. In order to butress the validity of his conclusion he had examined section 2(e)(v) of the Wealth-tax Act, which defines an asset to exclude any interest in property where the interest is available to the assessee for a period not exceeding six years from the date of interest vests in the assessee. Assuming the liability of the assessee trust is to return the money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) found that the company passed a resolution calling back the amount of contribution only on 21-3-1984 and till that date the trust was making use of the fund treating the same as its own money. The CIT (Appeals) found that the liability between the two contracting parties cannot be created with retrospective effect. The learned Accountant Member states that this is a telling comment on the argument advanced in this case about the retrospectivity of section 40A(11). He reproduced a portion of the CIT(Appeals)'s order also and according to his reading of section 40A(11), the unutilised amount shall be repaid as soon as may be. The learned Accountant Member took note of section 3, 2(m) Wealth-tax Act as well as section 2(e) Wealth-tax Act which is the definition of the word "asset" under the Wealth-tax Act. He had also noted the Gujarat High Court decision in Bhogilal Maganlal Shah's case wherein it is stated that the contingent asset constituted an asset within the meaning of section 2(e) of the Wealth-tax Act and even an interest in expectancy comes within the definition of the term "asset". He pointed out the distinction between vested and contingent interest on one side a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a debt due. In other words, debts are of two kinds : Solvendum in presenti and Solvendum in futuro. Whether a claim or demand is a debt or not, is in no respect determined by a reference to the time of payment. A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt, until the contingency had happened'. Similarly, the Punjab High Court in Harindra Singh Brar Bans Bhadur v. WTO [1967] 64 ITR 403, quoting the above observation of the Supreme Court in the above case held: "A debt is a present obligation to pay an ascertainable sum of money whether the amount is payable in presenti or futuro, debitum in presenti, solvendum in futuro. But a sum payable upon a contingency does not become a debt until the said contingency has happened." 10. After observing several case laws, to highlight the fact that a contingent liability is not owed, he held that an asset to be included in the wealth must belong to the assessee on the valuation date. He also recorded the arguments advanced on behalf of the assessee, viz. Section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and he had cited the decisions in Vadilal Lallubhai's case, Cambay Electric Supply Industrial Co. Ltd.'s case and Mother India Refrigeration Industries (P.) Ltd's case for the proposition that the legal fiction should be extended only in order to achieve the purpose for which it is created and should not be extended any further. He stated that any number of authorities can be quoted in support of the view that in trying to give a harmonious interpretation of the amendment, repealing and other enactments, no violence should be done to the existing provisions under the guise of giving full effect to the amended law. Every amendment in the law will have to conform to the provisions of section 6 of the General Clauses Act. He relied upon the decision of the Supreme Court in Godavari Sugar Mills Ltd.'s case for the proposition that it is the law which prevailed on the date of annual general meeting which has to be taken into account in considering the legal validity of the order under section 23A made by the ITO. Again he had given the following findings: "To me, it appears that section 40A(11) cannot be interpreted to mean that there will be no liability to wealth-tax in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alth-tax Act are likely to be contravened. He submitted that the sum of Rs. 19 or 14 lakhs which is the subject matter of these appeals, admittedly represents an unspent amount by the trust on each of the relevant valuation dates. Even though the donor claimed the amount back in 1984, the right to claim back the unspent amount accrued to it from the date from which the provisions of section 40A(11) came into retrospective operation, viz, 1-4-1980. Therefore, even though on 1-4-1980 the amount is lying with the assessee-trust, it can no longer be said that the said amount belonged to the assessee-trust and by virtue of the provisions of section 40A(11) the unspent amount of Rs. 14 lakh or Rs. 19 lakh, as the case may be, should always be taken to be due to the donor from the assessee trust. Therefore, it is obvious that from 1-4-1980, the donor has the right to claim even though in fact the claim to return back the amount was made in 1984. The legal effect of the retrospective operation of section 40A(11) actually revokes the trust or makes the trust revocable to the extent of Rs. 19 lakh or Rs. 14 lakh, as the case may be. Section 4(5) of the Wealth-tax act, is significant to be bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under the law. Upholding the claim of the assessee-company the following is held by the Madras Bench of the Tribunal as per the head note obtaining at page 173 of the decision: "The accrued interest for the accounting year in question or the dividend income earned during that year which were both assessed in the hands of the assessee trust for the assessment year 1982-83 came under the unutilised amount for which also the company had got every right to recover from the assessee-trust. The amount invested in fixed deposits in bank from out of contributions made and accrued interest thereon could not partake the character of expenditure in the hands of the assessee-trust. The invested funds in fixed deposits, from the facts and circumstances of the case, should be held forming part of the unutilised amount within the meaning of section 40A(11)(i). This unutilised amount because of retrospective operation should be deemed to be returnable even by 1-4-1980. To put in other words, from 1-4-1980 the whole of the unutilized amount belonged to the company and no longer belonged to the assessee-trust. When the amount of deposit belonged to the company especially in the accounting year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s." The CBDT circular is found extracted in 152 ITR St. 1. He drew my attention to paragraphs 16.1 to 16.5 of the said Circular found printed at pages 10 and 11 of the 152 ITR. The learned D.R. argued that a debt should be allowed in the hands of the trust only after the claim is made, which is possible only after 1-4-1984. He stated that the learned J.M. in para 10 of his order had followed the Supreme Court decision in Mithilesh Kumari's case. He brought to my notice that this decision was subsequently partly overruled by the Supreme Court itself in the case of R. Rajagopal Reddy v. Padmini Chandrasekharan [1995] 213 ITR 340/79 Taxman 92 (SC) at 342. The learned D.R. also argued that the liability created between the two contracting parties cannot be made retrospectively operative and for this proposition he strongly relied upon the decision of the Supreme Court in the case of Kesoram Industries Cotton Mills Ltd. He submitted that the claim to return back the money by the donor was made in pursuance of the resolution passed by the Company on 23-8-1984. Therefore, according to the learned D.R. on and from 23-8-1984 or thereafter the unspent amount is returnable but not before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nutilised amount which is the same repayable to the donor with effect from 1-4-1980 becomes a liability or a 'debt' due from the assessee trust to the donor company while computing the net wealth of the assessee trust under section 2(m) of the Wealth-tax Act, the unutilised amount which is recoverable from the assessee trust from 1-4-1980 is deductible from the total value of the asset held by the assessee trust on the valuation dates subsequent to 1-4-1980. 18. After having considered the arguments on both the sides advanced before me, I find it easy to accept the arguments advanced on behalf of the assessee and consequently I hold that the learned J.M.'s ultimate conclusion that the unutilised amount in the hands of the assessee-trust from out of the contributions made by the donor becomes debt in the hands of the assessee-trust from 1-4-1980 itself under the provisions of section 40A(11), which are specifically held to be retrospective from 1-4-1980 is correct. The only point of difference as set out in the referred question is whether the retrospective operation to section 40A(11) with effect from 1-4-1980 affects the liability of the assessee-trust to wealth-tax. In my opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the donee trust (assessee trust) from the date when the liability to repay arose viz., 1-4-1980. In this connection, the provisions of section 4(5) of the Wealth-tax Act is very relevant to be considered. As correctly argued section 4 is provided under the head "Net wealth to include certain assets" which states: "The value of any assets transferred under an irrevocable transfer shall be liable to be included in computing the net wealth of the transferor as and when the power to revoke arises to him". This provision would clearly show that from the date when the power to revoke arose to the donor the unutilised amount, which is repayable to it, should be considered to be part of its assets liable to wealth-tax under section 4(5) of the Wealth-tax Act. If unutilised amount should be regarded as part of the taxable assets held by the donor-company, correspondingly, it should form part of the debt due from the assessee-trust, since it is common knowledge that a single 'asset' cannot constitute wealth both in the hands of the donor as well as in the hands of the donee especially in the face of clear working of section 40A(11) in that regard. I have already examined this position in Tub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion relation to Benami Transactions (Prohibition) Act, 1988, both by the learned Members, in my opinion, is not directly relevant for disposal of the case and the sixth conclusion of the learned A.M. that the legal fiction created under section 40A(11) has only a limited application and the fiction is not applicable to the facts and circumstances of the case is again, in my view, erroneous and does not stand on the anvil of correct legal scrutiny. Therefore, I agree with the conclusion reached by the learned Judicial Member and allow the amount of Rs. 19 lakh or Rs. 14 lakh, as the case may be, as the liability in the hands of the donee-trust for all the three assessment years under consideration. 20. The matter now is directed to go back to the Division Bench and the Division Bench should pass an order according to the majority verdict. Per N.D. Raghavan (Judicial Member) - These are appeals of the assessee challenging the common order dated 6-2-1989 of the CIT(Appeals) as erroneous. 2. Facts of the case are briefly these : The common ground in all these three appeals of the assessee for the respective assessment years is that the Assessing Officer ought to have deducted a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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