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TMI Blog2004 (9) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Wealth-tax Act, 1957? 2. Whether, on the facts and in the circumstances of the case and on a true interpretation of the provisions of section 25(2) of the Wealth-tax Act, 1957, the Commissioner of Wealth-tax had validly assumed jurisdiction and was justified in law in holding that the assessments made by the Wealth-tax Officer under section 21(2) of the Wealth-tax Act, 1957, were erroneous?" It may be mentioned here that in respect of the wife of Rakesh Mohan Private Trust, the assessment years involved are 1974-75 to 1976-77 whereas in respect of the other three assessees, the assessment years involved are 1973-74 to 1977-78. Briefly stated, the facts giving rise to the present reference are as follows: Each of the assessees is a private trust. The following is the Table of relationships: Padmshri N. N. Mohan deceased) Padmabhushan Lt. Col. Sukhdeo Mohan Lt. Col. Kapil Mohan V. R. Mohan (Died) Rakesh Mohan Pankaj Mohan Vinay Mohan Hemant Mohan Lt. Col. Kapil Mohan executed a deed dated October 20,1973, in respect of 60,000 equity shares of Mohan Meakins Breweries Limited for the benefit of the wife of Rakesh Mohan. Under clause 2 of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Wealth-tax Officer completed the assessments of these assessees in the status of individuals by invoking the provisions of section 21(1)/21(2) of the Act on the basis that on each of the valuation dates the beneficiaries were known and that their shares were determinate. Subsequent to the making of these assessments and in view of the objection raised in the audit note the Wealth-tax Officer sought to rectify the assessments by issuing notices dated August 27, 1979, under section 35 of the Act on the ground that the status of the assessees had been wrongly adopted. However, the Wealth-tax Officer dropped the reassessment proceedings after considering the replies of the assessees. Thereafter, the Commissioner of Wealth-tax, acting under section 25(2) of the Act, issued notices to the assessees on December 13, 1979, to the effect that the assessments made by the Wealth-tax Officer under section 16(3) were erroneous in so far as they were prejudicial to the interests of the Revenue inasmuch as the Wealth-tax Officer had assessed the assessees in the status of individuals on the ground that the shares of the sole beneficiaries were determinate and had allowed exemptions under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the following decisions: (i) CIT v. Brig. Kapil Mohan [2001] 252 ITR 830 (Delhi); (ii) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC); (iii) CIT v. Jagadhri Electric Supply and Industrial Co. [1983] 140 ITR 490 (P & H); (iv) Oswal Traders v. CIT [1997] 228 ITR 195 (MP); (v) Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC); (vi) CWT v. Smt. Arundhati Balkrishna Trust [1975] 101 ITR 626 (Guj); (vii) Jeewanlal (1929) Ltd. v. Addl. CIT [1977] 108 ITR 407 (Cal); (viii) CIT v. Arvind Jewellers [2003] 259 ITR 502 (Guj); (ix) Padmavati Jaykrishna Trust v. CWT [1966] 61 ITR 66 (Guj); (x) CIT v. P. Bhandari [1984] 147 ITR 500 (Mad); (xi) L. Gouthamchand v. CIT [1989] 176 ITR 442 (Mad); (xii) Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 (SC); and (xiii) Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC). Sri A. N. Mahajari, learned counsel for the Revenue, however, submitted that from a perusal of the trust deed it is clear that beneficiaries were not in existence on the relevant valuation dates in respect of each assessment year in question and, therefore, the beneficiaries were indeterminate and the provision of section 21( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of the twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to the interests of the Revenue or if the order of the Income-tax Officer is not erroneous but is prejudicial to the interests of the Revenue, recourse cannot be had to section 263(1) of the Income-tax Act, 1961, and the provision cannot be invoked to correct each and every type of error committed by the Assessing Officer. It is only when an order is erroneous then the section will be attracted. The apex court has further held that the incorrect assumption of fact or incorrect assumption of law will satisfy the requirement of the order being erroneous. The phrase "prejudicial to the interests of the Revenue" is of wide import and is not confined to loss of tax. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the availability of exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. The emphasis is that for considering the exemption evaluation should be made each year regarding the purpose for which the institution existed. In the case of Smt. Arundhati Balkrishna Trust [1975] 101 ITR 626, the Gujarat High Court has held that section 21(4) of the Act would apply where the shares of the beneficiaries were indeterminate or unknown, i.e., where the settlor had not determined or specified the shares. In the case of Oswal Traders [1997] 228 ITR 195, the Madhya Pradesh High Court was considering a case under section 161(1) of the Income-tax Act, 1961. In that case, a registered settlement deed on November 26, 1979, was executed by Neelam Chand Berdia creating a private trust. Clause 4 of the deed dealt with the distribution. It provided that the date of distribution means the day on which shall expire the period of 20 years after execution of the settlement or such earlier or later day as the trustees may in their absolute discretion at any time appoint. The share of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible to say with certainty and definiteness as to who would be the beneficiaries and whether their shares would be determinate and specific, if the event on the happening of which the distribution is to take place occurred on that date, the case will be governed by sub-section (4) of section 21 of the Act. The apex court has further held that when the beneficiaries are indeterminate or unknown then obviously their shares would also be indeterminate and unknown and they cannot conceive of a case where the share would be determined or named while the beneficiaries are indeterminate or unknown. According to the apex court, the expression "where the shares of the beneficiaries are indeterminate or unknown" carries with it, by necessary implication, a situation where the beneficiaries themselves are indeterminate or unknown. In the case of A.V. Reddy Trust v. CWT [1999] 240 ITR 409, the apex court was considering the following clauses of the trust deed executed by Sri A.V. Reddy of Kadiam in East Godavari District for the benefit of his three grandchildren and daughter: "The trustee for the time being may, at his discretion, apply the whole or any portion of the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this view of the matter, the Commissioner of Wealth-tax was justified in assuming jurisdiction under section 25(2) of the Act. So far as the question as to whether the shares of the beneficiaries were determined or not is concerned, it may be mentioned here that each of the four trust deeds contained identical clauses with variations in the names. In the trust deed dated October 20, 1973, executed by Major Kapil Mohan, on October 20, 1973, the beneficiaries of the trust had been the wife of Sri Rakesh Mohan, son of the late Padmabhushan Col. V. R. Mohan. The following clauses 2 and 3 of the said trust deed are relevant and are reproduced below: "2. That the beneficiary of this trust is and shall be the wife of Sri Rakesh Mohan, son of the Padma Bhushan Lt. Col. V. R. Mohan and in case she dies or otherwise becomes incapable of acquiring any interest in property the beneficiary of this trust shall be the second wife of Sri Rakesh Mohan in case he marries again and in case his first wife becomes incapable of acquiring property, then the first male child of Sri Rakesh Mohan on the attainment of majority of such male child. 3. If the said Sri Rakesh Mohan does not marry and/or in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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