9911796707
TMI Blog1996 (11) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... stees were empowered to divide the corpus of the trust properties notionally into sixteen equal parts and create six funds as follows: 1. 4 parts Prince Azam Jah Fund 2. 4 parts Prince Moazzam Jah Fund 3. 1 part Sb. Shahzadi Begum fund 4. 1 part Sb. Basalat Jah Fund 5. 3 parts Remaining Daughters Fund 6. 3 parts Remaining Sons Fund. In respect of each of these funds, there were several family members who were only entitled to life interest and on the death of such members, the corpus was to be distributed absolutely for the benefit of their children in the ratio specified in the deed of trust. The manner in which these assessments have to be made under section 21 came up for consideration before the Supreme Court in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555. The Supreme Court held that the position has to be seen on the relevant valuation date, as if the preceding life interest had come to an end on that date and determine the shares of the beneficiaries existing on that date and assess the same. The Supreme Court also held in CIT v. Trustees of H. E. H. the Nizam's Family Trust [1986] 162 ITR 286, that several trusts can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 21(1A). It was also held that the assessments made under section 17 should be taken as valid because no return was filed for that residue by the trust. A reference application was made by the trustees and it is stated that the Tribunal has stated a case and has referred the question whether the Tribunal was right in upholding the validity of initiating proceedings under section 17(1)(a) of the Wealth-tax Act and the said referred case is pending. For the present assessment years 1987-88 and 1989-90, 1990-91 and 1992-93, similar notices under section 17 were issued by the Assistant Commissioner of Wealth-tax. These notices dated December 16, 1994, issued by the Assistant Commissioner of Wealth-tax merely stated that he had reason to believe that the net wealth chargeable to tax for the particular assessment year has escaped assessment within the meaning of section 17 of the Wealth-tax Act and called upon the trustee to file a return. The trustees made a representation to him on March 17, 1995, stating that the notices issued beyond the period of four years from the end of the relevant assessment year were barred by limitation, that the trustees have already filed ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, there was no residue at all which was liable to be assessed. It was further submitted that if the Assessing Officer had omitted to do so, it cannot be regarded as a failure on the part of the assessee, and, therefore, even if an assessment could be made under section 17, it would be barred by limitation in respect of the assessment years which ended four years prior to the issue of the notice. On the merits it was submitted that the actuarial method adopted by the Department was not correct and that the method of the trustees had the approval of the Supreme Court and even though this issue had been decided against the assessee by the Tribunal, the matter was pending in the High Court in the referred case. On the other hand, it was contended on behalf of the Revenue that a proper construction under section 21(1A) read with section 14(1) would clearly lead to the existence of a liability on behalf of the trustees to file a return in respect of the amount of the residue of the corpus assessable under section 21(1A) of the Act. It was submitted that if such returns had not been filed, the Assessing Officer will have the jurisdiction to issue notice under section 17 and as lone a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 21(1A) of the Act. We, therefore, overrule this objection also. The main issue in these cases is whether the Assessing Officer had jurisdiction under section 17 to issue a notice calling upon the trustees to file a return in respect of the residue assessable under section 21(1A) of the Wealth-tax Act. The reasons recorded by the Assistant Commissioner of Wealth-tax are contained in the order sheet, a copy of which is attached hereto. A perusal of this indicates that the only reason for initiating the proceedings under section 17 was the failure on the part of the assessees to make a return of the wealth. It is now argued on behalf of the Revenue that these failures related to the residue assessable under section 21(1A) of the Act inasmuch as in respect of the share of the beneficiary, the trustees had already filed the return on which the assessment had been completed. The question, therefore, shifts to section 14(1) as to whether a representative assessee liable for wealth-tax on assets held by him for the benefit of the beneficiaries is obliged to file a return under section 14(1) in respect of a residue chargeable under section 21(1A) of the Act. Section 21 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the shares of the beneficiaries who have a life interest and the remainder men cannot be brought to tax. Sub-section (1A) has been introduced for the specific purpose of taxing that residue. The Supreme Court had also explained the manner of assessment of representative trustees under section 21, that whenever the assessment is made on the trustee, it must be in accordance with the provisions of section 21. It was observed that : " Since under sub-sections (1) and (4) of section 21 it is the beneficial interests which are taxable in the hands of the trustees in a representative capacity and the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries, no part of the corpus of the trust properties can be assessed in the hands of the trustee under section 3 and any such assessment would be contrary to the plain mandatory provisions of section 21. The consequences of the provisions in section 21(1) that the trustee is assessable in the like manner and to the same extent' as the beneficiary are three-fold. In the first place, there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as that of the beneficiary. However, inasmuch as the residue is not attributable to any one beneficiary, but is assessable in respect of all the beneficiaries, sub-section (1A) provides for the status in which that residue can be assessed as an "individual". Learned standing counsel for the Revenue submitted that this requirement in sub-section (1A) necessarily implied that the trustee was obliged to file return as if the residue was net wealth belonging to him and returnable under the first part of section 14(1). We are unable to accept this contention because obviously any part of the property held in trust by a trustee, is not his net wealth but only the net wealth of the other persons. The Supreme Court in the case of W. O. Holdsworth v. State of Uttar Pradesh [1958] 33 ITR 472, observed that : "A trustee is the legal owner of the trust property and the property vests in him as such and the beneficiary has only a right against the trustee as owner of the trust property. The trustee no doubt holds the trust property for the benefit of the beneficiaries but he does not hold it on their behalf. The expressions 'for the benefit of' and 'on behalf of' are not synonymous and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others and not as a person holding the property on his own. Therefore, any return required to be filed by him under section 14 will be only with reference to the "net wealth of any other person" being the beneficiaries and not "his net wealth". Learned counsel for the Revenue submitted that in view of the stipulation under sub-section (1A) that the residue has to be assessed as if it were the net wealth of the individual, it must be regarded as his net wealth casting an obligation on him to file a return, He relied on the rule of construction expounded by Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 (HL), in the following words : "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs ; it does not say that having done so, you must cause or permit your imagination to boggle when it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was any asset which belonged to the trustee in his individual capacity which was required to be returned as such. To emphasise the point, we wish to state again that the liability of the trustee as a representative assessee to file a return under section 14(1) is a single liability with reference to the entire property held in trust for the benefit of the beneficiaries. It cannot be said that because the computation of such of the shares of the beneficiaries results in a residue, which has to be assessed separately under sub-section (1A), a further liability is created to file a separate return in respect of such a residue. The same conclusion can be arrived at by a close study of sub-section (1A) itself. That sub-section provides that wealth-tax shall be levied upon the trustee in respect of the value of the residue, in addition to the wealth-tax leviable and recoverable in sub-section (1), where the aggregate value of the interest of the beneficiaries falls short of the value of the corpus. In other words, this sub-section only provides for the levy of additional tax in a particular contingency which arises when the beneficiaries are assessed to tax. As pointed out by the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Admittedly, returns were filed by the trustees and since we have held that the trustees were required to file only one return in the representative capacity which was admittedly filed and there is no obligation to file a second return in his individual capacity in respect of the residue assessable under section 21(1A), we are convinced that the Assessing Officer had no jurisdiction to issue the impugned notices. Lastly, it was contended by learned standing counsel for the Revenue that the provisions of section 17 as it now stands are very wide and enable the Assessing Officer to bring to tax any net wealth which has escaped assessment and the only embargo will be the period of limitation of four years which applies to a case of failure to file a return or disclose full particulars. In other words, it was submitted that as long as the proposed reassessment is within four years of the end of the assessment year, mere escapement of net wealth is sufficient to give jurisdiction to the Assessing Officer to assess the same. Learned counsel for the petitioners, however, submitted that the section requires the reasons to be recorded and if the reasons so recorded did not justify the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief." The requirement of recording the reasons is only to ascertain whether such material existed which can lead to the belief of the Assessing Officer that wealth has escaped assessment. The acceptation of the expression "has reasons to believe" is that the Assessing Officer cannot rely on material other than what is recorded for the purpose of issuing the notice under section 17. In the present case, the only reason given was that the trustees had not filed a separate return in respect of the residue assessable under section 21(1A). When that reason fails, it is not possible for the Revenue to justify the notice on the basis of the reasons not recorded, because, if we accept such unrecorded reasons, it would be in violation of the safeguard provided in the proviso to section 17. (see also Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851). We are, therefore, unable to sustain the notices issued under section 17. The impugned notices are, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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