9911796707
TMI Blog1987 (4) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... clude items which were not considered in the original assessments ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in not adopting the method of capitalisation of income for determining the value of Chittoor Road properties which are in the occupation of tenants ? " The assessment years in question are 1961-62 to 1969-70. The assessee is a trust created by one Abdul Sathar Haji Moosa Sait by his will dated 25th day of Kanni, 1099 M.E. (annexure-A). The assessee holds properties under a trust. It is claimed that a portion of this wealth is held under trust for charitable or religious purposes and is, therefore, exempt from the levy of wealth-tax under section 5(1)(i) of the Wealth-tax Act, 1957 (the " Act "). In Commr of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker), this court had occasion to construe the relevant provisions of the trust in question, as evidenced by annexure-A will. This court held that the dominant purpose of the trust was not charitable and properties held by the assessee were not held under trust wholly for religious or charitable purposes, but they were held in part only for such purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending that the Wealth-tax Officer ought not to have adopted the land and building method, but should have valued the immovable properties on the basis of capitalisation of the annual rent; the Wealth-tax Officer ought to have deducted 31-25 per cent. of the total net wealth as the portion held for public charitable purposes for the assessment years 1961-62 to 1966-67 as he had done for the subsequent three years; the immovable properties in question being encumbered by the trust and not transferable have no market value and, therefore, were not includible in computing the net wealth of the assessee, etc. The Appellate Assistant Commissioner, without expressing any view on the merits of the contentions of the assessee, set aside the assessment with a direction to the Wealth-tax Officer to redo the assessment according to law and after stating the reasons. Accordingly, the Wealth-tax Officer by annexure-E series dated November 11, 1975, made a fresh assessment for each of the years. He determined the value of the immovable properties in Chittoor Road on the basis of the average value by adopting the land and building method as well as the method of capitalisation of the annual net y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act which reads : " (5B) The order of the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision." Pointing out that the order of the Appellate Assistant Commissioner must necessarily contain " points for determination " and " the reasons for the decision ", counsel for the assessee contends that the Wealth-tax Officer ought to have restricted himself to specific points to which specific reference had been made by the Appellate Assistant Commissioner. Sub-section (5B) of section 23 of the Wealth-tax Act, 1957, and subsection (6) of section 250 of the Income-tax Act, 1961, are identical. Referring to the latter provision, Kanga and Palkhivala in " The Law and Practice of Income-tax ", Vol. 17th edn., page II 28, says : " The Appellate Assistant Commissioner must state facts and give reasons for his findings, for the purpose of enabling the Tribunal to see whether the findings are supported by the facts of the case. This principle which was judicially, recognised under the 1922 Act, is given statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Assistant Commissioner under the Wealth-tax Act is as wide as it is in the case of his counterpart under the Income-tax Act, 1961 : (See section 23 of the Wealth-tax Act, 1957, and sections 250 and 251 of the Income-tax Act, 1961). They have identical powers of remand. The observation of this court in K. P. Moideenkutty v. CIT [1981] 131 ITR 356, 360, is, therefore, applicable with equal force to the facts of this case. In so far as the order of remand is couched in the widest terms, it was open to the Wealth-tax Officer, as he has done in the instant case, to include the amounts which had not been originally included and also to redetermine the validity of the claim for exemption under section 5(1)(i) in respect of all the assessment years in question. see no error of jurisdiction in the orders of the Wealth-tax Officer and the Tribunal has, in my view, rightly held so. Accordingly, I answer questions Nos. 1 and 3 in the affirmative, that is, in favour of the Revenue and against the assessee. As regards the method of valuation, the Tribunal says: " 21. ...It is significant that the assessee has not questioned the valuation made by the approved valuer by adopting the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the question of exemption under section 5(1)(i) of the Act, but with the method of computation of wealth-tax in respect of assets held by trust. The Supreme Court pointed out that, for the assessment of a trustee, section 3 of the Act should operate subject to and in accordance with section 21. Under sub-sections (1) and (4) of section 21, it was the beneficial interest which was taxable in the hands of the trustees in a representative capacity. The court pointed out that the Revenue had the option to assess the beneficial interest either in the hands of the trustee in a representative capacity or assess it directly in the hands of the beneficiary. In either case, what was taxed was the interest of the beneficiary in the trust properties and not the corpus of the trust properties. This meant, the charge was on the actuarial valuation of the beneficial interests and not on the market value of the corpus. The court then gave an example (p. 595): Let us, by way of illustration, take a case where property of the value of Rs. 10 lakhs is held in trust under which the income of the property is given to A for life and on his death, the property is to be divided equally between B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of these statutes, the court observed, were identical. The court in this connection cited with approval the observation of Chagla C. in CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187 (Bom) and also followed its own decision in C. R. Nagappa v. CIT[1969] 73 ITR 626 (SC), where Shah J. (as he then was) adopting the construction of section 41 of the Indian Income-tax Act, 1922, by Chagla C.J. in Vaidya's case [1958] 34 ITR 187 (Bom), observed that " the same considerations must apply in the interpretation of section 161(2) of the Income-tax Act, 1961." What Chagla C.J. stated in Vaidya's case [1958] 34 ITR 187 (Bom) was that the liability of the trustee to income-tax was a vicarious liability and it was co-extensive with that of the beneficiaries. In no case could it be a larger or wider liability. If the assessment was made upon a trustee, whatever the nature of the income, whatever the mode of computation, his liability to pay the tax had to be determined in terms of section 41 of the Indian Income-tax Act, 1922. This is what the learned Chief justice stated : " The basic idea underlying section 41, and which is in conformity with principle, is that the liability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(1)(i) of the Act. Nor is that contention supported by the decision of the Supreme Court in CIT v. Manilal Dhanji [1962] 44 ITR 876, which arose under the Indian Income-tax Act, 1922. What was decided in that case was that by single document more than one trust could be created. The court held (p. 886): " The assessee's father created two trusts by that trust deed, one requiring the trustees to pay the trust income to the assessee and the other requiring the assessee, who was himself a trustee, to spend the income for the maintenance, education and benefit of his children. It is not disputed that by a single document more than one trust may be created. It is not, therefore, true to say that the subject-matter of the trust in the present case was merely a beneficial interest under a subsisting trust." Elaborating the aspects of the specific question referred on the point, counsel for the assessee submits that a quarter of the income earmarked for charity pertains to a distinct and beneficial interest relating to a distinct portion of the wealth held under a separate trust, and such asset qualifies for exemption under section 5(1)(i) of the Act. In other words, a portion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (SC), does not advance the case of the assessee any more than the decision of this court in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230, which also turned on the application of the income for the purpose of assessment under the Kerala Agricultural Income-tax Act, 1950. Nor does the observation of the Privy Council in A11 India Spinners' Association v. CIT [1944] 12 ITR 482, advances the case of the assessee. That case arose under the Indian Income-tax Act, 1922, and the clear finding of the Privy Council on the construction of the constituent and dominant terms was that the primary object of the trust was the relief of the poor and the advancement of general public utility and that the income applied to such charitable purposes was clearly exempt under section 4(3)(i) of that Act. Fourthly, the submission at the bar is not supported by pleas or findings. The object of the trust or other legal obligation must, in the final analysis, be determined, for the purpose of the Act, with reference to the terms constituting it, as evidenced by its instrument or otherwise, and not with reference to the actual application of the income. See the observation of Sabya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CWT [1977] 106 ITR 709, at p. 716: " If one turns again to section 4(3)(i) of the Indian Income-tax Act, 1922, under clause (i) to earn the exemption, income is required to have been derived from property under trust wholly or in part held for religious or charitable purposes. If it was wholly held on trust for religious or charitable purposes, the whole of the income is exempt, and in case of property held in part only for such purposes, the income applied or finally set apart for application thereto is exempt. This is of course subject to other requirements mentioned in the sub-section and in the proviso. Now, in the case of the Wealth-tax Act, where a property is held on trust for objects which are partly charitable and partly non-charitable, there cannot be any apportionment as is to be found under the Indian Income-tax Act. Such apportionment is possible only in case of income and is not possible with respect to the corpus or assets which yield income. In my view, the omission of the word 'wholly' in the above section of the Wealth-tax Act and the omission of a similar provision as is to be found in the later part of the sub-section in the Indian Income-tax Act was deliberat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust." In that case, no attempt was made or could have been made to split the income on the basis of its application and apportion the assets with reference to the proportionate source of the income applied to charity. Such apportionment is not possible for a levy on the wealth. The observation of this court in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 I.T.R 230, 241 : " Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust." must be understood with reference to section 4(b) of the Kerala Agricultural Income-tax Act, 1950, as it stood at the relevant time, which exempted from the levy of tax so much of the income derived from property, held under trust in part only for religious or charitable purposes, as was actually applied thereto. There is nothing in the later decision of the Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family Trust [1977] 108 ITR 555 which militates against the proposition laid down by the Supreme Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 or by the Bombay High Court in Trustees of K.B.H.M. Bhiwandiwalla Trust v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority for the proposition canvassed on behalf of the assessee that the dominant object of the trust, or the extent to which income derived from the corpus is directed to be utilised for the fulfilment of that object, as disclosed by the constituent and dominant terms of the trust, is irrelevant to the consideration of the question tinder section 5(1)(i). Section 21 has since been amended by the Finance (No. 2) Act, 1980, with effect from April 1, 1980. The words " subject to the provisions of sub-section (1A)" have been inserted at the beginning of sub-section (1) and sub-section (1A) has been added. Sub-section (4) has been amended by substituting it in part. Section 7 has also been amended by adding an Explanation to sub-section (1) thereof. There are also certain other changes which are not material. I shall now read these amended provisions. Sub-section (1) of section 21, as amended reads : " (1) Subject to the provisions of sub-section (1A) in the case of assets chargeable to tax under this Act, which are held by a court of wards or an administrator-general or an official trustee or any receiver or manager or any other person, by whatever name called, appointed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. Explanation.-For the removal of doubts, it is hereby declared that the price or other consideration for which any property may be acquired by or transferred to any person under the terms of a deed of trust or through or under any restrictive covenant in any instrument of transfer shall be ignored for the purpose of determining the price such property would fetch if sold in the open market on the valuation date." Sub-sections (1) and (1A) of section 21 must be read together as one provision making the trustee liable for payment of tax in respect of the net wealth determined on the basis of the market value of the assets, without regard to any special price or other consideration or any restrictive covenant contained in the instrument of trust (See Explanation 7(i) ). It is significant that the liability of the trustee is no longer limited to the aggregate of the actuarial value of the beneficial interests, but it is determined with reference to the market value of the assets. The words " in the like manner and to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied under section 3 falls upon the net wealth which is determined on the basis of the value of the assets on the valuation date by reference to the market value referred to in section 7 after excluding from the computation of the net wealth, the assets falling under section 5(1)(i) and section 6. It is, therefore, the market value of the assets that is intended to be taken into account in computing the net wealth exigible to tax in the hands of the assessee even when he is a mere trustee. But the section, as it then stood, did not fully and effectively articulate the legislative intent, as a result of which, as the Supreme Court pointed out, what was assessed in the hands of the trustees, unlike in the case of an ordinary assessee, was not the value of the corpus, but only an aggregate of the actuarial value of the beneficial interests, and the differential value escaped assessment. It is that evil which was remedied by Parliament by the amendment of section 21 introducing sub-section (1A) and the other provisions with effect from April 1, 1980, so as to rope in what would otherwise escape assessment. What is important for the levy of wealth-tax is the value of the assets com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by it qualify for exemption under section 5(1) of the Act. (See Powell v. Compton [1945] Ch 123; [1945] 1 All ER 198 (CA); M.F.A. Caffoor v. CIT [1961] AC 584, 601 (CA), Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] 1 All ER 31 (HL), Koettgen's Will Trusts, In re [1954] 1 Ch 252 (HL), Trustees of the Charity Fund v. CIT [1959] 36 ITR 513 (SC), Trustees of Gordhandas Govindram Family Charity Trust v. CIT[1973] 88 ITR 47 (SC), Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5 (SC), Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709 (Bom), Gordhandas Govindram Family Charity Trust v. CIT[1968] 70 ITR 600 (Bom), CIT v. Moosa Haji Ahmed [1964] 52 ITR 147 (Guj), CIT v. Keshari Singh Nahar [1964] 51 ITR 699 (Cal) and Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker)) To sum up: The dominant purpose of the trust in question, as evidenced by the instrument creating it, has been finally and conclusively determined to be not charitable or religious. Construing that document in Commr. of Agrl. I. T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker) and Abdul Sathar Haji Moosa Sait Dharmastapanam v. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld, while making the reassessments for the above-mentioned assessment years, include items which were not considered in the original assessments ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in not adopting the method of capitalisation of income for determining the value of Chittoor Road properties which are in the occupation of tenants ? I shall now state the essential facts requisite for determining the issues involved in this case. The assessee is a trust created under a will executed by one Abdul Sathar Haji Moosa Sait on 25th day of Kanni, 1099 M.E. (annexure-A). The various clauses in the will disclose that the properties held by the trust are partly for public purposes of a charitable or religious nature in India and partly for private purposes. Construing the will, this court in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sail [1971] 81 ITR 230, has held that " though the dominant purpose of the trust deed was not charitable, the first quarter of the income covered by paragraph 8 was clearly a public charitable trust, as the dominant intention of the founder was to benefit the public ". This decision was later co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Commissioner of Wealth-tax, Ernakulam, wherein he reiterated the various contentions he had raised before the Wealth-tax Officer. An additional contention raised was to the effect that the Wealth-tax Officer should have made " fresh assessment only in accordance with the direction given by the Appellate Assistant Commissioner in his order dated October 12, 1972, and that the Wealth-tax Officer exceeded his jurisdiction in so far as he determined the value of immovable properties by taking the average of the values arrived at by adopting the land and building method and the rent capitalisation method and in declining to grant exemption under section 5(1)(i) of the Wealth-tax Act for the assessment years 1967-68 to 1969-70 and in including fresh items of movable properties ". The Appellate Assistant Commissioner accepted the above contentions of the assessee and as a consequence thereof held that the Wealth-tax Officer should have completed the assessments only in accordance with the directions given by his predecessor in his order dated October 12, 1972. He also held that the determination of the market value in the way in which it has been determined by the Wealth-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in respect of the 31.25% of the value of the, trust properties, the Tribunal held that the assessee was not entitled to the said exemption since the properties in question were not " wholly " held in trust for religious and charitable purposes. The Tribunal also observed that there was nothing in the said section warranting exemption being given in respect of a " proportionate value of the properties held in trust partly for religious and charitable purposes and partly for private purposes In support of this view, the Tribunal has relied on a decision of the Bombay High Court in Trustees of K.B.H.M. Bhiwandiwala Trust v. CWT [1977] 106 ITR 709. The Tribunal, therefore, held that no portion of the wealth of the assessee-trust was exempt under section 5(1)(i) of the Wealth-tax Act. Considering the point pertaining to the valuation of the properties in Chittoor Road and at Mattancherry the Tribunal held that neither the capitalisation method nor the determination of the value on the land and building method was proper. Accordingly, it struck a new method and the correctness of the value thus determined is under challenge in question No. 4. The Tribunal then proceeded " to consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under challenge were set aside. After setting aside the orders, the assessing authority has been directed to redo the assessments. That means the remand order does not impose any restriction in regard to the exercise of the jurisdiction of the assessing authority in making the assessments. Learned counsel for the assessee, however, contended that the scope of the order of remand requires to be considered in the light of the specific provisions contained in sub-section (5B) of section 23 of the Wealth-tax Act. It reads : " The order of the Appellate Assistant Commissioner (or, as the case may be, the Commissioner (Appeals) ) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision. " The appellate authority, in view of this provision, could consider and dispose of only those points the appellant had raised in the appeal. If that be so, it was further contended, there was no scope for upsetting the orders of assessments in so far as they pertained to matters which were not appealed against. The decision in respect of such matters, in the absence of specific attack against them before the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able trust. The dominant intention of the founder is to benefit the public." This ruling has been affirmed by the Supreme Court in Abdul Sathar Haji Moosa Sail Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5. The Supreme Court has held thus (p. 7): "From the above provisions it is clear that the 3/4ths of the income of the B schedule properties was primarily earmarked for the benefit of near relations of the testator. Hence, we are in agreement with the High Court that this part of the bequest cannot be considered as a public charitable trust." The Revenue, therefore, has rightly not sought for the interpretation of the trust deed. However, it has contended for the position that, inasmuch as the property of the trust is not held wholly for charitable or religious purposes, the assessee is not entitled to the benefit of section 5(1)(i) of the Wealth-tax Act. According to learned counsel for the Revenue, the omission of the word " wholly " in section 5(1)(i) coupled with the fact that there is no provision for exempting part only of the property held for religious or charitable purposes, makes it clear that the assessee, in a case like the one on hand where admittedly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir shares are indeterminate or unknown, the trustees will be assessed in respect of their beneficial interest in the trust properties, a s if they belonged to one individual. In such cases, it is not possible to make direct assessment on the beneficiaries, because their shares are indeterminate or unknown and that is why " it is provided that the assessment may be made on the trustee as if the beneficiaries for whose benefit the trust properties are held were an individual ". (g) The cumulative effect of sub-sections (1) and (4) of section 21 is that no part of the corpus of the trust Properties can be assessed in the hands of the trustee under section 3 and if any such assessment is made it would be contrary to the plain mandatory directions contained in section 21. (h) The amount of tax payable by the trustee would be the same as that payable by each beneficiary if he was assessed directly. (1) The difference between the value of the corpus of the trust properties and the aggregate value of the beneficial, interests of the beneficiaries cannot be brought to tax in the hands of the trustee under section 21. It can thus be seen that the Supreme Court held in Nizam's Family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest of the beneficiary in the trust properties and not the corpus of the trust properties. It, therefore, follows that so far as the accountability of the trustee to wealth-tax in respect of the properties held in trust is concerned, the same requires to be determined with reference to the interest of the beneficiaries in the trust properties and not with reference to the value of the corpus of the trust properties unless it be that the assessment is one contemplated under sub-section (1A) of section 21. If that be so, the beneficial interest of the beneficiaries for whose benefit the trust is created has to be found out first before the tax is levied. For the reasons stated above, the argument of learned counsel for the Revenue set out in paragraph 21 is rejected. The question that immediately arises for consideration is, whether the interest of the beneficiary in the trust properties would be an " asset " within the meaning of the Wealth-tax Act and could the capitalised value of such a right be assessable under the Wealth-tax Act ? The answer to this question depends upon the interpretation of sections 2(e), (m) and section 3. The language employed in section 2(e) shows t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the twenty-five per cent. of the income of the trust properties directed to be spent for a public purpose of a charitable or religious nature, is eligible for the exemption provided for under section 5(1)(i) of the Wealth-tax Act. The scope and ambit of section 5(t)(i) of the Wealth-tax Act requires to be considered in this connection. Section 5(1)(i) reads : " 5. (1) Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee (i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India. The section extends exemption only to a particular class of property. The conditions stipulated in the section are : (1) the asset could be any property ; (2) it should be held under trust or other obligation ; (3) it should be held for charitable or religious purposes of public character and (4) it should be held in India. Regarding condition No. 1. The employment of the words " any property " in the section, I am of the view, was intended to qualify " properties of every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust. The dominant intention of the founder is to benefit the public. " It is thus clear that the testator by incorporating paragraph 8 in the will has impressed 25 per cent. of the income of the trust properties with a trust for charitable purposes. That in a single document there can be more than one trust is no more a moot question, in view of the decision of the Supreme Court in CIT v. Manilal Dhanji [1962] 44 ITR 876. It is, therefore, clear that the directions to the trustee, contained in paragraph 8 of the will, are enforceable obligations. The Department, in fact, has accepted the findings of the Division Bench. Whatever that be, the authorities concerned have proceeded with the assessments, as if paragraph 8 of the will has correctly been interpreted by the Division Bench. In my judgment, paragraph 8 shows " a trust or binding obligation so to carry it on ". It is beyond dispute that the terms of a written instrument bind the parties thereto. If that be so, the terms contained in paragraph 8 of annexure-A will, would bind not only the trustees but the beneficiaries for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that be so, I am of the view that the right of the beneficiaries to get the twenty-five per cent. of the income of the trust properties is an asset falling within the meaning of " property of every description ", eligible for exemption provided for under section 5(1)(i) of the Wealth-tax Act. One-quarter of the income covered by paragraph 8 of annexure-A, in my judgment, is property coming under section 5(i)(i) and hence eligible for the exemption provided for under the said section. Question No. 2, therefore, is answered in the negative, i.e., against the Department and in favour of the assessee. So far as the method of valuation of the properties situated on Chittoor Road are concerned, the Tribunal has entered the following findings : " It is seen that the value given by the approved valuer for this property is Rs. 5,01,357, made up of Rs. 2,16,500 being the value of the 88 cents of land and Rs. 2,84,857 being the value of the 10 buildings thereon. The value arrived at by capitalising 20 times the annual letting value is Rs. 1,45,900. The annual letting value has been taken by the Income-tax Officer as Rs. 7,295 without allowing for collection charges and he has capitalised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... digent members of the founder's parents' families and to new converts to Islam ; (b) for propagating Islamic tenets; (c) for popularising other languages among Muslims ; (d) for renovating mosques damaged ; (e) for constructing new mosques and for giving aid to such construction ; (f) for acquiring lands for mosques and for burial grounds; (g) for digging wells ; (h) for burying unclaimed dead bodies of Muslims; (i) for providing food, clothing, etc., to indigent Cutchi Memons and widows in Travancore and Cochin; and (j) for giving alms to the poor during Ramzan. It also provided that the whole quarter should be spent every year. Paragraph 9 and the subsequent paragraphs provide for utilisation of the remaining part of the income mainly, if not exclusively, for the benefit of the founder's family. The short question is whether the bequest under paragraph 8 of the deed and the trust created therein constitute a public charitable trust entitled to exemption under section 5(1) of the Act. At one time, the question arose whether agricultural income derived from these trust properties covered by paragraph 8 of the deed was " wholly for religious or charitable purposes and was, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee claimed exemption under section 5(1) of the Wealth-tax Act in respect of the identical income covered by the same paragraph 8 of this trust deed. The reference arose when the Tribunal refused the exemption and denied the benefit under section 5(1) of the Act in respect of the income specified in paragraph 8 of the deed. I would have thought that after the decision of the Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family TRUST [1977] 108 ITR 555, the answer to the question posed no problem; but in the light of the difference of opinion expressed by two learned judges, I shall advert in some detail to the relevant paragraphs in the Supreme Court decision and also to the relevant statutory provisions. In Nizam's family Trust's case [1977] 108 ITR 555 (SC), confirming the judgment of the Andhra Pradesh High Court, the Supreme Court proceeded to consider the contention that the assets held by a trustee in trust for others cannot be said to be assets " belonging to the trustee " and, therefore, cannot constitute " net wealth " chargeable to duty under section 3 of the Act as the assets belonged to the beneficiaries and not to the trustee. decision of the Gujarat Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest is treated as if it belonged to one individual beneficiary and assessment is made on the trustees in the same manner and to the same extent as it would be on such fictional beneficiary. It will, therefore, be seen that in this case too, it is the beneficial interest which is assessed to wealth-tax in the hands of the trustee and not the corpus of the trust properties. This position becomes abundantly clear if we look at sub-section (5) which clearly postulates that where a trustee is assessed under sub-section (1) or sub-section (4), the assessment is made on him in respect of the net wealth of the beneficiary, that is, the beneficial interest belonging to him. Now, wherever there is a trust, it is obvious that there must be beneficiaries under the trust, because the very concept of a trust connotes that though the legal title vests in the trustee, he does not own or hold the trust properties for his personal benefit but he holds the same for the benefit of others, whether individuals or purposes. It must follow inevitably from this premise that since under sub-sections (1) and (4) of section 21, it is the beneficial interests which are taxable in the hands of the trustee in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax shall be levied upon and recoverable from the court of wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf the assets are held, and the provisions of this Act shall apply accordingly." " 21. (4) Notwithstanding anything contained in this section, where the shares of the persons on whose behalf any such assets are held are indeterminate or unknown, the wealth-tax may be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person aforesaid as if the persons on whose behalf the assets are held were an individual for the purposes of this Act. " Section 5(1) providing for exemption extracted: " 5. Exemption in respect of certain assets.-(1) Subject to the provisions of sub-section (1A), the wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee (i) any property held by him under trust or other legal obligation for any public purpose of a charitable or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also cannot be held liable. It is, therefore, necessary to consider whether the beneficiary will be exempt under section 5(1) and for that purpose, the nature of the trust, whether it is a public charitable trust, has to be considered. The nature of the trust created under paragraph 8 of the deed thus becomes the crucial aspect. This trust has been held to be a public charitable trust in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker). On appeal, the Supreme Court in A.S.H.M. Sait Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5 has also held that the deed creates two trusts, a public charitable trust as held by the High. Court, and a private trust in respect of the remaining income. The public character of the trust created in paragraph 8 of the deed can, therefore, be no longer in dispute. If so, the exemption claimed under section 5(1) automatically follows. I am, therefore, of the view that the decision of the Supreme Court in Nizam's Trust's case [1977] 108 ITR 555, squarely applies to the facts and circumstances of this case and the assessee is entitled to exemption under section 5(i) of the Act. Counsel for the Revenue, however, conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is property held by him for any public charitable purpose. Otherwise, the result would be that the beneficiaries of a public charitable trust when proceeded against, will not be liable to pay any wealth-tax while the trustee who derived such income from the same properties and retained and utilised them on behalf of the beneficiary will be liable to pay the tax. As stated already, the liability of the trustee is co-extensive with that of the beneficiary and if the beneficiary is entitled to exemption, the trustee also is entitled to the same statutory protection. The applicability of section 5 will, therefore, have to be considered when the statutory liability arises under section 21. Moreover, when a trustee is made liable under the wealth-tax, the income and not the corpus is the basis for taxation. It was argued that only property which is transferable can be assessed to wealth-tax and the beneficial interest is not transferable under section 8 of the Trusts Act. Section 8 of the Trusts Act as such may not apply, even though the principles stated therein are of universal application. I believe that the contention is misconceived for the reason that a trust postulates an obl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
