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TMI Blog1984 (1) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... re that for the wealth-tax assessment year 1975-76, on 6-3-1979, the assessee filed a return of net wealth disclosing as net wealth liable to charge nil amount. The returns filed for subsequent years also disclosed identical wealth and the returns were filed on the same date. In the income-tax proceedings for the year 1976-77, on 25-2-1977, a return was filed disclosing income of Rs. 960. The return for the assessment year 1977-78 disclosed nil income. For the year 1978-79 equally disclosed nil income. On 15-1-1979, during the course of the assessment proceedings, a letter was addressed to the ITO stating that the assessee had made an application dated 21-4-1975 with the Commissioner forwarding the papers regarding the registration of trust. 2A. On 31-7-1973, Smt. Rajkumari R. Ruia addressed a letter to Shri Radhakrishna Ruia, her husband and Shri Ashok Kumar and Shri Bharat Kumar Ruia, her two sons, stating that : " I have lent and advanced a sum of Rs. 3,75,000 (Rupees three lakhs seventy-five thousand only) to Radhakrishna Ramnarain Ruia (HUF), which said loan is repayable on or after the 31st day of December, 1980, together with interest thereon at the rate of 1 per cent pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order in the income-tax proceedings for the year 1976-77, the ITO rejected the trustee's claim for exemption on the ground that the provisions of section 13(2)(a) were applicable in the assessee's case. According to the ITO, the said provision was applicable as under : " In the present case assessee cannot deny the fact that Rs. 5,00,000 are lent to and continued to be lent to person for which the provisions of section 13(3) are applicable. Secondly, payment of interest at the rate of 1 per cent per annum by debtors is inadequate in view of prevailing bank interest of 10 per cent per annum on F.D. for more than 5 years period. Thirdly, as no security is provided by debtors the loan is without adequate security. As such case clearly comes in ambit of section 13(2)(a). " The ITO further noted of possible argument from the assessee that---- " That the loans were advanced by settlor and the trustees were bound to honour the commitment by settlor, as such they cannot liquidate loan before 31-12-1980. In case the trustees are bound by commitment of settlor this will amount to transfer of income without transfer of asset till 31-12-1980 and case will fall within ambit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CWT [1965] 57 ITR 202. Concerning the last submission of the assessee in the wealth-tax proceedings regarding the valuation of the two debts vide para 5 of his order, the AAC observed that--- " The appellant has not produced any evidence to show that Radhakrishna Ramnarain Ruia (HUF) or Radhakrishna Ramnarain Ruia (individual) had shaky financial position or that their assets were not sufficient from which the full amount of loan money could not be realised. I, therefore, hold that the appellant has not been able to substantiate that the value of the loans advanced to Radhakrishna Ramnarain (HUF) and (individual) was anything less than what was shown in the balance sheet of the trust. " 7. After stating the facts Shri Gautam Doshi, the assessee's learned chartered accountant, submitted that since the loan was given before the creation of the trust and the loan was repayable only on or after 31-12-1980, the provisions of section 60 of the Act were not applicable. As there was a transfer of assets, the assets transferred not being cash of Rs. 5,00,000 but the two debts, one of Rs. 3,75,000 and the other of Rs. 1,25,000, Shri Doshi stressed the fact that Smt. Rajkumari had not pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the time he had argued the appeals, the trustees had not recovered from the two debtors the amount of Rs. 5 lakhs. 8. Explaining in some greater detail his case, Shri Doshi submitted that the right to recover money in the property is settled on trust and equally the right to collect the interest. According to Shri Doshi, lending involves giving of money but not making efforts to collect the money already lent so that it cannot be said to be hit by the provisions of section 13. 9. As regards the wealth-tax appeals particularly, Shri Doshi urged that the AAC erred in not valuing the debts totalling to Rs. 5 lakhs. Shri Doshi submitted that the trust property was not cash of Rs. 5 lakhs but two debts totalling Rs. 5 lakhs. According to Shri Doshi, since the two debts produced income of Rs. 5,000 and valuation of any asset other than money has to be made in the wealth-tax proceedings. Such valuation of the asset can be made only on the basis of the income produced by such assets. On that basis Shri Doshi urges that the amount that would be includible in the assessee's net wealth will not be the nominal amount of the debts, viz., Rs. 5 lakhs but a discounted amount which in any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich Smt. Rajkumari made the writing dated 31-7-1973, one is reminded of the observations of the Bombay High Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1952] 21 ITR 231. Now, that was admittedly a family charity trust. However, the trustees were empowered to provide money to members of the Vaishya community for marriages. There were certain clauses under which the trustees were enjoined to make certain payments specified therein to poor descendants of the settlor's family. Mr. Justice Tendolkar observed as under : " ...I read it as casting an obligation upon the trustees to make certain payments specified therein to poor descendants of the settlor's family whether or not such poor descendants are as deserving of help as other members of the Vaishya community. This, therefore, is not in my opinion, a case of preference being given to the descendants of the settlor's family at all ; but these descendants so long as they are poor---whatever their degree of poverty---exclude other members of the community even though they may be poorer than the poor descendants of the settlor's family . . . ." One also recollects that in a later year, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be produced by the money lent on interest at 1 per cent for a period of more than 7 years and which has not been recovered for a period of more than 10 years. If on the facts of the present case one has to find charity, it is as distinct as the hills on the other side of the port on a cloudy day when it is raining heavily. On such a day one knows that there are hills across the port but one cannot see those hills. Similarly, in the present case, one cannot see the present intention of Salt. Rajkumari of putting on trust the amount of Rs. 5 lakhs in the manner in which such Rs. 5 lakhs would normally produce income as the utilisation of funds remains with the family. We find that Shri Doshi's reliance is misconceived on those orders of the Tribunal where the issue involved was concerning the investment put on trust and the trustees had allowed the investment to continue in the manner in which they had received the trust property. It is true, that in those cases, we have taken a view that the provisions of section 13 are not attracted. However, in the present case unless one puts on blinkers, as warned by the Supreme Court that one should not, one cannot escape coming to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the charity begins with the family members of the settlor and is also ended with them, since the entire funds of the trust are in the possession, control and disposal of the settlor's family. The rate of interest payable on these funds is a nominal amount at the rate of 1 per cent per annum and till date the said rate has neither been increased nor the loans recovered by the trustees for the purpose of investing them in more profitable investments yielding better returns for the purpose of performing the charities, as mentioned in the trust deed. It is an admitted fact that there is no security for these loans which were advanced by the settlor before placing the loans on trust for charitable purposes. Therefore, we are unable to appreciate how the case of the assessee-trust could escape from falling within the mischief of section 13(2)(a). In our view, there is no escape for the assessee-trust from section 13(2)(a). The distinction sought to be drawn by the learned counsel for the assessee between the original loan lent by the author of the trust and the loan that will be advanced by the trustees is a distinction without a difference. It cannot be disputed that the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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