High Court Of Bombay
The Official Trustee, Maharashtra State vs. CWT
Section WT 21(1), WT 21(1A)
Asst. Year 1980-81
F.I. Rebello & R.S. Mohite, JJ.
WT Ref. No. 18 of 1993
16th March, 2009
Counsel Appeared :
J.D. Mistri with A.K. Jasani & P.C. Tripathi, for the Assessee : P.S. Sahadevan with A.D. Nagarjun, for the Revenue
JUDGMENT
BY THE COURT :
The question referred by the Tribunal under s. 27 of the WT Act, 1957 is as follows :
“Whether in the facts and in the circumstances of the case and on a correct interpretation of s. 21 (1A) inserted by Finance (No. 2) Act, 1980, the Tribunal was justified in holding that the assessee was liable to tax on the excess of the value of the corpus of the trust over the value of the interest of the beneficiaries under the trust ?”
2. The brief facts of the case are as follows :
“(a) Under a Letters Patent of Her Late Majesty Queen Victoria an eminent person in Bombay, Sir Jamsetjee Jejeebhoy, was conferred the title of Baronet. A condition of conferring baronetcy upon him was that he should settle in perpetuity such property on himself and the male heirs of his family who might succeed him in such baronetcy, as should be adequate to support the dignity of the title conferred on him. Sir Jamsetjee Jejeebhoy, was therefore, desirous of settling in trust a corpus consisting of Government Promissory Notes which would derive an yearly income of Rs. 1. lac and a mansion house and hereditaments called ‘Mazagaon Castle’ for meeting the aforesaid condition. However, before the trust could be settled, on 14th April, 1859, Sir Jamsetjee Jejeebhoy, expired leaving behind a will by which he devised his estate to his three male sons and appointed his wife as well as his sons as the executrix and executors of the said will. (b) On the death of Sir Jamsetjee Jejeebhoy, the title of Baronet devolved on his eldest son Cursetjee Jamsetjee. All the heirs and the executors as well as executrix were desirous of fulfilling the commitment of Sir Jamsetjee Jejeebhoy of settling in trust the aforesaid Government Promissory Notes and Mazagaon Castle and in view of such expressed desire, the Government enacted Act No. XX of 1860 which created a trust comprising the aforesaid Government Promissory Notes and Mazagaon Castle for the benefit of the future baronets who were to hold life interest and were to be the beneficiaries of the trust. Under this Act, the Revenue Commr. Accountant General and Sub Treasurer of the Presidency of Bombay were appointed as statutory trustees of the trust for the purposes of the said Act. (c) By Act No. XI of 1893, the British Government conferred the title of Baronetcy on another eminent citizen of Bombay Shri Dinshaw M. Petit on similar conditions regarding creation of a trust. This trust comprised of a mansion house known as Petit Hall and bonds and debentures of the municipal corporation producing an annual income of Rs. 1,25,000. It was contemplated under this Act that the then Accountant General of Bombay, Collector and the Chief Presidency Magistrate of Bombay would constitute a corporation with perpetual succession and common seal under the style and title of ‘The Trustees of the Dinshaw Maneckjee Petit Baronetcy’. (d) In or about in the year 1915, the 5th Baronet in the line of Sir Jamsetjee Jejeebhoy represented to the Governor General in council that he had been advised by his medical officer to change his place of residence and that it was desirable not only in his own interest, but also in the interest of those who may succeed him in the baronetcy, that more extensive powers of investment should be granted to the said trustees. Considering this request, by Act of 10 of 1915, the British Government repealed the earlier Act of XX of 1860 and enacted the Sir J.J. Baronetcy Act, 1915. Under the new Act, Government Promissory Notes of the value of Rs. 22,54,400. were released from the earlier trust and vested afresh in the new trust and the property known as Mazagaon Castle was resettled in trust for the benefit of the baronets to succeed in the future. The Commr. Accountant General and Collector of Bombay were designated as a corporation for execution of the trust and this corporation had perpetual succession and seal under the name and title of ‘Sir J.J. Baronetcy Trustees’”.
With the enactment of the Constitution of India of 1950, by virtue of Art. 13 of the Constitution, the above referred Acts which were in force before the commencement of the Constitution of India were saved. The State of Maharashtra amended the Petit Baronetcy Act, 1883 and Sir Jamsetjee Jejeebhoy Baronetcy Trust Act, 1915 by Maharashtra Act No. XXVIII of 1974 and the trustees in respect of both the trusts were substituted by the official trustee appointed under the Official Trustees Act of 1913. There were other changes which were made, some of which pertained to the nature of the corpus of the trust but those changes would be irrelevant for the purpose of deciding this reference. The record indicates that in 1980-81, the official trustee filed a WT return of Sir Jamsetjee Jejeebhoy Baronetcy Trust. He valued the corpus of the trust at Rs. 19,78,855 and the value of life interest of the then living Baronet Sir Jamsetejee Jejeebhoy at Rs. 4,00,000. The WTO by his order dt. 12th Nov., 1985 assessed the returns and after giving a deduction in respect of the life interest of Sir Jamsetjee Jejeebhoy, a deduction in respect of the interest of Lady Soonabai and a deduction under s. 5(1) of the WT Act, estimated the net wealth at Rs. 13,39,500. The official trustee then filed an appeal before the Asstt. CIT and contended that on the wording of s. 21(1), a trust created by Act of the legislative council of India was not covered by the aforesaid provision. The AAC of income-tax rejected this contention by his order dt. 14th Aug., 1985 by holding that the Act of legislature was a duly executed instrument in writing within the meaning of s. 21(1) of the WT Act. He also rejected the contention that the WTO should not have levied wealth-tax on the remainder of the wealth after excluding the value of the life interest of the baronet.
The official trustee then carried the matter in appeal before the Tribunal and by its judgment and order dt. 24th June, 1987, the Tribunal was pleased to dismiss the appeal. Subsequently, however, on an application made by the official trustee, his prayer for reference was allowed and that is how the aforesaid question has been referred to this Court. In order to answer the above question, at the very outset, it would be necessary to reproduce the relevant portion of s. 21 of the WT Act. The relevant part of s. 21 of the WT Act, as it stood at the relevant time i.e., ss. 21(1), 21(1A) and 21(2) read as under : “21(1) Subject to the provisions of sub-s. (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 any order of a Court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of wakf), the wealth-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 (or for whose benefit) the assets are held, and the provisions of this Act shall apply accordingly. Explanation—A trust which is not declared by a duly executed instrument in writing (including a valid deed of wakf) shall be deemed, for the purposes of this sub-section, to be a trust declared by a duly executed instrument in writing if a statement in writing, signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the AO,— (i) where the trust has been declared before the 1st day of June, 1981, within a period of three months from that day; and (ii) in any other case, within three months from the date of declaration of the trust. (1A) Where the value or aggregate value of the interest or interests of the person or persons on whose behalf or for whose benefit such assets are held falls short of the value of any such assets, then, in addition to the wealth-tax leviable and recoverable under sub-s. (1), the wealth-tax shall be levied upon and recovered from the Court of Wards, Administrator General, official trustee, receiver, manager or other person or trustee aforesaid in respect of the value of such assets, to the extent it exceeds the value or aggregate value of such interest or interests, as if such excess value were the net wealth of an individual who is a citizen of India and resident in India for the purposes of this Act, and— (i) At the rates specified in Part I of Sch. I; or (ii) at the rate of three per cent, whichever course would be more beneficial to the Revenue. (2) Nothing contained in sub-s. (1) shall prevent either the direct assessment of the person on whose behalf or for whose benefit the assets abovereferred to are held, or the recovery from such person of the tax payable in respect of such assets.”
8. The brief contention on behalf of the applicant was that s. 21(1) was an exclusive and comprehensive charging section to charge tax on the assets held by “a Court of Wards or an Administrators General or an official trustee or any receiver or manager or any other person by whatever name called, appointed under any order of a Court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise”. It is contended that under s. 21(1) it is not enough that the assets in question should be held by an official trustee and that it is an additional requirement that such an official trustee should be appointed either under an order of the Court or should be appointed by a duly executed instrument in writing. It is contended that the assessee who is the official trustee has not been appointed under any order of the Court or by an instrument duly executed in writing. In other words, the contention is that since the appointment of the official trustee is by a statute, such an official trustee is not covered by the scope and ambit of s. 21(1) of the WT Act, which is the sole charging section in respect of assets held in trust by the various categories of specified persons. Counsel for the assessee placed reliance upon the judgment of the apex Court in the case of CWT vs. Trustees of H.E.H. Nizam’s Family (Remainder Wealth Trust) 1977 CTR (SC) 306 : (1977) 108 ITR 555 (SC). In the said case the apex Court was concerned with the interpretation of ss. 21 (1) and (4) of the WT Act, 1957 and the question of valuation of trust property in respect of a trust constituted under a deed of trust. Two of the questions that were referred in that case were (i) Whether the trustees were liable to be assessed under s. 3 of the WT Act, in the status of the individual and (ii) Whether in the facts and circumstances of the case the Tribunal was right in holding that the provisions of s. 3 of the WT Act, should be considered as subject to the provisions of s. 21 of the above Act. In the said case, the apex Court held that Revenue had two modes available for assessing the interest of the beneficiary of a trust property.
It must either assess it in the hands of a trustee in a representative capacity under sub-s. (1) of s. 21r assess it directly in the hands of the beneficiary by including it in the net wealth of the beneficiary. In either case what is taxed is the interest of the beneficiary in the trust property and not the corpus of the trust property. The question No. 1 as reproduced above was answered in favour of the Revenue and question No. 2 was answered in favour of the assessee. The apex Court conclusively held that the trustee of the trust therefore, cannot be assessed to wealthtax in respect of the trust property under s. 3. The aforesaid judgment of the apex Court clearly lays down thattheonly charging section to charge tax upon the trustee of the trust covered by s. 21(1) is s. 21 and not s. 3 of the WT Act, 1957. The question which is raised however is that the trustee who has been appointed by operation of statute cannot be said to be a trustee appointed by a Court or appointed “under the duly executed instrument in writing”. In short, the contention raised is that a statute cannot be said to be an instrument in writing. In support of this contention counsel first relied upon a judgment of this Court in the case of Emperor vs. Rayangouda Lingangouda Patil XLVI Bombay Law Reporter 495. In that case, the District Magistrate of Belgaum in purported exercise of powers conferred on him under s. 26(5B)(b) of the Defence of India Rules, 1939 directed one Rayangouda Lingangouda Patil, to appear before him on a particular day and since in spite of a subsequent proclamation the aforesaid person did not appear within the prescribed time period, after his subsequent surrender, he was tried for violating the order passed by the District Magistrate. The accused was acquitted by the Trial Court on the ground that there was no delegation of the power to the District Magistrate to give a direction under s. 26(5B)(b). When the matter was carried before the High Court a fresh contention was raised by the Advocate General that the powers of the District Magistrate to pass an order under s. 26(5B)(b) though not delegated in terms, must be said to have been delegated in view of s. 8(1) of the General Clauses Act, 1897 r/w r. 3 of the Defence of India Rules. Rule 3 of the Defence of India Rules provided that the General Clauses Act, would apply to the interpretation of the Defence of India Rules as it applied to the interpretation of the Central Act. Sec. 8(1) of theGeneral Clauses Act, was as under :
“Where this Act, or any Central Act or Regulation made after the commencement of this Act, repeals and re-enacts, with or without modification, any provision of a former enactment, then references in any other enactment or in any instrument to the provisions so repealed shall, unless a different intention appears, be construed as references to the provision so re-enacted”.
The argument was that by reason of r. 3 of the Defence of India Rules, s. 8(1) may be read as providing for a case where any one of the Defence of India Rules repeals and re-enacts, with or without modification, any provision of the Defence of India Rules, so that a reference in an order passed under the rules to the unrepealed rule must be construed as a reference to the re-enacted rule.
13. While dealing with the aforesaid contention a Division Bench of this Court observed as under : “But the difficulty in the way of the prosecution is that to bring the order of delegation within the provisions of s. 8(1) of the General Clauses Act, they must show that the order of delegation is an ‘instrument’ within the meaning of that section, so that the reference to r. 26 in the order of the delegation can be interpreted as a reference to r. 26 as it might hereafter be re-enacted. We are not satisfied that the order or delegation can be deemed to be an instrument within the meaning of s. 8 and it is conceded that it cannot be regarded as an enactment. We have looked into Stroud’s Judicial Dictionary and Wharton’s Law Lexicon for enlightenment on the point. We find, generally speaking that an ‘instrument’ is a writing usually importing a document or a formal legal kind, but that it does not include Acts of Parliament unless there is a statutory definition to that effect in any Act; and in the absence of authority we are not prepared to hold that an order of Government delegating its powers to District Magistrates is an ‘instrument’ within the meaning of s. 8(1) of the General Clauses Act. It is certainly not an ‘instrument’ as originally understood. We are therefore not prepared to say that the delegation could be deemed to cover the delegation of such powers as might hereafter be brought into existence for the first time be re-enactment of the rules”. (emphasis, italicised in print, provided by us).
14. The counsel for the applicant then placed reliance upon the judgment of the apex Court in the case of The Vishnu Pratap Sugar Works (P) Ltd. vs. The Chief Inspector of Stamps U.P.. In that case the appellant i.e., The Vishnu Pratap Sugar Works (P) Ltd. filed a suit seeking permanent injunction restraining the State of U.P. from realising a sugarcane cess and purchase-tax and paid Court fees under s. 7(iv-B)(b) on the footing that the relief sought was for an injunction simplicitor. The Chief Inspector of Stamps objected and inter alia contended that the Court fee should be paid under s. 7(iv-A) on the footing that suit involved cancellation of an instrument or for the adjudging void an instrument for securing money or other property having such value. On this issue in para 3 the apex Court observed as follows : “The question which falls for determination is whether an Act passed by the Central or the State legislature can be said to be an instrument and, if so, an instrument securing money or other property having such value. The Court Fees Act does not define the word ‘instrument’. That being so we have to turn for the connotation of the word ‘instrument’ to its ordinary dictionary meaning. According to Stroud’s Judicial Dictionary, 3rd Edn. Vol. II, P. 1472 ‘instrument’ means a writing and generally imports a document of a formal legal kind. Semble, the word may include an Act of Parliament (see Deed of Settlement) so, in the Trustee Act, 1925 (15 Geo. 5, C. 18) s. 68(11) Conveyancing Act, 1888 (44 and 45 Vict. C. 41) s. 2(xiii), ‘instrument’ include deed, will, enclosure, award and Act of Parliament’. Thus, an instrument may include a statute enacted by Parliament, if the particular statute in its context includes it as an instrument, According to Jowitt’s Dictionary of English Law, p. 984 ‘instrument’ means a formal legal writing, e.g. a record, charter deed of transfer or agreement. It is, however, observed that under the law of Property Act, 1925, s. 205(1) (viii), ‘instrument’ for the purpose of this Act does not include a statute unless the statute creates a settlement. ‘An instrument is a writing and generally means a writing of a formal nature. But, where there is a power to appoint by any deed or instrument or by will, any writing, such as a letter, which refers to the power or which can have effect only by operating on the fund (such as a cheque or other order for payment), is an instrument. A telegram is an instrument within the meaning of the Forgery Act, 1912, s. 7 and so is an envelop with a postmark falsified for the purpose of a betting fraud.’ According to the same dictionary, the word ‘enact’ means to act, perform or effect; to establish by law; to decree and an ‘enactment’ means an Act of Parliament or statute or any part thereof. A statute, according to Maxwell on Interpretation of Statutes, 11th Edn,. p. 1 is the will of the legislature, i.e., an edict of the legislature. A statute is, however, different from a statutory instrument as defined by the Statutory Instruments Act (9 and 10 Geo. 6, C. 36, 1946 where power to make confirm or approve orders rules, regulations or other subordinate legislation is conferred on his Majesty in Council or on any Minister of the Crown, a document by which that power is exercised is a statutory instrument. Thus, whereas a statute is an edict of the legislature a statutory instrument as distinguished from such an edict is a document whereby the rule making power is expressed. In Mohan Chowdhury vs. Chief Commr., Union Territory (1964) 3 SCR 442 : AIR 1964 SC 173 the question arose whether the order dt. 3rd Nov., 1962, passed by the President under Art. 359(1) of the Constitution suspending the right of any person to move any Court for the enforcement of rights conferred by Arts. 21 and 22 during the proclamation of emergency was an instrument within the meaning of s. 8(1) of the General Clauses Act, 1897. In considering that question this Court approved the meaning of the word “instrument” given by Stroud and observed : ‘The expression is also used to signify a deed interpartes or a charter or a record or other writing of a formal nature. But, in the context of the General Clauses Act, it has to be understood as including reference to a formal legal writing like an order made under a statute or subordinate legislation or any document of a formal character made under constitutional or statutory authority. We have no doubt in our mind for the expression ‘instrument’ in s. 8 was meant to include reference to the order made by the President in exercise of his constitutional powers’.
The President’s order having been made under power conferred upon him by Art. 359 that order would have the same connotation as the statutory instrument defined by the Statutory Instruments Act, 1946 and therefore was an instrument within the meaning of s. 8(1) of the General Clauses Act. That does not mean that a statute like the U.P. Court Fees Act which is an edict of the legislature is an instrument. In Emperor vs. Ravangouda Lingangouda Patil AIR 1944 Bom 259, the High Court of Bombay considered whether an order of the Government delegating its power to District Magistrates under the Defence of India Rules was an instrument within the meaning of s. 8 (1) of the General Clauses Act. The High Court held that an instrument, generally speaking, means a writing usually importing a document of a formal legal kind, but it does not include Acts of Parliament unless there is a statutory definition to that effect in any Act. There is thus ample authority to hold that ordinarily a statute is not an instrument unless as in the case of Conveyancing Act of 1881, the definition includes it or as in the case of s.
205(1)(viii) of the law of Property Act, 1925, the statute creates a settlement and such statute is for that reason treated as an instrument. It would not therefore be correct to say that the Acts alleged in the plaint to be void are instruments within the meaning of sub-s. (iv-A) of s. 7.” Taking into account the law as laid down in the aforesaid two judgments, we find it difficult to hold that the official trustee who is the assessee in the present case can be said to be a person appointed under a trust “declared by a duly executed instrument in writing”. In our view, the word instrument does not include statute. The WT Act, does not define the word “instrument” and does not specifically include “statute” within the meaning of the term. In the present case the official trustee was not appointed under any rule making power which may amount to statutory instrument but under the statute itself. Once it is held that s. 21(1) which is the main charging section does not apply to the assessee, it must necessarily follow that s. 21(1A) would also not be applicable to him. In this view of the matter, we must hold that the assessment of the applicant in this case could not have been effected under s. 21 of the WT Act. In the circumstances, the question as raised is answered in the negative and in favour of the assessee and the WT reference stands disposed of with no order as to costs.
[Citation : 323 ITR 532]
