Bombay H.C : Whether s. 5(1)(viii) of the WT Act, 1957, as retrospectively amended, applied to the case of the assessee in so far as the claim for exemption of jewellery and ornaments of the aggregate value of Rs. 3,55,966 was concerned ?

High Court Of Bombay

Commissioner Of Wealth Tax vs. Seth Yogindraprasad

Sections WT 4(1)(a), WT 21, WT 5(1)(viii)

Asst. Year 1964-65, 1965-66

N. MafatlalS.P. Bharucha & T.D. Sugla, JJ.

WT Ref. No. 98 of 1975

15th April, 1987

Counsel Appeared

C.S. Jetley with S.V. Naik, for the Applicant : R.J. Kolah with Prakash K. Shah, for the Opposite Party

BHARUCHA, J.:

This reference relates to the asst. yrs. 1964-65 and 1965-66. The assessee had, by three indentures of trust dt. 26th March, 1959, settled certain shares of Mafatlal Gagalbhai & Co. (P) Ltd. upon trust and transferred them in favour of the trustees thereunder appointed. The trusts were created for the benefit of the assessee’s minor daughters, Kunti, Aparna and Gayatri. By the two indentures of trust dt. 29th March, 1961, the assessee transferred certain other shares of the same company in favour of the trustees thereunder appointed for the benefit of his minor daughters, Aparna and Gayatri. In computing the net wealth of the assessee as on 31st March, 1964, and 31st March, 1965, relevant to the asst. yrs. 1964-65 and 1965-66, the WTO included the market value of the aforementioned shares in the net wealth of the assessee, invoking the provisions of s. 4(1) (a)(iii) of the WT Act, 1957. The AAC, on appeal, upheld the ITO’s order in so far as it concerned the two trusts dt. 29th March, 1961, but upset it in regard to the three trusts dt. 26th March, 1959. The Tribunal, in the cross-appeals filed by the assessee and the Revenue, upheld the AAC’s order.

2. We are now called upon to answer the following question raised at the instance of the Revenue: “Whether, on the facts and in the circumstances of the case, the Tribunal was right in excluding the value of the shares settled by the assessee on Kunti Family Trust, Miss Aparna Family Trust No.1 and Miss Gayatri Family Trust No. 1, which was included under s. 4(1)(a)(iii) of the WT Act, 1957, in the net wealth of the assessee ?” We are also called upon to answer the following question raised at the instance of the assessee : “Whether, on the facts and in the circumstances of the case, the value of 50 shares of Mafatlal Gagalbhai & Co. (P) Ltd. transferred by the assessee to Miss Aparna Family Trust No. 2 and Miss Gayatri Family Trust No. 2 under the Indentures of Trust dt. 29th March, 1961, or any part thereof, is includible in the net wealth of the assessee as on the valuation dates relevant to the asst. yrs. 1964-65 and 1965-66 under s. 4(1)(a)(iii) of the WT Act, 1957?”

3. It is necessary to note the relevant provisions of the WT Act, 1957. Sec. 3 is the charging section. It brings to tax the net wealth of every individual, HUF and company on the corresponding valuation date. The valuation date is ordinarily the last day of the previous year [s. 2(q)]. The relevant provisions of s. 4 read thus: “4. (1) In computing the net wealth of an individual, there shall be included, as belonging to him— (a) the value of assets which on the valuation date are held… (iii) by a person or AOP to whom such assets have been transferred by the individual otherwise than for adequate consideration for the benefit of the individual or his wife or minor child, or ……”

(to the provisions of s. 4, there was an amendment for the second of the two assessment years with which we are here concerned, but it had no bearing upon the present controversy). Sec. 21 provided that : ” 21. In the case of assets chargeable to tax under this Act which are held by … any trustee appointed under a trust declared by a duly executed instrument in writing … the wealth-tax shall be levied upon and recoverable from … the trustee …. 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.” (Even to the provisions of s. 21, there was an amendment for the second of the two assessment years with which we are here concerned, but it has no bearing upon the present controversy).

Mr. Kolah, learned counsel for the assessee, submitted that there being duly executed instruments of trusts, the assets sought to be taxed could be assessed only in the hands of the trustees by virtue of s. 21 and the provisions of s. 4(1)(a)(iii) did not, therefore, apply. Mr. Kolah founded his argument upon the judgment of the Supreme Court in CWT vs. Trustees of H. E. H. Nizam’s Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC) :TC63R.209. The Supreme Court there held that whenever a trustee was sought to be assessed, the assessment had to be made in accordance with the provisions of s. 21. It noted the consequences that flowed from the proposition laid down in s. 21 that the trustee was assessable in the like manner and to the same extent as the beneficiary and held that the assessment could be made only in respect of the beneficial interests of the beneficiaries in the trust funds. The Supreme Court, it will be noted, did not consider the provisions of s. 4(1)(a)(iii).

Mr. Jetly, learned counsel for the Revenue, referred us to the three judgments of this Court, namely, CWT vs. Kishanlal Bubna (1976) 103 ITR 56 (Bom) : TC65R.660, Shardaben Jayantilal Mulji vs. CWT (1977) 106 ITR 667 (Bom) : TC65R.693 and K.M. Sheth vs. CIT/CWT (1977) 107 ITR 45 (Bom) : TC65R.698. While these judgments considered the provisions of s. 4(1)(a)(iii), they did not consider the provisions of s. 21.

We must, therefore, consider the impact of ss. 4 and 21, one upon the other, independently. The provisions of s. 21 are to be applied when an assessment has to be made in the hands of the trustees. This is clear from the provisions of s. 21 and it has been so held by the Supreme Court in the aforementioned case. Sec. 4, on the other hand, requires the inclusion of the assets of a trust as therein mentioned in the computation of the net wealth of the settlor. Such inclusion is required to be made of the value of the assets which have been transferred by that individual to a person or AOP otherwise than for adequate consideration for the benefit of, inter alia, a minor child. The stage for assessing the trustees in respect of such assets is, therefore, not reached and the provisions of s. 21 are not applicable.

The same conclusion may also be reached by applying the principle that the specific excludes the general provision. Thus, when trustees have to be assessed to wealth-tax, the provisions of s. 21 exclude the other general provisions of the Act in this regard, but when the trust satisfies the requirements of s. 4(1)(a)(iii), it is that provision that has to be applied.

In the instant case, the assessee transferred the assets we are here concerned with to the trustees otherwise than for adequate consideration and for the benefit of his minor children. The value of the assets has, therefore, by reason of s. 4(1)(a)(iii), to be included in the assessee’s net wealth. Accordingly, the question raised on behalf of the Revenue must be answered in the affirmative and in favour of the Revenue. The question raised by the assessee has, for the same reasons, to be answered in the affirmative and in favour of the Revenue.

The reference also raises two further questions at the instance of the assessee. They read thus: “(i) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessee was not entitled to exemption under s. 5(1)(viii) of the WT Act, 1957, in respect of jewellery and ornaments of the value of Rs. 2,41,466 held by him for his personal and/or household use and of the value of Rs. 1,14,500 being jewellery and ornaments gifted by him to his wife for her personal use ? (ii) Whether s. 5(1)(viii) of the WT Act, 1957, as retrospectively amended, applied to the case of the assessee in so far as the claim for exemption of jewellery and ornaments of the aggregate value of Rs. 3,55,966 was concerned ?”

We find that the first question arises not out of the order of the Tribunal but out of the order of the AAC. The Tribunal decided the issue on the basis which is indicated in the second question, namely, the retrospective amendment of s. 5(1)(viii) of the WT Act, 1957. We, therefore, decline to answer the first question. The second question has to be answered, it is agreed, in the affirmative and in favour of the Revenue, having regard to the judgment of this Court in CWT vs. Rasesh N. Mafatlal (1980) 126 ITR 173 (Bom) : TC65R.1031. In giving effect to this answer, the Tribunal shall, we trust, bear in mind our judgment in WT Ref. No. 13 of 1975, delivered on 31st March, 1987—CWT vs. Godavaribai R. Podar (1987) 63 CTR (Bom) 152 : (1988) 169 ITR 245 (Bom) : TC65R.1049.

There shall be no order as to costs.

[Citation : 170 ITR 648]

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