Gujarat H.C : Whether the Tribunal is right in law and on facts in directing the AO to exclude the sum of Rs. 4,81,957 being assets of Mahendra Dhanjibhai Parmar Family Trust, wherein the assessee was the beneficiary from the net wealth of the assessee ?

High Court Of Gujarat

Commissioner Of Wealth Tax vs. Mahendrabhai D Parmar

Section WT 2(m)

R.S. Garg & M.R. Shah, JJ.

WT Ref. No. 20 of 1995

17th July, 2006

Counsel appeared :

Manish R. Bhatt & Mrs. Bhatt, for the Applicant : None, for the Respondent

JUDGMENT

R.S. GARG, J. :

Mrs. Bhatt, learned counsel for the Revenue. The Tribunal has referred the following question to us for our answer :

“Whether the Tribunal is right in law and on facts in directing the AO to exclude the sum of Rs. 4,81,957 being assets of Mahendra Dhanjibhai Parmar Family Trust, wherein the assessee was the beneficiary from the net wealth of the assessee ?”

2. Mrs. Bhatt, learned counsel for the applicant submits that the assessee is an individual and is partner to the extent of 8 per cent profits in M/s Kinarivala R.J.K. Industries, a partnership firm. He created a family trust known as “Mahendra Dhanjibhai Parmar Family Trust”. She also submitted that out of 8 per cent share, 4 per cent be appropriated in favour of the said trust so that the money is used in the interest of the beneficiaries.

3. Relying upon the judgment of the Supreme Court in the matter of CIT vs. Sunil J. Kinariwala (2003) 179 CTR (SC) 15 : (2003) 259 ITR 10 (SC), she submitted that in relation to another partner of the said firm the submission was that if because of the settlement the income does not come in the hands of the said partner it would not continue to be his income and could not be included in the returned income. In the said matter, she relied upon the following observation : “When a third person becomes entitled to receive the amount in question under an obligation of the assessee even before the assessee could lay a claim to receive it as his income, there would be a diversion of income by overriding title; but when after receipt of the income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application by the assessee and not of diversion of income by overriding title.”

4. She submits that if the amount transferred in favour of the trust would continue to be income of the assessee, then creation of the wealth by the said transferred amount would be wealth of the assessee.

5. We heard Mrs. Bhatt at length. We expressed our opinion that the provisions of the IT Act and WT Act are different. Income-tax refers to the income of a person who is entitled to receive it and ask for appropriation of the income or its application, but wealth-tax applies in a case where the wealth belongs to a particular person and he has a power of disposition. We pointed out to Mrs. Bhatt that, in the present case, if the part of the income of the assessee goes to the trust, then the wealth would be created in favour of the trust and as the assessee would have no power of disposition, transfer/alienation in any manner, the property cannot be included in the wealth of the assessee. Though Mrs. Bhatt resisted the suggestion of the Court for some time, however she herself brought to the notice of the Court yet another Judgment of the Supreme Court in the matter of CWT vs. Lov S. Kinariwala (yet another partner of the partnership) reported in the very same volume, i.e., (2003) 179 CTR (SC) 9 : (2003) 259 ITR 440 (SC). The argument of the learned counsel for the Revenue runs contrary to the very judgment. If that be so, the argument of the learned counsel is to be rejected as a whole. The question is answered in favour of the assessee and against the Revenue.

[Citation : 292 ITR 622]

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