HIREN B. PATEL TRUST NOS. 10 & 22 v. NINTH WEALTH TAX OFFICER
[Citation -1987-LL-0210-4]

Citation 1987-LL-0210-4
Appellant Name HIREN B. PATEL TRUST NOS. 10 & 22
Respondent Name NINTH WEALTH TAX OFFICER
Court ITAT
Relevant Act Wealth-tax
Date of Order 10/02/1987
Assessment Year 1980-81
Judgment View Judgment
Keyword Tags withdrawal of exemption • specific trust • life interest • net wealth • net value
Bot Summary: In all these appeals the point involved is about the claim of exemption under s. 5(1)(xxiii) r/w s. 5(1A) of the WT Act, 1956. Departmental Representative, on the other hand submitted that by virtue of s. 21(1A) the excess value over the life interest and the reversionary interest is deemed as net wealth of the assessee and therefore, there could be no scope for allowing any further deduction or exemption under s. 5(1) to the trust. From the above it becomes clear that what s. 21(1A) deems as net wealth From the above it becomes clear that what s. 21(1A) deems as net wealth is the value of such assets to the extent it exceeds the value or aggregate value of the interest of the beneficiaries. The assets which are chargeable to tax have to be besides those assets which are enumerated in s. 5(1)/5(1A) and which are expressly stated to be not includible in the net wealth of the assessee. The aforesaid language of s. 5(1) not only prohibits the inclusion of enumerated assets in the net wealth of the assessee but further provides that wealth tax shall also not be payable by an assessee in respect of those assets. The irresistible conclusion, in our opinion, is that the shares held by the trustees are not be taken into be consideration in computing the net wealth and tax shall also not be payable with respect thereto by virtue of s. 5(1)(xxiii) subject to a maximum limit contained in s. 5(1A). If the legislature intended not to give exemptions in cases of assessments under sub- s. 1 or 1A or 2 or 3 it could have provided so or would not have restricted the withdrawal of exemption under s. 5(1)(xxiii) only while computing the net wealth under sub-s. 4 or 4A. In view of the above, we direct the WTO to allow the exemption under s. 5(1)(xxxiii) r/w s. 5(1A) in respect to the value of shares included in the net wealth of the trust as arrived at under s. 21 viz.


R.P. GARG, A.M.: These five appeals are by assessees against orders of AAC. They all relate to asst. yr. 1980-81. In all these appeals point involved is about claim of exemption under s. 5(1)(xxiii) r/w s. 5(1A) of WT Act, 1956 (hereinafter referred to as 'the Act'). All these trustees have shares in Indian companies and filed their returns as specific trust declaring net wealth after deducting values of interest of life beneficiaries and reversionary beneficiaries. WTO, however, assessed these trusts as discretionary trusts and levied tax at maximum rate on entire net wealth without allowing exemption under s. 5(1)(xxiii) of Act. AAC held these trustees are specific trusts and directed WTO to assess them on net wealth after reducing therefrom values of interest of life beneficiaries and reversionary beneficiaries. He, however, did not allow deduction under s. 5(1)(xxiii) in some cases and in other cases he did not consider this ground though raised by assessee. Aggrieved by orders of AAC, assessees have come up in appeal before us and claimed exemption as allowable by virtue of s. 1(xxiii) r/w s. 5(1A) of Act. There is no appeal by Revenue, result, therefore is that these trusts are specific trust. They are to be assessed under s. 21(1A) of Act on that values of assets as is in excess of actuarial value of life and reversionary interest of beneficiaries. beneficiaries are stated to be assessed for their respective interest directly in their individual assessments. ld. counsel of assessee submitted that cases of assessee are fully covered by decision of Tribunal in case of Shalini Trust No. 1 vs. WTO (1984) 7 ITD 274 (Bom) in WTA No. 1094/Bom/83 dt. 25th Oct., 1983. I t was further submitted that s. 21(1A) provides for assessment of residuary value of assets chargeable to tax which means nothing but net value arrived at after various exemptions under s. 5(1A). ld. Departmental Representative, on other hand submitted that by virtue of s. 21(1A) excess value over life interest and reversionary interest is deemed as net wealth of assessee and therefore, there could be no scope for allowing any further deduction or exemption under s. 5(1) to trust. We have heard parties and considered rival submissions very carefully. Before we come to respective contentions of assessees, it will be advisable to note procedure of assessment in case of specific trust. Sec. 21, which deals with assessment of trust provides that in case of assets chargeable to tax under this Act which are held by trustees, wealth tax is levied upon and recoverable from trustees in like manner and to same extent as it would be leviable upon and recoverable from person on whose benefit assets are held. In other words, ascertainment of net wealth and calculation of tax thereon in hands of trustees would be done as if proceedings took place against beneficiaries themselves. Under this provision as interpreted by Supreme Court in case of Trustees of HEH Nixam's family vs. CWT 1977 CTR (SC) 306: (1977) 108 ITR 555 (SC) only value of interest of life beneficiaries and reversionary beneficiaries which, if actuarially valued, is always to be less than total value of corpus, would be assessable. That means there was no provision in WT Act to assess balance, viz., value of corpus, less interest of life and reversionary beneficiaries and, therefore, sub-s. (1) was made subject to newly added sub-s. (1A) w.e.f. 1st April, 1980. By introduction of this new sub- section where value or aggregate value of interest or interests of person or persons on whose behalf or for whose benefit such assets are held falls short of value of any such assets. Then, in addition wealth tax leviable and recoverable under sub-s. (1) wealth tax shall be levied upon and recovered from trusts aforesaid in respect of value of such assets, to extent it exceeds value or aggregate value of interest or interests, if, such excess value were net wealth of individual who is citizen of India and resident in India for purposes of this Act; and tax is to be levied at rate specified in part I of Sch I or at rate of 3 per cent whichever course is more beneficial to Revenue. provisions as contained in sub-s. (1) are not to prevent either direct assessment of person or persons on whose behalf or for whose benefits assets above referred to are held, or recovery from such persons of tax payable in respect of such assets. From above it becomes clear that what s. 21(1A) deems as net wealth From above it becomes clear that what s. 21(1A) deems as net wealth is value of such assets to extent it exceeds value or aggregate value of interest of beneficiaries. words 'such assets' have to be understood denoting only those assets as are covered by s. 21(1) which means assets chargeable to tax. assets which are chargeable to tax have to be besides those assets which are enumerated in s. 5(1)/5(1A) and which are expressly stated to be not includible in net wealth of assessee. Even if we assume that excess is deemed to be net wealth and there is no scope for giving any further exemption under s. 5(1) as contended to by ld. departmental representative, we cannot ignore in that case following operative language of s. 5(1): "Sec. 5(1) Subject to provisions of sub-s. (1A), wealth-tax shall not be payable by assessee in respect of following assets, and such assets shall not be included in net wealth of assessee." (Underlining, italicized in print, by us) aforesaid language of s. 5(1) not only prohibits inclusion of enumerated assets in net wealth of assessee but further provides that wealth tax shall also not be payable by assessee in respect of those assets. We, therefore, do not find any force in arguments of ld. departmental representative. irresistible conclusion, in our opinion, is that shares held by trustees are not be taken into be consideration in computing net wealth and tax shall also not be payable with respect thereto by virtue of s. 5(1)(xxiii) subject, however, to maximum limit contained in s. 5(1A). Our this view also finds support by Expln. 2 below s. 21(4) of Act. This Explanation provides that in computing net wealth for purposes of sub-s 4 or sub-s. 4A, assets referred to in s. 5(xxiii) shall not be excluded. If legislature intended not to give exemptions in cases of assessments under sub- s. 1 or 1A or 2 or 3 it could have provided so or would not have restricted withdrawal of exemption under s. 5(1)(xxiii) only while computing net wealth under sub-s. 4 or 4A. In view of above, we direct WTO to allow exemption under s. 5(1)(xxxiii) r/w s. 5(1A) in respect to value of shares included in net wealth of trust as arrived at under s. 21 (1A) viz., after reducing values of interests of life and reversionary beneficiaries. In result, appeals are allowed. *** HIREN B. PATEL TRUST NOS. 10 & 22 v. NINTH WEALTH TAX OFFICER
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