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K.M. Sheth Vs. Commissioner of Income-tax/Wealth-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 45 of 1966
Judge
Reported in[1977]107ITR45(Bom)
ActsIncome Tax Act, 1961 - Sections 16 and 64; Wealth Tax Act, 1957 - Sections 4, 4(1) and 27(1)
AppellantK.M. Sheth
RespondentCommissioner of Income-tax/Wealth-tax
Appellant AdvocateS.P. Mehta, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
.....- on valuation date shares were held by trustees who are association of persons for benefit of minor child - section 4 (1) (a) (iii) would be attracted even if minor child and wife given only right to enjoy income of properties transferred under settlement - transfer of property to trustee to pay income to his son - transfer 'for benefit of minor child' within meaning of section 4 (1) (a) (iii) - held, share value was rightly included in applicant's net wealth. - - commissioner of wealth-tax [1965]55itr441(guj) .it is held in this case that section 4(1)(a)(iii) of the wealth-tax act, 1957, would be attracted even if the minor child or wife was given only a right to enjoy the income of properties transferred under the settlement for their life. the ratio of this decision is..........as under : 'the trustees shall : (a) may apply and/or spend and utilise the net income of the trust estate and all accumulations of the income and profits of the trust estate or the corpus of the trust estate for providing food, clothing, residence, education, medical attendance and treatment and marriage expenses and benefit of the said bharat kanaiyalal sheth till he attains the age of 21 years. (b) on the said bharat kanaiyalal sheth attaining the age of 21 years, hereinafter referred to as 'the date of distribution of the trust estate, the trustees shall hand over the entire trust estate along with all the accumulations and accretions thereto to the said bharath kanaiyalal sheth and he shall be the sole an absolute owner thereof to the said bharat kanaiyalal sheth shall have.....
Judgment:

Kantawala, C.J.

1. The two questions referred to us in the reference, one of them being under section 66(1) /256(1) of the Indian Income-tax Act, 1922, an the other being under section 27(1) of the Wealth-tax Act, 1957, are as under :

'1. Whether, on the facts and in the circumstances of the case, the dividend income from the 1,500 shares of Changdeo Sugar Mills Ltd., is rightly includible in the applicant's assessment under section 16(3)(b) (assessment year 1961-62) and under section 64 of the 1961 Act (assessment year 1962-63)

2. Whether, on the facts and in the circumstances of the case, in the wealth-tax assessment for 1960-61, the value of 1,500 shares of Changdeo Sugar Mills Ltd., is rightly includible in the applicant's net wealth under section 4 of the Wealth-tax Act ?'

2. The assessee is an individual having substantial income from salary, property and dividends. By a deed of trust dated March 30, 1960, he settled upon trust and transferred to the trustees mentioned in the said deed of trust, inter alia, 1,500 shares of Changdeo Sugar Mills Ltd. The assessee had a son by name Bharat Kanaiyalal Sheth who was aged about 2 years on the date of the deed of trust. The deed of trust provided, inter alia, as under :

'The trustees shall :

(a) May apply and/or spend and utilise the net income of the trust estate and all accumulations of the income and profits of the trust estate or the corpus of the trust estate for providing food, clothing, residence, education, medical attendance and treatment and marriage expenses and benefit of the said Bharat Kanaiyalal Sheth till he attains the age of 21 years.

(b) On the said Bharat Kanaiyalal Sheth attaining the age of 21 years, hereinafter referred to as 'the date of distribution of the trust estate, the trustees shall hand over the entire trust estate along with all the accumulations and accretions thereto to the said Bharath Kanaiyalal Sheth and he shall be the sole an absolute owner thereof to the said Bharat Kanaiyalal Sheth shall have died before the date of distribution of the trust estate the trustees shall distribute the trust estate in equal shares amongst the heirs of the deceased other than Kanaiyalal Maneklal Sheth (since deceased) who may be alive at the time of distribution according to the law by which the said deceased may be governed at the time of his death.'

Clause 4 of the deed of trust is as under :

'4. Nothing contained in clause 2 hereof shall confer or be deemed to confer upon any of the beneficiaries mentioned in clause 2 hereof any vested interest in the estate till the date of distribution hereinbefore mentioned.'

3. So far as question No. 1 is concerned Mr. Mehta appearing on behalf of the assessee has for the purposes of this court conceded that in view of the judgment of Vimadalal and S. K. Desai JJ. in Wealth-tax Reference No. 21 of 1966 Shardaben Jayantilal Mulji v. Commissioner of Wealth-tax : [1977]106ITR667(Bom) question No. 1 should be answered in the affirmative and in favour of the revenue.

4. So far as question No. 2 is concerned, Mr. Mehta submitted that under the deed of trust the trust estate should be valued separately in respect of the interest of the minor child, Bharat, during the period of his minority and it should be valued separately in respect of the interest of Bharat Appeal from the Judgment and Order dated he attained majority. He submitted that if under the deed of trust income of the trust estate is given to a minor child during its minority and the corpus is given after the minor child becoming major to somebody else then the whole of the trust estate cannot be treated as the wealth of the settlor under section 4 of the Wealth-tax Act, and different valuations should be arrived at so far as the interest of the minor child is concerned during its minority and the interest remaining after the minor child attains majority. His submission was that simply because in the present case the beneficiary is a minor child, in respect of income until he attains the age of 21 yeas and as regards corpus after the minor child attains the age of 21 years no difference in principle shall arise.

5. At the outset, it may be stated that we are not concerned in the present case where there are two separate beneficiaries, a minor child having interest in the income during its minority and somebody else having interest in the corpus after the minor child attains majority or the questions as to how the trust estate in such a case should be valued. It will be more proper and appropriate for us to decide such a case and when it arises. It is necessary for the purposes of the present case to consider such a case and determine how the trust estate should be valued.

6. The short question that we have to consider in the present case is whether having regard to the provisions of section 4(1)(a)(iii) of the Wealth-tax Act the value of 1,500 shares of Changdeo Sugar Mills Ltd., should be included in the wealth of the assessee for the Wealth-tax assessment year 1960-61. Section 4(1)(a)(iii) is as under :

'4. (1) In computing the net wealth of an individual, there shall be included, as belonging to that individual -

(a) the value of assets which on the valuation date are held -...

(ii) by a person or association of persons to whom such assets have been transferred by the individual (directly or indirectly) otherwise than for adequate consideration for the immediate or deferred benefit of the individual, his or her spouse or minor child...'

7. It is not disputed in the present case that in view of the transfer of the trust estate to the trustees the 1,500 shares of Changdeo Sugar Mills Ltd., which belonged to the assessee are on the valuation date held by the trustees who are an association of persons. It is equally not disputed that these shares are transferred to the trustees otherwise than for adequate consideration. The short question that has to be considered is, whether, having regard to the provisions of the deed of trust, the 1,500 shares of Changdeo Sugar Mills Ltd., on the valuation date are held for the benefit of the minor child. If regard be had to the provisions of the deed of trust, it is quite clear from clause (a) above set out that the trustees are under an obligation to utilise, spend and/or apply the net income of the trust estate and all accumulations of the income and profits of the trust estate or the corpus of the trust estate for providing food, clothing, residence, education, medical attendance and treatment and marriage expenses and benefit of the said Bharat Kanaiyalal Sheth till he attains the age of 21 years. Question No. 2 relates the Wealth-tax assessment for the year 1960-61 and on the relevant date for the assessment year the child, Bharat, was hardly two years old. Under the provisions of the deed of trust the trustees were under an obligation to utilise not only the net income of the trust estate and all the accumulations thereof, but if necessary the corpus thereof for the benefit of the minor, Bharat. When such is the position, there can be no doubt that these 1,500 shares of Changdeo Sugar Mills Ltd., are held by the trustees for the benefit of the benefit of the minor child on the valuation date.

8. Even when the corpus is not to be utilised for the benefit of a minor child the Gujarat High Court has the view that the case will be covered by the provisions of section 4(1)(a)(iii). This decision of the Gujarat High Court is to be found in the case of Chandulal Shivlal v. Commissioner of Wealth-tax : [1965]55ITR441(Guj) . It is held in this case that section 4(1)(a)(iii) of the Wealth-tax Act, 1957, would be attracted even if the minor child or wife was given only a right to enjoy the income of properties transferred under the settlement for their life. There is no reason for giving any narrow meaning to the expression 'for the benefit of' occurring in the said provision so as to restrict its application to transfers which vest in the wife or minor child absolute ownership in the properties transferred. Where a person had transferred certain properties to trustees 'upon trust to pay the income of such properties to his son, X (who was a minor), for and during his life, and on and after the death of X, in trust absolutely for the child or children of X', it was held by Gujarat High Court that there was a transfer 'for the benefit of the minor child' of the settlor within the meaning of section 4(1)(a)(iii) of the Wealth-tax Act, and the value of the settled properties was includible in the wealth of the settlor under that provision for purposes of levy of Wealth-tax. The ratio of this decision is clearly applicable to the facts of the present case. From one point of view the facts of the present case are stronger because the trustees are given the power not only to utilise the net income of the trust estate and all accumulations of the income and profits thereof, but even the corpus of the trust estate for the benefit of the minor child until he attains the age of 21 years. To preserve uniformity in taxing statute it is customary for the High Court in respect of an all India state to follow a decision of another High Court even though it may be of persuasive value. Thus, as the facts in the present case are much stronger than those in the case before the Gujarat High Court, has to be answered in favour of the revenue.

Question No. 2 accordingly is answered in the affirmative and in favour of the revenue.

9. The assessee shall pay the costs of the reference.


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