1. An original assessment was made in the case of this assessee-trust by the WTO applying the provisions of Section 21(1A) of the Wealth-tax Act, 1957 ('the Act'). The Commissioner looking into the file of the assessee found that while applying the above provisions, the WTO allowed a deduction under Section 5(1A) of the Act in respect of the net wealth covered by the shares held by the assessee-trust. According to the Commissioner, this deduction was not to be granted, the order of the WTO was, thus, erroneous and prejudicial to the revenue. Giving an opportunity to the assessee in this regard the Commissioner, therefore, set aside the order of the WTO and directed him to make a fresh assessment in the light of the observations made by him, i.e., in effect not giving a deduction under Section 5(1) read with Section 5(1A) in the case of the assessee-trust. The appeal is directed against this order of the Commissioner.
2. The learned counsel for the assessee has pointed out that the order of the WTO was properly made. It was neither erroneous nor prejudicial to the revenue. The assessment was made by resorting to the provisions of Section 21(1 A). The WTO in the original assessment had granted a deduction under Section 5(1) read with Section 5(1A) which the assessee-trust was entitled to under the law. Explaining his stand, the learned counsel has pointed out that the provisions of Section 21(1A) applied to 'such' assets. In Section 21 the expression 'assets' chargeable to tax under the Act were dealt with and it is those assets which formed the subject-matter of Section 21(1A). What is not chargeable, therefore, to wealth-tax will not come, according to the learned counsel, at all under Section 21(1A). Section 5, according to the learned counsel, deals with exempted assets some of them not liable to tax at all and some of them not includible in the net wealth.
Exemption under Section 5(1) (xxiii), relevant to the present case, is available to an individual and a HUF and in view of the specific provisions in Section 5(1A) for grant of deduction up to Rs. 1,50,000 in respect of 'such' assets, according to the learned counsel, the assessee was entitled to such deduction. In this connection, reference is also made to Explanation 2 to Section 21 specifically denying Section 5 exemption, Sections 21(4) and 21(4A). It is pointed out that Explanation 2 in terms prohibits grant of exemption in certain cases.
It does not refer to Section 21(1A).
3. For the department stress is laid on the order of the Commissioner.
Section 21(i) : specifically mentions the manner of assessment to be made. The standing of the beneficiary has to be determined and where the beneficiary as well as the shares are determinate, tax has to be levied in the like manner and the same extent as in the case of the beneficiary. Section 21(1 A) refers to the chargeability of the residue. Reliefs under Section 5(1 A) already getting allowed in the shares of the life tenants and the remaindermen, there' was nothing left on which these exemptions can again operate. According to the learned counsel, assets are all the same and belong to the same beneficiaries. The exemption under setion 5(1A) is also in respect of the same individual assets. In applying Section 21(1) all the assets are covered and there would in fact be nothing left of the assets in respect of which any further relief can be granted. The beneficiaries in any case get charged only on the value of the assets pertaining to them, i.e., the beneficial interest. According to the learned counsel, there was no justification for granting a separate relief to the trust as such. This is also in consonance with the interpretation of these provisions as clarified in the Commissioner's order.
4. The matter lies in a short compass. The provisions of Section 21 deal with assessments where assets are held by court of wards, administrators-general, trustees, etc. Under Section 21(1) where the beneficiaries and their shares are properly identifiable, wealth-tax is leviable on a representative assessee like the court of wards, trustee, receiver, etc., in the like manner and to the same extent as it would be leviable upon and recoverable from the beneficiary. The relevant provisions of the Act are : Section 21(1). Subject to the provisions of Sub-section (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.
(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-section (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- (2) Nothing contained in Sub-section (I) shall prevent either the direct assessment of the person on whose behalf or for whose benefit the assets above referred to are held, or the recovery from such person of the tax payable in respect of such assets. 3 ** ** ** (4) Notwithstanding anything contained in the foregoing provisions of this section, where the shares of the persons on whose behalf or for whose benefit any such assets are held are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from the Court of wards, administrator-general, official trustee, receiver, manager, or other person aforesaid as the case maybe, in the like manner and to the same extent as it would be leviable upon and recoverable from an individual who is a citizen of India and resident in India for the purposes of this Act, and- (b) at the rate of three per cent ; whichever course would be more beneficial to the revenue : Explanation 2 : Notwithstanding anything contained in Section 5, in computing the net wealth for the purposes of this Sub-section or Sub-section (4A) in any case, not being a case referred to in the proviso to this Sub-section, any assets referred to in clauses (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii) and (xxix) of Sub-section (1) of that section shall not be excluded.
Section 5(1). Subject to the provisions of Sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets and such assets shall not be included in the net wealth of the assessee- (xxiii) any shares not being shares referred to in Clause (xx) or Clause (xxa) in any Indian company where the assessee is an individual or a Hindu undivided family ; (1A) Nothing contained in Sub-section (1) shall operate to exclude from the net wealth of the assessee any assets referred to in clauses (iva),(xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii), (xxix), (xxxi) and (xxxii), not being deposits under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, to the extent the value thereof exceeds, in the aggregate, a sum of one hundred and fifty thousand rupees : 5. In making an assessment under Section 21(1) in the case of a trust where property is held for life tenants and thereafter for remaindermen, the beneficial interest of each of these category of persons would get assessed either in their hands at the rates appropriate to them or in the hands of the trustees themselves at the rate appropriate to the beneficiaries. While the interest of the life tenants as present holders of the interest would be equal to a particular portion of the assets of the trust, the interest of the remaindermen or reversioners who would be entitled to receive the amounts after a time would correspond to the present value of the balance of assets after the life tenants are exhausted. This present value would be less than the actual value of the assets covered and which would be available to the reversioners or remaindermen at a later date. Where, therefore, assessments are made in respect of the assets belonging to the life tenants and remaindermen by evaluating them as required by the provisions of the Act, the entire present value of the assets of the trust would not be covered. A portion would be left unassessed. The Supereme Court held that merely because a portion as above gets unassessed, the trust should not be assessed on its entire assets. Consequent to the above decision the Act was amended introducing the provisions of Section 21(1A) by the Finance (No. 2) Act, 1980, with effect from 1-4-1980. The assessment for the assessment year 1980-81, as in this case, is the first year for which these provisions are applicable.
6. Section 5 gives certain exemptions to be applied while computing the net wealth. Some of these deductions relate to the value of the shareholdings, etc., such as are covered by Clause (xxiii) of Section 5(1). Section 5(1A), however, puts a ceiling limit on the maximum amount of exemption allowable in respect of certain items under Section 5(1). In making the original assessment in the present case the WTO starting with the net wealth of the assessee-trust deducted the interest of the life tenant and remaindermen and brought the balance to tax under Section 21(1A), but he granted relief under Section 5(1) subject to the limit of Section 5(1 A) of Rs. 1,50,000. It is this which is the bone of contention between the parties in the present appeal. To make matters clear the computation made by the WTO (summarised) may be indicated :Assets less creditors 12,27,234Less : Value of life interest and reverionaryinterest 3,62,905 -----------Section 21(1 A) 8,64,329 ---------- Out of the above the WTO deducted under Section 5(1A) Rs. 1,50,000 thus, resulting in a balance figure of Rs. 7,14,329. Deducting tax liabilities of Rs. 25,905 the assessable wealth was put at Rs. 6,88,400 in round figures. According to the Commissioner, the sum of Rs. 1,50,000 ought not to have been deducted in the above computation. The net wealth taxable, according to him, would be Rs. 8,38,400 (Rs. 8,64,329-Rs. 25,905).
7. After hearing the parties, we have no hesitation in holding that the WTO's original order has been properly made and the assessee's contention has to be accepted.
8. The assessment on a trust is made under the provisions of the Act and the levy itself is warranted by the provisions of Section 3 of the Act. The levy is to be made under Section 3 only in respect of the net wealth on the valuation date of every individual, HUF and company. If an entity does not fall under any of these three heads, it would automatically be outside the wealth-tax net. If, therefore, a trust does not fall under any of these three entities, it would be non-assessable to wealth-tax. The assessment in the present case, as in almost every case of a trust, is made in the status of an individual.
Apart from Section 3, there is no charging section in the Act. Section 21 deals with the case of assessment where assets are held by Court of wards, administrator-general, etc. These 'representative assessees' hold assets on behalf of the specified other individuals or entities.
Section 21 provides a special procedure for levying tax on them, but 'for this reason Section 21 does not itself constitute a charging section. An assessment, therefore, even in the case of a trust is to be made exactly in the same manner as would be made in the case of the three entities referred to above and the charge in every case is on the net wealth of the assessable entity. The expression 'net wealth' itself applicable to all the entities is defined in the Act. There is no reason, therefore, why that definition should be particularly strained against or redefined in the case of a representative assessee like the trust. In other words, the definition of net wealth being the same for all the entities, the computation of net wealth for the purposes of chargeability under Section 3 should be the same. The assets to be included, the assets to be excluded or exempted, the deductions to be allowed, the reliefs to be granted, etc., therefore, should be the same even in the case of a trust treated as an assessee as in the case of other taxable entities. For this reason alone where a trust is treated as an assessable entity-which it would be only if the status adopted is individual, HUF or a company-all the exemptions available in Section 5 would have to be applied. One of such reliefs relates to Section 5(xxiii) subject to the overriding limit set by Section 5(1A). Prima facie, therefore, if the trust is to be assessed on its own and not as a representative assessee representing a beneficiary under Section 21(1), the reliefs available to an individual assessee under Section 5 would have to be granted. In the present case the WTO has deducted the sum of Rs. 1,50,000 after making adjustments of all other assets and liabilities and deductions. In other words, in law, though not from the figure of Rs. 8,64,329, we have no hesitation in holding this deduction of Rs. 1,50,000 should have been granted even from the original figure of Rs. 12,27,234 on the basis of the trust being a wealth-tax assessee chargeable under Section 3. It requires to be mentioned in this connection that the above position has arisen because of the application of Section 21(1A) treating the assessee as a taxable entity in its own right and not on behalf of a beneficiary as contemplated under Section 21(1) or 21(4).
9. Apart from the above, there is merit in the assessee's argument based on the provisions of Section 21. This section, a mode of making assessments where assets are held by Court of wards, trustees, etc., contains inbuilt provisions as to the manner of making the assessment.
Section 21(1) definitely refers to Sub-section (1A) by user of the expression 'subject to the provisions of Sub-section (1A)'. To this extent the operation of Sub-section (1A) supersedes the provisions of Sub-section (1), but Section 21(1) itself relates only to 'in the case of assets chargeable to tax under this Act'. Where, therefore, an asset is not chargeable to tax, in, other words, exempted from wealth-tax, the provisions of Section 21(1) would not apply to the case at all.
Section 21(1A) deals with matters considered under Sub-section (1) and specifically mentions "such assets'-which means only assets covered by Section 21(1). Thus, both by its reference to the levy and recovery 6T wealth-tax under Sub-section (1) and the reference to 'such assets' the operation of Sub-section (1A) is restricted to taxable assets. Even Sub-section (1A), therefore, would not refer to an asset which is exempt from wealth-tax. Our view, therefore, that an asset exempted under Section 5 to the limit the exemption operates, would not come under Section 21(1) and, consequently, under Section 21(1A) is supported by this inbuilt evidence obtaining in Section 21. There are also other provisions of Section 21 which support the above view.
Section 21(4) deals with the case where the assets are held 'indeterminate'. Explanation 2 to this Sub-section specifically refers to Section 5, Sub-section (4), Sub-section (4A) and the assets referred to in clauses (xv), (xvi), (xxii), (xxiii), etc. It does not refer to Sub-section (1A), in fact omits Sub-section (1A)-which would also support our above view. This being so, we have no hesitation in holding that the exemption under Section 5(1)(xxiii) should operate while applying Section 21(1A), therefore, the asset referred to in Section 5(1)(xxiii) subject to the limits of Section 5(1 A) should have been already excluded from the assets of the trust. For this reason the order of the WTO has to be regarded as correct and according to law.
The Commissioner's view that it is erroneous and prejudicial to the revenue cannot be upheld.10. We may, however, mention that there is merit in the reasoning of the Commissioner with regard to a deduction under Section 5(1)(xxiii) from the net figure computed as assessable under Section 21(1A). But this would apply only after a deduction of Rs. 1,50,000 in the present case has already been made from the net assets of the trust. In other words, in this particular assessee's case while a sum of Rs. 1,50,000 should be deducted under Section 5(1A) from the figure of Rs. 12,27,234 constituting the assets of the trust normally taxable under Section 21 and before deducting the value of the life interest or reversionary interest, no further deduction of Rs. 1,50,000 can be made from the residue of the trust assessable under Section 21(1A), i.e., a double deduction is not justified. Technically, thus, the stand taken by the Commissioner is correct to the extent that from the residue of the trust assessable under Section 21(1A), a sum of Rs. 1,50,000 cannot be deducted but the WTO ought to have deducted the same amount from the sum of Rs. 12,27,234.. Since the addition to be made under the Commissioner's order cancels the deduction that ought to have been made under Section 5(1) but has not been allowed by the WTO, there is no mistake in the WTO's order. No prejudice to the revenue except in too technical manner insofar as a wrong method of calculation has been adopted, but to arrive at the correct result.