1. This order consolidates the appeal proceedings in four wealth-tax appeals for the years 1975-76 to 1978-79 and three income-tax appeals for the years 1976-77 to 1978-79. In the wealth-tax appeals it is the contention of the assessee, who are the trustees of Smt. Rajkumari Radhakrishna Ruia Charitable Trust, that the assessee was entitled to exemption in terms of Section 5(1)(i) of the Wealth-tax Act, 1957 ('the 1957 Act') and that the provisions of Section 13(2)(a) of the Income-tax Act, 1961 ('the Act') and Section 21A of the 1957 Act are not attracted in the assessee's case. In the income-tax assessments it is the assessee's claim that the AAC erred in upholding the ITO's decision that the provisions of Section 13(2)(a) were applicable in the assessee's case.
2. The facts giving rise to the disputed assessments are that for the wealth-tax assessment year 1975-76, on 6-3-1979, the assessee filed a return of net wealth disclosing as net wealth liable to charge nil amount. The returns filed for subsequent years also disclosed identical wealth and the returns were filed on the same date. In the income-tax proceedings for the year 1976-77, on 25-2-1977, a return was filed disclosing income of Rs. 960. The return for the assessment year 1977-78 disclosed nil income. For the year 1978-79 equally disclosed nil income. On 15-1-1979, during the course of the assessment proceedings, a letter was addressed to the ITO stating that the assessee had made an application dated 21-4-1975 with the Commissioner forwarding the papers regarding the registration of trust.
2A. On 31-7-1973, Smt. Rajkumari R. Ruia addressed a letter to Shri Radhakrishna Ruia, her husband and Shri Ashok Kumar and Shri Bharat Kumar Ruia, her two sons, stating that : I have lent and advanced a sum of Rs. 3,75,000 (Ruppees three lakhs seventy-five thousand only) to Radhakrishna Ramnarain Ruia (HUF), which said loan is repayable on or after the 31st day of December, 1980, together with interest thereon at the rate of 1 per cent per annum with effect from the date hereof. I have lent and advanced a sum of Rs. 1,25,000 (Rupees one lakh twenty-five thousand only) to my husband, Mr. Radhakrishna Ramnarain Ruia, which said loan is repayable on or after the 31st day of December, 1980, together with interest thereon at the rate of 1 per cent per annum with effect from the date hereof. Being desirous of creating a public charitable trust, I hereby assign and transfer unto you as trustees the said two debts, viz., the said principal amount of Rs. 3,75,000, and interest thereon payable by Radhakrishna Ramnarain Ruia (HUF) to me as aforesaid and the said principal amount of Rs. 1,25,000 and interest thereon payable by Mr. Radhakrishna Ramnarain Ruia to me as aforesaid and the monies representing the same when realised and/or recovered with and subject to the powers, provisions and declarations hereinafter appearing and contained of and concerning the same.
Thereafter Smt. Rajkumari R. Ruia directed the 3 persons to hold and stand possessed of the debts so transferred and assigned to them on trust, the specific conditions of the trust being detailed later on in writing dated 31-7-1973. By writing dated 13-8-1973, the 3 persons Radhakrishna, Ashok Kumar and Bharat Kumar made a deed accepting the fact that they had received from Smt. Rajkumari R. Ruia on trust the two debts of the value of Rs. 5 lakhs and that the declarants were desirous of declaring the public charitable trust in accordance with the directions given by Smt. Rajkumari R. Ruia by her writing dated 31-7-1973. As such in terms of the writing dated 13-8-1973 : The declarants hereby record and constitute themselves as the trustees of the said trust created by Smt. Rajkumari Radhakrishna Ruia by and under the said writing as aforesaid and agree and declare that they shall hold and stand possessed of the trust fund as defined in the said writing for the charitable purposes and objects more particularly specified in the said writing.
It was in the circumstances described in the two documents brought to our notice that the three, the first being the husband of Smt.
Rajkumari and the other two being her sons, held the two debts of Rs. 5 lakhs as trust property. The returns either for income-tax or wealth-tax detailed as above were filed by the trustees in respect of the above-referred trust property and trust income.
3. In the assessment order in the income-tax proceedings for the year 1976-77, the ITO rejected the trustee's claim for exemption on the ground that the provisions of Section 13(2)(a) were applicable in the assessee's case. According to the ITO, the said provision was applicable as under : In the present case assessee cannot deny the fact that Rs. 5,00,000 are lent to and continued to be lent to person for which the provisions of Section 13(3) are applicable. Secondly, payment of interest at the rate of 1 per cent per annum by debtors is inadequate in view of prevailing bank interest of 10 per cent per annum on F.D. for more than 5 years period. Thirdly, as no security is provided by debtors the loan is without adequate security. As such case clearly comes in ambit of Section 13(2)(a).
That the loans were advanced by settlor and the trustees were bound to honour the commitment by settlor, as such they cannot liquidate loan before 31-12-1980. In case the trustees are bound by commitment of settlor this will amount to transfer of income without transfer of asset till 31-12-1980 and case will fall within ambit of Section 60 and income will be assessable in the hands of settlor.
However, the ITO finally concluded by observing that it was the provisions of Section 13(2)(a) that hit the assessee's case.
Accordingly, the ITO brought to charge in the income-tax assessment for the assessment year 1976-77, income of Rs. 5,501, Rs. 5,000 being interest income and Rs. 501 being donation. In the income-tax assessment for the year 1977-78, and 1978-79 for similar reasons the ITO brought to charge an amount of Rs. 5,000 each.
4. In the wealth-tax assessment for the year 1975-76, the WTO was not prepared to accept the assessee's claim for exemption for the reasons noted in his order dated 29-10-1980 : As the provisions of Sections 13(2)(a) and 13(1)(c)(ii) is attracted in this case for income-tax purposes, therefore, the provisions of Section 21A of the Wealth-tax Act is attracted.
Similar was the decision of the WTO in the assessments for the three later years.
5. On appeal, the seven appeals were heard by the AAC on 13-1-1983 and disposed of by two separate orders both on 17-1-1983. In the consolidated order in the income-tax proceedings, the AAC referred to the Special Bench decision of the Tribunal in WT Appeal Nos. 811 and 842 (Bom.) of 1974-75 published in the Bombay Chartered Accountants Journal, October 1978 issue. He referred to the manner in which the trust under consideration was created. In para 5 of his order he considered it proper to conclude : The fact that the amount had been shown as recoverable in the balance sheet of the trust would further show that the parties had agreed to the arrangement that the amount would be allowed to remain with the firm till it was demanded and paid to the trust. Section 12(3)(h) applied and the assessee was not entitled to exemption under Section 11.
In view of earlier discussion and on the basis of ratio of decision of the High Court referred to above  127 ITR 236, I hold that the provisions of Section 13(2)(a) were attracted in the appellant's case.
6. In the relevant wealth-tax appeals, the AAC relied on his decision in the income-tax proceedings and dismissed the main submission of the assessee. In respect of the assessee's two alternative submissions, one regarding the status, the AAC decided that issue against the assessee in terms of the decision of the Bombay High Court in Abhay L. Khatau v.CWT  57 ITR 202. Concerning the last submission of the assessee in the wealth-tax proceedings regarding the valuation of the two debts vide para 5 of his order, the AAC observed that-- The appellant has not produced any evidence to show that Radhakrishna Ramnarain Ruia (HUF) or Radhakrishna Ramnarain Ruia (individual) had shaky financial position or that their assets were not sufficient from which the full amount of loan money could not be realised. I, therefore, hold that the appellant has not been able to substantiate that the value of the loans advanced to Radhakrishna Ramnarain (HUF) and (individual) was anything less than what was shown in the balance sheet of the trust.
7. After stating the facts Shri Gautam Doshi, the assessee's learned chartered accountant, submitted that since the loan was given before the creation of the trust and the loan was repayable only on or after 31-12-1980, the provisions of Section 60 of the Act were not applicable. As there was a transfer of assets, the assets transferred not being cash of Rs. 5,00,000 but the two debts, one of Rs. 3,75,000 and the other of Rs. 1,25,000, Shri Doshi stressed the fact that Smt.
Rajkumari had not put on trust cash of Rs. 5 lakhs and he further stressed the fact that the trustees had not lent the amount of Rs. 5 lakhs to persons who could be said to be listed in Section 13(3). It was Shri Doshi's further submission that the cash was advanced by Smt.
Rajkumari prior to the writing dated 31-7-1973. When questioned about the exact date when the amount was so advanced, Shri Doshi submitted that we could proceed on the basis that the amount was advanced by the settlor Smt. Rajkumari on 31-7-1973 but before writing the letter to her husband and the two sons. In other words, Shri Doshi added that the amount was advanced by the settlor a little before settling on trust the two debts. Shri Doshi further relied on the fact that considering the consistent view taken by the Tribunal on the facts as they are, the provisions of Section 13 do not apply to the assessee's case and as such the assessee is entitled to succeed. Shri Doshi stressed the fact that there was no positive act by the trustees in relation to the investment of the funds represented by Rs. 5 lakhs that were already advanced by Smt. Rajkumari partly to the HUF of which her husband was the karta and partly to her husband as an individual. Shri Doshi submitted that Smt. Rajkumari was possessed of the funds and it was her manifest intention to make a charitable trust and the manner in which she chose to make the charitable trust was not to put on trust the cash of Rs. 5 lakhs but the two debts totalling to Rs. 5 lakhs. Shri Doshi submitted that neither the settlor nor any of the persons enumerated in Section 13, by a positive act on behalf of the trustees in any manner whatsoever did anything to attract Section 13. Shri Doshi further added that the trustees are charitably minded persons and that they have utilised the income of the trust for medical relief. When required to file the details, Shri Doshi submitted that he may be permitted to file the necessary details after sometime as immediately they were not available in a statement form. We may add that Shri Doshi, three days after the hearing, filed a statement giving information regarding the income of the trust for the period 30-6-1975 to 30-6-1980 and the expenditure by the trust on the objects of the trust Shri Doshi particularly gave information regarding the dates on which the trust had received the income. Shri Doshi further clarified that till the time he had argued the appeals, the trustees had not recovered from the two debtors the amount of Rs. 5 lakhs.
8. Explaining in some greater detail his case, Shri Doshi submitted that the right to recover money in the property is settled on trust and equally the right to collect the interest. According to Shri Doshi, lending involves giving of money but not making efforts to collect the money already lent so that it cannot be said to be hit by the provisions of Section 13.
9. As regards the wealth-tax appeals particularly, Shri Doshi urged that the AAC erred in not valuing the debts totalling to Rs. 5 lakhs.
Shri Doshi submitted that the trust property was not cash of Rs. 5 lakhs but two debts totalling Rs. 5 lakhs. According to Shri Doshi, since the two debts produced income of Rs. 5,000 and valuation of any asset other than money has to be made in the wealth-tax proceedings.
Such valuation of the asset can be made only on the basis of the income produced by such assets. On that basis Shri Doshi urges that the amount that would be includible in the assessee's net wealth will not be the nominal amount of the debts, viz., Rs. 5 lakhs but a discounted amount which in any circumstances cannot exceed Rs. 50,000 as any person would expect a return of 10 per cent.
10. Shri Roy Alphonso, the learned departmental representative, relied on the order of the AAC. Shri Roy Alphonso further submitted that considering Smt. Rajkumari's letter dated 31-7-1973 in its proper perspective, it would appear that Smt. Rajkumari had no intention of putting on trust the cash amount of Rs. 5 lakhs. Shri Roy Alphonso submitted that if the assessee's case be accepted, then one could visualise similar trust where the moneys are lent, by persons answering the description of Smt. Rajkumari's relation as in the present case at a still nominal rate of interest and for a period as much as half a century. According to Shri Roy Alphonso, by her writing dated 31-7-1973 all what Smt. Rajkumari has done is she has divested herself of the two debts totalling to Rs. 5 lakhs but it was never her intention that it was charity who should benefit with the income normally produced and expected of investment of Rs. 5 lakhs.
11. Having heard the parties and examined the record, we find that it was on 31-7-1973 Smt. Rajkumari lent two sums, one to her husband and the other to the HUF of which her husband was the karta. The amounts so lent were repayable more than 7 years after the time the moneys were lent. The moneys were lent at a nominal rate of 1 per cent per annum.
All that could be said in favour of Smt. Rajkumari is that she expressed a wish to utilise this amount of Rs. 5 lakhs for public charity at some distant future. On the basis of the information, as given by Shri Doshi partly during the hearing and partly thereafter, it is seen that the trust has been registered as a public charitable trust under the Bombay Public Trust Act, registration No. E. 5903-Bombay. We further find that within reasonable time of the trustees receiving the interest, from themselves in another capacity, the trustees have made donations to public charitable hospitals. This is the position up to the accounting year ending 30-6-1978. However, the interest for the year ended 30-6-1978 was received only almost after two years, viz., on 27-6-1980. It is further seen that the trustees have put some money on fixed deposit and in the year ending 30-6-1979 earned interest on fixed deposit of Rs. 1,500 and in the subsequent accounting year of Rs. 900.
12. Now, considering the manner in which Smt. Rajkumari made the writing dated 31-7-1973, one is reminded of the observations of the Bombay High Court in the case of Trustees of Gordhandas Govindram Family Charily Trust v. CIT  21 ITR 231. Now, that was admittedly a family charity trust. However, the trustees were empowered to provide money to members of the Vaishya community for marriages. There were certain clauses under which the trustees were enjoined to make certain payments specified therein to poor descendants of the settlor's family.
Mr. Justice Tendolkar observed as under : ... I read it as casting an obligation upon the trustees to make certain payments specified therein to poor descendants of the settlor's family whether or not such poor descendants are as deserving of help as other members of the Vaishya community. This, therefore, is not in my opinion, a case of preference being given to the descendants of the settlor's family at all ; but these descendants so long as they are poor--whatever their degree of poverty--exclude other members of the community even though they may be poorer than the poor descendants of the settlor's family ....
One also recollects that in a later year, the same assessee's case went to the Supreme Court which is reported at Trustees of Gordhandas Govindram Family Charity Trust v. CIT  88 ITR 47. The Supreme Court has observed that-- ... That shows that the trust was primarily intended for the benefit of the family of Gordhandas Govindram. This is made further clear from the various provisions in the trust deed. A reading of the trust deed as a whole clearly goes to prove that the charity under that deed begins with the family of Gordhandas Govindram and possibly ends with it. Charity in favour of the Vaishya Hindoos other than the members of the family of Gordhandas Govindram is not only marginal, but also quite tenuous.
Both the observations indicate clearly that in that trust's case the object of public charity was too remote. Now, in the present case, we find that there is a writing by Smt. Rajkumari on 31-7-1973 and the declarations by the three declarants on 13-8-1973. The issue is whether one is bound by the recital in the two writings. In this connection, one remembers the decision of the Supreme Court in the case of CIT v.Durga Prasad Afore  82 ITR 540. The Supreme Court has observed that-- ...It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.
In the present case, we find that considering the fact that Smt.
Rajkumari belongs to a family which has made larger public charities, all what she had done by the writing dated 31-7-1973 is to indicate that the trustees should make a charity of Rs. 5,000, the income which will be produced by the money lent on interest at 1 per cent for a period of more than 7 years and which has not been recovered for a period of more than 10 years.
If on the facts of the present case one has to find charity, it is as distinct as the hills on the other side of the port on a cloudy day when it is raining heavily. On such a day one knows that there are hills across the port but one cannot see those hills. Similarly, in the present case, one cannot see the present intention of Smt. Rajkumari of putting on trust the amount of Rs. 5 lakhs in the manner in which such Rs. 5 lakhs would normally produce income as the utilisation of funds remains with the family. We find that Shri Doshi's reliance is misconceived on those orders of the Tribunal where the issue involved was concerning the investment put on trust and the trustees had allowed the investment to continue in the manner in which they had received the trust property. It is true that in those cases, we have taken a view that the provisions of Section 13 are not attracted. However, in the present case unless one puts on blinkers, as warned by the Supreme Court that one should not, one cannot escape coming to the decision that the provision of Section 13 are applicable in the present case. We are of the opinion that the transaction is essentially a transaction for tax planning and does not show the real transaction of conveying a property to charity. We need not stress a fact that we will have to reconsider the assessee's case in that year when the trustees recover the moneys from the family members and invests the money in a manner so as not to attract Section 13. As far as the three years under consideration are concerned, we find merit in the decisions of the authorities below that the provisions of Section 13 are applicable. As such we do not find merit in the three years. As such the appeals are dismissed.
1. I have perused the order of my learned brother, Shri N.Y. Tamhane, and entirely agree with him that the assessee is not entitled to exemption either under Section 5(1)(i) of the 1957 Act for the assessment years 1975-76 to 1978-79 or under Section 11 of the 1961 Act for the three assessment years 1976-77 to 1978-79. However, I would like to add a few words in support of our conclusion.
2. The facts of the case have been elaborately set out in the order of my learned brother and, therefore, they do not require repetition. On a consideration of the entirety of the facts of the case, we find that the present case is one where the parties have started by expressing their pious wishes to establish a public charitable trust but ultimately have ended up with performing charity to themselves. My learned brother has quoted the relevant passage from the judgment of the Supreme Court in the case of Trustees of Gordhandas Govindram Family Chanty Trust (supra). In the present case, through the trust deed professes to be a public charitable trust, the charity to the public seems to be not only 'marginal but also quite tenuous'. Thus, in the actual execution of the trust, the parties have ensured that the major beneficiaries of this alleged trust fund are the husband of the settlor as an individual or the HUF of the settlor's husband. We cannot forget the fact that the said HUF consists of not only the settlor's husband but also the settlor herself and also their two sons. In other words, the three trustees of the assessee-trust are the major beneficiaries of the alleged trust for a public charitable purpose.
Thus, in the present case, the charity begins with the family members of the settlor and is also ended with them, since the entire funds of the trust are in the possession, control and disposal of the settlor's family. The rate of interest payable on these funds is a nominal amount at the rate of 1 per cent per annum and till date the said rate has neither been increased nor the loans recovered ,by the trustees for the purpose of investing them in more profitable investments yielding better returns for the purpose of performing the charities, as mentioned in the trust deed. It is an admitted fact that there is no security for these loans which were advanced by the settlor before placing the loans on trust for charitable purposes. Therefore, we are unable to appreciate how the case of the assessee-trust could escape from falling within the mischief of Section 13(2)(a). In our view, there is no escape for the assessee-trust from Section 13(2)(a). The distinction sought to be drawn by the learned Counsel for the assessee between the original loan lent by the author of the trust and the loan that will be advanced by the trustees is a distinction without a difference. It cannot be disputed that the amounts settled on trust by the settlor was represented by the loans advanced by her and that they continued to be lent to the prohibited persons referred to in Sub-section (3) of Section 13 till date without any security and also without adequate return of interest.
3. In these circumstances, we are unable to agree with the contentions of the learned Counsel for the assessee that the ratio of the decision of the Special Bench in the case of Trustees of Sabrina Charitable Trust v. Third WTO  3 SOT 262 (Bom.), would apply to the facts of the present case. This argument overlooks that the case of Trustees of Sabrina Charitable Trust (supra' was a case of genuine trust whereas in the present case, the trust is there only in name. As rightly pointed out by my learned brother by relying on the observations of the Supreme Court in the case of Durga Prasad More (supra), we are not expected to put on blinkers while looking into the documents produced before us nor to ignore the facts of life as held by the Supreme Court in the same decision. For these reasons, I agree with my learned brother that the assessee is not entitled to exemption from tax in the years under appeal either under the 1961 Act or under the 1957 Act.