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Commissioner of Wealth-tax, Gujarat Ii Vs. Phirozsha Pestanji - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 1 of 1970
Judge
Reported in[1974]96ITR185(Guj)
ActsWealth Tax Act, 1957 - Sections 5(1) and 21(1)
AppellantCommissioner of Wealth-tax, Gujarat Ii
RespondentPhirozsha Pestanji
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate N.R. Divetia and; S.R. Divetia, Advs.
Excerpt:
.....regard to securities does not come to end - government securities continued to remain subject to trust - assessee in capacity as trustee could deal with securities in such manner he liked - government securities though standing in names of beneficiaries and other persons continued to remain subject to trustee - assessee liable to be assessed to wealth tax with regard to government securities under section 21 (1). - - the assessee challenged the inclusion of these amounts in appeals before the appellate assistant commissioner, but the appeals were unsuccessful. 4,61,000 transferred to the name of the assessee, nadirshah, and one other person were not assets held by a trustee with in the meaning of section 21(1) of the act ? (3) whether the tribunal was right in holding that the..........savings certificates which were beneficially owned by the assessee but which stood in some other name or names were liable to be exluded in computing the net wealth of the assessee under section 5(1)(xvi). that section exempted from computation of net wealth all national savings certificates and other certificates 'held' by the assessee. the argument of the revenue was that this exemption was limited only to those certificates which stood in the name of the assessee and did not extend to certificates which stood in the names of his nominees, though the assessee had beneficial ownership in such certificates. this argument was accepted by a division bench of this court and the division bench took the view that the word 'held', in the context in which it occurred, was used to denote.....
Judgment:

Bhagwati, C.J.

1. This reference raises a short question of construction of section 21, sub-section (1), of the Wealth-tax Act, 1957. The reference arises out of assessment years 1962-63 and 1963-64, corresponding valuation dates being March 31, 1962, and March 31, 1963. The assessee was, at all material times, the sole executor and trustee under the will of one Pestanji Faramji Contractor (hereinafter referred to as 'the deceased'). The deceased died on August 16, 1941, having duly made and published his last will dated June 4, 1941. We are concerned with only three clauses of the will and we may, therefore, confine our attention to them. The deceased directed under clause 13 of the will that a sum of Rs. 5,00,000 joint stock companies or Government securities and the net income from such investments should be paid to Smt. Alamay, wife of his son, Manekshah, 'for the benefit of Manekshah till he survives' and Manekshah should be entitled to utilize the amount of such income 'according to his sweet will'. Clause 13 of the will also made a provision for disposal of the corpus after the death of Manekshah. Likewise, by clause 14 of the will, the deceased directed that a sum of Rs. 5,00,000 should be set apart from his estate and invested in shares of banks or joint stock companies or Government securities and the net income from such investment should be paid to his another son, Nadirshah, during his lifetime. The deceased also gave further directions regarding the disposal of the corpus after the death of Nadirshah. Clause 15 of the will provided that so far as these two amounts of Rs. 5 lakhs each were concerned, 'the trustees should invest them in shares or securities and get them transferred in their names as my trustees' and such shares or securities, after being transferred in the names of the trustees 'should be lodged with any sound bank at Bombay or in the Bank of Baroda at Baroda, with such an arrangement with the bank that the bank should directly pay the interest to Nadirshah and to Smt. Alamay on behalf of Manekshah'. The assessee who was the eldest son and Jarbai who was the wife of the deceased were appointed executors and trustees of the will but Jarbai died on April 6, 1951, with the result that the assessee remained the sole executor and trustee of the will. Pursuant to the directions contained in the will, Government securities of the face value Rs. 4,61,000 were acquired by the executors and trustees for the benefit of each of the two beneficiaries, namely, Manekshah and Nadirshah. On the relevant valuation dates, Government securities of the face value of Rs. 4,61,000, which were meant for the benefit of Manekshah, stood in the joint names of Manekshah and his wife and they were deposited with the bank and interest was being collected by the bank and paid over directly by the bank of Manekshah and his wife. Similarly, Government securities of the face value of Rs. 4,61,000 which were meant for the benefit of Nadirshah stood in the joint names of Nadirshah, the assessee, and one other person and they were lodged with the bank and the bank was collecting interest and paying it over directly to Nadirshah. On these facts, the question arose in the assessments of the assessee as trustee of the will of the deceased for the assessment years 1962-63 and 1963-64, whether the value of the life interest of Manekshah and Nadirshah in the Government securities which were set apart for their respective benefit was liable to be included in the next wealth of the assessee for the purpose of assessment to wealth-tax. The Wealth-tax Officer took the view that section 21, sub-section (1), was applicable and under that provision the assessee in his capacity as trustee of the will of the deceased was liable to be assessed to wealth-tax in respect of the value of life interest of Manekshah and Nadirshah in the Government securities meant for their respective benefit. The assessee challenged the inclusion of these amounts in appeals before the Appellate Assistant Commissioner, but the appeals were unsuccessful. The assessee thereupon carried the matter in further appeal to the Tribunal. The assessee contended before the Tribunal that the Government securities of the face value of Rs. 4,61,000 which were meant for the benefit of Manekshah stood in the joint names of Manekshah and his wife while the Government securities of the face value of Rs. 4,61,000 which were meant for the benefit of Nadirshah stood in the joint names of Nadirshah, the assessee, and one other person, and since neither lot of Government securities stood in the name of the assessee and the assessee had no control or dominion over either of these two lots of Government securities, they could not be said to beheld by the assessee within the meaning of section 21, sub-section (1), and no wealth-tax could be levied on them in the hands of the assessee by relying on that provision. This contention found favour with the Tribunal and on the view that the Government securities did not stand in the name of the assessee and the assessee had no control or dominion over them and they could not, therefore, be said to be held by the assessee for the benefit of any person but they were in fact held directly by the beneficiaries themselves, the Tribunal deleted the inclusion of the value of the life interest of Manekshah and Nadirshah in the Government securities from the net wealth of the assessee. The Commissioner thereupon applied for a reference but the application was rejected by the Tribunal and the Commissioner was, therefore, constrained to make an application to this court for requiring the Tribunal to state a case on certain questions of law which according to the Commissioner arose out of the order of the Tribunal. This application was allowed by a Division Bench of the High Court and the following three questions of law were directed to be referred to the High Court :

'(1) Whether the Tribunal was right in holding that the securities of the face value of Rs. 4,61,000 transferred to the name of Mane kshah and his wife not assets held by a trustee with in the meaning of section 21(1) of the Act

(2) Whether the Tribunal was right in holding that the securities of the face value of Rs. 4,61,000 transferred to the name of the assessee, Nadirshah, and one other person were not assets held by a trustee with in the meaning of section 21(1) of the Act

(3) Whether the Tribunal was right in holding that the value of the said securities could not be subject to tax under section 21(1) of the Act ?'

2. Pursuant to the requisition made by us, the Tribunal has submitted the above three questions which have been referred for our opinion turns on the true interpretation of sub-section (1) of section 21, which reads as follows :

'21. (1) 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 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 believable 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.'

3. This is the form in which sub-section (1) of section 21 stood during the relevant assessment years. It maybe pointed out that by Act 46 of 1964, the words 'or for whose benefit' were added after the words 'on whose behalf' but, as is evident from the decision of the Supreme Court in Commissioner of Wealth-tax v. Kripashankar Dayashanker Worah, the addition of these words did not make any alteration in the law but merely clarified the true import of the provision as it was likely that an argument may be raised that a trustee holds assets for the benefit of the beneficiaries and not on their behalf and is, therefore, not within the scope and ambit of the provision. The crucial words in sub-section (1) of section 21 which fall for consideration are 'assets...... which are held by....... any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise'. What is the meaning of the expression 'held by...... any trustee' The argument urged on behalf of the assessee was that, in the context in which the word 'held' occurred, it could connote only factual management and an asset could be said to be 'held' by a trustee only if the trustee was in factual management of the asset. Here, in the present case, said the assessee, the Government securities of the face value of Rs. 4,61,000 in either case were not in the factual management of the assessee as trustee but they were in the possession and management of the beneficiaries themselves. The Government securities stood in the names of the beneficiaries, of course, jointly with one or two other persons and they were under the control or dominion of the beneficiaries and not of the assessee and hence they could not be said to be held by the assessee as trustee. The assessee pointed out that the world 'held' was used by the legislature not only in the contest of a trustee but also in the context of a receiver or manager and it, therefore, excluded the concept of 'vesting' and was used only in the sense of possession by virtue of a lawful title and since the Government securities in the present case were not in the possession of the assessee but were in the possession of the beneficiaries themselves, it could not be said that they were held by the assessee as trustee. The revenue, on the other hand, contended that whatever might be the meaning of the word 'held', when used in relation to receiver or manager, it had clearly reference to ownership of property when in reference to a trustee. The argument of the revenue was that when an asset formed part of the trust property, it was legitimate to say that it was held by the trustee for the benefit of the beneficiaries, irrespective of whether it stood in the name of the trustee or in the name of any other person as a benamidar. The true test, according to the revenue, was whether the asset formed part of the trust property so that the trustee could be said to hold it for the benefit of the beneficiaries. Here, in the present case, contended the revenue though the Government securities stood in the joint names of Manekshah and his wife in the one case and in the joint names of Nadirshah, assessee and one other person in the other, they continued to form part of the trust property and they were, therefore, the names of other persons. These rival contentions raised an interesting question of construction of section 21, sub-section (1), which we shall now proceed to consider.

4. Now it must be remembered that the meaning of a word is not constant. It varies according to the context in which it is used. No less eminent authority than Mr. Justice Holmes has pointed out that a word is the skin of a living thought. What is the meaning of a word must, therefore, depend on the context and the setting in which it is used and the purpose it is intended to achieve. It is possible that, in one context a word may mean one thing and, in another, it may men something different. That is so with the word 'held' and we have, therefore, to see what, in the context in which it is used in section 21, sub-section (1), this word means. Now one thing is clear, namely, that the word 'held' when used in reference to receiver or manager cannot include the concept of vesting, for it is clear law that the property does not vest in a receiver or manager, the receiver or manager only manages the property on behalf of others and, therefore, the word 'held' in that context must mean factual management.B ut the question before us does not arise in relation to receiver or amanager. We have to consider what is the meaning of the word 'held' when used in reference to a trustee. The answer to this question would be - self-evident if we reproduce the relevant words of sub-section (1) of section 21.

5. They read : '..... assets..... which are held by..... and trustee..... the wealth-tax shall be levied upon and recoverable from the...... trustee...... in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf the assets are held.' These words clearly contemplate a case where assets are held by a trustee for the benefit of another person. What does the word 'held' mean in this context Obviously, any asset which forms part of the trust property, that is, property subject to the trust, would be held by the trustee for the benefit of the beneficiary. Now it is true that it is always desirable that trust property must stand in the name of the trustee but even if trust property stands in the name of another person as benamidar for the trustee, it does not cease to be trust property. Take for example a case where shares which form part of the trust property of collection of dividend. The shares do not in such a case cease to be trust property because they stand in the name of the bank. Can it be suggested for a moment that the shares are not held by the trustee for the benefit of the beneficiary, merely because they stand in the name of the bank The same reasoning would apply where the trust property stands in the name of another person as benamidar for a trustee. The trust property would continue to be subject to the trust and the trustee would be bound to administrator and use the trust property for the benefit of the beneficiary as directed by the trust. The trust property would be held by the trustee, though in the name of another, for the benefit of the beneficiary.

6. The Tribunal placed considerable reliance on the decision of this court in Commissioner of Wealth-tax v. Harshad Rambhai Patel, in support of its view that an asset cannot be said to be held by the trustee for the benefit of the beneficiary unless and until it stands in the name of the trustee. But we do not see how this decision on the construction of section 5(1)(xvi) can be of any help in the construction of section 21, sub-section (1). The question which arose for determination in this case was whether National Savings Certificates which were beneficially owned by the assessee but which stood in some other name or names were liable to be exluded in computing the net wealth of the assessee under section 5(1)(xvi). That section exempted from computation of net wealth all National Savings Certificates and other certificates 'held' by the assessee. The argument of the revenue was that this exemption was limited only to those certificates which stood in the name of the assessee and did not extend to certificates which stood in the names of his nominees, though the assessee had beneficial ownership in such certificates. This argument was accepted by a Division Bench of this court and the Division Bench took the view that the word 'held', in the context in which it occurred, was used to denote certificates registered in the name of the assessee. This view was taken by the Division Bench because the legislature had used two different expressions in the provisions of the Wealth-tax Act, namely, 'belonging to' and 'held', and this deliberate use of two different expressions clearly indicated that the legislature intended to use them in different senses and the word 'held' could not, therefore, be given its broad general meaning, namely, 'belonging to' or 'of the ownership of' the assessee. The Division Bench also took into account the fact that the certificates referred to in section 5(1)(xvi) were issued by the central Government under a scheme which provided that an individual can purchase such certificates only to the extent of Rs. 25,000 and no more. This decision interpreting the word 'held' in the context of section 5(1)(xvi) cannot, therefore, be regarded as having any binding authority so far as the construction of the word 'held' in section 21, sub-section (1), is concerned. The word 'held' must be construed in the context in which it occurs in section 21, sub-section (1), and we cannot blindly adopt the interpretation of that word given in the context of another provision.

7. It is clear on a plain grammatical construction of the language of section 21, sub-section (1), that when an asset forms part of the trust property which is subject to the trust, it is held by the trustee for the benefit of the beneficiary and it is not material to this concept whether it is held by the trustee in his own name or is held by him in the name of another. Even when the asset stands in the name of a nominee, the legal ownership is in the trustee. The trustee has legal control and dominion over the asset and he can require the nominee to administer or use the asset in conformity with the directions contained in the trust and may even insist that the asset be transferred to the name of the trustee. Of course, a diffrent situation may arise where the trustee sells the asset to a third person for consideration and purports to replace the asset by its money equivalent. There, the scope for argument may conceivably arise that the asset is no longer held by the trustee for the benefit of the beneficiary but what is held by the trustee for the benefit of the beneficiary is the money equivalent, even though the sale, if unauthorized, may be held to be bad at the instance of the beneficiary and the asset may be declared to continue to be subject to the trust. It may also happen that an asset may be in possession of a person who claims title to its adverse to the trust and in such a case it may be argued plausibly that, since the trustee has no legal control or dominion over the asset, it is not held by him for the benefit of the beneficiary. But such exceptional cases apart, it is, in our opinion, inarguable that merely because an asset, though forming part of the trust property, stands in the name of another person, it cannot be said to be 'held' by the trustee for the benefit of the beneficiary. The test is : does the asset form part of the trust property If it does, it must be said to be held by the trustee for the benefit of the beneficiary, even though it may stand in the name of a nominee.

8. Now, In the present case, the Government securities of the face value of Rs. 4,61,000 stood in the joint names of Manekshah and his wife in the one case and in the joint names of Nadirshah, assessee, and another person in the other case. But they continued to form part of the trust property and the assessee was not discharged from his obligations as trustee in respect of them. In fact, according to clause 15 of the will, the Government securities of the face value of Rs. 4,61,000 should have remained in the name of the assess but it appears that, since the life interest in these Government securities was given to Manekshah and Nadirshah, the assessee transferred these Government securities to the joint names of Manekshah and his wife in the one case and Nadirshah, assessee, and one other person in the other case. That was done obviously for the sake of convenience of collection and payment of interest to the two beneficiaries. But merely because the Government securities were transferred to the names of the beneficiaries jointly with one or more persons, it does not mean that the trust in regard to them came to an end. The Government securities continued to remain subject to the trust and the assessee could at any time require the persons in whose name as trustee of the will of the deceased. The assessee could also in his capacity as trustee call upon those persons in whose names the Government securities stood to transfer them from one bank to another or to deal with them in such manner as he liked. The assessee could sell the Government securities if he so thought fit and require the beneficiaries and others to sign transfer forms for the purpose of carrying out or effectuating such sale. The Government securities, though standing in the names of the beneficiaries and other persons, continued to remain subject to the trust and were held by the assessee for the benefit of the respective beneficiaries.

9. The assessee, however, contended that whatever might be the position if an asset forming part of the trust property were standing in the name of another as nominee of the trust, the position here was entirely different because the Government securities of the face value of Rs. 4,61,000 were in the names of the respective beneficiaries and were in their possession and management and it could not, therefore, be said that they were held by anyone for the benefit of the respective beneficiaries. This contention is also, in our opinion, not well-founded and for two very good reasons. In the first place, it is not correct to say that the Government securities stood only in the names of the respective beneficiaries or that they were in possession and management of the respective beneficiaries and no others. The Government securities meant for the benefit of Manekshah stood in the joint names of Manekshah and his wife while the Government securities meant for the benefit of Nadirshah stood in the joint names of Nadirshah, assessee, and one other person. Secondly, the Government securities were not transferred to these persons as beneficiaries entitled to them. Manekshah and Nadirshah were each entitled only to a life interest and the corpus in each case was to follow another destination as directed in the will. The Government securities thus continued to remain subject to the trust and they could not be transferred to the respective beneficiaries as persons entitled under the will. The transfer of the Government securities to the respective beneficiaries and other persons was, therefore, merely, as benamidars for the sake of convenience and the Government securities continued to be held by the assessee as trustee for the benefit of the beneficiaries under the will.

10. We must, therefore, hold that the Tribunal was in error in taking the view that the Government securities of the face value of Rs. 4,61,000 in the case of Manekshah as also in the case of Nadirshah were not held by the assessee for the respective benefit of Manekshah and Nadirshah. The Government securities were held by the assessee as a trustee for the respective benefit of Manekshah and Nadirshah and the assessee was liable to be assessed to wealth-tax in respect of the value of the life interest Manekshah and Nadirshah in the Government securities under section 21, of sub-section (1). We, accordingly, answer all the three questions referred to us for our opinion in the negative. The assessee will pay the costs of the reference to the Commissioner.

11. Question answered in the negative.


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