Kerala High Court
Abdul Sathar Haji Moosa Sait ... vs Commissioner Of Income Tax. on 6 April, 1987
Equivalent citations: (1987)62CTR(KER)38
JUDGMENT
Kochu Thommen, J. - The following questions have been, at the instance of the assessee, referred to us by the Income-tax Appellate Tribunal, Cochin Bench :
"1. Whether on the facts and circumstances of the case, the Tribunal is justified in holding that the WTO has not exceeded his jurisdiction in making fresh assessments on the assessee for the asst. yrs. 1961-62 to 1969-70 by his orders dt. 11-11-1975 ?
2. Whether on the facts and circumstances of the case, the Tribunal is justified in holding that no portion of the wealth held by the assessee trust is exempt under s. 5(1)(i) of the WT Act ?
3. Whether on the facts and circumstances of the case the Tribunal is justified in holding that the WTO could, while making the reassessments for the above-mentioned assessment years, included items which were not considered in the original assessments ?
4. Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in not adopting the method of capitalisation of income for determining the value of Chittor Road properties which are in the occupation of tenants ?"
The assessment years in question are 1961-62 to 1969-70. The assessee is a trust created by one Abdul Sathar Hajee Moosa Sait by his Will dt. 25th day of Kanni, 1099 M.E. (Annexure A). The assessee holding properties under trust. It is claimed that a portion of his wealth is held under trust for charitable or religious purposes and is, therefore, exempt from the levy of wealth-tax under s. 5(1)(i) of the WT Act, 1957 (the Act"). In Commr. of Agrl. IT v. Abdul Sathar Haji Moosa Sait (1971) 81 ITR 230 (Ker) this Court had occasion to construe the relevant provisions of the trust in question, as evidenced by Annexure A Will this Court held that the dominant purpose of the trust was not charitable and properties held by the assessee were not held under trust wholly for religious or charitable purposes, but they were held in part only for such purposes. This court further held that in so far as one-fourth of the income derived from these properties was utilised for a public charitable purpose that portion of the income qualified for exemption from tax under s. 4(b) of the Agrl. IT Act, 1950 which at the relevant time read :
Any Agricultural income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied thereto."
In terms of that provision, this Court held that three fourths of the income did not qualify for the exemption. The finding that the properties were held in part only for religious or charitable purposes and that three-fourths of the income derived from those properties were not applied to public charitable purposes was confirmed by the Supreme Court in A.S.H.M. Sait, Dharmastapanam v. Commr. of Agrl. IT (1973) 91 ITR 5 (SC).
2. One of the important points arising for consideration in this case is whether any portion of the wealth held by the assessee under Annexure A, the terms of which were the subject matter of consideration in the aforesaid decisions, is exempt under s. 5(1)(i) of the Act. The two other points which arise in this case are as regards the scope of the remand order of the AAC, pursuant to which the WTO withdrew certain allowances granted under the original order and made certain additions; and, the method of valuation adopted by the Tribunal in regard to certain buildings.
3. In response to notices issued under s. 17 of the Act, the assessee filed returns for the assessment years in question. It valued the immovable properties at their original acquisition cost. Subsequently, on the request of the WTO, the properties were valued by an approved valuer on the basis of the land and building method. The WTO accepted the valuation of the approved valuer. The assessees claim that 31.25 per cent of the wealth was exempt from tax under s. 5(1)(i) of the Act was rejected by the Officer for the years 1961-62 to 1966-67, but that claim was allowed for the three subsequent asst. yrs. 1967-68 to 1969-70. Assessment was completed on 29-4-1972 for each of the years in question. The assessee preferred appeals contending that the WTO ought not to have adopted the land and building method, but should have valued the immovable properties on the basis of capitalisation of the annual rent; the WTO ought to have deducted 31.25 per cent of the total net wealth as the portion held for public charitable purposes for the asst. yrs. 1961-62 to 1966-67 as he had done for the subsequent three years; the immovable properties in question being encumbered by the trust and not transferable have no market value, and, therefore, not includible in computing the net wealth of the assessee, etc. The AAC, without expressing any view on the merits of the contentions of the assessee, set aside the assessment with a direction to the WTO to redo the assessment according to law and after stating the reasons. Accordingly the WTO by Annexure E series dt. 11-11-1975 made a fresh assessment for each of the years. He determined the value of the immovable properties in Chittoor Road on the basis of the average value by adopting the land and building method as well as the method of capitalisation of the annual net yield. The Officer rejected the assessees claim for exemption under s.5(1)(i) of the Act in relation to 31.25 per cent of the value of the properties for all the assessment years including 1967-68 to 1969-70. He thus refused to recognise the claim for exemption. He noticed that certain amounts for the asst. yrs. 1961-62 to 1969-70 had not been included in the original assessment and he, therefore, added them. Aggrieved by this order the assessee appealed to the AAC, reiterating its earlier contentions and also stating that the WTO exceeded his jurisdiction in so far as he travelled outside the directions contained in the order of remand. The AAC accepted these contentions and allowed the appeals. Against that order, the revenue preferred appeals before the Tribunal. The Tribunal held that no portion of the wealth of the assessee was exempt under s. 5(1)(i) of the Act. The Tribunal rejected the contention that the value of the assets ought to be determined by the capitalisation method. It pointed out that the assessee had not questioned the valuation made by the approved valuer on the basis of the land and building method. Considering the fact that most of the buildings were more than 20 years old, but situated in an important locality in Ernakulam Town. The Tribunal fixed the value at Rs. 2,25,000 for all the assessment years under consideration. The Tribunal also held that the WTO did not exceed his jurisdiction in making the fresh assessment by denying the exemption under s. 5(1)(i) in respect of all the assessment years and by adding the amounts which had not been included in the original assessment.
4. I shall first consider the contention regarding the scope of the remand order and the jurisdiction of the WTO. The AAC by his order dt. 12-10-1972 (Annexure D), set aside the original orders of assessment with a direction to the WTO to make a fresh assessment for each year according to law by means of a reasoned order. His order contains no words limiting the jurisdiction of the WTO. His direction is in the widest terms and cannot be read in any manner to restrict the powers of the WTO. The assessees counsel refers to sub-s. (5B) of s. 23 of the Act which reads :
"(5B) The order of the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision."
Pointing out that the order of the AAC must necessarily contain "points for determination" and "the reasons for the decision", counsel for the assessee contends that the WTO ought to have restrict himself to specific points to which specific reference had been made by the AAC.
5. Sub-s. (5B) of s. 23 of the Act and sub-s. (6) of s. 250 of the IT Act, 1961 are identical. Referring to the latter provision, Kanga says (Kanga and Palkhivala, "The Law and Practice of Income-tax", Vol. 1, 7th Edn., page 1128) :
"........ The AAC must state facts and give reasons for his findings, for the purpose of enabling the Tribunal to see whether the findings are supported by the facts of the case. This principle which was judicially recognised under the 1922 Act, is given statutory effect by this sub-section, ......."
This shows that the specific requirements of sub-s. (5B) of s. 23 of the Act are intended for the benefit of the Tribunal and they do not in any manner restrict the power of the WTO to whom an order of remand is made in general terms indicating in no way that the Officer should limit his enquiry to particular matters. Discussing the scope of an order of remand made by the AAC under the IT Act, 1961, this Court stated in K.P. Moideenkutty v. CIT (1981) 131 ITR 356 at 360 (Ker) :
"The scope of the proceedings after remand will necessarily have to be determined with reference to the terms of the order whereby the AAC had remitted the case to the ITO. Where, on appeal from an assessment, the AAC sets aside the assessment and directs the ITO to make a fresh assessment, without imposing any restrictions or limitations as to how the fresh proceedings are to be conducted by the ITO, the ITO has the same powers in making such fresh assessment as he had originally when making the assessment under s. 143 of the Act. So long as no restrictions have been placed by the appellate authority on the scope of the proceedings after remand while directing a fresh assessment to be made by the ITO, the ITO is competent to redo the assessment in accordance with law after taking into account all matters and aspects that would be relevant in making the original assessment. It is undoubtedly open to the AAC to limit the scope of the enquiry by the ITO to any specified aspect or issue. But, so long as that has not been done but the order of assessment has been set aside in to and the ITO directed to redo the assessment afresh, the powers of the ITO are untrammelled by anything that he might have said or omitted to say in the original order of assessment which was set aside by the AAC. This is the view that has been taken by the Allahabad High Court in J.K. Cotton Spg. and Wvg. Mills Co. Ltd. v. CIT (1963) 47 ITR 906 (ALL) and Abhai Ram Gopi Nath v. CIT (1971) 79 ITR 339 (All) with which rulings we are in respectful agreement ...."
The power of the AAC under the WT Act is as wide as it is in the case of his counterpart under the IT Act, 1961 : (See s. 23 of the Act and ss. 250 and 251 of the IT Act, 1961). They have identical powers of remand. The observation of this Court in K.P. Moideenkutty v. CIT (1981) 131 ITR 356 at 360 is therefore applicable with equal force to the facts of this case. In so far as the order of remand is couched in the widest terms, it was open to the WTO, as he has done in the instant case, to include the amounts which had not been originally included and also to redetermine the validity of the claim for exemption under s. 5(1)(i) in respect of all the assessment years in question. I see no error of jurisdiction in the orders of the WTO and the Tribunal has, in my view, rightly held so. Accordingly, I answer question Nos. 1 and 3 in the affirmative, that is, in favour of the revenue and against the assessee.
6. As regard the methods of valuation, the Tribunal says :
"21. ..... It is significant that the assessee has not questioned the valuation made by the approved valuer by adopting the land and building method ...."
This finding of fact by the Tribunal has not been challenged by the assessee by seeking a reference on the point. In the circumstances, it is not open to the assessee to question the Tribunals finding which is based on the approved valuers report, although the Tribunal, notwithstanding the importance of the location, reduced the value of the buildings in consideration of their age. Accordingly I see no merit in the challenge against that finding of the Tribunal. Question No. 4c is therefore, answered in the affirmative that is, in favour of the revenue and against the assessee.
7. I shall now deal with question No. 2 relating the claim for exemption under s. 5(1)(i) of the Act. The contention on behalf of the assessee is that, in so far as this Court has held in Commr. of Agrl. IT v. Abdul Sathar Haji Moosa Sait (1971) 81 ITR 230 (Ker) that a quarter of the income derived from the assets and applied to public charitable purposes qualified for exemption under s. 4(b) of the Agrl. IT Act, 1950 and in so far as that finding has remained unchallenged that portion of the wealth which produces the income devoted to public charity must be regarded as exempt from the wealth tax. I would have rejected this argument at the outset, as what is devoted to public charity is a mere quarter of the income : Trustees of Goverdhan Das Govind Ram Family Charity Trust v. CIT (1973) ii ITR 47 (SC), Trustees of K.B.H.M. Bhivandiwala Trust v. CWT (1977) 106 ITR 709 (Bom). But counsel says that the matter requires deeper consideration in the light of certain decisions. He says that a trustee being a representative-assessee, the charge is not on the corpus, but on the beneficial interests. The public being an indeterminate body of persons entitled to the benefit of charity in terms of the trust, their beneficial interests, it is contended, must be treated as a separate entity, representing a separate portion of the assets yielding the 25 per cent of the income, and such portion of the assets must be treated as being held under a separate trust and qualified for exemption under s. 5(1)(i) of the Act.
8. Much reliance is placed by the assessees counsel upon the observation of the Supreme Court in CWT v. Trustees of Nizams Family Trust (1977) 108 ITR 555 (SC). That case was not concerned with the question of exemption under s. 5(1)(i) of the Act, but with the method of computation of wealth tax in respect of assets held by a trust. The Supreme Court pointed out that, for the assessment of a trustee, s. 3 of the Act should operate subject to and in accordance with s. 21. Under sub-ss. (1) and (4) of s. 21, it was the beneficial interest which was taxable in the hands of the Trustees in a representative capacity. The Court pointed out that the revenue had the option to assess the beneficial interest either in the hands of the Trustee in a representative capacity or assess it directly in the hands of the beneficiary. In either case what was taxed was the interest of the beneficiary in the trust properties and not the corpus of the trust properties. This meant, the charge was on the actuarial valuation of the beneficial interests, and not on the market value of the corpus. The Court then gave an example :
"..... Let us, by way of illustration, take a case where property of the value of Rs. 10 lakhs is held in trust under which the income of the property is given to A for life and on his death, the property is to be divided equally between B and on his death, the property is to be divided equally between B and C. The beneficiaries in this case are clearly A, B, and C, A having life interest in the trust property and B and C having equal shares in the remainder. The revenue has option to assess the beneficial interests of A, B, and C in the trust property in the hands of the trustee or the make direct assessment on each of the three beneficiaries. If the trustee is assessed under sub-s. (1) of s. 21, three separate assessments would have to be made on him, one in respect of the actuarial valuation of the life interest of A, which may be, to take an ad hoc figure, say, Rs. 5 lakhs, and the other two in respect of the actuarial valuations of the remaindermens interests of B and C, which may be, to take again an ad hoc figure, say, Rs. 2 lakhs each. But, as pointed out above, the revenue may, instead of assessing the trustee, proceed to make direct assessment on each of the three beneficiaries A, B and C and in that case Rs. 5 lakhs, Rs. 2 lakhs and Rs. 2 lakhs would be included in the net wealth of A, B and C, respectively. The result would be that though the value of the corpus of the trust property is Rs. 10 lakhs, the assessments, whether made on the trustee to on each of the three beneficiaries, would be only in respect of Rs. 5 lakhs, Rs. 2 lakhs and Rs. 2 lakhs and the balance of Rs. 1 lakh would not be subject to taxation ......"
The Court pointed out that since the trustee could be assessed only in accordance with s. 21, it should necessarily follow that no part of the value of the corpus in excess of the aggregate value of the beneficial interests, determined on an actuarial basis, could be brought to tax in the hands of a trustee. The Court said :
"...... It would be clearly erroneous to assess the trustee to wealth-tax on the excess of the value of the corpus over the acturial valuations of the life interest and the reversionary interest of the beneficiaries ......."
The position was the same, as the Court pointed out, whether the assessment was made on the trustee or on the beneficiary. It was this differential tax, which has escaped assessment under the Act, that was roped in, as I shall presently show, by the amendment of 1980.
9. In the construction of s. 21 of the Act, the Supreme Court adopted the decisions rendered under s. 41 of the Indian IT Act, 1922 and s. 161(2) of the IT Act, 1961 as the relevant provisions of these statures, the Court observed, were identical. The Court in this connection cited with approval the observation of Chagla, C.J. in CIT v. Balwantrai Jethalal Vaidyanand & Ors. (1958) 34 ITR 187 (Bom) also followed its own decision in C. R. Nagappa v. CIT (1969) 73 ITR 626 (SC) where Shah I (as he then was) adopting the construction of s. 41 of the Indian IT Act, 1922 by Chagla, C.J. in Vaidyas case (supra), observed that "the name considerations must apply in the interpretation of s. 161(2) of the IT Act, 1961."
10. What Chagla, C.J. stated in Vaidyas case was that the liability of the trustee to income-tax was a vicarious liability and it was co-extensive with that the beneficiary. In no case could it be a larger or wider liability. If the assessment was made upon a trustee, whatever the nature of the income, whatever the mode of computation, his liability to pay the tax had to be determined in terms of s. 41 of the Indian IT Act, 1922. This is what the learned Chief Justice stated :
".... The basic idea underlying section 41, and which is in conformity with principle, is that the liability of the trustee should be co-extensive with that of the beneficiaries and in no sense a wider or a larger liability. Therefore, it is clear that every case of an assessment against a trustee must fall under section 41, and it is equally clear that, even thought a trustee is being assessed, the assessment must proceed in the manner laid down in Chapter III. In other words, even though the income to be assessed is the income of a trustee, the income must be put under one of the heads mentioned in Chapter III and the provisions laid down with regard to the computation of that income in Chapter III must be carried out. Section 41 only comes into play after the income has been computed in accordance with Chapter III. Then the question of payment of tax arises and it is at that stage that section 41 issues a mandate to the Taxing Department that, when they are dealing with the income of a trustee, they must levy the tax and recover it in the manner laid down in section 41. Therefore there is no inconsistency between the provisions of section 9, 10 and 12 and the provisions of section 41."
(1958) 34 ITR 187 at 195)
11. It is important to notice that neither Chagla, C.J. nor Shah, J. (as he then was) had occasion to consider in the above cases the distinction between the value of the corpus and the actuarial valuation of the beneficial interests, for those cases arose under the IT Act where the charge was upon the income derived from the assets, and the value of the assets was therefore irrelevant. It was in CWT v. Trustees of Nizams Family Trust (1977) 108 ITR 555 (SC) that the distinction. But what is relevant and fundamental is that the liability of a trustee, whether under the IT Act or under the WT Act, is co-extensive with that of the beneficiary, for it is a vicarious liability. His liability cannot be greater than that of the beneficiary. This is the common feature of the relevant provisions of both the enactments.
12. The principle stated by the Supreme Court in CWT v. Trustees of Nizams Family Trust (1977) 108 ITR 555 (SC) about the nature and method of the representative assessment and the vicarious and co-extensive liability of the trustees does not support the assessees specific contention, as it appears from the question referred, that a portion of the assets qualifies for exemption under s. 5(1)(i) of the Act. Nor is that contention supported by the decision of the Supreme Court in CIT v. Manilal Dhanji (1962) 44 ITR 876 (SC), which arose under the Indian IT Act, 1922. What was decided in that case that by a single document more that one trust could be created. The Court held :
".... The assessees father created two trusts by that trusts by that trust deed, one requiring the trustees to pay the trust income to the assessee and the other requiring the assessee, who was himself a trustee, to spend the income for the maintenance, education and benefit of his children. It is not disputed that by a single document more than one trust may be created. It is not therefore, true to say that the subject-matter of the trust in the present case was merely a beneficial interest under a subsisting trust."
13. Elaborating the aspects of the specific question referred on the point, counsel for the assessee submits that a quarter of the income earmarked for charity pertains to a distinct beneficial interest relating to a distinct portion of the wealth held under a separate trust, and which asset qualifies for exemption under s. 5(1)(i) of the Act. IN other words, a portion of the wealth generating a quarter of the income is, according to counsel, exempt. I see no substance in this contention. In the first place, it must be noticed that, in terms of the instrument creating the trust, no part of the wealth is traceable to the portion of the income devoted to public charity and no part of the beneficial interest is capable of identification with any particular portion of the corpus. Secondly, the instrument does not disclose a second trust or other legal obligation. There is no entrustment or charge twice over in the present case as was the position in CIT v. Manilal Dhanji (1962) 44 ITR 876 (SC) which arose under the Indian IT Act, 1922, and where the trustees were entrusted to pay the income to the assessee, and the assessee, and the assessee himself, as a trustee, was requited to spend the income for the maintenance, etc., of his children. That is not the position here. The public have not more that a beneficial interest under a subsisting trust in a portion of the income, and there is no distince portion of the property, being the subject matter of the trust, which is transferable to the public so as to constitute a separate trust or other legal obligation. (See s. 8 of the Indian Trusts Act, 1882). Thirdly, and significantly, unlike under the IT Act, where the charge is on the income, and where both the object of the trust to which the property is devoted and the actual application of a portion of the income derived from such property solely towards that object would, subject to the statutory provisions, be a relevant and decisive consideration for that portion of the income to qualify for exemption, what is relevant for exemption under s. 5(1)(i) of the Act, under which the levy is not on income, but on wealth, is the predominant purpose for which the asset is held under trust or other legal obligation, and not the actual application of the income therefrom; although the extent and the end to which the income is directed by the constituent and dominant terms of the trust to be devoted would, besides the other provisions, be a sure guide to determine the predominant object of the trust holding the asset which yields the income. For the purpose of a levy on wealth, assets cannot be apportioned with reference to the proportionate source of the income applied to charity. The observation in CIT v. Manilal Dhanji (1962)44 ITR 876 (SC) does not advance the case of the assessee any more than the decision of this Court in Commr. of Agrl. IT v. Abdul Sathar Haji Moosa sait (1971) 81 ITR 230 (Ker) which also turned on the application of the income for the purpose of assessment under the Agrl. IT Act, 1950. Nor does the observation of the Privy Council in All India Spinners Association v. CIT, Bombay (1944) 12 ITR 482 (PC) advance the case of the assessee. That case arose under the Indian IT Act, 1922 and the clear finding of the Privy Council on the construction of the constituent and dominant terms was that the primary object of the trust was the relief of the poor and the advancement of general public untility, and that the income applied to such charitable purposes was clearly exempt under s. 4(3)(i) of that Act. Fourthly, the submission at the bar is not supported by plea or findings. The object of the trust or other legal obligation must, in the final analysis, be determined, for the purpose of the Act, with reference to the terms constituting it, as evidenced by its instrument or otherwise, and not with reference to the actual application of the income. See the observation of Sabyasachi Mukharji, J. of the Calcutta High Court (as he then was) in Managing Shebaits of Bhukailash Debutter Estate v. WTO and Anr. (1977) 106 ITR 906 (Cal). Diversion of property held under trust or income derived there from will of course invite other consequences : (see s. 21A of the Act). But that is a different matter altogether.
14. It is true that the courts have held that the right of a beneficiary to receive an aliquot share of the net income derived from properties comprises in a wakfalal-aulad is itself property within the meaning of s. 2(e) : (see Ahmed G. H. Ariff v. CWT (1966) 59 ITR 230 (Cal); Ahmed G. H. Ariff and Ors. v. CWT (1970) 76 ITR 471 (SC). It is an intangible right appurtenant to the corpus, and is therefore includible among the assets for the computation of the net wealth, although the corpus itself is not exigible to tax. But that principle does not advance case of the assessee. Assuming that the beneficial interest of the public to receive charity has any conceivable value, if sold in the open market or in an "assumed market", so as to be regarded as an asset within the meaning of s. 2(e) of the Act and to be capable of having a capitalised value - an assumption which is not supported by the pleadings before the authorities, and an aspect which does not arise for consideration here-even so, the specific argument that the intangible right is a separate and distinct entity so as to form an independent trust under the instrument, apart and distinct from the trust of which three-fourths of the income are applied to private purposes, is totally unsupported by any material or findings, and opposed to the terms of the instrument of trust. The instrument does not disclose a trust upon a trust, but it discloses only one trust under which properties are held. The beneficial interest of the public in relation to the quarter share of the income, assuming that it is an asset which is capable of a capitalised value, is only a small part of the beneficial interest relatable to the proportions held on trust.
15. The fact that it is no more than a quarter of the income that is directed under the instrument to be devoted to public charity militates against the claim for examination under s. 5(1)(i). It is this aspect which is highlighted by the Bombay High Court in Trustees of Bhiwandiwalla Trust v. CWT (1977) 106 ITR 709 (Bom).
".......... If one turns again to section 4(3)(i) of the Indian Income-tax Act, 1922, under clause (i) to earn the exemption, income is required to have been derived from property under clause (i) to earn the exemption, income is required to have been derived from property under trust wholly or in part held for religious or charitable purposes. If it was wholly held on trust for religious or charitable purposes, the whole of the income is exempt, and in case of property held in part only for such purposes the income applied or finally set apart application thereto is exempt. This is of course subject to other requirements mentioned in the sub-section and in the proviso. Now, in the case of the Wealth-tax Act, where a property is held on trust for objets which are partly charitable and partly non-charitable, there cannot be any apportionment as is to be found under the Indian Income-tax Act. Such apportionment is possible only in case of income and is not possible with respect to the corpus or assets which yield income. In my view, the omission of the word wholly in the above section of the Wealth-tax Act and the omission of a similar provision as is to be found in the later part of the sub-section in the Indian Income-tax Act was deliberate and intentional and the legislature advisedly avoided or omitted the said word. The reason for this also is not far to seek. In the case of income, as stated earlier, arising from property held partly on trust for a public charitable purpose and partly for other objects, apportionment was possible and so section 4(3)(i) of the Indian Income-tax Act provided for exempting a portion of the income. As indicated earlier, this was not possible in respect of the corpus. The question then was for the legislature to consider whether in the case where the corpus is held on trust for various objects, some of which are of a public charitable nature and others not, is any exemption to be granted ? The view contended for by the learned counsel for the revenue is that unless all the objects of the trust are of a public charitable nature, the corpus would qualify for exemption under section 5(1)(i) of the Wealth-tax Act. In my view, the latter view is the better view. According to me, this was the intention of the legislature when in enacting the Wealth-tax Act, 1957, it omitted the use of the word wholly as a qualifying word as regards the requirements concerning the objects of the trust when a similar word was to be found in section 4(3)(i) of the Indian Income-tax Act, 1922."
This observation of the Bombay High Court is fully supported by the earlier observation of the Supreme Court in Goverdhan Das Govind Ram Family Charity Trust v. CIT (1973) 88 ITR 47 (SC), affirming another decision of the Bombay High Court in Trustees of Goverdhan Das Govind Ram Family Charitable Trust v. CIT (1968) 70 ITR 600 (Bom), which arose under the WT Act. Referring to the primary object of the trust, the Supreme Court stated (at page 52 of 88 ITR) :
"Now, let us turn to the other question viz., whether the trust in question can be considered as a trust created for public purpose of a charitable or religious nature. As seen earlier, the trust in question was created primarily for the benefit of the members of the family of Goverdhan Das Govind Ram Saksaria. That is clear from the title given to the trust as well as from the various provisions to which we have made reference earlier. Therefore, it is not possible to hold that the trust in question is a trust for any public purpose. It is clearly a private trust ..........."
In that case, no attempt was made, or could have been made, to split the income on the basis of its application, and apportion the assets with reference to the proportionate source of the income applied to charity. Such apportionment is not possible for a levy on the wealth. The observation of this Court in Commr. of Agrl. IT v. Abdul Sathar Haji Moosa Sait (1971) 81 ITR 230 (Ker) :
"........... Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust ..........."
must be understood with reference to s. 4(b) of the Agrl. IT Act, 1950, as it stood at the relevant time, which exempted from the levy of tax so much of the income derived from property, held under trust in part only for religious or charitable purposes, as was actually applied thereto. There is nothing in the later decision of the Supreme Court in CWT v. Trustees of Nizams Family Trust (1977) 108 ITR 555 (SC), which militates against the proposition laid down by the Supreme Court in Gordhandas Govindram Family Charity Trust v. CIT (1973) 88 ITR 47 (SC) or by the Bombay High Court in Trustees of Bhinwadiwalla Trust v. CWT (1977) 106 ITR 709 (Bom).
16. Wealth tax is charged in respect of the net wealth (s. 3). In computing the net wealth of an individual, the value of the assets specified under s. 4(1) must be included. The value of any asset, other than cash (or other than assets held under trust prior to 1-4-1980) has to be estimated on the basis of the market value on the valuation date (s. 7). In the computation of net wealth certain assets are exempt under s. 5 and certain assets are excluded under s. 6. Sec. 5(1)(i) exempt from charge the value of any property held by the assessee under a trust or other legal obligation for any public purpose of a charitable or religious nature in India. Even when a property is not wholly or exclusively held for such a purpose, it would still qualify for exemption under s. 5(1)(i), provided it is predominantly held for such a purpose : (See Gordhandas Govindram Family Charity Trust v. CIT (1973) 88 ITR 47 (SC); Trustees of Bhiwandiwalla Trust v. CWT (1977) 106 ITR 709 (Bom). But if the predominant purpose, as seen from the instrument of trust, does not fall within s. 5(1)(i), such property does not qualify for exemptions. In computing the net wealth, the value of all assets (other than exempted or excluded assets) as determined in accordance with the provisions of the Act must be included. While in respect of assets not held under trust, their value is determined, as stated above, on the basis of the market value, the value of assets held under trust (subject to the exemption granted under s. 5(1)(i) had to be determined at the material time, not with reference to the market value, but with reference to the actuarial valuation of the beneficial interests. Where the beneficiaries are more than one, and their shares are indeterminate or unknown, assessment would be made upon the trustees and the tax recovered from them as if the beneficiaries were a single individual (s. 21(4)). This means that, as the law stood at the relevant time, the charge fell, in the case of any property held under trust, only upon that part of the value of the corpus which was equal to the aggregate value of the beneficial interests determined on an actuarial basis. This is what was decided in CWT v. Trustees of Nizams Family Trust (1977) 108 ITR 555 at 596 (SC), and that case is not an authority for the proposition canvassed on behalf of the assessee that the dominant object of the trust, or the extent to which income derived from the corpus is directed to be utilised for the fulfilment of that object, as disclosed by the constituent and dominant terms of the trust, is irrelevant to the consideration of the question under s. 5(1)(i).
17. Sec. 21 has since been amended by the Finance (No. 2) Act, 1980 with effect from 1-4-1980. The words "subject to the provisions of sub-s. (1A)" have been inserted at the beginning of sub-s. (1) and sub-s. (1A) has been added. Sub-s. (4) has been amended by substituting it in part. Sec. 7 has also been amended by adding an Explanation to sub-s. (1) thereof. There are also certain other changes which are not material. I shall now read these amended provisions. Sub-s. (1) of s. 21, as amended reads :
"(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 trustees 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 declaring by a duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of 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 liable 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."
The new sub-s. (1A) of s. 21 reads :
"(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
(i) at the rates specified in Part I of Schedule I, or
(ii) at the rate of three per cent, whichever course would be beneficial to the revenue."
The material portion of sub-s. 4 of s. 21 reads :
"(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 may be 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, ........"
Sec. 7(1) reads :
"Value of assets how to be determined.
(1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.
Explanation. - For the removal of doubts, it is hereby declared that the price or other consideration for which any property may be acquired by or transferred to any person under the terms of a deed of trust or through or under any restrictive covenant in any instrument of transfer shall be ignored for the purpose of determining the price such property would fetch if sold in the open market on the valuation date."
18. Sub-ss. (1) and (1A) of s. 21 must be read together as one provision making the trustee liable for payment of tax in respect of the net wealth determined on the basis of the market value of the assets, without regard to any special price or other consideration or any restrictive covenant contained in the instrument of trust (see Explanation 7(1). It is significant that the liability of the trustee is no longer limited to the aggregate of the actuarial value of the beneficial interests, but it is determined with reference to the market value of the assets. The words "in the like manner and to the same extent" appearing in sub-s. (1) must be read into sub-s. (1A) also as the two sub-sections must be telescoped into each other for determining the liability of the trustee for payment of the tax in respect of the assets held in his hands for an on behalf of the beneficiaries. The identical words "in the like manner and to the same extent" appearing in sub-s. (4) make it clear that, whether the beneficiaries are indeterminate or unknown or otherwise, the liability of the trustee to be assessed to wealth tax is identical to that of the beneficiary.It is that tax which can also be levied directly in the hands of the beneficiaries or recovered from them in terms of sub-s. (2). It is again that tax which the trustee, after paying the same is entitled under sub-s. (5) to recover from the beneficiaries or to retain out of the assets held on their behalf. In other words, the difference between the market value of the corpus and the actuarial valuation of the beneficial interest, which was considered by the Supreme Court in CWT v. Trustees of Nizams Family Trust (1977) 108 ITR 555 (SC), to determine the liability of a trustee, is no longer relevant after the amendment of 1980.
19. A trustee, as seen above, is a representative-assessee. His liability is vicarious.It is co-extensive with the liability of the beneficiaries. It is in no sense a wider or larger liability. This is the basic principle on which s. 21 operates. The decisions of the Supreme Court cited earlier on the point leave no doubt as to the ambit of the representative assessment contemplated under s. 21 of the Act or the identical provisions of the Income-tax statutes of 1922 and 1961. The provisions of s. 21 of the Act must, therefore, in the absence of any indication to the contrary, receive a construction which is in harmony with the concept of representative assessment. It is not the legislative intent to fasten upon the trustee, by the amendment of 1981, a liability which is greater than the liability of the beneficiaries or to deny the revenue the right to assess in the hands of the beneficiaries or recover from them the tax due in respect of properties held under trust to the full extent allowed by the law.
20. The amendment of 1980 is a reassertion of the legislative intent in enacting ss. 3,4,5,6 and 7. As stated earlier, the charge levied under s. 3 falls upon the net wealth which is determined on the basis of the value of the assets on the valuation date by reference to the market value referred to in s. 7 after excluding from the computation of the net wealth the assets falling under s. 5(1)(i) and s. 6. It is, therefore, the market value of the assets that is intended to be taken into account in computing the net wealth exigible to tax in the hands of the assessee even when he is a mere trustee. But the section, as it then stood, did not fully and effectively articulate the legislative intent, as a result of which, as the Supreme Court pointed out, what was assessed in the hands of the trustee, unlike in the case of an ordinary assessee, was not the value of the corpus, but only an aggregate of the actuarial value of the beneficial interests, and the differential value escaped assessment. It is that evil which was remedied by the Parliament by the amendment of s. 21, introducing sub-s. (1A) and the other provisions with effect from 1-4-1980, so as to rope in what would otherwise escape assessment.
21. What is important for the levy of wealth tax is the value of the assets computed in accordance with the relevant provisions of the Act. Whether it is the market value of the assets that is assessed in the hands of the trustee after the amendment of 1980 or only the actuarial value of the beneficial interests, as was the position prior to 1980, the levy in either case is always upon the net wealth, the value of which is computed in accordance with the relevant provisions in force. The decision of the Supreme Court in CWT v. Trustees of Nizam Family Trust (1977) 108 ITR 555 (SC) is perfectly consistent with this position. Apart from the method of valuation of the beneficial interest for the purpose of assessment in the hands of the trustees, or in the hands of the beneficiaries themselves, this decision has no particular relevance to the facts of this case. It does not throw any light on the question regarding the claim for exemption under s. 5(1)(i) of the Act, and that question must be determined, as stated by Sabyaschi Mukharji, J. of the Calcutta High Court (as he then was) in Bhukailash Debutter Estate v. WTO (1977) 106 ITR 905 (Cal), with reference to the dominant purposes of the trust as disclosed by the terms of the instrument, and not with reference to the actual application of the income.
22. An individual may be possessed of properties which are not held under trust as well as properties held under trust. In respect of the former, he is liable to be assessed under the Act with reference to the market value of the assets. In respect of the latter, the question would arise whether the assets held under trust qualify for exemption under s. 5(1)(i). If they do, they are totally exempt. If they do not, they had to be assessed in the hands of the trustee prior to 1-4-1980 with reference to the actuarial value of the beneficial interests. But what is fundamental for determination of the question under s. 5(1)(i) of the Act is the predominant object of he trust. No property qualifies for exemption unless it is held under trust or other legal obligation predominantly or primarily for a public purpose of a charitable or religious nature.
23. A charitable trust must be a trust of a public character. There is no such thing as a private charitable trust. The trust must have been founded predominantly or primarily for public purposes of a charitable or religious nature in order that the properties held by it qualify for exemption under s. 5(1) of the Act. See : Powell v. Comption (1945) Ch. 123 : (1945) 1 All E.R. 196 : Gaffoor v. Income-tax Commr. (1961) AC 584, 601; Oppenheim v. Tobacco Securities Trust Co. Ltd. (1951) 1 All ER 31 (HL); Koettgans Will Trusts In re. (1954) 1 Ch. 252; Trustees of the Charity Fund v. CIT (1959) 36 ITR 513 (SC); Trustees of Gordhandas Govindram Family Charity Trust v. Commr. of IT (1973) 88 ITR 47 (SC); A.S.H.M. Sait Dharmastapanam v. Commer. of Agrl. IT (1973) 91 ITR 5 (SC); Trustees of Bhiwandiwalla Trust v. CWT (1977) 106 ITR 709 (Bom); Gordhandas Govindram Family Charity Trust v. CIT (1968) 70 ITR 600 (Bom); CIT v. Moosa Haji Ahmed and Ors. (1964) 52 ITR 147 (Guj); CIT v. Keshari Singh Nahar (1964) 51 ITR 699 (Cal); and Commr. of Agrl. IT v. Abdu Sathar Haji Moosa Sait (1971) 81 ITR 230 Ker).
24. To sum up : The dominant purpose of the trust in question, as evidenced by the instrument creating it, has been finally and conclusively determined to be not charitable or religious. Construing that document in Commr. of Agrl. IT v. Abdul Sathar Haji Moosa Sait (1971) 81 ITR 230 (Ker) and A.S.H.M. Sait Dharamastapanam v. Commr. of Agrl. IT, (1973) 91 ITR 5 (SC), this Court and the Supreme Court both found that three fourths of the income derived from the properties in question were directed to be utilised for non-charitable purposes. This Court held that the properties were not wholly held for charitable or religious purpose; but were held in part only for such purposes; and the dominant purpose of the trust was not charitable or religious. No specific portion of the properties was found to be utilised for public charitable purposes, but only a quarter of the income derived from all the properties was meant to be utilised for such purposes. The instrument creating the trust created only one trust in respect of all the properties, and not several trusts relating to different and distinct properties. The entire income from the properties is directed to be utilised for various purposes, and what is directed to wards public charity is only a small portion of it. The predominant object of the trust is, therefore, not one of public charity. The properties held by the trust are predominantly utilised for private purposes. Viewed in this light, no portion of the wealth held by the assessee-trust qualifies for exemption under s. 5(1)(i) of the Act.
25. Accordingly, I answer question No. 2 in the affirmative, that is, in favour of the revenue and against the assessee.
26. I direct the parties to bear their respective costs in these Tax Referred Cases.
Radhakrishna Menon, J. - I regret, I am unable to agree with the answer given by my brother to question No. 2 although I concur with the views expressed by him while answering question Nos. 1,3 and 4. Hence this separate judgment.
At the instance of the assessee the following questions have been referred :
"(1) Whether, on the facts and circumstances of the case, the Tribunal is justified in holding that the WTO has not exceeded his jurisdiction in making fresh assessments on the assessee for the asst. yrs. 1961-62 to 1969-70 by his orders dt. 11-11-1975 ?
(2) Whether on the facts and circumstances of the case the Tribunal is justified in holding that no portion of the wealth held by the assessee trust is exempt under s. 5(1)(i) of the WT Act ?
(3) Whether on the facts and circumstances of the case the Tribunal is justified in holding that the Wealth tax Officer could, while making the re-assessments for the above-mentioned assessment years, include items which were not considered in the original assessments ?
(4) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in not adopting the method of capitalisation of income for the determining the value of Chittoor Road properties which are in the occupation of tenants ?"
2. I shall now state the essential facts requisite for determining the issues involved in this case. The assessee is a trust created under a Will executed by one Abdul Sathar Haji Moosa Sait on 25th Day of Kanni 1099 M.E. (Annexure-A). The various clauses in the Will disclose that the properties held by the trust are partly for public purposes of a charitable or religious nature in India and partly for private purposes. Construing the Will this Court in Commr. of Agrl. IT v. Abdul Sathar Haji Moosa Sait (1971) 81 ITR 230 (Ker) has held that "though the dominant purpose of the trust deed was not charitable, the first quarter of the income covered by paragraph 8 was clearly a public charitable trust, as the dominant intention of the founder was to benefit the public". This decision was later confirmed by the Supreme Court. (See : Abdul Sathar Haji Moosa Sait, Dharmasthapanam v. Commr. of Agrl. IT, Kerala (1973) 91 ITR 5 (SC).
3. As the WTO was of the view that the wealth belonging to the trust has escaped assessment for the years of assessment 1961-62 to 1969-70, he served on the assessee a notice under s. 17 of the WT Act. In response to the said notice the assessee filed the returns for the above years. Rejecting the contention of the assessee that the value of the properties should be fixed at their original acquisition costs, the assessing authority charged it by adopting the land and building method. Although the WTO accepted the contention of the assessee that 31.25% of the trust properties was exempt from tax under s. 5(1)(i) of the WT Act for the years of assessment 1967-68 to 1969-70, he rejected the said contention in regard to the assessment for the asst. yrs. 1961-62 to 1966-67. The assessments were made on 29-4-1972 and they are Annexures C, C1 to C8 respectively.
4. Aggrieved by the orders of assessment the assessee preferred W.T.A. Nos. 18-E to 26-E/72-73 before the AAC. By his order dt. 12-10-1972 the AAC set aside the assessments and directed the WTO to make fresh assessments. While doing so, he observed that the WTO should consider the claim of the assessee, that the properties require to be valued only by adopting the method of capitalising the annual yield for all the assessment years. He also directed that the assessing authority shall consider the claim of the assessee for exemption in respect of 31-25% of the value of the properties under s. 5(1)(i) of the WT Act for the asst. yrs. 1961-62 to 1966-67 also.
5. Pursuant to the above directions the WTO made fresh assessments on 11-11-1975. Regarding the value of the immovable properties, he determined the value by taking the average of the values of the properties determined by adopting the land and building method and also by adopting the capitalisation of the net annual yield method. So far as the claim for exemption is concerned, he found that the assessee is not entitled to the exemption.
6. The assessee thereupon filed W.T.A. Nos. 24-E to 32-E/75-76 before the AAC of WT, Ernakulam wherein he reiterated the various contentions he had raised before the WTO. An additional contention raised was to the effect that the WTO should have made "fresh assessment only in accordance with the direction given by the AAC in his order dt. 12-10-1972 and that the WTO exceeded the jurisdiction in so far as he determined the value of immovable properties by taking the average of the values arrived at by adopting the land and building method and the rent capitalisation method and in declining to grant exemption under s. 5(1)(i) of the WT Act for the asst. yrs. 1967-68 to 1969-70 and in including fresh items of movable properties". The AAC accepted the above contentions of the assessee and as a consequence thereof held that the WTO should have completed the assessments only in accordance with the directions given by his predecessor in his order dt. 12-10-1972. He also held that the determination of the market value in the way in which it has been determined by the WTO, was not acceptable. He accordingly held that the immovable properties which had been let out, should be valued only by adopting the rent capitalisation method. It is seen from the order that he has also accepted the assessees contention that 31.25% of the value of the immovable properties qualifies for the exemption under s. 5(1)(i) as the income therefrom is spent for public charitable and religious purposes.
7. Aggrieved by the above order the department preferred appeals before the Income-tax Appellate Tribunal. Relying on a decision of the Madras High Court in CIT v. Seth Maniklal Fomra (1975) 99 ITR 470 (Mad) the department contended that when once the order of assessment was set aside by the AAC and the matter was remanded to the WTO for fresh assessment, the assessing authority had ample power to consider every aspect of the assessment, even aspects which were not considered at the time of the original assessment, de novo before the assessment was made. This contention of the department was seriously opposed by the assessee. According to the assessee the assessing authority had no jurisdiction to go beyond the directions contained in the remand order and if that be so the order of the assessing authority after the remand including fresh item of wealth as liable to be interferred with. In support of this argument he relied on a decision of the Punjab & Haryana High Court in Kartar Singh v. CIT, Amritsar (1978) 111 ITR 184 (P&H).
8. Accepting the argument of the department, the Tribunal held that "while it was obligatory for the WTO to carry out the directions of the AAC, it did not prevent him from considering other matters even though they might not have been considered in the original assessment made by him." Accordingly it held that the WTO could not be said to have exceeded the jurisdiction in making the fresh assessments. The Tribunal in this connection has relied on the decisions of the Madras High Court in Sri Gajalakshmi Ginning Factory Ltd. v. CIT, Madras (1952) 22 ITR 502 (Mad), of the Allahabad High Court in J. K. Cotton Spinning and Weaving Mills Co. Ltd. v. CIT (1963) 47 ITR 906 (All) and again of the Madras High Court in CIT v. Seth Maniklal Fomra (1975) 99 ITR 470 (Mad).
9. Considering the claim of the assessee for exemption under s. 5(1)(i) of the WT Act in respect of the 31.25% of the value of the trust properties, the Tribunal held that the assessee was not entitled to the said exemption since the properties in question were not wholly" held in trust for religious and charitable purposes. The Tribunal also observed that there was nothing in the said section warranting exemption being in given respect of a "proportionate value of the properties held in trust partly for religious and charitable purposes and partly for private purposes". In support of this view the Tribunal has relied on a decision of the Bombay High Court in Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT, Bombay (1977) 106 ITR 709 (Bom). The Tribunal therefore held that no portion of the wealth of the assessee trust was exempt under s. 5(1)(i) of the WT Act.
10. Considering the point pertaining to the valuation of the properties in Chittoor Road and at Mattancherry the Tribunal held that neither the capitalisation method nor the determination of the value of the land and building method, was proper. Accordingly it struck a new method and the correctness of the value thus determined is under challenge in question No. 4.
11. The Tribunal then proceeded to consider the inclusion of certain items of immovable properties namely the amounts set apart in the (1) family members account, (2) payment of charity and (3) property purchase account for the purpose of assessment. Noticing that the AAC had not considered the propriety or otherwise of the inclusion thereof, the Tribunal directed the AAC to consider the correctness or otherwise of the inclusion of the amounts on its merits". The copy of the order of the Tribunal dt. 31-10-1978 is Annexure-J.
12. The questions aforesaid arise from the above order of the Tribunal.
13. I shall first consider the arguments of the counsel for the parties pertaining to the remand order and the jurisdiction of the WTO based thereon. The AAC of WT by order dt. 12-10-1972 set aside the orders of assessment with a direction to the assessing authority "for fresh disposal after deciding this question". This observation was made while considering the additional ground taken by the assessee namely, that "since there is a restriction clause in the terms of the Trust Deed, creating the appellant trust, prohibiting the trustees from alienating the trust properties by sale or pledge or encumbrance in any other manner, the properties are not transferable at all, and hence, these are not includible in the assessments. The bulk of the assets included in the assessment under appeal are represented by immovable properties ......"
14. Yet another additional ground taken by the assessee and disposed of by the order, is this. "It is seen that in the assessments for the years 1967-68, 1968-69 and 1969-70, a deduction of 34-1/4% "attributable to charity"has been given from the value of assets both movable and immovable. It is not known why this deduction has not been given for the years 1961-62 to 1966-67". The direction in regard to this point discernible from the order of remand, reads : "This question will also be considered and decided in the course of the fresh assessment proceedings .......".
Regarding the two original grounds, the direction reads :
"Now that the assessments are to be set aside for being redone, the WTO will consider both the claim in its course of the fresh assessment proceedings ......".
15. From the excerpts above it is clear that the orders under challenge were set aside. After setting aside the orders, the assessing authority has been directed to redo the assessments. That means the remand order does not impose any restriction in regard to the exercise of the jurisdiction of the assessing authority in making the assessments.
16. The ld. counsel for the assessee however, contended that the scope of the order of remand requires to be considered in the light of the specific provisions contained in sub-s. 5(B) of s. 23 of the WT Act. It reads :
"The order of the Appellate Assistant Commissioner (or as the case may be the Commissioner Appeals) disposing of the appeal shall be in writing and shall state the points for determination the decision thereon and the reasons for the decision".
The Appellate Authority in view of this provision, could consider and dispose of only those points, the appellant had raised in the appeal. If that be so, it was further contended, there was no scope for upsetting the orders of assessment in so far as they pertained to matters which were not appealed against. The decisions in respect of such matters, in the absence of specific attack against them before the Appellate Authority, could not be taken up after the remand unless it be that the order of remand disclosed that those matters were also considered and disposed of by the Appellate Authority on the same being specifically raised by the assessee the learned counsel submits. I am not impressed by this argument.
17. The provisions contained in this sub-section, I am of the view, are in the nature of instructions to the Appellate Authority, emphasising that the order disposing of the appeal shall be a speaking order. The order shall not be criptic. The order shall be self explanatory. This sub-section therefore would not support the argument of the learned counsel that the order of the Appellate Authority shall not travel beyond the points raised in the appeal.
18. In disposing of an appeal, the Appellate Authority has also the power to consider and decide any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such matter was not raised before the Appellate Authority. (See sub-s. 5(A) of s. 23). Considering all such matters the Appellate Authority can dispose of the appeal by passing such order as he thinks fit. (sub-s. 5 of s. 23). This being the scope of the relevant provisions in s. 23, I am of the view that the Appellate Authority, has the power to set aside the order of assessment and direct a de novo assessment. The ruling of this court construing identical provisions in the IT Act in K.P. Moideenkutty v. CIT (1981) 131 ITR 356 (Ker) supports the above view of mine. The party who is aggrieved by such orders, has the right to challenge the same before the Appellate Tribunal. The assessee did not challenge the order by filing an appeal. The order thus has become final. He therefore is bound by that.
19. In the light of what is stated above I am of the view that the assessing authority has not exceeded his jurisdiction in making fresh assessments pursuant to the order of remand. Question 1 and 3 therefore are answered against the assessee and in favour of the department.
Coming to question No. 2 :
20. Construing the deed creating the trust this court in Commr. of Agrl. IT v. Abdul Sathar Haji Moosa Sait (1971) 81 ITR 230 (Ker) has stated thus :
"......... Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust. The dominant intention of the founder is to benefit the public."
This ruling has been affirmed by the Supreme Court in Abdul Sathar Haji Moosa Sait, Dharmasthapanam v. Commr. of Agrl. IT, Kerala (1973) 91 ITR 5 (SC). The Supreme Court has held thus :
"From the above provisions it is clear that the 3/4th of the income of the B schedule properties was primarily earmarked for the benefit of near relations of the testator. Hence, we are in agreement with the High Court that this part of the bequest cannot be considered as a public charitable trust."
21. The Revenue therefore, has rightly not sought for the interpretation of the trust deed. However, it has contended for the position that, inasmuch as the property of the trust is not held wholly for charitable or religious purposes, the assessee is not entitled to the benefit of s. 5(1)(i) of the WT Act. According to the ld. counsel for the Revenue the omission of the word wholly in s. 5 (1)(i) coupled with the fact that there is no provision for exempting part only the property held for religious or charitable purposes, makes it clear that the assessee in a case like the one on hand where admittedly a part only of the property held under the trust is earmarked for charitable purposes, is not entitled to the exemption. The reason, according to the counsel, is that division of properties held in trust into charitable and non-charitable is not possible so as to have separate assessments under the WT Act. In support of this argument the learned counsel relied on a decision of the Bombay High Court in Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT, Bombay (1977) 106 ITR 709 (Bom). I shall deal with this argument in due course.
22. Construing ss. 2(m), 3 and 21 of the WT Act the Supreme Court in CWT v. Trustees of Nizams Family Trust (1977) 108 ITR 555 (SC) has laid down the following principles :
(a) Section 2(m) makes it clear that any property wherever located, belonging to the "assessee at the relevant valuation date is liable to be included in the net wealth of the assessee".
(b) On a combined reading of sections 3 and 21 it is clear that whenever assessment is made on a trustee, it must be made in accordance with the provisions of section 21. He cannot be assessed apart from and without reference to section 21.
(c) The assessment contemplated under sub-section (1) or sub-section (4) of section 21 on the trustee, is an assessment in a representative capacity in that, the assessment really is made on behalf of the beneficiaries who are liable to be assessed in respect of their interest in the trust properties, held by him. Therefore, there would be as many assessments as there were beneficiaries. However, there can be only one assessment order specifying the tax due in respect of the net wealth of each beneficiary.
(d) Section 21 does not impose any taboo disabling the Revenue to make a direct assessment on the beneficiary in respect of his interest in the trust properties. In short the beneficiary can always be assessed in respect of his interest in the trust properties since such interest belongs to him.
(e) Whether the assessment is against the trustee or upon the beneficiary, it is significant to note that in either case what is taxed is only the interest or, the beneficiary in the trust properties and not the corpus of the trust properties. Here it is relevant to note that in the case of every other assessee the assessment is on the value of the corpus of the properties.
(f) Where beneficiaries are more than one and therefore their shares are inderterminate or unknown, the trustees will be assessed in respect of their beneficial interests in the trust properties, as if they belonged to one individual. In such cases it is not possible to make direct assessment on the beneficiaries because their shares are indeterminate or unknown and that is why "it is provided that the assessment may be made on the trustee as if the beneficiaries for whose benefit the trust properties are held were an individual."
(g) The comulative effect of sub-sections (1) and (4) of section 21 is that no part of the corpus of the trust properties can be assessed in the hands of the trustee under section 3 and if assessment year such assessment is made it would be contrary to the plain mandatory directions contained in section 21.
(h) The amount of tax payable by the trustee would be the same as that payable by each beneficiary if he was assessed directly.
(i) The difference between the value of the corpus of the trust properties and the aggregate value of the beneficial interests of the beneficiaries cannot be brought to tax in the hands of the trustee under section 21."
It can thus be seen that the Supreme Court held in Nizams Family Trust case (supra) that the difference between the value of the corpus of the trust properties and the aggregate of the value of the interest of beneficiaries and remainderment cannot be subjected to tax under s. 3 or s. 21. In order to overcome the said verdict, the Parliament by the Finance Act, 1980 (Act 44 of 1980) has introduced sub-s. 1A, Explanation to s. 7(1) and has also suitably amended sub-ss. 1) and (4) of s. 21 of the WT Act. Sec. 21(1A) reads :
"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 ad resident in India for the purpose of this Act, and -
(i) at the rates specified in Part I of Schedule I; or
(ii) at the rate of three per cent, whichever course would be more beneficial to the Revenue".
This sub-section provides that in addition to Wealth-tax leviable and recoverable in accordance with the provisions contained in sub-s. (1) tax could be levied upon and recoverable from the trustee, receiver etc. in respect of the excess value aforesaid. The explanation added to s. 7(1) plugged the loophole for avoidance of tax by providing restrict clause in trust deeds like, say for instance, in case any of the beneficiaries exercises his option to buy any assets held by the trustees after the death of the last surviving beneficiary or otherwise, the property shall be sold to him for the sum specified in the document ignoring the market value.The amendment thus has recognised and kept in tact the principles other than the one which was got over by the amendment, laid down by the Supreme Court in Nizams Family Trust case (supra).
23. It is thus clear that whether the assessment is upon the trustee or against the beneficiary, what is taxed is only the interest of the beneficiary in the trust properties and not the corpus of the trust properties.
24. It therefore follows that so far as the accountability of the trustee to Wealth-tax in respect of the properties held in trust is concerned, the same required to be determined with reference to the interests of the beneficiaries in the trust properties and not with reference to the value of the corpus of the trust properties unless it be that the assessment is one contemplated under sub-s. 1A of s. 21. If that be so, the beneficial interest of the beneficiaries for whose benefit the trust is created, has to be found out first before the tax is levied.
25. For the reasons stated above the argument of the learned counsel for the Revenue, set out in paragraph 21 is rejected.
26. The question that immediately arises for the consideration is, whether the interest of the beneficiary in the trust properties would be an asset within the meaning of the WT Act and could the capitalised value of such a right be assessable under the WT Act ? Answer to this question depends upon the interpretation of ss. 2(e), (m) and s. 3. The language employed in s. 2(e) shows that it was intended to include property of every description, movable and immovable barring the exceptions stated therein ad under other provisions of the WT Act. The word property, as observed by the Supreme Court in Ahmed G. H. Ariff & Ors. v. CWT AIR 1971 SC 1691 : (1970) 76 ITR 471 (SC), "is a term of the widest import and subject to any limitation which the context may require, it hold and enjoy". The Supreme Court accordingly held that the language used in s. 2(e) shows that the word asset was intended to include property of every description. The Supreme Court therefore declared that the right of a person to receive an aliquot share of the net income of the trust property, i.e. the right to receive a share of the income, under a wakf, if an asset within the meaning of the WT Act and the capital value of such a right is assessable to Wealth-tax. This view has been reiterated by the Supreme Court in a later decision in Purushottam v. CWT, Bombay AIR 1973 SC 2335.It is relevant in this connection to have specific reference to the following passage from the decision of the Calcutta High Court (Ahmed G. H. Ariff v. CWT (1966) 59 ITR 230 at 237 (Cal) which was affirmed by the Supreme Court in (1970) 76 ITR 471 (SC) :
"............ It is not the ownership of the wakf properties which can be made taxable for the purpose of the Wealth-tax Act; it is only the right of the assessee to receive some benefit out of the income of the property which is exigible".
27. It can thus be seen that the right of a person to receive a portion of the income derived from the property is also exigible to tax under the WT Act. The right of the beneficiaries to get the income from the trust properties, therefore, would be asset/property, exigible to tax under the WT Act. It is irrelevant to consider the question whether "the property out of which the right to receive the income arose" belonged or did not belong to the beneficiary. It is only the asset of the assessee which has got to be taken into account. As observed by Mitter, J. "if the right to receive the income is an asset, it belongs to the assessee no matter whether the right is dependent on the existence of some property and springs out of it".
28. These principles should be borne in mind while considering the main point namely, whether the twenty five per cent of the income of the trust properties directed to be spent for a public purpose of a chartable or religious nature, is eligible for the exemption provided for under s. 5(1)(i) of the WT Act. The scope and ambit of s. 5(1)(i) of the WT Act requires to be considered in this connection. Sec. 5(1)(i) reads :
"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 -
(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India;"
The Section extends exemption only to a particular class of property. The conditions stipulated in the section are :
(1) the asset could be any property;
(2) if should be held under trust or other obligation;
(3) it should be held for charitable or religious purposes of public character, and (4) It should be held in India.Regarding Condition No. 1
The employment of the words "any property" in the section, I am of the view, was intended to qualify properties of every description. It has already been found that the right of the beneficaries to get one quarter of the income as provided for under paragraph 8 of Annexure-A, Will, is an asset/property, includible in the net wealth of the assessee because it falls within the meaning of "property of every description" as explained by the Supreme Court. The use of "the indefinite numeral adjective" any, instead of an "adjective of quantity" whole before the word "property" in the section (s. 5(1)(i)) is thus apposite, significant and meaningful. The condition accordingly is satisfied.
Regarding the second condition that the property should be held under trust or other legal obligation :
The investigation should be geared to the question whether there was any provision in the Will which would show a trust or binding obligation. Paragraph 8 of Annexure - A Will is relevant in the context. It provides that :
"after meeting the expenses of upkeep, maintenance, etc., of the trust properties the remaining income should be divided into four equal parts at the end of every year and one such part should be utilised for providing food, clothing, etc., to indigent members of the founders parents families and to new converts to Islam, for teaching Islamic tenets; for popularising other languages among Muslims; for renovating damaged mosques; for giving aid for constructing new mosques; for constructing new mosques; for purchasing land for mosques and for burial grounds; for digging free wells, for burying unclaimed dead bodies of Muslims; for providing food, clothing, etc., to indigent Cutchi Memons and widows in Travancore and Cochin; and for giving alms to the poor during Ramzan. The trustees are given freedom to spend this quarter of the income on one or more heads - one head alone or more of them. It is also provided that the whole of this quarter should be spent every year (1971) (See : 81 ITR 230 (Ker)).
Construing the Will (Annexure-A) the Division Bench in Commr. of Agrl. IT v. Abdul Sathar Haji Moosa Sait (1971) 81 ITR 230 (Ker) has observed that the testator has created two trusts, one for non-charitable purposes (as is seen from paragraph 9 and 12 of the Will) and one for charitable purposes (as is seen from paragraph 8 of the Will). This is what the Division Bench has said regarding the scope of paragraph 8 of the Will :
"Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust. The dominant intention of the founder is to benefit the public."
It is thus clear that the testator by incorporating paragraph 8 in the Will has impressed the 25 percent of the income of the trust properties with a trust for charitable purpose. That, in a single document there can be more than one trust is no more a moot question in view of the decision of the Supreme Court in CIT v. Manilal Dhanji (1962) 44 ITR 876 (SC). It is therefore, clear that the directions to the trustee, contained in paragraph 8 of the Will, are enforcible obligations. The department in fact has accepted the findings of the Division Bench. Whatever that be the authorities concerned have proceeded with the assessments, as if, paragraph 8 of the Will has correctly been interpreted by the Division Bench.In my judgment paragraph 8 shows a trust or building obligation so to carry it on.
29. It is beyond dispute that the terms of a written instrument bind the parties thereto. If that be so the terms contained in paragraph 8 of Annexure-A Will, would bind not only the trustees but the beneficiaries for whose benefit the trustees hold the properties. Any departure by the trustees from the above terms would be a breach of trust or legal obligation which the court could restrain. It is interesting to note that even "a formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees".
(1) All India Spinners Association v. CIT, Bombay (1944) 12 ITR 482 (PC) (2) Dharmapashanam Co. v. CIT (1965) 58 ITR 600 (Ker) (3) CIT v. Tolly Gunge Club Ltd. (1971) 79 ITR 179 (Cal) (4) CIT v. Trustees of Shri Cutchi Lohana Panchtade Mahajan Trust (1975) 98 ITR 448 (Bom) (5) CIT v. Sant Banu Mohan Singh (1979) 118 ITR 1015 (All) 257 : (1979) 118 ITR 1015 (All) and the beneficiaries inter se. I hold that at least there is such a trust or a legal obligation discernible from paragraph 8 of Annexure-A Will and that is all that the section (s. 5(1)(i) requires. I am fortified in this view by a decision of the Privy Council in All India Spinners Association v. CIT, Bombay (1944) 12 ITR 482 (SC) where, construing a similar provision in the Indian IT Act, 1922, the wordings of which read "s. 4(3) (i) - Income derived from property held under trust or other legal obligation wholly for charitable purposes", the Privy Council has held thus :
"The purpose is to be ascertained from the constitution. In their Lordships judgment its provisions already quoted show a trust or binding obligation so to carry it on. The constitution is a written instrument, the terms of which bind not only the trustees and Council, but the members who by their application for membership accept its rules. Any departure either by the trustees or Council or members from the rules would be a breach of trust or legal obligation which the Court could restrain. A formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees, the Council and the members inter se. Their Lordships hod that there is such a trust or at least that there is a legal obligation, which is all that the section requires".
It is thus clear that even if it is said that the one quarter of the income mentioned in paragraph 8 of Annexure A Will is not held by the trustee under trust, the terms contained in the said paragraph clearly and positively show that the trustee is legally obliged to spend the said money for a public purpose of a charitable nature. The said, income in other words, can be said to be held by the trustee under a legal obligation for a public purpose of a charitable nature. The beneficiaries in the circumstances can get the said obligation enforced through a court of law. The facts already discussed would show that the other two requirements also have been satisfied. If that be so, I am of the view that the right of the beneficiaries to get the twenty five percent of the income of the trust properties is an asset falling within the meaning of property of every description, eligible for exemption provided for under s. 5(1)(i) of the WT Act.
30. One quarter of the income covered by paragraph coming under s. 5(1)(i) and hence eligible for the exemption provided for under the said section. Question No. 2 therefore is answered in the negative, i.e. against the Department and in favour of the assessee against the Department and in favour of the assessee.
31. So far as the method of valuation of the properties situated on the Chitoor Road are concerned, the Tribunal has entered the following findings :
"It is seen that the value given by the approved valuer for this property is Rs. 5,01,357, made up of Rs. 2,16,500 being the value of the 88 cents of land and Rs. 2,84,857 being the value of the 10 building thereon. The value arrived at by capitalising 20 times the annual letting value is Rs. 1,45,900. The annual letting value has been taken by the Income-tax Officer as Rs. 7,295 without allowing for collection charges and he has capitalised the same at 20 times. As already stated, he has made an addition of Rs. 67,500 as the value of the excess land. It is significant that the assessee has not questioned the valuation made by the approved valuer by adopting the land and building method. The fact remains that the buildings have been let out but it is not correct to say that the rent cannot be increased. Even Rent Control Act provides for increase of rent under certain circumstances. Considering the location of the property and the fact that it has been let out for small rental we do not think that the value should be determined only by adopting the rent capitalisation method. Considering the fact that most of the buildings are more than 20 years old and the fact that the most of the buildings are more than 20 years old and the fact that they are more than 20 years old and the fact that they are all situate in an important locality in Ernakulam town we think that their value can be fixed at Rs. 2,25,000 for all the assessment years under consideration".
The assessee has not challenged the above findings by raising a separate question. The assessee thus has accepted the findings. The findings are based on cogent reasons. It cannot be said that they are perverse. In these circumstances I a of the view that the question No. 4 requires to be answered against the assessee and in favour of the department. I do so. No costs.