Gujarat High Court
Commissioner Of Wealth Tax-I vs Estate Of Late Vikramsinhji on 26 March, 2014
Author: Sonia Gokani
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/1479/2008 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 1479 of 2008
TO
TAX APPEAL NO. 1489 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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COMMISSIONER OF WEALTH TAX-I,....Appellant(s)
Versus
ESTATE OF LATE VIKRAMSINHJI, THRO. L R JYOTINDRASINHJI
OF....Opponent(s)
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Appearance:
MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1
MR RK PATEL, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Page 1 of 11
O/TAXAP/1479/2008 JUDGMENT
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 26/03/2014
ORAL JUDGMENT
(PER : HONOURABLE MS JUSTICE SONIA GOKANI) These Tax Appeals were admitted for consideration of following substantial questions of law:
"(1)Whether the Hon'ble ITAT is justified in confirming the order of the CIT (A), when the AO is bound to follow valuation made by the DVO in view of specific provision of Section 16A (6) of the W.T. Act, 1957?
(2)Whether on the facts and in circumstances of the case and in law the Hon'ble ITAT is right in confirming the CIT (A)'s order that value of life interest only is to be taken for valuation of taxable wealth in respect of UK trusts?
(3)Whether on the facts and in circumstances of the case and in law the Hon'ble ITAT is right in confirming the CIT (A)'s order that nothing is to be taxed in the hands of the assessee as far as USA trusts are concerned?
(4)Whether the ITAT erred in confirming the CIT (A)'s order as it overlooked the fact that the issue regarding foreign trust is pending before the Hon'ble Supreme Court in assessee's own case for A.Ys 1970-71 to 1976-77 and 1978-79?"
Having heard learned counsel Mr.Desai for the Revenue and learned counsel Mr.R.K.Patel for the respondent-assessee, these appeals are disposed of by way of common judgment because all of them contained common questions of facts and law.
As admitted by both the sides, question No.4 does not arise Page 2 of 11 O/TAXAP/1479/2008 JUDGMENT being argumentative in nature.
Question No.3 is covered by a judgment dated 5.8.2004 of this Court in the case of Commissioner of Wealth Tax v. Estate of Late HMM Vikramsinhji of Gondal, in Tax Appeal No.31 to 48 of 2004, wherein this Court held as under:
"6. The Supreme Court in the case of Jyotendrasinhji (supra) has stated thus at page 628 :
"In the light of the above discussion, it must be held that during the lifetime of the settlor, the entire income arising from the three U.S.trust deeds was bound to be and was rightly included in the income of the settlor by virtue of section 63 read with section 61. The Commission was right in holding so. xxx xxx xxx xxx The Revenue has thus been given an option to tax the income from a discretionary trust either in the hands of the trustees or in the hands of the beneficiaries".
It is clear that Section 4(1)(a)(iv) read with Explanation clause
(a) and clause (b) is equivalent to provision of Section 63 of the Income Tax Act,1961. Therefore, the aforesaid ratio laid down by the Apex Court would be equally applicable for the purpose of determination of the present controversy between the parties. The Tribunal has rightly come to the conclusion that the revocable nature of the trust would cease to have any effect once the settlor,who is the transferor, expires. The value of the assets cannot thereafter be assessed in hands of the settlor i.e. in the present case the estate of the deceased settlor. Merely because the beneficiary has disputed the assessment in his hands that by itself is no ground to make assessment in of the estate of the deceased settlor. The revenue has an option to tax either the trustees or the beneficiaries depending on the circumstances prevailing on each valuation date.
6 There is no question of law, much less a substantial question of Page 3 of 11 O/TAXAP/1479/2008 JUDGMENT law, arising out of the order of the Tribunal. The appeals being, therefore, devoid of any merits are dismissed."
Facts being identical, without giving any separate reasons, the said question is answered in favour of the assessee and against the Revenue.
The second question is decided by this Court in the case of this very assessee. In the case of HH.Maharaja Shri Jyotindrasinhji v. Assistant Commissioner of Income Tax, 326 ITR 594 (Guj.), this Court has concluded the issue in favour of the respondent assessee in the following manner:
"54.In light of the above legal and factual position, simply because the authorities below have erroneously come to the conclusion that the facts are identical with the facts of earlier years, it cannot be believed on close verification and proper examination of those facts that the same were identical. The statement of income of all these years are on record. The notes which were placed in these statements of income are also taken into consideration. At the time when the returns were filed, the decision of the Hon'ble Supreme Court was not available. The assessee was hopeful that he would succeed before the Hon'ble Supreme Court. Hence, such note was put stating that it was subject to the outcome of the decision of the Hon'ble Supreme Court. As far as income from U.K. Trusts is concerned, the Hon'ble Supreme Court has not given any specific finding in view of the fact that the assessee's father as well as the assessee have shown the income from U.K. Trusts in their income-tax returns. The Hon'ble Supreme Court has not gone into the aspect of the interpretation of Clause 3 & 4 of the Trust Deed. On the contrary, at more than one places, the issue was kept open. Simply because the Settlement Commission has interpreted the said clause, it would not be binding on the Tribunal nor on this Court. So far as the years under appeals are Page 4 of 11 O/TAXAP/1479/2008 JUDGMENT concerned, the assessee has been seriously challenging inclusion of income from U.K. Trusts in his hands stating therein that neither distribution has been taken place nor the same has been received by him. The assessee has also produced the accounts of the Trusts wherein it is specifically stated that the income has been retained by the Trustees and it was brought forward to the next years. It was also stated in such statement of accounts that the tax has been paid by the Trustees of the U.K. Trusts on the income so earned in U.K. It appears that any of the authorities below, including the Tribunal has not considered this vital aspect of the matter and proceeded on the footing that the facts are identical and that the notes are similar to the notes of earlier years. If the income were retained by the Trustees and it has not been distributed, nor it has been received by the assessee and no evidence has been brought by the department to show that the same has been received by the assessee in India, such income cannot be taxed in the hands of the assessee. Section 5 of the Act has also no application. When the income has neither accrued nor received by the assessee, nor it has been received or accrued on his behalf either in India or outside India, such income cannot be taxed under Section 166 of the Act as it is not the income receivable. Section 166 of the Act can be invoked only when the income is received by the assessee. Unless and until the Trustees exercise the discretion and distribute the income in favour of any of the beneficiaries, i.e. the assessee, such income cannot be said to be received by the assessee. Taking any view of the matter, it cannot be said that the income has been either received by or accrued to the assessee.
55.So far as the interpretation of Clauses 3 & 4 of the U.K. Trusts is concerned, it is an admitted position that neither the Settlor nor the present appellant has appointed any additional Trustee. It is also an admitted position that the sole Trustee appointed under the Trust at the time of its creation, is competent enough to take decision with regard to distribution of the income of the Trusts. It is nobody's case that the sole Trustee has exercised such discretion and distributed the income in favour of the beneficiary. Merely on the basis of presumption, the interpretation of any Clause of Trust Page 5 of 11 O/TAXAP/1479/2008 JUDGMENT Deed cannot be made that under the Trust Deed, the Trustees are bound to exercise the discretion. Non- exercise of discretion is a matter of fact and an inference drawn by the possible interpretation of Clauses 3 & 4 of the Trust Deeds that the distribution has taken place and assessee received an income, is not sustainable. On the basis of such presumption, income cannot be taxed in the hands of the assessee. Clause 4 of the Trust Deed starts with the opening words "subject as aforesaid" meaning thereby its operation is subject to the conditions precedent enumerated therein or the eventualities envisaged therein. All the authorities have proceeded on the footing that Clause 4 had come into operation and that on that ground, income was taxed in the hands of the assessee irrespective of the fact whether such income was received by the assessee or not. We are, therefore, of the view that a close and combine reading of Clause 3 & 4 of the Trust Deed makes it abundantly clear that the sole Trustee has every power or authority to take decision with regard to the trust property and since it has been decided by the Trustee to retain the income of the Trust, it cannot be said that such income is being received by the assessee. We are also of the view that the applicability of Clause 4 is subject to the conditions of Clause 3 (2) and since sole trustee is administering the trust property and income and neither the late Maharaja nor the present appellant made appointment of discretion exerciser and the specified period is still not over, there is no question of invoking Clause 4 of the Trust and thereby taxing the income in the hands of the assessee. It is also important to note that the Trustees have paid the tax on the income earned by them in U.K. and hence, the same cannot be taxed twice over.
56.In the above view of the matter, the questions formulated by this Court in all these appeals are decided in favour of the assessee and against the revenue. All these appeals are accordingly allowed without any order as to costs."
This question is accordingly answered.
Page 6 of 11O/TAXAP/1479/2008 JUDGMENT The first question is with regard to the valuation made by the DVO in view of the specific provisions under the Wealth Tax Act. The valuation is with respect to 7 properties which are as follows:
1. Rajkot House
2. Railway Work Shop
3. Nayan Jyot
4. Jail Building
5. Huzur Palace
6. Nana Huzur Bungalow
7. Motor Garage.
In case of this very assessee, a group of Tax Appeals being Tax Appeal Nos.1153 to 1162 of 2008 has been decided by a common judgment today, where identical question in respect of other immovable properties owned by the appellant assessee has been decided and therefore, the very issue of valuation may not require much elaboration. Suffice to note that properties in the said judgment has been divided under three heads, namely, (a) Reduction of value of the property declared surplus under the Urban Land Ceiling Act (ULC for short), (b) Deduction towards development charges and deferment of sale in case of large properties and (c) Application of schedule III for valuation of properties introduced with effect from 1.4.89 by Direct Tax Laws (Amendment) Act, 1989.
In the instant case, only two parameters are applicable and all the immovable properties can be divided under two heads as under:
(b) Deduction towards development charges and deferment of sale in case of large properties:
1. Huzur Palace
2. Nana Huzur Bungalow
3. Motor Garage.
(c) Application of schedule III for valuation of properties introduced with effect Page 7 of 11 O/TAXAP/1479/2008 JUDGMENT from 1.4.89 by Direct Tax Laws (Amendment) Act, 1989:
1. Rajkot House
2. Railway Work Shop
3. Nayan Jyot
4. Jail Building Taking the application of schedule III first, in relation to properties Nos.1 to 4, it can be noted that the WTO for the assessment years 1964-65 to 1976-77, 1978-79, 1979-80, 1981-82 to 1990-91 and 1993-94, valued the said properties in accordance with Schedule III. The department also accepted these assessments. Neither any revisional proceedings had been initiated nor such assessments had been reopened. The assessment orders for which appeals have been preferred before this Court which are under consideration, valuation has not been done in accordance with Schedule III.
Both the CIT (Appeals) and the Tribunal sought to rely upon a decision of the Apex Court in the case of Commissioner of Wealth- Tax v. Sharvan Kumar Swamp & Sons, 210 ITR 886 (SC) and followed by this Court in the case of Commissioner of Wealth-Tax v. Rajeshkumar R. Gandhi, 219 ITR 408 (Guj.) wherein it has been held that valuation as per Schedule III is mandatory even for all pending proceedings. Both the CIT (Appeals) and the Tribunal committed no error by applying Schedule III which also had been followed in the case of this very assessee by the Department for the earlier years and which had been accepted without any murmur.
With regard to other 3 properties, i.e. Huzur Palace, Nana Huzur Bungalow and Motor Garage, question arose with regard to Page 8 of 11 O/TAXAP/1479/2008 JUDGMENT deduction of 25% towards common area and deferment granted for four years.
The Tribunal having concurred with the CIT (Appeals) followed the decision of the Apex Court in the case of Spl. Tehsildar, Land Acquisition, Vishakapatnam v. Smt.A.Mangala Gowri, AIR 1992 SC 666 wherein the Court held thus:
"4. In Tribeni Devi v. Collector of Ranchi, (1972) 3 SCR 208 at p. 213 : (AIR 1972 SC 1417 at p. 1421), this Court held that "in order to develop that area at least the value of 1 / 3 of the land will have to be deducted for roads, drainage and other amenities". On this basis the value of the land at Rs. 2,08,135.70 per acre would, after the deduction of 1/ 3 come to Rs. 1,38,757 per acre. In Smt. Kaushalya Devi Bogra v. The Land Acquisition Officer, Aurangabad, (1984) 2 SCR 900: (AIR 1984 SC 892). This Court held that deduction of 1/3 was held to be reasonable. In Vijay Kumar Motilal v. State of Maharashtra, (1981) 2 SCC 719: (AIR 1981 SC 1632) 1/3rd was deducted towards developmental charges in undeveloped area. In Vijaysingh Liladhar v. Spl. Land Acquisition Officer, (1988) 3 SCC 760 : (AIR 1988 SC 1652) the deduction of 1/4th by the High Court which was not challenged in this Court was upheld. In Spl. Land Acquisition Officer, Bangalore v. T. Adinarayan Setty (AIR 1959 SC 429) (supra), deduction of 25 per cent was held to be reasonable.It is to be noted that in building Regulations, setting apart the lands for development of roads, drainage and other amenities like electricity etc. are condition precedent to approve lay out for building colonies. Therefore, based upon the situation of the land and the need for development the deduction shall be made. Where acquired land is in the midst of already developed land with amenities of roads, drainage, electricity etc. then deduction of 1/3 would not be justified. In the rural areas housing schemes relating to weaker sections deduction of 1/ 4 may be justified. On that basis, this Court in R. Dharma Rao's case upheld deduction of 1/ 5 because the owner while obtaining the lay out had already set apart lands for road and drainage.Therefore, deduction of 1/3 would be reasonable. In fact in The Tehsildar, Land Acquisition, Vishakapatnam v. P. Narasing Rao (1985) 1 A P L J (HC) 99, a Division Bench of the High Court Page 9 of 11 O/TAXAP/1479/2008 JUDGMENT surveyed judgments of the High Court relating to housing schemes of Visakhapatnam upholding deduction of 1/3 to be reasonable. Accordingly we hold that 1/3 of the market value should be deducted for development of the lands. The High Court committed grievous error in giving a curious reasoning of valuing at Rs. 12 and upholding Rs. 10 to be the market value after deduction, though the market value was determined at Rs. 10. Accordingly the appeal is allowed. The market value is determined at Rs. 6 per sq. yard and after deducting 1/ 3 the market value is Rs. 4 per sq. yard. The respondents are entitled to 15 per cent solatium on market value and 4 per cent interest thereon from the date of dispossession. But in the circumstances parties are directed to pay and receive their own costs."
The Tribunal has upheld the findings of the CIT (Appeals) as could be noted that even for this issue, for the earlier years, deduction had been allowed at 25% towards common area development and the deferment as granted by both the authorities. What has been directed by the appellate authority is to ask the WTO to apply the very directions for the earlier years.
In view of the above, not only there is no requirement of interference with the direction where the Revenue authorities have been directed to follow the very directions which it had accepted in relation to earlier years, but the same being consonance with the ratio laid down by the Courts interference by this Court would not be warranted.
The questions raised have been answered accordingly. Tax Appeals stand disposed of accordingly.
Page 10 of 11 O/TAXAP/1479/2008 JUDGMENT
(AKIL KURESHI, J.)
(MS SONIA GOKANI, J.)
(vjn)
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