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Showing contexts for: irrevocable trust in Cumi Employees' Welfare Trust vs Wealth-Tax Officer on 13 July, 1998Matching Fragments
6. He had also taken into consideration CBDT Circular No. 387 (see [1985] 152 ITR (St.) 1), dated July 6, 1984, which is a Memorandum explaining, inter alia, the insertion of section 40A(11). The extract of the circular was already quoted in the learned Judicial Member's Order at pages 8, 9 and 10 (pages 8 and 9). I feel it is not necessary to once again reproduce the same. However, I may state that I have kept them in mind for due consideration while deciding this issue.
7. After having thus surveyed the provisions of section 40A(11), the CBDT circular, as well as the principles enunciated by the Supreme Court regarding the retrospectivity of the legislative provisions, he held that Parliament was aware of the inequity of disallowing the expenditure in respect of an irrevocable trust and provided that even the balance of the amount unspent will be treated as "belonging" to the donor company. In other words he held that the effect of these three sections is to statutorily revoke the irrevocable trust created by the company. This intention is manifest by the provisions of sub-section (11) which provides that the donor company can take back not only the amount unutilised but also claim any assets held by the trust which were acquired with the contribution made by the donor and have them transferred to itself.
"4. Net wealth to include certain assets - ...
(5) The value of any assets transferred under an irrevocable transfer shall be liable to be included in computing the net wealth of the transferor as and when the power to revoke arises to him."
17. The trust deed was executed on February 20, 1980, and it is described as an irrevocable trust, a photo-copy of which is already on record. Under the provisions of section 40A(11), which is already extracted verbatim in this order, the word "assessee" signifies the donor company or the company which contributed the funds to the irrevocable trust. It is clearly stated in the said sub-section that any sum paid before the 1st day of March, 1984, inter alia, to any trust, referred to in sub-section (9), then, notwithstanding anything contained in any other law or any instrument, he shall be entitled to claim so much of the amount paid by him as has not been laid out or expended by such fund (such amount being hereinafter referred to as the unutilised amount) be repaid to him. Therefore, the meaning of the sub-section is very clear and by virtue of the provision, Parliament conferred a right to the donor who had contributed the funds to the irrevocable trust before March 1, 1984, a right to demand repayment of the unutilised portion out of the said amount. The remaining words occurring in sub-section (11)(i) "and where any claim is so made, the unutilised amount shall be repaid, as soon as may be, to him". The above words forming part of sub-section 40A(11)(i) casts an obligation on the donee-trust (assessee-trust) to whom the contribution is made to repay the unutilised amount out of the total amount contributed to them to the donor. This was already considered by the Madras Tribunal in a SMC Bench in the case of ITO v. Tube Investments of India Ltd. [1990] 32 ITD 172. In that case, the assessment year involved is 1982-83. The assessee trust was set up by the settlor company for the welfare of its employees. It is an irrevocable trust. After the introduction of section 40A(9), (10) and (11) with retrospective effect from April 1, 1980, the assessee company in that case had claimed refund of not only of the unutilised portion of the trust contribution but also the accrued interest as well as dividends, if any. The question was whether the claim of the assessee-company in that case was allowable under the law. Upholding the claim of the assessee-company, the following is held by the Madras Bench of the Tribunal as per the headnote obtaining at page 173 of the decision :
22. The next question would be when the irrevocable transfer becomes a revocable transfer. The answer is simple. This is brought about by virtue of the retrospective operation of the provisions of section 40A(11), and therefore, the trust deed dated February 20, 1980, referred to above under which the assessee trust was created, no longer remains an irrevocable trust on and from April 1, 1980, and the amount which is returnable, viz., Rs. 14 lakhs or Rs. 19 lakhs, as the case may be, under the provisions of section 4(5) of the Wealth-tax Act becomes the amount returnable under the terms of the revocable trust from April 1, 1980, in which case, they should be held to be belonging to the donor company. Correspondingly, the unutilised amount which is the sum repayable to the donor with effect from April 1, 1980, becomes a liability or a "debt" due from the assessee trust to the donor company while computing the net wealth of the assessee trust under section 2(m) of the Wealth-tax Act, and the unutilised amount which is recoverable from the assessee trust from April 1, 1980, is deductible from the total value of the asset held by the assessee trust on the valuation dates subsequent to April 1, 1980.
23. After having considered the arguments of both the sides advanced before me, I find it easy to accept the arguments advanced on behalf of the assessee and consequently I hold that the learned Judicial Member's ultimate conclusion that the unutilised amount in the hands of the assessee-trust from out of the contributions made by the donor becomes a debt in the hands of the assessee-trust from April 1, 1980, itself under the provisions of section 40A(11), which are specifically held to be retrospective from April 1, 1980, is correct. The only point of difference as set out in the referred question is whether the retrospective operation of section 40A(11) with effect from April 1, 1980, affects the liability of the assessee-trust to wealth-tax. In my opinion, it does affect the wealth-tax liability of the assessee trust in the following manner. I have already extracted sub-section (11) of section 40A in the above paras. Sub-section (11) clearly states about the right as well as liability. Firstly, I make it very clear that the word in the said sub-section "assessee" contextually means only the donor-company which had contributed the funds to the assessee-trust. When so understood, the sub-section reads that if the assessee (donor) has before 1st March, 1984, paid any sum to any trust, then notwithstanding anything contained in law or any instrument, he shall be entitled to claim the unutilised amount on each of the three valuation dates relevant to the three assessment years under consideration. Sub-section (11) contained a non obstante clause - "notwithstanding anything contained in any other law or in any instrument". Therefore, this abrogates any recital in the instrument. The trust deed dated February 20, 1980, is an instrument and no doubt in the recitals it is described as an irrevocable trust. Even though it is irrevocable, by virtue of the operation of the non obstante clause used in sub-section (11) it should be held to have become revocable from April 1, 1980, by virtue of the retrospective operation of this sub-section. It means that whatever might have been written in the revocable trust deed, the donor company is entitled to recover the unutilised amount. Therefore, it is clear that at least as far as realisation of the unutilised amount is concerned, the trust deed becomes a revocable trust and does not remain irrevocable.