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Petitioner: COMMISSIONER OF WEALTH TAX, BOMBAY CITY II VS Respondent: PURSHOTTAM N. AMERSEY JUDGMENT
Court Name: Bombay High Court Judge(s): V. S. Desai, S. P. Kotwal Title:COMMISSIONER OF WEALTH TAX, BOMBAY CITY II vs PURSHOTTAM N. AMERSEY
JUDGMENT
Reported As: 1971 PTD 389 Result: answered in the negative Judgment JUDGMENT KOTVAL, C. J.-The only question referred for our decision is : "Whether, on the facts and in the circumstances of the case, and having regard to the terms of Annexure `A', the Tribunal was justified in holding that the interest of the assessee under the trust had no value?" This question has been framed in connection with the assessments to wealth tax of two individuals who are brothers, Purshottam N. Amersey and Manoranjan N. Amersey, but at the hearing before the Tribunal and before us it was agreed that the facts and circumstances in the cases of both the assessee are the same and that the documents which fall to be considered in each case are also similar. Therefore, in the statement of the case reference has been made to the facts of only one case, that of the assessee Purshottam, and we shall also for the purposes of the decision of this reference refer to the facts and circumstances of that case. Purshottam Amersey and his brother were partners along with others in Messrs Amersey Damodar of Bombay. In that firm, Purshottam had to the credit of his account in the year 1949 a sum of Rs. 4,50,000 lying in deposit with the firm. On 8th September 1949, he declared a trust of this amount. The amount was not made over to anyone but it appears that by a mere book entry the amount standing to the credit of Purshottam was held to the credit of the trust fund. Under the provisions of that trust, to which we shall presently advert, both the assessee were entitled to certain benefits which in the assessm ent year 1960-61 the authorities under the Wealth Tax Act sought to bring to tax in the hands of these two persons as individuals. Both these persons are otherwise, it appears, wealthy persons and own considerable property which has been taken into account towards the
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computa--petition of their not wealth. So far as their beneficial interest arising out of the trust deed is concerned, having regard to the provisions of section 21(2) of the Wealth Tax Act, the interest can at the option of the Department be taxed as being the not wealth of the beneficiaries under the trust or it can be taxed in the hands of the trustees subject to the conditions prescribed in that section. The assessee have no objection to the amount of not wealth being taxed in the hands of the trustees, but the Depart--ment finds it advantageous to add it to the not wealth of the assessee as the beneficiaries under the trust fund and assess the assessee along with their other considerable wealth. That has given rise to the question which has been referred. Now, the terms of the indentures of trust dated, 8th September 1949, are in both the cases identical and so we will refer to the terms of one of them. The trust deed executed by Purshottam recites that he as the settlor was appointing three persons as the trustees, the three persons being himself, his father, Nandlal, and his mother, Bai Manjulabai. The subject of the trust is the amount of Rs. 4,50,003 lying in deposit with the firm of Messrs Amersey Damodar of Bombay. The first clause merely sets out that the trust is being declared out of natural love and affection which the settlor bears towards the members of his family and diverse other good causes and consideration. The second clause lays down the terms and conditions of the trust and is important for the purposes of the question referred. That clause provides as follows: "2. The trustees shall hold and stand possessed of the trust fund upon trust: (a) To recover the interest, dividends, profits and income of the trust fund and to pay out of the same the charges for collection and all other outgoings, if any ; (b) To apply the balance of such interest, dividends, profits and income of the trust fund (hereinafter for brevity's sake referred to as `the not income') for the support, maintenance and advancement in life and otherwise for the benefit of the settlor and his wife (provided such wife is born before the date of these presents) in such manner as to enable the settlor to live as far as possible with the same comforts and to enjoy life in the same manner as he is accustomed to do and in case of any surplus income at the end of any year to accumulate the same for a period of eighteen years from the date hereof and to add the same to the corpus of the trust fund And after the expiration of the said period of eighteen years in case of any surplus income at the end of any year to hand over the same to the settlor. Provided further that in applying the not income as aforesaid the trustees shall not be entitled to take into account any other income from any other source that the settlor may be receiving at the time and it is hereby expressly agreed and declared that the trustees shall not be liable or accountable to any one for any act bona fide done by them or for any payment bona fide made by them in pursuance of the provisions of this clause and in particular they shall not be accountable or responsible for the amounts expended or applied by them or the manner in which or the purpose for which the same shall be applied and all moneys so expended or applied by the trustees in their absolute discretion shall not be questioned by any party in any Court of law or otherwise howsoever: (c) If a child or children is born to the settlor, then on the death of the settlor to divide the corpus of the trust fund amongst all the children of the settlor, if more than one in the proportion of four shares for every male child to one share for every female child ; (d) If no child is born to the settlor, then on the death of the settlor, leaving a wife surviving him and provided such wife is born before the date of these presents, to pay the not income to such wife until her death or remarriage whichever event shall first happen Provided further that in the event of such wife being born after the date of these presents, to pay to the wife an amount equivalent to twenty-five percent. Of the corpus of the trust fund at the time of the death of the settlor ; (e) Subject to the provisions of sub-clause (d) hereof, on the death of the settlor without a child being born to him, the trustees shall hold and stand possessed of the corpus of the trust fund upon
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trust to divide the same amongst the heirs of the settlor according to the law of intestate succession amongst Hindus." The rest of the clauses except the two mentioned below are hardly material for the decision of the question before us. In clause 4 it is provided that the trustees shall be at liberty to keep the trust fund as a deposit at interest in the firm of Messrs Amersey Damodar-a firm in which the assessee, as we have said, were themselves partners. Next as regards the vacancy in the office of trustee, clause 8 provides that the surviving or continuing trustee or trustees for the time being or they refusing the retiring trustees or failing them the heirs, executors and administrators of the last surviving or continuing trustee should appoint a new trustee or trustees "but so as not to be more than five nor less than two. . . " trustees upon "every or any such appointment". It will be noticed that sub-clause (b) of clause 2 of the trust deed provides that the trustees shall "apply" the balance of the trust funds after the charges for collection and other outgoings "for the support, maintenance and advancement in life and otherwise for the benefit of the settlor and his wife (Provided such wife is born before the date of these presents) in such manner as to enable the settlor to live as far as possible with the same comforts and to enjoy life in the same manner as he is accustomed to do. . ." The words within the brackets, it was explained, were inserted in this sub- clause in order to guard against the trust being void-able on the ground of infringing the rule against perpetuity. The provision giving interest to the assessee is a very general provision that the trust fund shall be applied for the support, maintenance and advancement in life of the settlor and his wife. On that date, 8th September 1949, the settlor was not married. The assessee, Manoranjan Amersey, was married on the 18th December 1950, and the assessee, Purshottam, was married on the 22nd April 1958, that is to say, about seven and a half years after the trust deed. The words in sub-clause (b) of clause 2 may, therefore, have been inserted as explained in order to indicate that the wife to be was, on the date of the settlement, not, (sic) in existence. However, we say this only by way of an explanation and it does not affect the decision on the question before us. Before we proceed to state the respective contentions of the parties, it is necessary at this stage to clear a small point of construction which arose in the course of arguments, The point is whether sub-clause (b) of clause 2 of the trust deed makes the wife an immediate beneficiary under the trust deed or whether so long as the settlor was alive the wife had no beneficial interest under the trust deed. No doubt in clause 2(b) the words used are " . . . . For the benefit of the settlor and his wife . . . .", but it seems to us that though these words are put in, in order to refer generally to the parties to the trust, the subsequent provisions make it clear beyond arty doubt that, so long as the settlor was alive, it was for his support, maintenance and advancement in life that the balance of the trust funds was to be applied. Firstly, the words "for the benefit of the settlor and his wife" are immediately succeeded by the words "in such manner as to enable the settlor to live as far as possible with the same comforts and to enjoy life in the same manner as he is accustomed to do", which would indicate that the main provision laying down the conditions upon which the trust fund was to be applied was with reference only to the assessee and not to his wife. Similarly, the later provision in sub-clause (b) of clause 2 says that any other income from any other source that the settlor may be receiving at the time shall not be taken into account by the trustees in applying the trust funds as aforesaid, suggesting that he was to enjoy the beneficial interest himself at some stage. But any doubt in this matter as to whether the wife was at all a beneficiary is dispelled by a consideration of sub-clause (d) of clause 2. In the event that no child is born to the settlor and his wife, then on the death of the setttlor, the provision is "to pay the not income to such wife until her death or re-marriage whichever event shall first happen". The provision to pay the not income to the wife comes in only at this stage, which clearly suggests that the earlier reference to the wife in sub-clause (b) of clause 2 was only a general reference to the overall purpose of the trust deed.
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Now, when the wealth tax authorities sought to bring to tax the interest of the assessee under the provisions of the trust deed, it was contended before the Wealth Tax Officer that the assessee's life interest was not definite and ascertainable and, therefore, the trustees alone should be taxed directly in respect of the entire estate in their hands under section 21(4) of the Wealth Tax Act. That it appears was the principal contention before the Wealth Tax Officer and that contention was negatived by the Wealth Tax Officer. When the assessee took the matter to the Appellate Assistant Commissioner another contention was also raised. It is stated in the first paragraph of the Appellate Assistant Commissioner's order : "The first contention raised in this appeal is that the assessee is incapable of being assessed in respect of his life interest in the trust created by the deed dated September 8, 1949". The principal contention which was urged before the Wealth Tax officer was also raised before the Appellate Assistant Commis--sioner as can be seen from paragraph 2 of the Appellate Assistant Commissioner's order: "It is contended that the assessee has no right to any portion of the income of the said trust, that his share therein is indeterminate and unknown, that the assessee has really no life interest at all in the said trust and finally that no purchaser would be willing to pay any amount for the so-called life interest." The Appellate Assistant Commissioner held so far as the second contention before him was concerned that it could not be said that the assessee's interest was absolutely without value. As to the other question, whether the assessee's share was indeter--minate or unknown, the Appellate Assistant Commissioner held that the assessee's interpretation of the clause regarding the extent of his interest in the trust would be only germane to the question of valuation and it could not affect the question whether the assessee is not possessed of the asset at all. On this view the Appellate Assistant Commissioner dismissed the appeal, though he made a change in the language, with which we are not here concerned. The assessee carried the matter by way of appeal to the Income-tax Appellate Tribunal and the Tribunal has allowed the assessee's appeal. Before the Tribunal, the principal contention was that the value of any asset has to be estimated so as to arrive at its price "if sold in the market on the valuation date" The Tribunal considered the circumstances and the terms of the deed of trust and came to the final conclusion that : "In our opinion the value of the said interest is not". The reasons which prevailed with the Tribunal were as stated in paragraph 6 of its order that, having regard to the nature of the benefit given to the assessee under the trust deed, the interest available to the assessee will have no value in the market whatever because the benefit --received is of a peculiar kind. The Tribunal stressed that .Under the trust deed no cash payment to the assessee as such was contemplated but that the provision was to apply the trust fund for the support, maintenance and advancement in life of the assessee. Secondly, they pointed out that upon the terms of the trust deed the interest of the assessee was a personal interest and "is restricted in its enjoyment to them personally and such interest is not capable of being transferred to third parties." Therefore, it was property which was incapable of being transferred to any third parties and no question arose of its fetching any price in the market. The Tribunal also gave an alternative finding that, even assuming that the above interpretation of the document was not correct, nobody would be willing to come forward to purchase an asset of this kind, because even a willing purchaser, who was desirous of taking an assignment of the respective interests of the assessee under the trust deed, would not be in a position to compel the trustees to make any payment to them. Thus, the content or quantum of the interest so far as third parties were concerned, would be of a problematic character and, therefore, the Tribunal held that the interest of the assessee was such "as would lead the asset being of no value or of insignificant value". It will be noticed that here (paragraph 7)
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the Tribunal came to the conclusion that the asset was of an insignificant value whereas in the earlier paragraph and in its final conclusion it has held that "the value of the said interest is nil". Section 3, which is the charging section in the Wealth Tax Act, provides that, subject to the other provisions contained in the Act, there shall be charged a tax in respect of the not wealth on the corresponding valuation date of every individual. We are not concerned here with the other provisions of this subsection. The expression "not wealth" in the subsection is defined in section 2(m) to mean "the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date . . . . ." We are not here concerned with the inclusive clause of this definition. The not wealth, therefore, consists of all the assets wherever located belonging to the assessee on the valuation date. The word "assets" is also defined in section 2(e) to include "property of every description, movable or immov--able." Then there are certain specific exclusions none of which can be applied here. It is clear from these provisions laying down the charge of the tax that every kind of property, movable or immovable, of an assessee has to be taken into account and its aggregate value computed in accordance with the provisions of the Act. The first question, therefore, which has to be determined in any assessm ent under the Wealth Tax Act ii, what constitutes the not wealth of the assessee. Section 7 deals with the question of how the" value of the asset is to be determined and subsection (1) provides as follows: "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 valua--petition date." The Tribunal has stressed the concluding words of sub. Section (1) of section 7, "if sold in the open market on the valuation date" and in view of those words it has proceeded to consider whether the interest of the assessee under the trust could have any value in the open market on the valuation date and has come to the conclusion that it had little or no value. Therefore, the Tribunal allowed the appeal and held that the interest was not an asset under the Wealth Tax Act. Now, it seems to us that virtually the order of the Tribunal amounts to this that, having taken into account the provisions of section 7(1) which merely deals with how the value of assets has to be determined, it has ultimately held that the interest of the assessee was not an asset at all. We shall presently show that it reached this conclusion because of a misconstruction of section 7(1) and because of an incorrect view as to what its provisions implied. The definition of "assets" in section 2(e) read with the definition of "not wealth" in section 2(m) are extremely comprehensive provisions and all assets are included in "not wealth" by the very definition and in the definition of "asset" property of every description, movable or immovable, is included, Therefore, when section 3 imposes the charge of wealth tax upon the not wealth, it necessarily includes any and every description of the property of the assessee, movable or immovable, barring of course the exceptions stated in section 2(e) or any other provisions of the statute. What is more, it is clear upon the wording of section 3 that the moment a right, interest or other property falls within the definition of "assets" the Act assumes that it must have some value. That is why section 3 merely states that there shall be charged a tax in respect of the not wealth. Since "not wealth" includes all assets wherever located belonging to the assessee and since "assets" includes the property of every description, movable or immovable, it is clear that everything of value which an assessee possesses is brought into the ambit of the charging section and is assumed to have some value, however little. Therefore, in the first place, it is not enough to say, as the Tribunal has stated in its order at certain places, that the interest of the assessee in the present case was "of insignificant value". Even if it is of insignificant value, it will clearly be chargeable under section 3 for the proper amount of wealth tax.
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Section 7 merely deals with the mode in which the value of the assets has to determine and we agree with Mr. Kolah that the charging section because of its opening words "Subject to the other provisions contained in this Act" must be held to be subject to section 7(1) ; but we do not think that section 7(1) could be utilised in the manner in which it has been used in this case to nullify the provisions of section 3 itself. What has been done in the present case is that, utilising the provisions of the At which only provides a machinery for determining the value of the asset, a conclusion has been reached that the asset in this case has no value whatever, in other words, that it is not an asset at all. The fallacy of this reasoning lies in this that it was not clearly realised that the purpose of section 7 was not to indicate what is not an asset but merely to indicate how it has to be valued if it is an asset. Even in the conclusion to which the Tribunal reached that the interest of the assessee in the trust property had no value whatever and upon the reasoning which it followed, which in our opinion was incorrect, there is another error of construction of section 7(1). The principle which subsection (1) of section 7 lays down is that the value of any asset is to be the estimated price which the asset "would fetch if sold in the open market on the valuation date". From its order it appears that the Tribunal construed this clause of subsection (1) of section 7. It proceeded to consider whether the interest of the assessee in fact had any value in the open market and having considered several of the terms of the trust deed, on which we will presently have something to say, it held that "this is a property which is incapable of being transferred to any third parties as the interest of the respective beneficiaries is restricted to them personally". Then it proceeded further and held that even assuming that this interpretation of section 7(1) was incorrect, in their opinion in fact nobody would be willing to come forward to purchase an asset of this kind. They showed certain circumstances and concluded that "in our opinion, it is such as would lead the asset being of no value or of insignificant value". Later on, in paragraph 8, however, they came to the conclusion that the value of the interest was nil. Now, it was rightly argued on behalf of the Department that in the first place, these findings of the Tribunal are themselves conflicting and that the Tribunal was in two minds as to whether the asset had some little or no value at all. At one stage, it said that it was of insignificant value and at another stage that it had no value, but apart from that it seems to us that the cardinal error which the Tribunal made was to hold that under the words of section 7(1) ". . . It would fetch if sold in the open market . . . .", it must have regard to the actual facts and the actual circum--stances and decide whether the asset could be sold or not in the open market. In that respect it seems to us that the Tribunal was clearly wrong on a point of construction. When the statute uses the words "if sold in the open market", it does not contemplate any actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market and on that basis directs that the value should be found out. It is a hypothetical case which is contemplated by those words of the subsection. The tax officer must assume that there is an open market in which the asset can be sold and proceed to value it on that basis. The use of the words "if sold" creates a fictional position which the tax officer has to assume. The Wealth Tax Act is a comparatively new taxation statute and there is little to guide the Court in the construction of section 7, but much assistance can be derived frown the interpreta--petition of similar provisions in other statutes, particularly the English statutes which are in pari materia. Reliance was placed upon two decisions in England, which, in our opinion, are apposite in the construction of section 7(1). One such section was section 7, subsection (5) of the British Finance Act, 1894, which also provided for the valuation of property as follows: "The principal value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the
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deceased." (underlining* is ours) The concluding words "if sold in the open market" are identical with the words used in section 7(1) of the Indian statute. [*Here in italics] "In order to reach the right conclusion upon the construction to be placed upon the subsection and its application to the facts of the present case, it seems to me essential to determine what is the property which has to be valued." and then he proceeds to state what that property was in the following words: "In my view, the property which passed at the death of the deceased consisted of the shards in the company, and this…
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