Wife Of Rakesh Mohan (P) Trust vs Cwt

JUDGMENT R.K. Agrawal, J.

At the instance of the assessees who are four in numbers, the Income Tax Appellate Tribunal, Allahabad, by a consolidated order dated 24-3-1982, has referred the following two common questions of law under section 27(1) of the Wealth Tax Act, 1957 (hereinafter referred to as "the Act") for opinion to this court :

" 1. Whether, on the facts and in the circumstances of the case and on a true interpretation of the trust deeds, the Appellate Tribunal was justified in law in concluding that the interest of each of the beneficiaries under these trusts on each of the valuation dates, was indeterminate and the beneficiaries were unknown and accordingly in holding that the assessments of the beneficial interests in the trust properties of the beneficiaries could be made on the trustees only under section 21(4) of the Wealth Tax Act, 1957 ?

2. Whether, on the facts and in the circumstances of the case and on a true interpretation of the provisions of section 25(2) of the Wealth Tax Act, 1957, the Commissioner had validly assumed jurisdiction and was justified in law in holding that the assessment made by the Wealth Tax Officer under section 21(2) of the Wealth Tax Act, 1957 were erroneous ?"

It may be mentioned here that in respect of the wife of Rakesh Mohan Private Trust, the assessment years involved are 1974-75 to 1976-77 whereas in respect of the other three assessees, the assessment years involved are 1973-74 to 1977-78.

2. Briefly stated, the facts giving rise to the present reference are as follows:-

Each of the assessees is a private Trust. The following is the table of relationships :

Padmshri N.N. Mohan (deceased) Paadmbhushan Lt. Col.

Sukhdeo Mohan Lt. Col. Kapil Mohan V.R. Mohan (Died) Rakesh Mohan Pankaj Mohan Vinay Mohan Hemant Mohan Lt. Col. Kapil Mohan executed a deed dated 20-10-1973 in respect of 60,000 equity shares of Mohan Meakins Breweries Limited for the benefit of the wife of Rakesh Mohan. Under clause 2 of the said trust deed, in the event of her death or her otherwise becoming incapable of acquiring any interest in the property, the beneficiary was to be the second wife of Rakesh Mohan (in case he married again) and in case his wife (first) became incapable of acquiring property, then the first son of Shri Rakesh Mohan on his attaining majority. In clause 3 it was further provided that if the said Shri Rakesh Mohan did not marry and/or in any manner all possibilities of his marriage disappeared, the beneficiary of the trust was to be Shri Pankaj Mohan (upon his attaining majority) and failing him, to the other surviving heirs of Shri Pankaj Mohan. In clause 4 it was provided that the trustee shall hold the trust property absolutely in trust for and for the benefit of the beneficiary named hereinbefore and administer the same in the manner provided therein. In clause 6 of the deed it was provided that the trust shall come to an end upon the transfer and delivery of the trust property and all the accumulation thereto to the beneficiary in the manner indicated therein whereupon the trustee shall stand discharged, otherwise the trust shall remain in full force.

3. Three similar trusts were earlier created on 22-5-1973 in respect of 60,000 equity shares of Mohan Meakins Breweries Limited (i) by Rakesh Mohan for the benefit of the first son of Shri Pankaj Mohan (in any circumstance), (ii) by Smt. Comilla Mohan for the benefit of the first son of Shri Hemant Mohan and (iii) by Lt. Col. Kapil Mohan for the benefit of the first son of Rakesh Mohan. In these trusts it was provided that in case the son named therein died before attaining the age of majority or otherwise became incapable of acquiring any interest in property, the beneficiary will be the next surviving male child. They also provided that if Shri Pankaj Mohan, Hemant Mohan or Rakesh Mohan (as the case may be) did not beget a son and in any manner all possibilities of begetting a son disappeared and/or the male children having been born, died before attaining majority, the beneficiary would be Shri Pankaj Mohan, Hemant Mohan or Rakesh Mohan himself (as the case may be).

Accordingly, the trustees named in each case, for the valuation dates as on 31-3-1973 to 31-3-1977 filed the return of wealth declaring the value of shares and accretions in regard thereto in the assessment years subsequent to 1973-74. The Wealth Tax Officer completed the assessments of these assessees in the status of individuals by invoking the provisions of section 21(1)/21(2) of the Act on the basis that on each of the valuation dates the beneficiaries were known and that their shares were determinate. Subsequent to the making of these assessments and in view of the objection raised in the audit note the Wealth Tax Officer sought to rectify the assessments by issuing notices dated 27-8-1979 under section 35 of the Act on the ground that the status of the assessees had been wrongly adopted. However, the Wealth Tax Officer dropped the reassessment proceedings after considering the replies of the assessees.

4.Thereafter, the Commissioner acting under section 25(2) of the Act, issued notices to the assessees on 13-12-1979 to the effect that the assessments made by the Wealth Tax Officer under section 16(3) were erroneous insofar as they were prejudicial to the interest of the revenue inasmuch as the Wealth Tax Officer had assessed the assessees in the status of the individuals on the ground that the shares of the sole beneficiaries were determinate and had allowed exemptions under section 5(1A). After considering the replies dated 20-10-1979 filed by each of the assessees, the Commissioner held that the beneficiaries for whom the assets were held by the trustees, were indeterminate and unknown and that the assessees should have been assessed to tax under section 21(4) of the Act. The exemption under section 5(1A) was also held to be inadmissible and, therefore, the tax was held to be leviable at the higher rate of 1.5%. He held that on the relevant valuation date Shri Rakesh Mohan had not married, Sarvshri Pankaj Mohan and Hemant Mohan were themselves minors, and that Shri Rakesh Mohan had no son as he was married only in April, 1977.

5. The assessees being aggrieved preferred separate appeal before the Tribunal. The Tribunal after considering the submissions made by the respective parties was of the view that on each of the valuation date, there was no beneficiary named in the trust deed who could be said to have vested interest in the property of the trust and everyone named as beneficiary in the trust deed was to have a contingent interest which was incapable of getting vested on each of the valuation dates. Therefore, it was held that the assessment of beneficial interest in the trust property of the beneficiaries could be made on the trustees only under section 21(4) of the Act. The order passed by the Commissioner was upheld.

6. We have heard Sri C.S. Agrawal, the learned senior counsel assisted by Sri Vikram Gulati, Advocate, on behalf of the applicants, and Sri A.N. Mahajan, the learned Standing counsel appearing for the revenue.

The learned counsel for the applicants submitted that each of the trusts has been validly created. The beneficiaries and their interest was also known and determinate and, therefore, they were assessable under section 21(1) of the Act and not under section 21(4) of the Act. He further submitted that the Commissioner had initiated proceedings under section 25(2) of the Act on the basis of an audit objection to which the stand of the department was that the trust is assessable under section 21(1) of the Act and, therefore, the assessment order could not have been said to be either erroneous or prejudicial to the interest of the revenue. He submitted that the proceeding initiated under section 25(2) of the Act was wholly illegal and unwarranted. He relied upon the following decisions:

(i) CIT v. Brig. Kapil Mohan (2001) 252 ITR 830 (Del);

(ii) Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (S C);

(iii) CIT v. Jagadhri Electric Supply & Industrial Co. (1983) 140 ITR 490 (P &H))

(iv) Oswal Traders v. CIT(19971 228 ITR 195 (MP);

(v) Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC)

(vi) CWT v. Smt. Arundhati Balkrishna Trust (1975) 101 ITR 626 (Guj);

(vii) Jeewanlal (1929) Ltd. v. Addl. CIT(1977) 108 ITR 407 (Cal.);

(viii) CIT v. Arvind Jewellers (2003)259 ITR 5025 (Guj);

(ix) Padmavati Jaykrishna Trust (1966) 61 ITR 66 (Guj);

(x) CIT v. P Bhandari (1984) 147 ITR 5006 (Mad.);

(xi) L. Gouthamchand v. CIT(1989) 176 ITR 442 7 (Mad.);

(xii) Sirpur Paper Mill Ltd. v. CWT(1970) 77 ITR 6 (SC) and

(xiii) Aditanar Educational Institution v. Addl. CIT(1997) 224 ITR 310 (SC).

7. Sri A.N. Mahajan, the learned counsel for the revenue, however, submitted that from a perusal of the trust deed it is clear that beneficiaries were not in existence on the relevant valuation dates in respect of each assessment years in question and, therefore, the beneficiaries were indeterminate and the provision of section 21(4) of the Act was applicable. According to him, the Wealth Tax Officer had assessed the trust under section 21(1) of the Act which order was not only erroneous but also prejudicial to the interest of the revenue and the Commissioner was within his right to exercise his jurisdiction under section 25(2) of the Act on the basis of the audit objection. He relied upon the following decisions:

(i) Malabar Industrial Co. Ltd. (supra); and

(ii) CWT v. Trustee of HEM Nizams Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC).

8. Having heard the learned counsel for the parties, we find that the Wealth Tax Officer has assessed each of the applicants under section 21(1) of the Act. Subsequently, on the basis of the objection raised in the audit note, the Wealth Tax Officer sought to rectify the assessment by issuing notice under section 35 of the Act on the ground that the status of the assessees had been wrongly adopted which proceeding was subsequently dropped. Thereafter, the Commissioner initiated the proceeding under section 25(2) of the Act on the ground that the assessment order are erroneous and prejudicial to the interest of the revenue. The said action has been taken on the basis of the audit objection.

9. In the case of Indian & Eastern Newspaper Society (supra), the Apex Court has held that the opinion of an internal audit party of the Income Tax Department on a point of law cannot be regarded as information within the meaning of section 147(b) of the Income Tax Act, 1961 for the purpose of reopening an assessment. It has further held that although an audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing and its communication another.

10. In the case of Jagadhri Electric Supply & Industrial Co. (supra), the Punjab and Haryana High Court has held that only if the order is erroneous and is likely to prejudice the interest of the revenue, the provision of