Commissioner of Wealth-tax vs H.H. Rajdadi Smt. Badan Kanwar Medical Trust

Heard learned counsel for the applicant. This is an application u/s 27(3) of the Wealth-tax Act, 1957, for requiring the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur, to submit the statement of case and refer the questions of law said to be arising out of the Tribunal''s order dated March 25, 1998.

The application u/s 27(1) moved before the Tribunal has been rejected on the ground that no referable questions of law arise out of its appellate order. The proceedings have been initiated against the respondent, H.H. Rajdadi Smt. Badan Kanwar Medical Trust, in pursuance of the order u/s 25(2) of the Wealth-tax Act passed by the Commissioner of Wealth-tax and assessment was made on the trust u/s 16(3) by the assessing authority by issuing notice to it through its trustees.

On appeal the Commissioner of Wealth-tax quashed the assessment orders on the ground that the trust was not assessable entity under the Wealth-tax Act, against which no proceeding could have been initiated. If at all, the assessment could have been made u/s 21 of the Wealth-tax Act as a representative of those, on whose behalf or for whose benefit the assets are held by it, if wealth-tax was otherwise leviable on such beneficiaries for whose benefit such property is held by them in trust to the extent the value of the assets represent the concerned beneficiary''s interest.

This order was appealed against by the Department and cross-objections were also taken by the assessee. The same were dismissed by the Tribunal by finding that the trust itself is not assessable entity at all u/s 3 of the Wealth-tax Act and therefore notices issued to the trust for the purposes of assessing the trust as an assessable entity were invalid and no proceedings could have been initiated against it. Thus finding the initiation of proceedings to be invalid, the order of the Commissioner of Wealth-tax (Appeals) was maintained.

The Revenue had relied on Section 21A for the purpose of sustaining the assessment. The Tribunal repelled that contention. It held that in that event notices were required to be issued to the representative trustee who fell in the category against whom the assessment could be proceeded u/s 21A of the Act on fulfilment of the conditions. The said provision does not authorise levy of the tax on the trust as such.

It is in the aforesaid facts and circumstances, the Department has made an application u/s 27(1) before the Tribunal for submitting the questions of law which according to it arose out of the Tribunal''s order. The same has been rejected by holding that the answer to the question that no person other than a firm or individual, Hindu undivided family or company can be assessed under the Wealth-tax Act is obvious and stands concluded by the decision of the Supreme Court, no question of law which is required to be referred to the High Court for its opinion arose out of its order.

Having heard learned counsel for the applicant, we are of the opinion that though the questions sought to be raised are questions of law the answer being self-evident and consideration of the questions on the merits being academic this court would not direct the Tribunal to submit the statement of case for answering those questions.

Section 3 of the Wealth-tax Act is clear in its terms which is a charging section, that the only entities recognised for the purpose of assessment under the wealth-tax as an assessee are the "individual, "the Hindu undivided family" and "the company". No other entity has been recognised for the purpose of assessment of wealth under the Act.

In this connection, we may also refer to the decision of the Supreme Court referred in Commissioner of Wealth Tax, Gujarat-III, Ahmedabad Vs. Ellis Bridge Gymkhana, wherein the court unequivocably said that (page 4) :

"The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. . ."

Referring to the phraseology used in cognate taxing statutes like the Indian Income Tax Act, 1922, and the Gift-tax Act, 1958, and existing decided cases considering the charging sections of the Indian Income Tax Act, 1922, the court said (page 4) :

"When the Wealth-tax Act, 1957, was passed, the Legislature decided to specify only ''individual, Hindu undivided family and company'' as units of assessment. It will not be right to presume that the Legislature was unaware of the wording of the charging provisions of the Indian Income Tax Act, 1922, when the Wealth-tax Act was enacted. The Legislature must be presumed to have known the large number of cases that were heard and decided on the scope of the charging section under the Indian Income Tax Act and the meaning ascribed to ''association of persons'' therein. The Legislature, however, decided to exclude ''firms'', ''association of persons'' and ''body of individuals'' from the ambit of the charge of wealth-tax. What has been specifically left out by the Legislature cannot be brought back within the ambit of the charging section by implication or by ascribing an extended meaning to the word ''individual'' so as to include whatever has been left out."

The court further explained the importance of insertion of Section 21AA in Commissioner of Wealth Tax, Gujarat-III, Ahmedabad Vs. Ellis Bridge Gymkhana, , etc., which permitted assessment of "association of persons" or "body of individuals" which made it possible to tax an "association of persons" or "a body of individuals" only when the "individual" member of association of persons or body of individuals is known but his share in the assets held by the association of persons or body of individuals is not determinable but not otherwise (page 10) :

"In our view, Section 21AA far from helping the case of the Revenue directly goes against its contention. An association of persons cannot be taxed at all u/s 3 of the Act. That is why an amendment was necessary to be made by the Finance Act, 1981, whereby Section 21AA was inserted to bring to tax net wealth of an association of persons where individual shares of the members of the association were unknown or indeterminate."

The trust as such is not an assessable entity. The trust is not a juristic person nor does it exist as an assessable entity against which any proceedings could be initiated or installed for the purpose of assessment. The only provision on the basis of which even notices to the assessee could be issued to any person are u/s 21 or 21A or 21AA.

Section 21 envisages assessment of the share of a beneficiary to be assessed in the hands of the Court of Wards, administrators or the trustee discharging that trust. This obviously is not at all the case of the Revenue, that the notices have been issued to the body of trustees to be assessed in respect of the interest of the beneficiary concerned for whose benefit the trust was being discharged and obviously this being a public trust it could not have been subject to Section 21. Section 21 in the very nature of things is not attracted inasmuch as for the applicability of Section 21 the beneficial ownership must vest in an individual, Hindu undivided family or company. In essence u/s 21 the assessment in the hands of trust is in respect of taxable wealth administered by it for an individual, a Hindu undivided family or a company, but not in respect of a body of persons of indefinite composition, which is not at all a taxable entity under the Act u/s 3 in view of the clear pronouncement of the apex court.

Section 21A speaks of the individual liability of the trustees to be assessed in respect of that part of the asset or income which is diverted for their own purposes. This also does not involve any notice to the trust of the trustees in a representative capacity. In no circumstance is it possible to uphold the assessment of wealth-tax on the entire corpus of the assets held in trust as taxable wealth whether in the name of the trust or in the collective body of the trustees, except u/s 21AA.

It is also not the case of the Revenue that the trust is being assessed u/s 21AA, of which the individuals or beneficiaries are identifiable but their share in the net assets is not determinable or indeterminate so as to make it possible to assess the trust or trustees as an association of persons or body of individuals.

The answer being self-evident, we are not inclined to entertain this application. Accordingly, the same is rejected.