(a) Wealth tax---

---- Representative assessee---Assessment---Return---Law applicable---Effect of insertion of subsection (1-A) in S.21--Difference between value of corpus and aggregate of shares of beneficiaries is assessable---Representative assessee need not file a separate return in respect of such residue---Indian Wealth Tax Act, 1957, S.21.

(b) Wealth tax---

----Reassessment---Condition percedent---Reason to believe that wealth has escaped assessment---Nexus is necessary between material on record and belief that wealth has escaped assessment---Notice of reassessment on the ground that trustees had not filed return in respect of residual wealth-- Reassessment proceedings could not be justified on other grounds-- Reassessment proceedings were not valid---Indian Wealth Tax Act, 1957, S.17.

Prior to the amendment introducing subsection (1-A) in section 21 of the Wealth Tax Act, 1957, the words "Subject to the provisions of subsection (1-A)" were absent in section 21(1). The Supreme Court held in a connected case (CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555) that in the absence of a specific provision, the residue being the difference between the value of the corpus and the aggregate value of the shares of the beneficiaries who have a life interest and the remainder men, cannot be brought to tax. Subsection (1-A) was introduced for the specific purpose of taxing that residue. Sub section (1-A) was amended to introduce the words "or for whose benefit". The section is therefore, in conformity with the decision of the Supreme Court and recognises the trustee as a person holding the property for the benefit of others and not as a person holding the property on his own. Wherefore, any return required to be filed by him under section 14 will be only with reference to the "net wealth of any other person" being the beneficiaries and not "his net wealth". The legal fiction can be expanded only in the filed it operates. In the present case, the fiction is with reference to the assessment of the residue of the wealth held in trust Such wealth has to be assessed in the name of the trustee-only as a representative assessee. As along 3s he is not holding the property on his own, the fact that the assessment has to be made in the status of individual cannot be extended to encompass on obligation on his part to file a return in his own individual capacity. Since admittedly the residue always remains the net wealth of other persons being the beneficiaries, it is not possible to accept an obligation on the part of the trustees to file a return as if it was his net wealth, only because the residue of the net wealth of other persons is required to be taxed in the status of "individual". Since the assessment of the trustee in the individual capacity cannot refer to his own net wealth, there cannot be an obligation on his part of file two returns, one in respect of the net wealth of other persons and another with reference to the residue of the net wealth of other persons, which is not his individual obligation. The same conclusion can be arrived at by a close study of subsection (1-A) itself. That subsection provides that wealth tax shall be levied upon the trustee in respect of the value of the residue in addition to the wealth tax leviable and recoverable in subsection (1), where the aggregate value of the interest of the beneficiaries falls short of the value of the corpus. In other words, this subsection only provides for the levy of additional tax in a particular contingency, which arises when the beneficiaries are assessed to tax. Even though a single return or a single assessment order may be made, there have to be as many assessments on the trustee as there are beneficiaries. It would follow that where there is a residue, there has to be one more assessment on the trustee in respect of the same composite return.

Section 17 as it stands now, merely states that if the Assessing Officer has reason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment, he may issue a notice under that section and proceed to assess the same. The proviso states that the Assessing Officer shall before issuing any notice, record his reasons for doing so. This proviso creates a safeguard for the assessee against any discriminatory or arbitrary issue of notice under section 17. The requirement of recording reasons is only to ascertain whether such material existed which can lead to the belief of the Assessing Officer that wealth has escaped assessment. The acceptation of the expression "has reason to believe" is that the Assessing Officer cannot rely on material other than what is recorded for the purpose of issuing the notice under section 17. There should be a nexus between the material on record and the belief that wealth has escaped assessment before the Assessing Officer can get the jurisdiction to issue a notice under section 17.

Held, allowing the writ petitions, that in the present case, the only reason given for initiation of reassessment proceedings for the four assessment years 1987-88, 1989-90, 1990-91 and 1992-93, was that the trustees had not filed a separate return in respect of the residue assessable under section 21(1-A). When that reason failed it was not possible for the Revenue to justify the notices on the basis of the reasons .not recorded. Moreover the trustees had asserted that the entire corpus had been shown as assessable to wealth tax among the beneficiaries and it was only because of a different computation by the actuarial method, that the shortfall occurred, for which the Assessing Officer could have made the assessment under section 21(1-A).. The Revenue had not been able to contradict this assertion. The reassessment notices were not valid and were liable to be quashed.

(Leave to appeal to Supreme Court was refused).

Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC.); CIT v. Trustees of H.E.H. the Nizam's Family Trust (1986) 162 ITR 286 (SC.); CWT v. Kripashankar Dayashanker Worah (1971) 81 ITR 763 (SC.); CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 1'08 ITR 555 (SC.); East End Dwellings. Co. Ltd. v. Finsbury Borough Council (1952) AC 109 (H.L.); H.E.H. Nizam's Jewellery Trust v. Asst. CWT (1997) 226 ITR 111 (AP.); Holdsworth (W.O.) v. State of U.P. (1958) 33 ITR 472 (SC); Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC); Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC) and Mohinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851 ref.

P.Murali Krishna for Petitioners. S. R. Ashok for Respondents Nos. 1, 2 and 4 Nemo for Respondent No.3.

JUDGMENT

T.N.C. RANGARAJAN, J. ---This batch of writ petitions have been filed against the notices issued by the Assistant Commissioner of Wealth Tax Circle 1(3), Hyderabad, under section 17 of the Wealth Tax Act, 1957.

The factual background to these cases is as follows: The trust was declared on March 29, 1950, by the late Nawab Sir Mir Osman Ali Khan Bahadur, Nizam the VIIth of Hyderabad in respect of the jewellery belonging to him for the benefit of his children and grandchildren. A supplementary trust was also declared for the same purpose in respect of further items of jewellery on January 27, 1952. These trusts are generally called as "Nizam Jewellery Trust" and "Nizam Jewellery Supplementary Trust". The trustees were empowered to divide the corpus of the trust properties notionally into sixteen equal parts and create six funds as follows:

In respect of each of these funds, there were several family members who were only entitled to life interest and on the death of such members, the corpus was to be distributed absolutely for the benefit of their children in the ratio specified in the deed of trust. The manner in which these assessments have to be made under section 21 came up for consideration before the Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555. The Supreme Court held that the position has to be seen on the relevant valuation date, as if the preceding life interest had come to an end on that date and determine the shares of the beneficiaries existing on that date and assess the same. The Supreme Court also held in CIT v. Trustees of H.E.H. Nizam's Family Trust (1986) 162 ITR 286, that several trusts can be created in one document. In other word, though the trustees who included the Additional Secretary to the Government of India, Finance Ministry, were the same, it was as if there was a separate trust in respect of each of the beneficiaries, and, therefore, separate assessments had to be made under section 21(4) in respect of each such beneficiary. Following this exposition of the law, the trust had filed returns in respect of each of the beneficiaries. The Supreme Court had pointed out in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555 that in most of the cases, if not all, the aggregate of the values of the life interest and the remainder man's interest would be less than the value of the total corpus of the trust property, since the value of the remainder man's interest would be taken at the present value of his right to receive the corpus of the property at an uncertain future date, which would invariably be less than the value of the corpus of the trust property after deducting the value of the personal life interest. It pointed out that this residue would not be subject to assessment to wealth tax because there was no provision for the same in section 21 as it stood then. Parliament stepped in to remedy the situation by introducing subsection (1-A) to section 21 by the Finance (No.2) Act of 1980. The memorandum explaining this provision, namely, Circular No.281 (see (1981) 131 ITR (St.) 4), dated September 22, 1980, clearly stated that the amendment was being made to get over the difficulty caused by the interpretation placed by the Supreme Court in the said case. This amendment came into force from the assessment year 1980-81 onwards. The trustees filed separate returns for the assessment years 1980-81 to 1982-83' in respect of the liability under section 21(1-A) for the residue. However: for the assessment years 1985-86 and 1986-87, they did not file such returns for the residue and took the stand that the values returned in the returns for the beneficiaries exhausted the corpus and no residue was left for being assessed under section 21(1-A). The matter went up to the Appellate Tribunal and by an order, dated August 30, 1993, in C.Os. Nos.36 and 37/Hyd. of 1991 arising out of W.T.As. Nos.210 and 211/Hyd. of 1991, it was held that by reason of actuarial valuation of the life interest, some residue was left which was required to be assessed under section 21(1-A). It was also held that the assessments made under section 17 should be taken as valid because no return was filed for that residue by the trust. A reference application was made by the trustees and it is stated that the Tribunal has stated a case and has referred the question whether the Tribunal was right in upholding the validity of initiating proceedings under section 17(1)(a) of the Wealth Tax Act and the said referred case is pending. For the present assessment years 1987-88, 1989-90, 1990-91 and 1992-93, similar notices under section 17 were issued by the Assistant Commissioner of Wealth Tax. These notices dated December 16, 1994, issued by the Assistant Commissioner of Wealth tax merely stated that he had reason to believe that the net wealth chargeable to tax for the particular assessment year has escaped assessment within the meaning of section 17 of the Wealth Tax Act and called upon the trustee to file a return. The trustees made a representation to him on March 17, 1995, stating that the notices issued beyond the period of four years from the end of the relevant assessment year were barred by limitation, that the trustees have already filed returns .showing the share of each beneficiary, and, therefore, there was no failure on the part of the trustees to return any part of the net wealth assessable to tax. The reply also noted that the Assistant Commissioner had clarified that the notices were issued for the purpose of making assessments under section 21(1-A) and submitted that the corpus had been exhausted by the share of the beneficiary computed by the trustees and no residue was left for assessment and accordingly requested him to drop the proceedings. Since no reply was received for this representation, the trustees have filed these writ petitions challenging the jurisdiction of the Assistant Commissioner of Wealth Tax to issue the notices under section 17 of the Act.

In the counter-affidavits filed on behalf of the Revenue, it is submitted that similar assessments under section 17 have been upheld by the Tribunal and the trustees themselves had filed such returns for the first three years 1980-81 to 1982-83. It is also contended that section 21(1-A) creates a separate liability in respect of which a separate return is required to be filed, and, therefore, on the failure of the trustees to file such a return the Assistant Commissioner of Wealth Tax has ample jurisdiction under section 17. The other contention taken is that according to the proper valuation made by the Departmental valuer alongwith the actuary, there was a residue in every case which had escaped assessment and which was required to be assessed under section 17. Lastly, it is contended that the writ petitions are not maintainable for reason of laches as well as for the reason that alternate remedies are possible, once an assessment is made.

Learned counsel for the assessees took us through the trust deeds as well as the decisions of the Supreme Court explaining the provisions of section 21 and contended that subsection (1-A) was introduced in section 21 only to assess the residue and it did not create any obligation to file a separate return in respect of such a residue. It was submitted that according to the trustees, on a proper computation, no residue was left and if the Assessing Officer makes his own computation by which some residue was left, it is for him to make a consequential assessment. It was submitted that the assessee cannot anticipate such a consequential assessment and file a return when according to the assessee, there was no residue at all which was liable to be assessed. It was further submitted that if the Assessing Officer had omitted to do so, it cannot be regarded as a failure on the part of the assessee, and, therefore, even if an assessment could be made under section 17, it would be barred by limitation in respect of the assessment years which ended four years prior to the issue of the notice. On the merits it was submitted that the actuarial method adopted by the Department was not correct and that the method of the trustees had the approval of the Supreme Court and even though this issue had been decided against the assessee by the Tribunal, the matter was pending in the High Court in the referred case.

On the other hand, it was contended on behalf of the Revenue that a proper construction under section 21(1-A) read with section 14(1) would clearly lead to the existence of a liability on behalf of the trustees to file a return in respect of the amount of the residue of the corpus assessable under section 21(1-A) of the Act. It was submitted that if such returns had not been filed, the Assessing Officer will have the jurisdiction to issue notice under section 17 and as long as the Assessing Officer had the jurisdiction by reason of the failure of the assessee/trustee to file the return, the trustees were bound to respond to the same and the writ petitions challenging the notices were not maintainable.

It was submitted that since similar assessments have been upheld by the Tribunal, the assessee should file the returns in respect of these notices also and agitate the matter by way of statutory remedies. It was further pointed out that the writ petitions have been filed in October, 1996, whereas the notices were issued in December, 1994, and, therefore, the petitioners were guilty of laches. Lastly, it was brought to our notice that in respect of the same trust, notices under section 17 were issued for under valuation of the net wealth and the matter was considered by this Court in Writ Petition No.16431 of 1996---H.E.H. Nizam's Jewellery Trust v. Asst. CWT (1997) 226 ITR 111 (AP.) and batch.

We may dispose of these preliminary objections first. Even though similar assessments have been made for the assessment years 1985-86 and 1986-87 and were upheld by the Appellate Tribunal, we find that there was no discussion with reference to the obligation of the trustees to file a separate return under section 14 in respect of the residue assessable under section 21(1-A) as it was assumed that such an obligation existed. Even though a question relating to the validity of the proceedings under section 17 has been referred to this Court under section 25(1) of the Wealth Tax Act which is pending, we are of the opinion that it is not a bar to our considering the validity of the notice, since the jurisdiction of the assessing authority is now being questioned. With regard to laches also, we find that the representations made by the petitioners were lying unattended, and, therefore, the Bench which admitted these writ petitions did not consider the laches to be an impediment in entertaining the writ petition. We, therefore, overrule this objection. With regard to the other notices issued for under-valuation, we have already disposed of the same by our order, dated November 21, 1996 (H.E.H. Nizam's Jewellery Trust v. Asst: CWT (1997) 226 ITR 111 (A)). The cause of action for these notices was admittedly different, since those notices related only to under-valuation of the assets, whereas these notices relate to the escapement of the residue assessable under section 21(1-A) of the Act. We, therefore, overruled this objection also.

The main issue in these cases is whether the Assessing Officer had jurisdiction under section 17 to issue a notice calling upon the trustees to file a return in respect of the residue assessable under section 21(1-A) of the Wealth Tax Act. The reasons recorded by the Assistant Commissioner of Wealth tax are contained in the order-sheet, a copy of which is attached hereto. A perusal of this indicates that the only reason for initiating the proceedings under section 17 was the failure on the part of the assesses to make a return of the wealth. It is now argued on behalf of the Revenue that these failures related to the residue assesasable under section 21(1-A) of the Act inasmuch as in respect of the share of the beneficiary, the trustees had already filed the return on which the assessment had been completed.

The question, therefore, shifts to section 14(1) as to whether a representative assessee liable for wealth tax on assets held by him for the benefit of the beneficiaries is obliged to file a return under section 14(1) in respect of a residue chargeable under section 21(1-A) of the Act. Section 21 reads as follows:

"Assessment when assets are held by Courts of Wards, Administrators-General, etc.---(1) Subject to the provisions of subsection (I-A), in the case of assets chargeable to tax under this Act, which are held by a Court of Wards or an administrator-general or an official trustee or any receiver or manager or any other person, by whatever name called, appointed under any order of a Court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of Wakf), the wealth tax shall be levied upon and recoverable from the Court of Wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf or for whose benefit the assets are held, and the provisions of this Act shall apply accordingly ....

(1-A) Where the value or aggregate value of the interest or interests of the person or persons on whose behalf or for whose benefit such assets are held falls short of the value of any such assets, then, in addition to the wealth tax leviable and recoverable under subsection (1), the wealth tax shall be levied upon and recovered from the Court of Wards, administrator-general, official trustee, receiver, manager or other person or trustee aforesaid in respect of the value of such assets, to the extent it exceeds the value of aggregate value of such interest or interests, as if such excess value were the net wealth of an individual who is a citizen of India and resident in India for the purposes of this Act, and

(2) Nothing contained in subsection (1) shall prevent either the direct assessment of the person on whose behalf or for whose benefit the assets above referred to are held, or the recovery from such person of the tax payable in respect of such assets."

Prior to the amendment introducing subsection (I-A), the words "subject to the provisions of subsection (1-A)", were absent under section 21(1). The Supreme Court held in a connected case (CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555), that in the absence of a, specific provision, the residue being the difference between the value of the corpus and the aggregate value of the shares of the beneficiaries who have a life interest and the remainder men cannot be brought to tax. Subsection (1-A) has been introduced for the specific purpose of taxing that residue. The Supreme Court had also explained the manner of assessment of representative trustees under section 21, that whenever the assessment is made on the trustee, it must be in accordance with the provisions of section 21. It was observed that (headnote):

"Since under subsections (1) and (4) of section 21 it is, the beneficial interests which are taxable in the hands of the trustees in a representative capacity and the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries, no part of the corpus of the trust properties can be assessed in the hands of the trustee under section 3 and any such assessment would be contrary to the plain mandatory provisions of section 21.

The consequences of the provisions in section 21(1) that the trustee is assessable ' in the like manner and to the same extent' as the beneficiary are three-fold. In the first place, there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary. Secondly, the assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. And, lastly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly."

In other words, the .Act did not envisage an assessment on the trustees independent of the share of the beneficiary. However, by the introduction of subsection (1-A) the residue is taxable in the hands of the trustee as if such excess value were the net wealth of the individual, who is a citizen of India and resident in India for the purposes of this Act

Now, section 14(1) provides as follows:

"14. Return of wealth.---(1) Every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date was of such an amount as to render him liable to wealth tax under this Act, shall, before the 30th day of June of the corresponding assessment year, furnish to the Assessing Officer a return in the prescribed form and verified in the prescribed manner setting forth the net wealth as on that valuation date:

Provided that in the case of a person whose net wealth or the net wealth of any other person in respect of which he is assessable under this Act includes the value of any assets held in a business or profession and the time (whether fixed originally or on extension (for furnishing the return of his total income or, as the case may be, of the total income of the other person aforesaid for the said assessment year under subsection (1) or subsection (2) or subsection (3) of section 139 of the Income Tax Act, expires on or after the 30th day of June aforesaid, the return in respect of such net wealth for the assessment year may be furnished before the expiry of the time for furnishing such return of income."

A reading of this section indicates that in the case of a trustee, he will be a person, who is obliged to return the net wealth of another person and not his own. As noted above, in returning the wealth of that other person, namely, the beneficiary, he has to adopt the same status as that of the beneficiary. However, inasmuch as the residue is not attributable to any one beneficiary, but is assessable in respect of all the beneficiaries, subsection (1-A) provides for the status in which that residue can be assessed as an "individual".

Learned standing counsel for the Revenue submitted that this requirement in subsection (1-A) necessarily implied that the trustee was obliged to file return as if the residue was net wealth belonging to him and returnable under the first part of section 14(1). We are unable to accept this contention because obviously any part of the property held in trust by a trustee, is not his net wealth but only the net wealth of the other persons. The Supreme Court in the case of W.O. Holdsworth v. State of Uttar Pradesh (1958) 33 ITR 472, observed that (headnote):

"A trustee is the legal owner of the trust property and the property vests in him as such and the beneficiary has only a right against the trustee as owner of the trust property. The trustee no doubt holds the trust property for the benefit of the beneficiaries but he does not hold it on their behalf. The expressions 'for the benefit of and ' on behalf of are not synonymous and convey different meanings: the former connotes a benefit which is enjoyed by another, thus, bringing in a relationship as between a trustee and a beneficiary or cestui que trust; the latter connotes an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another."

This was clarified by the Supreme Court in CWT v. Kripashankar Dayashanker Worah (1971) 81 ITR 763, after referring to the above passage as follows (page 767)

"It may be noted that in that provision, there is no reference to trustees. That section speaks of 'receiver', administrator or the like on behalf of persons jointly interested in such land or in the agricultural income derived, therefrom'. While interpreting that clause this Court held that a trustee is not a person who can .be equated to a receiver or an administrator inasmuch as those persons hold the property on behalf of other persons whereas a trustee is the legal owner of the trust property. In that decision this Court also observed that there is a fundamental difference between a property being held on behalf of others and property being held for the benefit of others. In our opinion the ratio of the decision does not bear on the point under consideration though certain observations found therein may give some assistance to the respondent. Section 11 of the U. P. Agricultural Income Tax Act does not refer to trustees at all whereas section 21(1) of the Act specifically refers to trustees. It is true that it refers to a trustee as holding a trust property on behalf of other persons. The conception that the trustee is holding the trust property on behalf of others tray not be in conformity with the legal position as contemplated by the Trusts Act but the Legislature is competent in the absence of any restrictions placed on it by the Constitution, to give its own meaning to the words used by it in a statute. There can be hardly any doubt that Parliament while enacting section 21(2) of the Act proceeded on the basis that for the purpose of that Act the trustee is holding the trust property on behalf of the beneficiaries."

In the meanwhile, section 21(1-A) was also amended to introduce the words "or for whose benefit". The section is, therefore, in conformity with the decision of the Supreme Court and recognises the trustee as a person holding the property for the benefit of others and not as a person holding the property on his own. Therefore, any return required to be filed by him section 14 will be only with reference to the "net wealth of any other person" being the beneficiaries and not "his net wealth". Learned counsel for the Revenue submitted that in view of the stipulation under subsection (1-A) that the residue has to be assessed as if it were the net wealth of the individual, it must be regarded as his net wealth casting an obligation on him to file a return. He relied on the rule of construction expounded by Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council (1952) AC 109 (HL), in the following words (page 132).

"If you are bidden to treat an imaginary state of affairs as real, you must surely unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. "

We are unable to accept this contention. We can expand the legal fiction only in the field it operates. In the present case, the fiction is with reference to the assessment of the residue of the wealth held in trust. Such wealth has to be assessed in the name of the trustee only as a representative assessee. As long as he is not holding the property on his own, the fact that the assessment has to be made in the status of the individual, cannot be extended to encompass an obligation on his part to file a return in his own individual capacity. Since admittedly the residue always remains the net wealth of other persons being the beneficiaries, it is not possible to accept an obligation on the part of the trustees to file a return as if it was his net wealth, only because the residue of the net wealth of other persons is required to be taxed in the status of an "individual". Since the assessment of the trustee in the individual capacity cannot refer to his own net wealth, there cannot be an obligation on his part to file two returns, one in respect of the net wealth of other persons and another with reference to the residue of the net wealth of other persons which is not his individual obligation. Learned standing counsel submitted that in an analogous case, where an individual returns some property claiming some assets to be his own but that one of the assets belongs to a Hindu undivided family of which he is a Karta, the Assessing Officer will not be able to assess that asset in the status of a Hindu undivided family unless he files a return in that status for which a notice under section 17 would be required. This analogy itself repudiates the contention of the Revenue. In the said analogy there are two assessees in respect of two different assets, one being the individual and the other being the Hindu undivided family. Certainly, the Hindu undivided family cannot be assessed on an asset declared by the individual unless the Hindu undivided family itself files a return in that respect. But, in the present case, all the assets belong only to the beneficiaries and the trustee has to file the return in respect of the net wealth of the beneficiaries alone. It cannot be said that in the existence of the provision for assessing the residue, apart from assessing the shares of the beneficiaries, there was any asset which belonged to the trustee in his individual capacity which was required to be returned as such. To emphasise the point, we wish to state again that the liability of the trustee as a representative assessee to file a return under section 14(1) is a single liability with reference to the entire property held in trust for the benefit of the beneficiaries. It cannot be said that because the computation of such of the shares of the beneficiaries results in a residue, which has to be assessed separately under subsection (1-A), a further liability is created to file a separate return in respect of such a residue.

The same conclusion can be arrived at by a close study of sub section (1-A) itself. That subsection provides that wealth tax shall be levied upon the trustee in respect of the value of the residue, in addition to the wealth tax leviable and recoverable in subsection (1), where the aggregate value of the interest of the beneficiaries falls short of the value of the corpus. In other words, this subsection only provides for the levy of additional tax in a particular contingency which arises when the beneficiaries are assessed to tax. As pointed out by the Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555, that even though a single return or a single assessment order may be made, there has to be as many assessments on the trustees as there are beneficiaries. It would follow that where there is a residue, there has to be one more assessment on the trustee in respect of the same composite return.

Learned standing counsel for the Revenue submitted that the residue may not escape the assessment where a single composite return is filed, but if either the trustees or the beneficiaries file separate returns for some of the beneficiaries on the ground that certain other beneficiaries had wealth below the maximum amount not liable to tax and were not assessable as such, the Department would be put to difficulties in ascertaining the total corpus and the shortfall that may be liable to tax under section 21(1-A) may escape assessment. We are unable to accept this contention also because no share of any beneficiary can be ascertained by the Assessing Officer without looking into the trust deeds and finding out the corpus. Any Assessing Officer worth his salt would call for full particulars before making the assessment to satisfy himself that there is no residue left to tax under section 21(1-A). Had he thus failed to apply this mind, it would be unreasonable for the Revenue to contend that section 21(1-A) should be construed as laying a statutory obligation on the trustee to file a separate return in respect of the residue so that the blame can be placed on the trustee for escapement of the residue from wealth tax In the present case, the trustees have asserted that the entire corpus has been shown as assessable to the wealth tax among the beneficiaries and it is only because of a different computation by the actuarial method that shortfall occurred for which the Assessing Officer could have made the assessment under section 21(1-A). The Revenue has not been able to contradict this assertion. In such circumstances, any escapement cannot be placed at the door of the trustees on the ground that it was due to the omission or failure on the part of the trustees to disclose fully and truly all material facts necessary for the assessment. The only reason given in the impugned notices was not the failure to disclose the material particulars but the failure to file a return as such. Admittedly, returns were filed by the trustees and since we have held that the trustees were required to file only one return in the representative capacity which was admittedly filed and there is no obligation to file a second return in his individual capacity in respect of the residue assessable under section 21(1-A), we are convinced that the Assessing Officer had no jurisdiction to issue the impugned notices.

Lastly; it was contended by learned standing counsel for the Revenue that the provisions of section 17 as it now stands are very wide and enable the Assessing Officer to bring to tax any net wealth which has escaped assessment and the only embargo will be the period of limitation of four years which applies to a case of failure to file a return or disclose full particulars. 1n other words, it was submitted that as long as the proposed reassessment is within four years of the end of the assessment year, mere escapement of net wealth is sufficient to give jurisdiction to the Assessing Officer to assess the same. Learned counsel for the petitioners, however, submitted that the section requires the reasons to be recorded and if the reasons so recorded did not justify the reassessment, the notices cannot be justified by giving other reasons. It may be recalled that before substitution of section 17 by the Direct Tax Laws (Amendment) Act,.1987, with effect from April 1, 1989, the Assessing Officer could issue a notice under section 17 under three circumstances namely, (i) failure to file a return, (ii) failure to disclose full particulars and, (iii) as a consequence of any information in his possession which led to a belief that the wealth taxable to tax has escaped assessment. But the section, as it stands now, merely states that if the Assessing Officer has reasons to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment, he may issue a notice under that section and proceed to assess the same. The proviso states that the Assessing Officer shall. before issuing any notice, record his reasons for doing so. In our opinion, this proviso creates a safeguard for the assessee against any discriminatory or arbitrary issue of notice under section 17. Learned standing counsel relied on the decision of the Supreme Court in Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287, to contend that where the Assessing Officer had by oversight, inadvertence or mistake omitted to assess a part of the wealth, he had ample powers to rectify tie omission by making a reassessment under this section. However, in a subsequent decision, the Supreme Court in Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996, held that the said proposition given in Kalyanji Mavji & Co. (1976) 102 ITR 287 (SC.), was stated too widely and an error discovered on a reconsideration of the same material does not give him that power. Apart from this, it is well-settled that there should be a nexus between the material on record and the belief that wealth has escaped assessment before the Assessing Officer can get the jurisdiction to issue a notice under section 17. The Supreme Court observed in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 that (headnote);

"The expression 'reason to believe' in section 34 of the Income Tax Act postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income Tax Officer ...The expression predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief "

The requirement of recording the reasons is only to ascertain whether such material existed which can lead to the belief of the Assessing Officer that wealth has escaped assessment. The acceptation of the expression "has reasons to believe" is that the Assessing Officer cannot rely on material other than what is recorded for the purpose of issuing the notice under section 17. In the present case, the only reason given was that the trustees had not filed a separate return in respect of the residue assessable under section 21(1-A). When that reason fails, it is not possible for the Revenue to justify the notice on the basis of the reasons not recorded, because, if we accept such unrecorded reasons, it would be in violation of the safeguard provided in the proviso to section 17 (see also Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851). We are, therefore, unable to sustain the notices issued under section 17. The impugned notices are therefore, quashed. The writ petitions are allowed. No costs.

After the judgment was pronounced, an oral application is made by learned counsel for the Revenue seeking leave to appeal to, the Supreme Court. The case does not involve any substantial question as to the interpretation of the Constitution nor does it raise any question of law of general importance which needs to be decided by the Supreme Court. Leave is, therefore, refused.

M.B.A./1701/FCOrder accordingly.