SREE NARAYANA CHANDRIKA TRUST VS COMMISSIONER OF WEALTH TAX, 1998 PTD-KERALA-HIGH-COURT-INDIA 1178 (1996)

Wealth tax---

---- Charitable trust ---Exemption---Assessee-trust partner in firm with 30 per cent. share---Partners of firm close relatives of managing trustee of assessee trust---Trust contributing capital to firm in excess of permissible limit-- Trust not entitled to exemption---Indian Wealth Tax Act, 1957, Ss.5(1)(i) & 21-A---Indian Income Tax Act, 1961, Ss.2(15) & 13.

Considerations relating to exemption, whether it is under the provisions of the Income Tax Act, 1961, or under the provision of section 5(1)(i) of the Wealth Tax Act, 1957, are identical by virtue of the provisions of section 21-A of the Wealth Tax Act, 1957, wherein section 13(3) of the Income Tax Act, 1961, is required to be read in as a result of the second proviso thereto.

The object of the assessee-trust created and executed by K, his wife and two sons, was to provide education, medical relief and relief of the poor. The trust, in its turn, was a partner of a partnership firm, with a 30 per cent. share. The partners of the firm were close relatives of the managing trustee of the assessee-trust. For the assessment years 1976-77 to 1979-80, the Wealth Tax Officer found that the capital investment of the assessee-trust in the partnership-firm exceeded the statutory limit of five per cent. of the total capital investment of partnership-firm, that under section 21-A of the Wealth Tax Act. 1957, the benefit could not be made available to the assessee trust and assessed the whole wealth of the assessee-trust to wealth tax for all the assessment years. The Appellate Assistant Commissioner held that the property held under trust was directly or indirectly applied for the benefit of the persons referred to in section 13(3) of the Income Tax Act, 1961, that the assessee fell within the mischief of section 21-A of the Wealth Tax Act, and rejected the claim for exemption under section 5(1)(i) of the Wealth Tax Act. The Tribunal held that the provisions of section 13 of the Income Tax Act were to be read in section 21-A of the Wealth Tax Act by reason of its express mention and use in the second proviso to section 21-A of the Wealth Tax Act and that the assessee was not entitled to exemption under section 5(1)(i) of the Wealth Tax Act.

On a reference:

Held, affirming the decision of the Tribunal, that the assessee-trust was not entitled to exemption under section 5(1)(i) of the Wealth Tax Act, 1957.

Chandrika Educational Trust v. CIT (1997) 224 ITR 453 (Ker.); CIT v. Chandrika Educational Trust (1997) 224 ITR 449 (Ker.); Sree Narayana Chandrika Trust v. CIT (No.2) (1997) 224 ITR 464 (Ker.) ref.

C. Kochunni Nair and M.C. Madhavan for the Assessee.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner .

JUDGMENT

V.V. KAMAT, J.---These references cover the assessment years 1976-77, 1977-78, 1978-79 and 1979-80 with regard to the assessment of the petitioner-trust in the name and style of "Sree Narayana Chandrika Trust" Irinjalakuda, under the Wealth Tax Act, 1957. The question is of entitlement to the benefit of exemption under section 5(1)(i) of the said Act and as a consequence benefit as a result thereof.

The assessee-trust is created by a deed, dated March 15, 1972, executed by one C.G. Kesavan Vaidyar, his wife and two sons. The object of the trust was to provide education, medical relief and relief to the poor. This assessee-trust in its turn was a partner of the partnership firm in the name and style of "Beena Enterprises", Coimbatore, with 30 per cent. share, constituted under a deed of partnership, dated April 1, 1972. There are three partners and six minors. The minors are admitted to the benefits of the partnership only as under the law. There is no dispute that they are an relatives of the authors of the partnership-firm and the main source of income of the partnership firm of the trust is nothing but the share of profits received by the partners from Beena Enterprises, Coimbatore.

For the assessment years 1976-77 up to 1979-80, the Wealth Tax Officer found that the capital investment of the assessee-trust in Beena Enterprises exceeded the statutory limit office per cent. of the total capital investment of the partnership firm. The Wealth Tax Officer concluded that under section 21-A of the Wealth Tax Act, 1957, the benefit could not be made available to the assessee-trust. As a consequence, he brought to tax the whole wealth of the assessee-trust for the assessment years,

The appeal to the Appellate Assistant Commissioner received the same fate, as the appellate authority concluded that the property held under trust will have to be stated to be directly or indirectly applied for the benefit of the persons referred to in section 13(3) of the Income Tax Act, 1961. The appellate authority proceeded to observe that the assessee fell within the mischief of section 21-A of the Wealth Tax Act, 1957, as a result thereof. Thus the claim for benefit of exemption under section 5(1)(i) of the Wealth Tax Act, 1957, with reference to the contention that the assessee being a charitable institution within the meaning of section 2(15) of the Income Tax Act would be entitled to the said benefit, was rejected.

In the further travel of the proceedings before the appellate Tribunal, rightly importance was given to the expression "substantial investment" in sections 13(2)(h) and 13(3)(e) of the Act. It was contended before the Tribunal that this is a matter of evidence and it must be with reference to the extent of shares held by the other partners in the firms, Beena Enterprises, Coimbatore, Chandrika Agencies, Bangalore, and Chandrika Enterprises, Irinjalakuda, It was emphasized that the assessee had 30 per cent. 20 per cent. and 35 per cent. shares, respectively, with reference to' these partnership firms. Reliance was also placed on the provisions of section 13, Explanation 3(ii) of the Income Tax Act, 1961, to raise a contention that this Explanation, which is available under the statutory provisions of the Income Tax Act, 1961, could not be read in wealth tax proceedings. In support of this contention, reliance was placed on the statutory provisions of section 21-A of the Wealth Tax Act, 1957, to contend that in the said statutory provision, there is reference only to section 13(3) and not to explanation 3 in any manner.

The Tribunal took up these contentions to hold in the first instance that section 13(3) of the Income Tax Act, 1961, has been taken in the provisions of section 21-A as if the said section of the Income Tax Act, 1961, was legislatively written in the statutory provisions of section 21-A of the Wealth Tax Act. On this basis, the Tribunal held that Explanation 3 to section 13 would also automatically have to be read along with it. Additionally, the Tribunal also held that the expression "substantial interest" is also found to have been written in, if the second proviso to section 21-A of the Wealth Tax Act is looked into. Similarly, as a natural corollary, the Tribunal rejected the contention that Explanation 3 was not applicable to the assessee-trust. In the ultimate analysis, the Tribunal recorded the conclusion that the relevant available provisions of section 13 of the Income Tax Act are to be read in section 21-A of the Wealth Tax Act by reason of its express mention and use in the second proviso to section 21-A of the Wealth Tax Act. In the process, the Tribunal came to the conclusion that the assessee was not entitled to the benefit of exemption contemplated under section 5(1)(i) of the Wealth Tax Act, 1957.

In the statement of case, the Tribunal has been careful and particular to state that a similar and identical question with regard to the provision of sections 13(1)(c)(ii) and 13(2)(h) read with section 13(3) of the Income Tax Act, 1961, was already referred to this Court.

It must be stated that with regard to the same trust-Sree Narayana Chandrika Trust at Irinjalakuda-in Income-tax Reference No.42 of 1991 by the judgment, dated September 23, 1996 (Sree Narayana Chandrika Trust v. CIT (No.2) (1997) 224 ITR 464. we had an occasion to consider the identical provision with regard to the assessment year 1973-74 relating to exemption under sections 11 and 12 of the Income Tax Act 1961, read with the statutory provisions of sections 13(1)(c)(ii) and 13(2)(h) read with section 13(3) of the Income Tax Act, 1961. Considerations relating to the matter of exemption, whether it is under the provisions of the Income Tax Act, 1961, or under the provisions of section 5(1)(i) of the Wealth Tax Act, 1957, are identical by virtue of the provisions of section 21-A of the Wealth Tax Act, 1957, wherein section 13(3) of the Income Tax Act, 1961, is required to be read as a result of the second proviso thereto. It is necessary to specify that in our judgment in Income-tax Reference No.42 of 1991- Sree Narayana Chandrika Trust v. CIT (No.2) (1997) 224 ITR 464, there is also a reference to the similar situation in the matter of the sister trust in the name and style of "Chandrika Educational Trust, Irinjalakuda" that arose in Income-tax References Nos. 31 of 1990 and 145 of 1994, decided on July 4, 1996 Chandrika Educational Trust v. CIT (1997) 224 ITR 453, by this Court (of which one of us myself was a partner dictating the judgment) relating to the assessment year 1973-74. Additionally, there is also a reference to the decision, dated May 29, 1996 in Income-tax Reference No. 161 of 1991 CIT v. Chandrika Educational Trust (1997) 224 ITR 449) in the matter of the assessee-Chandrika Educational Trust---with reference to the subsequent assessment years also, wherein the benefit of exemption under section 11 of the Income Tax Act, 1961, was not extended because the contribution of the trust exceeded the prescribed limit.

We find that the Tribunal has dealt with the situation correctly. In addition, this Court also had an occasion to consider the question of benefit of exemption, though under the provisions of the Income Tax Act, 1961. The position does not change when the question is of benefit of exemption for the purposes of the Wealth Tax Act. 1957.

For all the above reasons, we answer the questions in the following manner, after reproducing them hereafter:

A. Was the Appellate Tribunal justified in holding that the assessee-trust is not entitled to the benefit of exemption under section 5(1)(i) of the Wealth Tax Act?

In the affirmative, in favour of the Revenue and against the assessee.

B. Was the Appellate Tribunal justified in rejecting the contention of the assessee-trust that there is no violation of the provisions of section 13(2)(h) of the Income Tax Act?

In the affirmative, in favour of the Revenue and against the assessee.

C. Was the Appellate Tribunal justified in holding that laying out money for acquisition of interest in partnership obviously with intent to get income and, therefore, it clearly amounts to investment? Is not the said reasoning and conclusion of the Tribunal illegal and unjustified?

The question is essentially of facts and we decline to answer the same.

D. Whether, on the facts and in the circumstances of the case, it can be said that section 21-A of the Act is attracted so as to deny the exemption available under section 5(1)(i) of the Act?

In the affirmative, in favour of the Revenue and against the assessee.

A copy of this judgment, under the seal of this Court and the signature of the Registrar, shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.

M.B.A./1434/FCReference answered.