COMMISSIONER OF WEALTH TAX VS BHAVANI DEVI SADHAIYA
1999 P T D 983
[232I T R 779]
[Madras High Court (India)]
Before K.A. Thanikkachalam and N V. Balasubramanian, JJ
COMMISSIONER OF WEALTH TAX
Versus
BHAVANI DEVI SADHAIYA
T.Cs. Nos. 301, 302 and 825 (References Nos.250, 251 and 740 of 1984), decided on 02/07/1996.
Wealth tax---
----Inclusions in net wealth---Value of assets transferred for benefit of a son's minor child---Value of assets held by spouse to whom assets transferred directly or indirectly otherwise than for adequate consideration or in connection with an agreement to live apart---Trust created for benefit of assessee's sons' minor child---Assets transferred to trust- --Income of trust to be accumulated and property to be transferred to beneficiary on his attaining age of twenty-one---Spouse of assessee appointed trustee---Spouse did not hold property in his own right---No immediate benefit to minor grandson-- Assets transferred to trust were not includible in net wealth of assessee-- Indian Wealth Tax Act, 1957, S.4.
Section 4(1) of the Wealth Tax Act, 1957, states that in computing the net wealth of an individual, there shall be included, as belonging to that individual, (a) the value of the valuation date as are held (i) by the spouse of such individual to whom such asset have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart. The crucial word under section 4(1)(a)(v) of the Act is the word "held" and this word is to be understood as equivalent to the phrase "belonging to" Where the property vests in a trustee it is not held by him in his own right, since he cannot set up a title against the beneficiary. Therefore, when the properties are transferred in trust to the spouse, it cannot be said that the properties are held by the spouse, as he does not hold them in his own right.
The assessee was an individual. By a deed dated March 29, 1974, she settled certain immovable properties being godowns in Calcutta for the benefit of her grandson, D, appointing her spouse N, as the trustee. The deed provided that the trustee shall hold the properties on trust on condition that he shall accumulate the income and transfer the property to the beneficiary, on his attaining the age of twenty-one. The Wealth Tax Officer held that the properties should be considered to be an asset held by the assessee's son's minor child to whom such assets had been transferred directly or indirectly otherwise than for adequate consideration and, consequently, added their value to the net wealth of the assessee by applying section 4(1)(a)(v) of the Act. The alternate contention of the revenue was that the asset should be considered to be one transferred by the assessee to her spouse without consideration and, therefore, required to be added to the net wealth of the assessee under section 4(1)(a)(i). However, the Tribunal held that the transferred assets could not be assessed in the hands of the assessee either under section 4(1)(a)(i) or under section 4(1)(a)(v). On a reference:
Held, that when the property was transferred by the assessee to a trust for the benefit of her minor grandson and when a direction was given in the trust deed to vest with the minor the corpus and the income accumulated thereon, on his attaining the age of twenty-one years, it could not be said that during minority, the minor was entitled to either enjoy the income from the trust or to hold the property. Under section 21 of the Act, only a representative assessee can be assessed, in a case where the beneficiary cannot be assessed directly. Therefore, when the property was not transferred either directly or indirectly by the assessee who was the grandmother of the beneficiary to her spouse, the provisions of section 4(1)(a)(i) could not be applied. Sub-clause (v) of section 4(1)(a) of the Act does not include the deferred benefit of the son's child. The assets were transferred to the trust and not to the spouse. The spouse was appointed as a trustee of the trust. The properties were not held by the spouse of the individual in his own right. Hence, the provisions of section 4(1)(a)(i) were also not applicable. The value of the value of the assets settled by the assessee for the deferred benefit of her son's minor son under the trust deed, dated March 29, 1974, could not be included in the net wealth of the assessee either under section 4(1)(a)(i) or under section 4(1)(a)(v).
C.V. Rajan for the commissioner.
Nemo for the Assessee.
JUDGMENT
K.A. THANIKKACHALAM, J.--- At the instance of the Department, the Tribunal referred the following question No. 1 for the assessment years 1976-77 and 1977-78 with regard to Tax Cases Nos.301 and 302 of 1984 and question No.2 for the assessment year 1978-79 with regard to Tax Case No.825 of 1984 for the opinion of this Court under section 27(1) of the Wealth Tax Act, 1957, (hereinafter referred to as the Act):
Question No. 1:
"Whether, on the facts and in the circumstances of the case, the value of the assets settled by the assessee for the deferred benefit of her son's minor son under a trust deed, dated March 29, 1974, could be included in the net wealth of the assessee either under section 4(1)(a)(i) or under section 4(1)(a)(v) of the Wealth Tax Act?.
Question No. 2:
Whether on the facts and in the circumstances of the case and having regard to the provisions of section 4(1)(a) of the Wealth Tax Act, the Appellate Tribunal was right in deleting the inclusion of 85.41,000 being the value of the property settled by the assessee on her grandson, as per deed, dated March 29, 1974?"
The assessee is an individual. All the three tax cases relate to the assessment years 1976-77 to 1978-79. By a deed, dated March 29, 1974, she settled certain immovable properties being godowns in Calcutta for the benefit of her grandson, Darsan Kumar Gadhaiya, appointing her spouse, Sri Nemichand Gadhaiya, as the trustee. The deed provided that the trustee shall hold her properties on trust on condition that he shall accumulate the income and transfer the property to the beneficiary, on his attaining the age of twenty-one. In the case of the death of the beneficiary, before attaining the age of twenty-one, the properties were to be held for the benefit of the heirs of Darsan Kumar Gadhaiya and transferred to them when they attain the age of majority.
The case put forward by the Revenue was that the properties in question should be considered to be an asset held by the son's minor child of the assessee to whom such assets have been transferred directly" or indirectly, otherwise than for adequate consideration and consequently added to the net wealth of the assessee by applying section 4(1)(a)(v) of the Act. The alternate contention of the Revenue was that the asset should be considered to be one transferred by the assessee to her spouse without consideration and, therefore, required to be added to the net wealth of the assessee under section 4(1)(a)(i) of the Act.
On the other hand, the contention of the assessee was that there is no specific provision in the Act for adding back the assets transferred for the deferred benefit of the son's minor child. The other contention of the assessee was that a transfer of an asset to a spouse in the capacity of a trustee cannot be considered to be a transfer to the spouse within the meaning of section 4(1)(a)(i) of the Act.
Aggrieved, the assessee filed an appeal before the Appellate Assistant Commissioner, contending that since the minor son did not get any immediate benefit, the provisions of section 4(1)(a)(v) of the Act could not be applied. The Appellate Assistant Commissioner agreed with the said contention, but sustained the addition under section 4(1)(a)(i) of the Act, as an asset transferred to the spouse of the assessee.
Not satisfied with the order passed by the Appellate Assistant Commissioner, the assessee filed an appeal before the Appellate Tribunal, contending that since the transfer was only to a trustee for the benefit of a minor child, it was not transferred to the spouse and, therefore, section 4(1)(a)(i) of the Act could not be applied. On the other hand, the Department contended that the section read with the Explanation did not make any distinction between the vesting of the properties and the beneficial ownership. Alternatively, it was contended that even if the reasoning of the Appellate Assistant Commissioner was not correct, the addition should be sustained on the reasoning of the Wealth Tax Officer.
On consideration of the submissions made by the assessee as well as the Department, the Tribunal came to the conclusion that the assessee should succeed. According to the Tribunal, the property transferred by the grandmother in favour of the grandchild by creating a trust and appointing her spouse as the trustee... such a transferred asset... cannot be assessed in the hands of the assessee either under section 4(1)(a)(i) or under section 4(1)(a)(v) of the Act.
Before us, learned counsel appearing for the Department submitted that inasmuch as the assets were transferred by the transferor to her spouse, even if it is in his capacity as a trustee, under the provisions of section 4(1)(a)(i) of the .pct, the net wealth tax is includible in the hands of the assessee for wealth tax purposes. It was further submitted that only the enjoyment of the income was postponed till the minor attained the age of twenty-one. Even during the minority of the beneficiary the spouse is holding the property transferred by his grandmother under a trust. Since the trust is holding the property on behalf of the minor, the provisions contained in section 4(1)(a)(i) would be applicable.
We have heard learned standing counsel appearing for the Department and we have also perused the records carefully.
The point for consideration is in a case, whether the assets transferred by the grandmother for the benefit of her grandson by creating a trust and appointing her spouse as the trustee, would be includible in the hands of the assessee, who is the grandmother either under the provisions of section 4(1)(a)(i) or under the provisions of section 4(1)(a)(v) of the Act.
Section 4(1) of the Act states that in computing the net wealth of an individual, there shall be included, as belonging to that individual, (a) the value of assets on the valuation date as are held (i) by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly otherwise than for adequate consideration or in connection with an agreement to live apart. The Explanation to the said section states that the expression "transfer" includes any disposition, settlement, trust, covenant, agreement or arrangement and the expression "property" includes any interest in property. Therefore the asset given to a person to be held in trust would be an asset transferred to that person and if that person happens to be a spouse of the assessee those assets could be added to the net wealth of the assessee, as belonging to him. In the present case, the assets were transferred to the trust and not to the spouse. The spouse was appointed as a trustee of the trust. Therefore, it does not mean that the properties were transferred by the assessee in favour of her spouse for inadequate consideration. When the property was transferred by the assessee to a trust for the benefit of her minor grandson and when a direction was given in the trust deed to vest with the minor the corpus and the income accumulated thereon on his attaining the age of twenty-one years, it cannot be said that during minority, the minor is entitled to either enjoy the income from the trust or to hold the property. Under section 21 of the Act, only a representative assessee can be assessed, in case, the beneficiary cannot be assessed directly. Therefore, when the property was not transferred either directly or indirectly by the assessee, who is the grandmother to her spouse, the provisions of section 4(1)(a)(i) of the Act cannot be applicable to the facts of this case.
In so far as the provisions contained in section 4(1)(a)(v) of the Act are concerned, it states as under:--
"In computing the net wealth of an individual, there shall be included, as belonging to that individual--
(a) the value of assets on the valuation date are held:
(v) by the son's wife, or the son's minor child of such individual to whom such assets have been transferred by the individual, directly or indirectly on or after the 1st day of June, 1973, otherwise than for adequate consideration. "
Section 4(1)(a)(i) of the Act cannot be made applicable to the facts of this case. The procedure as contemplated under section 4(1)(a)(i) of the Act for the purpose of its application is any agreement between the husband and wife to live apart. Here, there is no such agreement between the spouses. As per the terms of the trust deed, both the corpus and the accumulated income arising out of the trust properties should be handed over to the minor, when he attains the age of twenty-one years. Till then, there is no enjoyment of the income from the trust properties by the minor and the corpus also cannot be said to be absolutely vested with the minor. The crucial word under section 4(1)(a)(v) of the Act is the word "held" and this word is to be understood as equivalent to the phrase "belonging to": Though the property vests in the trustee, it is not held by him in his own right, since he cannot set up a title against the beneficiary. Therefore, when the properties are transferred in trust to the spouse, it cannot be said that the properties are held by the spouse, as he does not hold them in his own right, in such a case, no question of lack of adequate consideration would arise. After the transfer of the property by the assessee in favour of the trust, it cannot be said that the assessee is holding the assets, which were transferred to the trust. Neither the assessee nor the beneficiary held the property during the assessment years under consideration. Therefore, the inclusion of the transferred property in the hands of the assessee, as her "net wealth" under section 4(1)(a)(v) of the Act cannot be made. Sub-clause (v) of section 4(I)(a) of the Act does not include the deferred benefit of the son's child. Therefore, the property transferred by the assessee, who is the grandmother in favour of her grandson, by creating a trust and appointing her spouse as the trustee can never be included as the net wealth in her hands for the assessment years under consideration either under the provisions of section 4(1)(a)(i) or under the provisions of section 4(1)(a)(v) of the Act.
Accordingly, we answer question No.l referred to us in T.C. Nos.301 and 302 of 1984 in the negative and against the Department. In so far as question No.2 referred to us in T.C. No.825 of 1984 is concerned, we answer the same in the affirmative and against the Department. There will be no order as to costs. .
M.B.A./1880/FCReference answered.