1966 PLP 58 (PTD)
(TRUSTEES OF L. K. TRUST) Versus COMMISSIONER OF WEALTH‑TAX, BOMBAY
| Citation | 1966 PLP 58 (PTD) |
| Forum / Court | Bombay (India) |
| Bench Members | Y. S. Tambe and V. S. Desai, JJ |
| Parties | (TRUSTEES OF L. K. TRUST) Versus COMMISSIONER OF WEALTH‑TAX, BOMBAY |
Q1: What are the key laws and sections cited in 1966 PLP 58 (PTD)?
This judgment primarily cites: statutory provisions as referenced in Pakistani case law index.
Q2: Which judicial bench decided the case 1966 PLP 58 (PTD)?
The case was heard and decided by the Bombay (India) bench comprising: Y. S. Tambe and V. S. Desai, JJ.
Q3: What is the official citation format for this judgment on Pakistan Law Portal?
Cite this legal precedent as: 1966 PLP 58 (PTD) ((TRUSTEES OF L. K. TRUST) Versus COMMISSIONER OF WEALTH‑TAX, BOMBAY). Read the full summary and cross-referenced laws free on Pakistan Law Portal.
Representation
- Mr. Palkhivala, learned counsel appearing for the assessee, has sought to argue that a comparison of section 3 of the Indian Income‑tax Act with section 3 of the Wealth‑tax Act will show that while under section 3 of the former Act, individuals, Hindu undivided family, company, local authority and every firm and other associations of persons or partners of the firm are brought within the ambit of the charging section, only three of them, viz., individual. Hindu undivided family and company, are charged under section 3 of the Wealth ?tax Act. This would, according to the learned Advocate, indicate that associations or groups of persons forming a unit, are not intended to be charged to wealth‑tax. In the first place, this argument was advanced in the Calcutta case to which we have already made a reference, and has been negative there. As pointed out in that case, if having regard to the nature of the group, it could be treated as a single collective unit, the term "individual" will be wide enough to include it. Secondly, it seems to us that the mere difference in the language of section 3 of the Indian Income‑tax Act and section 3 of the Wealth‑tax Act will not be sufficient to warrant that some of the categories or items mentioned in the former Act are intended to be omitted in the latter Act. If the words retained in the latter Act are sufficiently wide in their ambit to include even those categories or items which have been additionally mentioned in the first Act, it could not be said that they were intended to be omitted simply because they have not been similarly additionally stated in the latter Act: Mr. Palkhivala has then argued that if groups or associations of persons who are capable of being treated as units were intended to be included in the word "individual", there was no reason whatsoever to mention a Hindu undivided family separately. His argument, therefore, is that the mention of the Hindu undivided family, which is an association of persons, implies that other associations of persons are intended to be exclud?ed. We do not think that the argument is sustainable. Although a Hindu undivided family consists of a number of persons it is not an association of persons or a firm or a company which is created by the Act of parties. It consists of all Mons lineally descended from a common ancestor and includes their wives and unmarried daughters. Its fundamental principle is the tie of sapindaship arising by birth, marriage or adoption. The Hindu undivided family with all its incidents is purely a creature of Hindu law and cannot be created by act of parties. It is because of the peculiar characteristic of the institution which distinguishes it from an association of persons or a firm or a company that the taxation laws which want to treat it as a unit for taxation have mentioned it as a distinct unit. We do not therefore think that the argument can be advanced that the mention of the Hindu undivided family as a unit of taxation under section 3 of the Wealth‑tax Act is intended to exclude other groups or associations of persons which are capable of being treated as, a unit.
Headnotes / Summary
Wealth‑tax‑
Joint trustees‑Whether an "association of persons"‑Liability to pay wealth‑tax as "individual"‑Wealth‑tax Act, 1957, Ss. 3 & 21(4)‑"Individual", meaning of. Joint trustees are regarded as a unit for purposes of taxation and they can be assessed to wealth‑tax in the status of an "individual" in respect of the value of the properties held by them as trustees. They cannot be treated as an "association of persons" and exempted from wealth‑tax on the ground that an "association of persons" is not an entity mentioned in the charging section of the Wealth‑tax Act, 1957. Commissioner of Income‑tax v. Sodra Devi (1957) 32 I T R 615 (S C) and Suhashini Karuri v. Wealth‑tax Officer, Calcutta (1962) 461 T R 953 rel. Banarsi Dass V. Wealth‑tax Officer, Special Circle, Meerut (1965) 56 1 T R 224 (S C) ref. STATEMENT OF CASE By these applications, which are consolidated, the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the order of the Tribunal in W. T. As. Nos. 40, 41 and 42 of 1960‑
61. Inasmuch as, in our opinion, questions of law do arise out of the aforesaid order of the Tribunal, we hereby draw up a statement of the case, agreed to by both the parties, and refer it to the High Court of Judicature at Bombay under section 27(2) of the Wealth‑tax Act, 1957.
2. Laxmidas Mulraj Khatau, (since dead), settled certain shares of the market value of Rs. 5,98,575 by a deed dated 18th January 1948 (copy whereof is annexed hereto as Annexure "A" and forms part of the case), with himself, his .wife, Bai Jayabai, his son, Abhay, and Chandrakant Mulraj as trustees. Under this trust, Abhay and Bai Jayabai are to have life interest to the extent of 3/4th and 1/4th of the net income from the trust properties, after Abhay they whole income to his widow for the purposes of maintenance, education and other expenses of herself and her children, the rest and remainder vesting in the children of Abhay per stripes, after the demise of the last life tenant.
3. Notices under section 17 of the Wealth‑tax Act served on Abhay and others as trustees of the trust for all the three years 1957‑58, 1958‑59 and 1959‑60, were returned declaring "nil" wealth. It was contended in these proceedings that the trustees formed an association of persons among themselves and that there was no provision in the Wealth‑tax Act for assessing such associations. The Wealth‑tax Officer repelled this contention and assessed the trustees as an individual. His full reasoning and conclusions are to be found in his order for the assessment year 1957‑58 copy whereof is annexed hereto as Annexure "B" and forms part of the case.
4. The assessee appealed to the Appellate Assistant Commissioner against all the aforesaid assessments. The Appellate Assistant Commissioner rejected the contention in the following words reproduced from his order: "‑The Wealth‑tax Officer has virtually made the assessment on the trustees in accordance with the machinery provided by section 21 of the Wealth‑tax Act. Section 21 (1) authorises the Wealth‑tax Officer to make assessments on Courts 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 in‑the like manner and to the same extent as it would be leviable upon and recoverable from the persons on whose behalf the assets are held. Section 21 (4) provides the machinery for assessment where the shares of the persons on whose behalf any such assets are held are indeterminate or unknown. In such a case, the Wealth‑tax Officer is authorised to levy and recover wealth‑tax from the Court of wards, administrator‑general, official trustee, receiver, manager or any other person as if the persons on whose behalf the assets are held were an individual for the purposes of this Act. In this case the Wealth‑tax Officer has resorted to the machinery provided by section 21 (4) in making the assessments vis‑a‑vis the remainder estate. It is accepted that the shares of the persons in the remainder estate are indeterminate or unknown. The Wealth‑tax Officer has, therefore, acted well within the law in raising the assessments in the hands of the trustees in accordance with the machinery provided by section 21 (4) of the Wealth‑tax Act. Accordingly, the action of the Wealth‑tax Officer is upheld on this point."
5. Thereupon; appeals to the Tribunal followed raising, inter alia, the following grounds: "The Wealth‑tax Officer and the Appellate Assistant Commis?sioner of Wealth‑tax erred in their finding that an association of persons can be charged to wealth‑tax. They have relied on the provisions of section 21, but the material section is the charging section, vii., section
3. This charging section makes no mention about an association of individuals or association of persons and it speaks of wealth‑tax being chargeable in respect of the wealth of every individual, Hindu undivided family and company. Section 21 speaks of assets chargeable to tax under this Act and held in various capacities. Therefore, the provisions contained thereunder are of no effect. Without the basis of chargeability being established under section 3, the provisions of section 21 cannot come into play. The assessment, therefore, is fundamentally bad and defective and therefore cannot be sustained at all. A perusal of the relevant provisions of the Income‑tax Act would show that the charging section is section 3 which speaks of all the categories including an association of persons while section 41 which is a machinery section, provides for settling the details of the mode of assessment once the chargeability is established. In the wealth‑tax legislation there is a significant and a crucial commission of the category of association of persons and, there?fore, with such a clear omission, a chargeability on 'an association of persons cannot be established. In that light, the assessment is bad and cannot be sustained and therefore should be set aside."
6. The Tribunal dismissed these appeals in paragraph 3 of its order reproduced below: "The first contention in these appeals is that the assessments on an association of persons is invalid. This contention is easily repelled. The assessments are, as stated above, on the trustees in the status of an individual. It cannot be denied that the trustees are the joint legal owners of the properties of the trust and it is they who are sought to be assessed in these assessments; they do not have any separate title. The assessments, therefore, do not conflict with either the charging section or section 21 (4) in the manner contended in the grounds of appeal. The assessments are valid and accordingly upheld.
7. From the above facts, the questions of law that arise are: (1) Whether the assessments under the Wealth‑tax Act are valid ? (2) If the answer to the above question is in the affirmative, whether the status of the assessee is individual? B. A. Palkhivala for the Assessee. G. N. Joshi and R. J. Joshi for the Commissioner.
Judgment & Decree
V. S. DESAI, J.‑The short question which arises for consideration on the present reference is whether a group of trustees can be assessed to wealth‑tax under the Wealth‑tax Act in respect of the wealth held by them as trustees. This question has been referred to us by the Tribunal under section 27 (1) of the Wealth‑tax Act, 1957, in the form of two questions, which are as follows: (1) Whether the assessments under the Wealth‑tax Act are valid? (2) If the answer to the above question is in the affirmative, whether the status of the assessee is 'individual'?' The charging section, which is section 3, of the Wealth‑tax Act provides that "subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from 1st April 1957, a tax (hereinafter referred to as the `wealth‑tax') in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule". It is argued on behalf of the assessee that it is only an individual, Hindu undivided family or a company that can be taxed to wealth‑tax, and neither a group of individuals or an association of persons. The assessee in the present case, it is contended, is not an individual, but a group of persons or an association of persons, and do not, therefore, fall within the ambit of section
3. The contention raised by the assessee in the present case has been answered by the Calcutta High Court against the assessee in Suhashini Karuri v. Wealth‑tax Officer, Calcutta ((1962) 46 I T R 953). It has been held in that case that "joint trustees' must be taken to be a single unit in law and not as an "association of persons" and there is nothing wrong in treating such a unit as an individual holding property and becoming assessable under section 3 of the Wealth‑tax Act for purposes of wealth‑tax." The view taken in that case was that having regard to the nature of joint trusteeship, all the co-trustees together formed, as it were, a collective trustee, and the body of trustees, therefore, could be regarded as a unit for the purposes of taxation and fell within the term "individual". In taking this view, the learned Judges who decided the case found support in the observations of the Supreme Court in the case of Commis?sioner of Income‑tax v. Sodra Devi ((1957) 32 I T R 615). In that case, their Lordships of the Supreme Court were concerned with the interpretation of the word "individual" in section 16 of the Indian Income‑tax Act. It was observed that the word "individual" was wide enough to include a group of persons forming a unit. In a recent decision of the Supreme Court in Civil Appeals Nos. 124 to 129 of 1964, Banarsi Dass's case ((1965) 56 1 T R 224 (S C)) decided on 8th December 1954, the Supreme Court after having referred to its decision in Sodra Devi's case have observed again that though the word "individual" is narrower than the word "assessee", it does not mean only a human being, but is wide enough to include a group of persons forming a unit. Mr. Palkhivala, learned counsel appearing for the assessee, has sought to argue that a comparison of section 3 of the Indian Income‑tax Act with section 3 of the Wealth‑tax Act will show that while under section 3 of the former Act, individuals, Hindu undivided family, company, local authority and every firm and other associations of persons or partners of the firm are brought within the ambit of the charging section, only three of them, viz., individual. Hindu undivided family and company, are charged under section 3 of the Wealth ?tax Act. This would, according to the learned Advocate, indicate that associations or groups of persons forming a unit, are not intended to be charged to wealth‑tax. In the first place, this argument was advanced in the Calcutta case to which we have already made a reference, and has been negative there. As pointed out in that case, if having regard to the nature of the group, it could be treated as a single collective unit, the term "individual" will be wide enough to include it. Secondly, it seems to us that the mere difference in the language of section 3 of the Indian Income‑tax Act and section 3 of the Wealth‑tax Act will not be sufficient to warrant that some of the categories or items mentioned in the former Act are intended to be omitted in the latter Act. If the words retained in the latter Act are sufficiently wide in their ambit to include even those categories or items which have been additionally mentioned in the first Act, it could not be said that they were intended to be omitted simply because they have not been similarly additionally stated in the latter Act: Mr. Palkhivala has then argued that if groups or associations of persons who are capable of being treated as units were intended to be included in the word "individual", there was no reason whatsoever to mention a Hindu undivided family separately. His argument, therefore, is that the mention of the Hindu undivided family, which is an association of persons, implies that other associations of persons are intended to be exclud?ed. We do not think that the argument is sustainable. Although a Hindu undivided family consists of a number of persons it is not an association of persons or a firm or a company which is created by the Act of parties. It consists of all Mons lineally descended from a common ancestor and includes their wives and unmarried daughters. Its fundamental principle is the tie of sapindaship arising by birth, marriage or adoption. The Hindu undivided family with all its incidents is purely a creature of Hindu law and cannot be created by act of parties. It is because of the peculiar characteristic of the institution which distinguishes it from an association of persons or a firm or a company that the taxation laws which want to treat it as a unit for taxation have mentioned it as a distinct unit. We do not therefore think that the argument can be advanced that the mention of the Hindu undivided family as a unit of taxation under section 3 of the Wealth‑tax Act is intended to exclude other groups or associations of persons which are capable of being treated as, a unit. In the result, therefore our answers to both the questions, which have been referred to us, are in the affirmative. The assessee will pay the costs of the Commissioner. Questions answered in the affirmative.