Commissioner of Wealth Tax Vs Bharat Charity Trust

Ajit Kumar Sengupta, J.@mdashIn this reference u/s 27(1) of the Wealth-tax Act, 1957 (''the Act'') for the assessment years 1973-74,1974-75 & 1975-76, the following question of law has been referred to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of section 21A of the Wealth-tax Act, 1957 did not apply to the assessee''s case?

The facts relate to this question are that the WTO found that the assessee-trust had 1775 shares of Shree Krishan Shares Pvt. Ltd. valued at Rs. 89,437. These shares were received by the assessee-trust as donations on 2-5-1962, 6-5-1963 and 18-5-1965. In addition to the above 1775 shares, the assessee-trust acquired on 4-12-1971 as further block of 90 shares of the same company valued at Rs. 9,000. The WTO further found that the aforesaid company was one in which the trustees of the assessee-trust were interested. Hence, he applied the provisions of sections 13, 13(3)(e) and 13(2)(h) of the income tax Act, 1961 and as a consequence thereof, treated the entire income of the assessee-trust as liable to tax and invoked the provisions of section 21A. In this manner he treated the entire income of the assessee-trust as liable to wealth-tax.

2. The assessee appealed to the AAC and urged that the action of the WTO was wrong. The AAC found that the Tribunal in its orders in IT Appeal No. 4106 (Cal.) of 1976-1977 and ITA Nos. 1557 and 1558 (Cal.) of 1978-79 held that the provisions of section 13(2)(h) did not apply to the initial donations of shares received by the trust and so, the assessment of the income from these shares under the 1961 Act, was not justified. As a corollary, the assessment of the value of those shares u/s 21A of the Act was also not justified. Relying on the aforesaid orders of the Tribunal, the AAC quashed the wealth-tax assessment under consideration. He held that the acquisition of shares, worth Rs. 9,000 by the assessee-trust in the aforesaid company would be hit by section 13(2)(h) of the income tax Act and, therefore, also by section 21A of the Wealth-tax Act. He directed the WTO to modify the assessments accordingly.

3. The department appealed to the Tribunal contending that the AAC was not justified in deleting from the total wealth of the assessee the value of the initial donation of shares to the tune of Rs. 89,437.

4. The Tribunal, however, upheld the order of the AAC relying on the said order of Tribunal. The Tribunal, therefore, dismissed the departmental appeal. The scope and effect of section 13(2)(A) came for consideration before this Court in Commissioner of Income Tax Vs. Birla Charity Trust, There between 1956 and 1963 this Court found that the assessee received ordinary shares of company by was of donation. The assessee did not deal with or commit or lay out any part of its existing assets to acquire the said shares. This Court held that there was no investment of funds of the assessee within the meaning of section 13(2)(h). In this case also the shares were received by the assessee on 2-5-1962, 6-5-1963 and 18-5-1965 as donation. Therefore, the construction placed on corresponding provision of the income tax Act will equally apply to govern the construction of the provisions of the Act.

5. We are of the view that the Tribunal came to a correct conclusion in holding that the provisions of section 21A did not apply to the assessee-trust.

6. We, therefore, answer this question in this reference in the affirmative and in favour of the assessee. There will be no order as to costs.

Sen, J. -

I agree.