AIT HC Allindiantaxes

Document Sample
AIT HC Allindiantaxes Powered By Docstoc
					                             AIT-2009-137-HC
                 IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                     ORDINARY ORIGINAL CIVIL JURISDICTION

                        WEALTH TAX REFERENCE NO.18 OF 1993

                    The Official Trustee, Maharashtra State,

                     The Official Trustee of the Trustees of

                 The Sir Jamsetjee Jejeebhoy Baronetcy Trust,

    having his office at P.W.D. Bldg., Veer Nariman Road, Bombay-400 032. ..Applicant.

                                         Versus

                          The Commissioner of Wealth tax

                         Bombay City XI, Bombay. ..Respondent.

Mr. J.D. Mistri with Mr.A.K. Jasani and Mr. P.C.Tripathi for the Applicant Assessee.
Mr.P.S.Sahadevan with Mr. A.D. Nagarjun for the Respondent.

CORAM : F.I. REBELLO & R.S. MOHITE, JJ.

Date of Judgment: 16TH MARCH, 2009

AIT Head Note: we find it difficult to hold that the Official Trustee who is the
assessee in the present case can be said to be a person appointed under a trust
"declared by a duly executed instrument in writing". In our view, the word instrument
does not include statute. The Wealth Tax Act does not define the word "instrument"
and does not specifically include "statute" within the meaning of the term. In the
present case the Official Trustee was not appointed under any rule making power which
may amount to statutory instrument but under the statute itself.(Para 15)
Once it is held that Section 21(1) which is the main charging section does not apply to
the assessee, it must necessarily follow that Section 21(1A) would also not be
applicable to him. In this view of the matter, we must hold that the assessment of the
applicant in this case could not have been effected under Section 21 of the Wealth
Tax Act. (Para 16)

J   U   D   G   M   E    N   T




www.allindiantaxes.com                    -1-
1. The question referred by the Income Tax Appellate Tribunal under Section 27 of the
Wealth Tax Act, 1957 is as follows.

       Whether in the facts and in the circumstances of the case and on a correct
       interpretation of Section 21(1A) inserted by Finance (No..2) Act, 1980, the
       Appellate Tribunal was justified in holding that the assessee was liable to tax on the
       excess of the value of the corpus of the trust over the value of the interest of the
       beneficiaries under the trust?

2. The brief facts of the case are as follows.

       a)      Under a Letters Patent of Her late Majesty Queen Victoria an eminent
       person in Bombay Sir Jamsetjee Jejeebhoy was conferred the title of Baronet. A
       condition of conferring baronetcy upon him was that he should settle in perpetuity
       such property on himself and the male heirs of his family who might succeed him in
       such baronetcy, as should be adequate to support the dignity of the title conferred
       on him. Sir Jamsetjee Jejeebhoy was therefore, desirous of settling in trust a
       corpus consisting of Government Promissory Notes which would derive an yearly
       income of Rs.1.00 lac and a Mansion House and hereditaments called "Mazagaon
       Castle" for meeting the aforesaid condition. However, before the trust could be
       settled, on 14.4.1859, Sir Jamsetjee Jejeebhoy expired leaving behind a will by
       which he devised his estate to his three male sons and appointed his wife as well his
       sons as the executrix and executors of the said will.

       b)      On the death of Sir Jamsetjee Jejeebhoy the title of baronet devolved on
       his eldest son Cursetjee Jamsetjee. All the heirs and the executors as well as
       executrix were desirous of fulfilling the commitment of Sir Jamsetjee Jejeebhoy
       of settling in trust the aforesaid Government Promissory Notes and Mazagaon
       Castle and in view of such expressed desire, the Govt. enacted Act No.XX of 1860
       which created a trust comprising the aforesaid Government Promissory Notes and
       Mazagaon Castle for the benefit of the future baronets who were to hold life
       interest and were to be the beneficiaries of the trust. Under this Act, the Revenue
       Commissioner, Accountant General and Sub Treasurer of the Presidency of Bombay
       were appointed as statutory trustees of the trust for the purposes of the said Act.

       c)      By Act No.XI of 1893, the British Government conferred the title of
       baronetcy on another eminent citizen of Bombay Shri. Dinshaw M. Petit on similar
       conditions regarding creation of a trust. This trust comprised of a Mansion house
       known as Petit Hall and bonds and debentures of the Municipal Corporation
       producing an annual income of Rs.1,25,000/-. It was contemplated under this Act
       that the then Accountant General of Bombay, Collector and the Chief Presidency
       Magistrate of Bombay would constitute a Corporation with perpetual succession and
       common seal under the style and title of "The Trustees of the Dinshaw Maneckjee
       Petit Baronetcy".




www.allindiantaxes.com                      -2-
       d)       In or about in the year 1915, the 5th Baronet in the line of Sir Jamsetjee
       Jejeebhoy represented to the Governor General in Council that he had been advised
       by his medical Officer to change his place of residence and that it was desirable not
       only in his own interest, but also in the interest of those who may succeed him in the
       Baronetcy, that more extensive powers of investment should be granted to the said
       trustees. Considering this request, by Act of 10 of 1915, the British Government
       repealed the earlier Act of XX of 1860 and enacted the Sir J.J. Baronetcy Act,
       1915. Under the new Act, Government Promissory Notes of the value of Rs.
       22,54,400.00 were released from the earlier trust and vested afresh in the new
       trust and the property known as Mazagaon Castle was resettled in trust for the
       benefit of the baronets to succeed in the future. The Commissioner, Accountant
       General and Collector of Bombay were designated as a Corporation for execution of
       the trust and this corporation had perpetual succession and seal under the name and
       title of "Sir J.J. Baronetcy Trustees".

3. With the enactment of the Constitution of India of 1950, by virtue of Article 13 of the
Constitution, the above referred Acts which were in force before the commencement of
the Constitution of India were saved.

4. The State of Maharashtra amended the Petit Baronetcy Act, 1883 and Sir Jamsetjee
Jejeebhoy Baronetcy Trust Act, 1915 by Maharashtra Act No.XXVIII of 1974 and the
trustees in respect of both the trusts were substituted by the Official Trustee appointed
under the Official Trustees Act of 1913. There were other changes which were made, some
of which pertained to the nature of the corpus of the trust but those changes would be
irrelevant for the purpose of deciding this reference.

5. The record indicates that in 1980-81, the Official Trustee filed a Wealth Tax return of
Sir Jamsetjee Jejeebhoy Baronetcy Trust. He valued the corpus of the trust at
Rs.19,78,855/- and the value of life interest of the then living baronet Sir Jamsetejee
Jejeebhoy at Rs.4,00,000/-. The Wealth Tax Officer by his order dated 12.11.1985
assessed the returns and after giving a deduction in respect of the life interest of Sir
Jamsetjee Jejeebhoy, a deduction in respect of the interest of Lady Soonabai and a
deduction under Section 5(1) of the Wealth Tax Act, estimated the net wealth as
Rs.13,39,500/-. The Official Trustee then filed an appeal before the Asstt. Commissioner
of the Income Tax and contended that on the wording of Section 21(1), a trust created by
Act of the Legislative Council of India was not covered by the aforesaid provision. The
Appellate Asstt. Commissioner of Income Tax rejected this contention by his order dated
14.8.1985 by holding that the Act of Legislature was a duly executed instrument in writing
within the meaning of Section 21(1) of the Wealth Tax Act. He also rejected the contention
that the Wealth tax Officer should not have levied wealth tax on the remainder of the
wealth after excluding the value of the life interest of the baronet.

6. The Official Trustee then carried the matter in appeal before the ITAT and by its
judgment and order dated 24.6.1987, the ITAT was pleased to dismiss the appeal.
Subsequently, however, on an application made by the Official trustee, his prayer for




www.allindiantaxes.com                     -3-
reference was allowed and that is how the aforesaid question has been referred to this
court.

7. In order to answer the above question, at the very out set, it would be necessary to
reproduce the relevant portion of Section 21 of the Wealth Tax Act. The relevant part of
Section 21 of the Wealth Tax Act as it stood at the relevant time i.e. Section 21(1), 21(1A)
and 21(2) read as under.

       "21(1) [Subject to the provisions of sub-section (1A), 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.

       [Explanation-A trust which is not declared by a duly executed instrument in writing
       (including a valid deed of wakf) shall be deemed, for the purposes of this sub
       section, to be a trust declared by a duly executed instrument in writing if a
       statement in writing, signed by the trustee or trustees, setting out the purpose or
       purposes of the trust, particulars as to the trustee or trustees, the beneficiary or
       beneficiaries and the trust property, is forwarded to the [Assessing Officer]-,

       (i)     where the trust has been declared before the 1st day of June, 1981, within
               a period of three months from that day; and

       (ii)    in any other case, within three months from the date of declaration of the
               trust.

       [(1A) 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 sub-section (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 or 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- (i) At the rates specified in Part
       I of Schedule I; or




www.allindiantaxes.com                      -4-
       (ii)    at the rate of three per cent, whichever course would be more beneficial to
               the revenue.]

       (2) Nothing contained in sub-section(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."

8. The brief contention on behalf of the applicant was that Section 21(1) was an exclusive
and comprehensive charging section to charge tax on the assets held by "a Court of wards
or an administrators-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".

9. It is contended that under Section 21(1) it is not enough that the assets in question
should be held by an Official Trustee and that it is an additional requirement that such an
trustee should be appointed either under an order of the court or should be appointed by a
duly executed instrument in writing. It is contended that the assessee who is the Official
Trustee has not been appointed under any order of the court or by an instrument duly
executed in writing. In other words, the contention is that since the appointment of the
Official Trustee is by a statute, such an official trustee is not covered by the scope and
ambit of Section 21(1) of the Wealth Tax Act which is the sole charging section in respect
of assets held in trust by the various categories of specified persons.

10. Counsel for the assessee placed reliance upon the judgment of the Apex Court in the
case of Commissioner of Wealth Tax. A.P. Vs. Trustees of H.E.H. Nizam’s Family reported in
108 ITR Page 555. In the said case the Apex Court was concerned with the interpretion of
Section 21(1) and (4) of the Wealth Tax Act, 1957 and the question of valuation of trust
property in respect of a trust constituted under a deed of trust. Two of the questions that
were referred in that case were i) Whether the trustees were liable to be assessed under
Section 3 of the Wealth Tax Act in the status of the individual and ii) Whether in the facts
and circumstances of the case the Appellate Tribunal was right in holding that the
provisions of Section 3 of the Wealth Tax Act should be considered as subject to the
provisions of Section 21 of the above Act. In the said case, the Apex Court held that
revenue had two modes available for assessing the interest of the beneficiary of a trust
property. It must either assess it in the hands of a trustee in a representative capacity
under sub section (1) of Section 21 or assess it directly in the hands of the beneficiary by
including it in the net wealth of the beneficiary. In either case what is taxed is the interest
of the beneficiary in the trust property and not the corpus of the trust property. The
question No.1 as reproduced above was answered in favour of the revenue and Question
No.2 was answered in favour of the assessee. The Apex Court conclusively held that the
trustee of the trust therefore, cannot be assessed to wealth tax in respect of the trust
property under Section-3. The aforesaid judgment of the Apex court clearly lays down that
the only charging section to charge tax upon the trustee of the trust covered by Section
21(1) is Section 21 and not Section 3 of the Wealth Tax Act, 1957.



www.allindiantaxes.com                       -5-
11. The question which is raised however is that the trustee who has been appointed by
operation of statute cannot be said to be a trustee appointed by a court or appointed
"under the duly executed instrument in writing". In short, the contention raised is that a
statue cannot be said to be an instrument in writing.

12. In support of this contention counsel first relied upon a judgment of this court in the
case of Emperor Vs. Rayangouda Lingangouda Patil reported in XLVI the Bombay Law
Reporter Page 495. In that case, the District Magistrate of Belgaum in purported exercise
of powers conferred on him under Section 26(5B (b) of the Defence of India Rules, 1939
directed one Rayangouda Lingangouda Patil to appear before him on a particular day and
since in spite of a subsequent proclamation the aforesaid person did not appear within the
prescribed time period, after his subsequent surrender, he was tried for violating the order
passed by the District Magistrate. The accused was acquitted by the trial court on the
ground that there was no delegation of the power to the District Magistrate to give a
direction under Section 26 (5B)(b). When the matter was carried before the High Court a
fresh contention was raised by the Advocate General that the powers of the District
Magistrate to pass an order under Section 26(5B)(b) though not delegated in terms, must
be said to have been delegated in view of Section 8(1) of the General Clauses Act,1897 read
with Rule 3 of the Defence of India Rules. Rule 3 of the Defence of India rules provided
that the General Clauses Act would apply to the interpretation of the Defence of India
Rules as it applied to the interpretation of the Central Act. Section 8(1) of the General
Clauses Act was as under.

       "Where this Act, or any [Central Act] or Regulation made after the commencement
       of this Act, repeals and re-enacts, with or without modification, any provision of a
       former enactment, then references in any other enactment or in any instrument to
       the provisions so repealed shall, unless a different intention appears, be construed
       as references to the provision so re-enacted".

The argument was that by reason of Rule 3 of the Defence of India Rules, Section 8(1) may
be read as providing for a case where any one of the Defence of India Rules repeals and re-
enacts, with or without modification, any provision of the Defence of India Rules, so that a
reference in an order passed under the rules to the unrepealed rule must be construed as a
reference to the re-enacted rule.

13. While dealing with the aforesaid contention a Division Bench of this court observed as
under.

       "But the difficulty in the way of the prosecution is that to bring the order of
       delegation within the provisions of Section 8(1) of the General Clauses Act they
       must show that the order of delegation is an "instrument" within the meaning of
       that section, so that the reference to Rule -26 in the order of the delegation can be
       interpreted as a reference to Rule 26 as it might hereafter be re-enacted. We are
       not satisfied that the order or delegation can be deemed to be an instrument within
       the meaning of Section-8 and it is conceded that it cannot be regarded as an



www.allindiantaxes.com                     -6-
       enactment. We have looked into Stroud’s Judicial Dictionary and Wharton’s Law
       Lexicon for enlightenment on the point. We find, generally speaking that an
       "instrument" is a writing usually importing a document or a formal legal kind, but
       that it does not include Acts of Parliament unless there is a statutory definition to
       that effect in any Act; and in the absence of authority we are not prepared to hold
       that an order of Government delegating its powers to District Magistrates is an
       "instrument" within the meaning of Sec.8(1) of the General Clauses Act. It is
       certainly not an "instrument" as originally understood. We are therefore not
       prepared to say that the delegation could be deemed to cover the delegation of such
       powers as might hereafter be brought into existence for the first time be re-
       enactment of the rules". (emphasis provided by us).

14. The counsel for the applicant then placed reliance upon the judgment of the Apex Court
in the case of The Vishnu Pratap Sugar Works (P) Ltd. (Appellant) Vs. The Chief Inspector
of Stamps, U.P.(Respondent). In that case the appellant i.e. The Vishnu Pratap Sugar Works
(P) Ltd. filed a suit seeking permanent injunction restraining the State of U.P. from realising
a suger cane cess and purchase tax and paid court fees under Section 7(iv-B)(b) on the
footing that the relief sought was for an injunction simplicitor. The Chief Inspector of
Stamps objected and inter alia contended that the court fee should be paid under Section
7(iv-A) on the footing that suit involved cancellation of an instrument or for the adjudging
void an instrument for securing money or other property having such value. On this issue in
Paragraph-3 the Apex Court observed as follows.

       "The question which falls for determination is whether an Act passed by the
       Central or the State Legislature can be said to be an instrument and, if so, an
       instrument securing money or other property having such value. The Court fees
       Act does not define the word "instrument". That being so we have to turn for
       the connotation of the word "instrument" to its ordinary dictionary meaning.
       According to Stroud’s Judicial Dictionary, 3rd Ed. Vol.II, P.1472 "instrument"
       means a writing and generally imports a document of a formal legal kind.
       Semble, the word may include an Act of Parliament (see Deed of Settlement)
       so, in the Trustee Act, 1925 (15 Geo. 5, C.18) S.68 (11) Conveyancing Act,
       1888 (44 and 45 Vict. C.41) Section 2(xiii), ""instrument" include deed, will,
       inclosure, award and Act of Parliament". Thus, an instrument may include a
       statute enacted by Parliament, if the particular statue in its context includes it
       as an instrument. According to Jowitt’s Dictionary of English Law, Page 984
       "instrument means" a formal legal writing , e.g. a record, charter deed of
       transfer or agreement". It is, however, observed that under the Law of
       Property Act, 1925, Section-205(1) (viii), "instrument" for the purpose of this
       Act does not include a statute unless the statute creates a settlement.

       "An instrument is a writing and generally means a writing of a formal nature.
       But where there is a power to appoint by any deed or instrument or by will, any
       writing, such as a letter, which refers to the power or which can have effect
       only by operating on the fund (such as a cheque or other order for payment), is
       an instrument. A telegram is an instrument within the meaning of the Forgery



www.allindiantaxes.com                       -7-
      Act, 1912, Sec.7 and so is an envelop with a postmark falsified for the
      purpose of a betting fraud." According to the same dictionary, the word
      "enact" means to act, perform or effect; to establish by law; to decree and an
      "enactment" means an Act of Parliament or statute or any part thereof. A
      Statute, according to Maxwell on Interpretation of Statutes, 11th Ed,. Page-1
      is the will of the legislature, i.e. an edict of the legislature. A statute is,
      however, different from a statutory instrument as defined by the Statutory
      Instruments Act (9 and 10 Geo. 6, C.36,1946 where power to make confirm or
      approve orders rules, regulations or other subordinate legislation is conferred
      on his Majesty in Council or on any Minister of the Crown, a document by which
      that power is exercised is a statutory instrument. Thus, whereas a statute is
      an edict of the legislature a statutory instrument as distinguished from such an
      edict is a document whereby the rule making power is expressed. In Mohan
      Chowdhury Vs. Chief Commr. Union Territory of Tripura, (1964) 3 SCR 442 =
      (AIR 1964 SC 173) the question arose whether the order dated November 3,
      1962, passed by the President under Art. 359(1) of the Constitution suspending
      the right of any person to move any court for the enforcement of rights
      conferred by Arts. 21 and 22 during the Proclamation of Emergency was an
      instrument within the meaning of Section 8(1) of the General Clauses Act 1897.
      In considering that question this Court approved the meaning of the word
      "instrument" given by Stroud and observed:-

      "The expression is also used to signify a deed inter partes or a charter or a
      record or other writing of a formal nature. But in the context of the General
      Clauses Act, it has to be understood as including reference to a formal legal
      writing like an Order made under a statute or subordinate legislation or any
      document of a formal character made under constitutional or statutory
      authority. We have no doubt in our mind for the expression "instrument" in
      Section 8 was meant to include reference to the Order made by the President
      in exercise of his constitutional powers." The president’s order having been
      made under power conferred upon him by Article 359 that Order would have
      the same connotation as the Statutory instrument defined by the Statutory
      Instruments Act, 1946 and therefore was an instrument within the meaning of
      Section 8(1) of the General Clauses Act. That does not mean that a statute
      like the U.P. Court fees Act which is an edict of the legislature is an
      instrument. In Emperor Vs. Ravangouda Lingangouda Patil, AIR 1944 Bombay
      259, the High Court of Bombay considered whether an order of the Government
      delegating its power to District Magistrates under the Defence of India Rules
      was an instrument within the meaning of Section 8(1) of the General Clauses
      Act. The High Court held that an instrument, generally speaking, means a
      writing usually importing a document of a formal legal kind, but it does not
      include Acts of Parliament unless there is a statutory definition to that effect
      in any Act. There is thus ample authority to hold that ordinarily a statute is
      not an instrument unless as in the case of Conveyancing Act of 1881, the
      definition includes it or as in the case of S.205 (1)(viii) of the Law of Property
      Act, 1925, the statute creates a settlement and such statute is for that



www.allindiantaxes.com                   -8-
       reason treated as an instrument. It would not therefore be correct to say that
       the Acts alleged in the plaint to be void are instruments within the meaning of
       sub sections (iv-A) of Section-7".

15. Taking into account the law as laid down in the aforesaid two judgments, we find it
difficult to hold that the Official Trustee who is the assessee in the present case can be
said to be a person appointed under a trust "declared by a duly executed instrument in
writing". In our view, the word instrument does not include statute. The Wealth Tax Act
does not define the word "instrument" and does not specifically include "statute" within the
meaning of the term. In the present case the Official Trustee was not appointed under any
rule making power which may amount to statutory instrument but under the statute itself.

16. Once it is held that Section 21(1) which is the main charging section does not apply to
the assessee, it must necessarily follow that Section 21(1A) would also not be applicable to
him. In this view of the matter, we must hold that the assessment of the applicant in this
case could not have been effected under Section 21 of the Wealth Tax Act. In the
circumstances, the question as raised is answered in the negative and in favour of the
assessee and the Wealth Tax Reference stands disposed off with no order as to costs.




www.allindiantaxes.com                     -9-

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:4/7/2013
language:Unknown
pages:9
dominic.cecilia dominic.cecilia http://
About