1991 (6) TMI 121 - AT - Wealth-tax

Summary

Issues:
- Exemption under section 5(1)(xxiii) of the Wealth-tax Act for an assessee-trust assessed as an A.O.P.
- Interpretation of section 21(4) of the Act in relation to the eligibility of the assessee for exemption.
- Application of proviso (iii) and Explanation 2 to section 21(4) in determining the eligibility for exemption.
- Validity of rectification orders withdrawing exemption and the first appellate authority's decision.

Analysis:

The judgment by the Appellate Tribunal ITAT MADRAS-D revolves around the issue of exemption under section 5(1)(xxiii) of the Wealth-tax Act for an assessee-trust assessed as an A.O.P. The trust, created by a tyre manufacturing company for the benefit of its employees, held shares of an Indian company and claimed exemption for their value in assessments for the years 1983-84 to 1986-87. Initially, the Assessing Officer allowed the exemption, but later withdrew it citing the assessee's status as an A.O.P. and passed rectification orders under section 35 of the Act.

The first appellate authority upheld the rectification orders, stating that exemption under section 5(1)(xxiii) is available only to individuals or HUFs, not A.O.P. The authority also referred to section 21(4) of the Act and Explanation 2, concluding that the assessee's claim for exemption cannot be allowed. The assessee challenged this decision before the Tribunal, arguing that their case falls under section 21(4) read with proviso (iii) and Explanation 2, citing relevant case law.

The Tribunal analyzed the provisions of the Act concerning A.O.P.s and trusts, noting that while an A.O.P. is not a separate taxable entity under the Wealth-tax Act, it can be assessed similar to an individual in certain cases. Section 21(4) specifies the rates for wealth-tax on such entities, with proviso (iii) overriding the revenue benefit aspect. Explanation 2 limits exemptions under section 5 but exempts cases falling under the proviso to section 21(4), including the assessee's situation.

Ultimately, the Tribunal set aside the first appellate authority's decision and the rectification orders, restoring the original assessment granting exemption under section 5(1)(xxiii) to the assessee-trust. The appeals by the assessee were allowed, emphasizing the correct interpretation of section 21(4) and the applicability of proviso (iii) and Explanation 2 in determining the eligibility for exemption under the Wealth-tax Act.