TMI Blog1988 (5) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for asst. year 1979-80, return of wealth was filed on 30-6-1983 u/s 14, declaring total wealth at 'NIL' for all the asst. years. Subsequently, hearing was fixed and the case was heard. From the case record it is not understood why the notice u/s 17 were issued to the Trust. However, queries were raised during the course of asst. proceedings vide order sheet entry dated 28-1-1984 and it was asked why the wealth of the Trust may not be taxed u/s 21A of the Act. In response to these queries, the AR of the assessee Shri K. C. Prashar replied vide reply dated 29-1-1984. The reply of the assessee's AR is placed on record. A copy of the settlement deed dated 25-3-1972 creating the above Trust was submitted during the course of asst. proceedings and the copy of the audited accounts of all the asst. years under consideration were also produced. I have carefully gone through the entire deed as referred to above and found that the Trust is a charitable trust, which is not assessable under the WT Act because of the exemption given u/s 5(1)(i). I have also gone through the deed and the audited accounts with the probability to find the applicability of section 21A of the WT Act and found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e account, I found that in the accounting period relevant to the asst. year 1982-83, the deposits were converted into preference shares. Therefore, there is no violation of the terms and conditions. Hence, the proceedings for the asst. year 1979-80 is hereby dropped." 3. The CWT, Jodhpur found the proceedings for the asst. years 1972-73 to 1978-79 were dropped vide order sheet entry dt. 5-2-1985 for the same reasons. Similarly, the wealth-tax proceedings for the asst. years 1981-82 to 1984-85 were dropped, vide order sheet entries dt. 17-10-1985, for the same reasons. He felt that the authorities below had not examined the applicability of sec. 21A of the WT Act with reference to section 13 of the IT Act, as he found that the substantial investment was made by the trust in M/s Marudhar Hotels Pvt. Ltd., a subsidiary company of M/s Jodhan Investment Finance Corpn. Pvt. Ltd., in which the settlor was provided with two rent-free suites in the premises of M/s Umaid Bhavan Palace, a proprietary concern of M/s Marudhar Hotels Pvt. Ltd., which fact was not brought to the notice of the concerned authorities either in the course of the assessment proceedings of H. H. Shri Gaj Singh of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominees only and thus there was no beneficial ownership. It was also contended that there was no direct or indirect benefit enjoyed by anyone. It was also contended that as per section 13(1)(d) of the IT Act, the assets forming the corpus could be invested in preference shares of non-Govt. company and the investment was so made as per the settlor's desire vide letter dt. 15-3-1974, and the copy of the same was placed on record. It was further pleaded that Shri Gaj Singh was provided rent-free quarters as an operational requirement of a Hotel for which purpose a collaboration agreement existed with M/s ITC Ltd. M/s ITC Ltd. was to render the operations, and M/s Marudhar Hotels Pvt. Ltd. were to provide finances and also approve budgets and has to look after the execution and proper utilization of the funds, which compels the chairman of the owning company to stay at the premises along with the other executives of M/s ITC Ltd. The chairman was not paid any remuneration at all for the assistance provided by him. Lastly placing reliance on Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 (SC), it was pleaded that the power of revision u/s 25(2) is a quasi-judicial function and the CIT mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the firm dissolving, followed by the palace getting the character of being owned by the company, again followed by the settlement due of Rs. 53.77 lakhs, which ultimately becoming the corpus of the assessee-trust, he observed it had some nexus with the value of the property though indirectly. He also found that preference shares were issued during the period relevant to the asst. year 1982-83. He then referred to the circular no. 204 dt. 24-7-1976 for purpose of examining the investment of the trust funds. He then referred to the circular no. 229, dt. 9-8-1977 which was issued consequent to the amendments to sec. 13 vide Fin. Amendment Act, 1977. He observed that the applicability of sec. 13(2) remain an admitted fact, in view of the rent-free residential accommodation for which he was paying an annual rent of Rs. 18,000 to the firm prior to its dissolution which was held as reasonable by ITAT, Jaipur Bench in ITA No. 348/JP/1976-77 in Umaid Bhavan Palace v. ITO, A-Ward, Jodhpur vide order dt. 27-6-1977. Since he happened to be the settlor and also the chairman of M/s Marudhar Hotels Pvt. Ltd., sec. 13(2) was clearly attracted, which had not been examined by the WTO, in spite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st and the determination of the tax liability. He therefore concluded that the dropping of wealth-tax proceeding for the asst. years 1972-73 to 1984-85 was erroneous and prejudicial to the interests of revenue. He accordingly set aside all the years orders of dropping of the proceedings. He also observed that the claim of the assessee that the orders were not received by him were baseless, as WTO had merely dropped the proceedings after hearing the case and that the assessee was well in the knowledge as to the contents of the orders directing to drop the proceedings. Even if it had not been so conveyed to the assessee, it is not fatal to the proceedings u/s 25(2) of the WT Act, 1957, he observed. 6. The assessee aggrieved by this action of the CWT, Jodhpur, has preferred these appeals for the asst. years 1972-73 to 1984-85, and has raised one common issue which is as follows : "In the facts and circumstances of the case the learned Commissioner of Wealth-tax, Jodhpur has erred in setting aside the assessment order passed by the Wealth-tax Officer, Jodhpur, exempting the appellant-trust u/s 5(1)(i) of the Wealth-tax Act, 1957." 7. Shri S. D. Pandey, appearing for the assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the assessee-trust and thus sec. 13(2)(h) are not attracted. He also pleaded that the money which was settled on the trust having remained with M/s Marudhar Hotels Pvt. Ltd. and that too with the clear understanding that it shall be converted into preference shares, and further the money was donated towards the corpus of the trust, which trust having come into existence on 25-3-1972, the donation and the preference shares should relate back to the date on which the trust was formed. He again referred to the order of the CWT and submitted that the order lacks the requirement of specific mistakes being highlighted and on that specific direction of examination to be done by the WTO consequent to the setting aside by him, and therefore as held by Rajasthan High Court in the case of CIT v. Trustees, Anupam Charitable Trust [1987] 167 ITR 129, the CWT's order needed to be quashed. He also emphasised that the proviso to sec. 5(1)(i) was not effective for the years in question, as the amendment was brought in by the Fin. Act, 1975, effective from 1-4-1986. He again stressed that on the reasonings provided by him and also on facts the order of the CWT should be quashed. 8. The S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him is fully justified. He drew support from the following authorities, viz., Thalibai F. Jain v. ITO [1975] 101 ITR 1 (Kar.); Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312 (Guj.); Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi); Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). He further reiterated the fact of the settlor and the managing trustee being the Managing Director of M/s Marudhar Hotels Pvt. Ltd., and also the Chairman of M/s Jodhan Investment Fin. Pvt. Ltd. which company was the holding company of M/s Marudhar Hotels Pvt. Ltd., was having substantial interest in these two companies with which the funds remained for several years during which period he continued to enjoy the free residential accommodation, clearly go to indicate that the provisions of sec. 13(2)(h) are attracted and also secs. 2(32) and 2(41) of the I. T. Act and therefore exemption could not be granted to the trust u/s 5(1)(i) of the WT Act. He also pleaded that the fund having been donated only on 14-3-1974, and having remained interest-free for eight years could not be related to the date of formation of the trust. He thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f exemption u/s 5(1)(i). 11. On these facts, the question that arise, are : (a) Is the dropping of proceedings an order contemplated under the Act ? (b) Is the noting in the order sheet tantamount to an order passed by the WTO ? (c) Is the non-service of the order sheet noting fatal to the jurisdiction of the CWT u/s 25(2) ? (d) Are the observations of the WTO that he has had consultation with the IAC (Asst.) and the CWT, have the effect of invalidating the jurisdiction of the successor-CWT ? (e) Has the CWT been able to point out any error in the order made by the WTO, which could be said to prejudice the interest of the revenue ? (f) Was the CWT right in considering the materials in the case of M/s Marudhar Hotels (P.) Ltd. for his action u/s 25(2) ? 12. The WT Act has clear demarcation of the areas of operation by the WTO, the IAC and the CWT. The WTO is the main link in the wealth-tax proceedings and every and any of the action must necessarily begin with him only. To begin with he has to receive the returns of the wealth filed by an assessee u/s 14(1). If he finds that certain assessee who is liable to wealth-tax but has not filed his return of wealth, then he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther had observed that "Assuming that it was essential that the Addl. ITO should have passed an order of assessment, even if the result of the determination was that the tax payable was nil, and that, therefore, the order that the case be filed would be invalid, the effect could not be that the proceedings before the Addl. ITO must be held to have continued after the order was made by him. So long as it was not set aside, the only conclusion possible was that the proceedings before the Addl. ITO terminated and did not continue to remain pending. Even an invalid order terminating the proceedings has the effect of terminating them, and in such a case the appropriate method to correcting the illegality committed is to have the order vacated by appellate or other higher authorities having the jurisdiction to intervene. As long as the order is not set aside, it remains in force and takes full effect. The order is not totally without jurisdiction; at best, it is an order not contemplated by law and it cannot be treated as a non-existent order". Therefore the only possible conclusion is that the noting in the order sheet is an order passed by the WTO and would take full effect in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... successor-CWT could not get jurisdiction u/s 25(2) of the WT Act. During the course of the arguments, assessee was asked as to whether the trust was registered with the Commissioner as required u/s 12A of the IT Act, 1961, to which query the reply provided was that the application though made is still pending with the Commissioner. 15. The Act has provided certain powers to the Commissioner in relation to his subordinates and these are contained in secs. 8A, 8AA, 8B, 11AA 13A of the WT Act. Sec. 8A (effective from 1-4-67) gives the power to the Commissioner to issue a general or special order in writing directing that : (a) powers conferred on the WTO shall be exercised by IAC for any specific cases/classes of cases/persons/classes of persons; (b) functions assigned to WTO may be performed by the Inspector of Wealth-tax : Provided that Commissioner shall not issue any such direction in cases falling under (a) above unless so authorised by the Board in relation to the functions of the WTO, such as, imposition of penalty for non-payment of the self-assessment tax, making of an assessment, issue of notice for reassessment, penalty for non-furnishing of the return, concealm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Paper Mill Ltd. considered sec. 13 which provided for the wealth-tax authorities to follow the orders of the Board, in relation to the powers of the Commissioner u/s 25(2) and it was held that the functions of the Commissioner involved quasi-judicial function as well, which must be exercised independently and no higher authority could issue any direction in regard to the quasi-judicial function and as the Commissioner had surrendered his independent application of his mind and therefore his order u/s 25(2) was quashed by the Supreme Court. It is therefore very clear that the Commissioner not being empowered to agree or not to agree with a view which the WTO desires to take, during the course of the assessment proceedings, the observation of the WTO that he had discussed the matter with the CWT is of no consequence and does not in any way affect his jurisdictional powers u/s 25(2), which he could invoke only when an assessment is made. We have therefore come to this opinion that the observation about the consultation with the CWT could not be fatal and in no way could be said to restrict the CWT's powers and cannot invalidate his action u/s 25(2). 16. Since the assessment was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay exercise the supervisory power but cannot interfere with the ITO's work or discretion. Therefore, under no circumstances, the reference made to the IAC if any could be said to restrict the powers of the CWT for revision. It is therefore our view that the two ITAT decisions cited by the assessee have no application to the facts of the case. We may also point out that the Allahabad 'B' Bench of the ITAT in its decision in the case of U.P. Co-operative Federation Ltd. v. IAC [1988] 24 ITD 488 which was authored by the dictating member as in the instant cases, where on the question whether the Commissioner could have jurisdiction over an order passed by IAC prior to 1-10-1984, and it was concluded that on a harmonious construction of the sections, it should be taken as effective even prior to 1-10-1984, which decision would apply in case of any evidence of the IAC having provided the direction. Since on facts it was founded in the instant case that the IAC had not given any direction, the said Allahabad ITAT decision is not necessary to be applied. We are therefore of the opinion that either way there cannot be any restriction placed on the CWT's revisionary powers u/s 25(2). 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in prejudice being caused to revenue and on this ground too we have only to uphold his order. 19. The assessee also had pleaded that sec. 13(2)(h) had no application to the case, as the funds remained all along with the company and there was no conscious investment and in support of his claim, he placed reliance on the Rajasthan High Court decision in the case of Birla Charity Trust. To appreciate the arguments advanced by the assessee, it would be relevant to consider the contents of the letter dt. 15-3-1984 addressed to the trust by Shri Gaj Singh, by which the trust came to receive the donation of Rs. 53 lakhs. The letter reads : "I have pleasure in informing you that I desire to give a donation of a sum of Rs. 53 lakhs now lying with M/s Marudhar Hotels Pvt. Ltd. to your trust subject to the terms and conditions arrived at by and between me and M/s Marudhar Hotels Pvt. Ltd. regarding repayment of the aforesaid sum of Rs. 53 lakhs by M/s Marudhar Hotels Pvt. Ltd., to me as recorded in the letter dt. 14-3-1974 addressed by M/s Marudhar Hotels Pvt. Ltd., to me copy whereof is enclosed herewith. The donation shall form part of the corpus of the trust and all provisions of y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken to mean that the amount remained invested all along before being donated. Shri Gaj Singh had tried to bind the trust with what he wished to do and this is clear in view of the fact of M/s Marudhar Hotels Pvt. Ltd. not being capable of repaying the amount either in instalments or in one lump sum, and his lack of capacity to repay is being efforted to mean as 'in deposit all the time' and therefore it should be concluded that there was no conscious investment. For this proposition the case of Birla Charity Trust had been relied upon. In that case the trust received certain shares as donation on which shares the trust received certain dividend and the question was in connection with the exemption of these dividends with reference to sec. 13(2)(h). The ordinary shares of Jiyajee Rao Cotton Mills Ltd. aggregating to 96,490 were received by the trust from various parties. As the settlor of the trust and the persons who had made substantial contribution to the trust had substantial interest in the company, it was under these circumstances that the revenue had taken the stand that the trust should not be exempted to the extent of the dividend income. The finding of the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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