TMI Blog1968 (3) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... only one case, that of the assessee, Purshottam, and we shall also for the purposes of the decision of this reference refer to the facts and circumstances of that case. Purshottam Amersey and his brother were partners along with others in Messrs. Amersy Damodar of Bombay. In that firm, Purshottam had to the credit of his account in the year 1949 a sum of Rs. 4,50,000 lying in deposit with the firm. On 8th September, 1949, he declared a trust of this amount. The amount was not made over to anyone but it appears that by a more book entry the amount standing to the credit of Purshottam was held to the credit of the trust fund. Under the provisions of that trust, to which we shall presently advert both the assessees were entitled to certain benefits which in the assessment year 1960-61 the authorities under the Wealth-tax Act sought to bring to tax in the bands of these two persons as individuals. Both these persons are otherwise, it appears, wealthy persons and own considerable property which has been taken into account towards the computation of their net wealth. So far as their beneficial interest arising out of the trust deed is concerned, having regard to the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said period of eighteen years in case of any surplus income at the end of any year to hand over the same to the settlor Provided further that in applying the net income as aforesaid the trustees shall not be entitled to take into account any other income from any other source that the settlor may be receiving at the time AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED that the trustees shall not be liable or accountable to any one for any act bona fide done by them or for any payment bona fide made by them in pursuance of the provisions of this clause and in particular they shall not be accountable or responsible for the amounts expended or applied by them or the manner in which or the purpose for which the same shall be applied and all moneys so expended or applied by the trustees in their absolute discretion shall not be questioned by any party in any court of law or otherwise howsoever ; (c) If a child or children is born to the settlor, then on the death of the settlor to divide the corpus of the trust fund amongst all the children of the settlor, if more than one in the proportion of four shares for every male child to one share for every female child ; (d) If no chil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust fund shall be applied for the support, maintenance and advancement in life of the settlor and his wife. On that date, 8th September, 1949, the settlor was not married. The assessee, Manoranjan Amersey, was married on the 18th December, 1950, and the assessee, Purshottam, was married on the 22nd April, 1958, that is to say, about seven and a half years after the trust deed. The words in sub-clause (b) of clause 2 may, therefore, have been inserted as explained in order to indicate that the wife to be was, on the date of the settlement, not (sic) in existence. However, we say this only by way of an explanation and it does not affect the decision on the question before us. Before we proceed to state the respective contentions of the parties, it is necessary at this stage to clear a small point of construction which arose in the course of arguments. The point is whether sub-clause (b) of clause 2 of the trust deed makes the wife an immediate beneficiary under the trust deed or whether so long as the settlor was alive the wife had no beneficial interest under the trust deed. No doubt in clause 2(b) the words used are for the benefit of the settlor and his wife. . . ", but it seems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order : " The first contention raised in this appeal is that the assessee is incapable of being assessed in respect of his life interest in the trust created by the deed dated September 8, 1949 ". The principal contention which was urged before the Wealth-tax Officer was also raised before the Appellate Assistant Commissioner as can be seen from paragraph 2 of the Appellate Assistant Commissioner's order : " It is contended that the assessee has no right to any portion of the income of the said trust, that his share therein is indeterminate and unknown, that the assessee has really no life interest at all in the said trust and finally that no purchaser would be willing to pay any amount for the so-called life interest. " The Appellate Assistant Commissioner held so far as the second contention before him was concerned that it could not be said that the assessee's interest was absolutely without value. As to the other question, whether the assessee's share was indeterminate or unknown, the Appellate Assistant Commissioner held that the assessee's interpretation of the clause regarding the extent of his interest in the trust would be only germane to the question of valuation an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (paragraph 7) the Tribunal came to the conclusion that the asset was of an insignificant value whereas in the earlier paragraph and in its final conclusion it has held that " the value of the said interest is nil ". In the arguments before us counsel on behalf of the department has challenged the interpretation placed upon the terms of the deed of trust and the finding that the value of the interest of the assessee was nil. At any rate, counsel has urged that those considerations which had prevailed with the Tribunal in coming to the conclusion, that the value of the said interest is nil, are hardly germane to the question which really arises, namely, whether in the circumstances and upon the terms of the trust deed the interest of the assessee had no value. He has urged that the question whether the property was not capable of being transferred or that the benefit reserved under the deed was of a peculiar kind is irrelevant upon a consideration of the provisions of the Wealth-tax Act in determining whether this was the net wealth of the assessee under section 3 of the Act. Mr. Joshi has urged that the simple question which the authorities had to decide was, in the first place, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t here concerned with the inclusive clause of this definition. The net wealth, therefore, consists of all the assets wherever located belonging to the assessee on the valuation date. The word " assets " is also defined in section 2(e) to include " property of every description, movable or immovable. " Then there are certain specific exclusions none of which can be applied here. It is clear from these provisions laying down the charge of the tax that every kind of property, movable or immovable, of an assessee has to be taken into account and its aggregate value computed in accordance with the provisions of the Act. The first question, therefore, which has to be determined in any assessment under the Wealth-tax Act, is what constitutes the net wealth of the assessee. Section 7 deals with the question of how the value of the asset is to be determined and sub-section (1) provides as follows : " Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date." The Tribunal has stressed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable under section 3 for the proper amount of wealth-tax. Section 7 merely deals with the mode in which the value of the assets has to determined and we agree with Mr. Kolah that the charging section because of its opening words " Subject to the other provisions contained in this Act " must be held to be subject to section 7(1) ; but we do not think that section 7(1) could be utilised in the manner in which it has been used in this case to nullify the provisions of section 3 itself. What has been done in the present case is that, utilising the provisions of the Act which only provides a machinery for determining the value of the asset, a conclusion has been reached that the asset in this case has no value whatever, in other words, that it is not an asset at all. The fallacy of this reasoning lies in this that it was not clearly realised that the purpose of section 7 was not to indicate what is not an asset but merely to indicate how it has to be valued if it is an asset. In our opinion, the Tribunal should have first of all considered whether the interest of the assessee amounted to his " net wealth " within the meaning of section 3 read along with the definition and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant value and at another stage that it had no value, but apart from that it seems to us that the cardinal error which the Tribunal made was to hold that under the words of section 7(1) " . . . it would fetch if sold in the open market .......", it must have regard to the actual facts and the actual circumstances and decide whether the asset could be sold or not in the open market. In that respect it seems to us that the Tribunal was clearly wrong on a point of construction. When the statute uses the words " if sold in the open market ", it does not contemplate any actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market and on that basis directs that the value should be found out. It is a hypothetical case which is contemplated by those words of the sub-section. The tax officer must assume that there is an open market in which the asset can be sold and proceed to value it on that basis. The use of the words if sold " creates a fictional position which the tax officer has to assume. The Wealth-tax Act is a comparatively new taxation statute and there is little to guide the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, Attorney-General for Ireland v. Jameson, where Lord Blanesburgh had taken a view similar to the view taken in the present case by the Tribunal and commenting on that view Lord Hailsham observed : " My Lords, it seems to me that this construction involves treating the provisions of section 7, sub-section (5), as if their true effect were to make the existence of an open market a condition of liability instead of merely to prescribe the open market price as the measure of value " and in a later passage at page 49 : " But the purpose of section 7, sub-section (5), is not to define the property in respect of which estate duty is to be levied, but merely to afford a method of ascertaining its value. If the view entertained by the Court of Appeal were correct, it would follow that any property which could not be sold in the open market would escape estate duty altogether. That seems to me quite an unnecessary and unnatural construction to place upon the language of the statute. I think that full justice is done to the meaning of the sub-section if the property to be valued is determined by the earlier sections and section 7 is treated as being merely a statutory direction as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the first question which must be decided under the Act is whether the interest of the assessee, as in the present case, was his net wealth or, in other words, an asset of his. If it was, it would be chargeable to wealth-tax and though the provisions as to valuation may not directly apply they must be made to apply. But it seems to us that it is not necessary to go so far as that in the present case. A consideration of the terms of the trust deed and of the interest granted to the assessee will clearly show that the conclusion which the Tribunal reached, that the value of the said interest is nil, is erroneous. We have already said that the mere fact that the property was not capable of being transferred is not a consideration which ought to have prevailed as shown by the authorities to which we have referred above. The error which the Tribunal committed in that respect was to have regard to the actual position in the actual market whereas upon the statute what they should have considered is, assuming a hypothetical market, what would be the price if the interest was sold. Now, turning to the provisions of the trust deed, we have already said that under the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could ever be denied payment of the trust funds. We have already said that in stating the purpose and object of the trust such general words have been used that it would be impossible having regard to those words to say that the assessee would not be entitled to any moneys out of the trust funds. The moment that conclusion is reached, the interest woul be an interest having some value and if it has a value it would be chargeable in his hands. It was also urged that no one would come forward having regard to these terms to purchase such an interest. We, have already said that the question whether an actual purchaser would purchase, such an interest is irrelevant having regard to the provisions of section 7(1), because that section contemplates a hypothetical market and a sale in such a market, but we do not think also that in fact the interest of the assessee was such that nobody would ever care to purchase it. It was an interest which was a substantial interest and which was easily available to the assess see on the terms of the trust deed. He was himself a trustee and the other trustees were merely his parents. On the provisions of the trust deed it is clear that the assessee cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (4) created a further exception to this choice given to the department. Sub-section (4) of section 21 provides: "Notwithstanding anything contained in this section, where the shares of the persons on whose behalf or for whose benefit any such assets are held are indeterminate or unknown, the wealth-tax may be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person aforesaid as if the persons on whose behalf or for whose benefit the assets are held were an individual... for the purposes of this Act. " The effect of sub-section (4), therefore, is that sub-section (2) would not be available to the department where the shares of the persons on whose behalf any assets are held are indeterminate or unknown, that is to say, if the shares of the beneficiary in the case of a trust are indeterminate or unknown. Relying upon this provision Mr. Kolah urged that in this case the shares of the assessee and his wife are indeterminate and unknown and, therefore, the department must necessarily go only against the trustees and cannot add the amount of the interest to the net wealth of the beneficiary. In this respect he p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is possessed of an asset constituted of his life interest in the trust, and at its highest the assessee's contention can be considered for the purpose of evaluating the asset but not that the assessee is not possessed of the asset at all. " Upon the view that the Appellate Assistant Commissioner thus took--a view which in our opinion was not correct--he did not further go into the question because he felt that it was only a question which had to be considered in evaluating the asset. When the matter came before the Tribunal the principal contention raised on behalf of the assessee was that, assuming that it was an asset, it could not be valued having regard to the provisions of section 7(1) and could not be brought within the words " if sold in the open market " in that section. The Tribunal, as we have shown, accepted this contention and since it accepted this contention there was no question of considering the question arising under section 21(4), but the Tribunal has in paragraph 8 of its order held: "Having considered the terms of the agreement and the contentions of the parties, we are of the view that no amount is liable to be taken in these two assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax. As to the argument on behalf of the department that the assessee has not asked for a reference and should have had the question framed and referred, we do not see how it is possible for the assessee to do so. Upon the findings given by the Tribunal that the interest of the assessee did not constitute his asset at all, no further question arose to be decided in favour of the assessee. He had thus wholly succeeded before the Tribunal and we cannot see how the assessee in those circumstances could have asked that a reference be made upon another aspect of the same question. We do not think, therefore, that in the present case the assessee could or ought to have asked for this question to be referred. Mr. Joshi on behalf of the department relied upon a decision of this court in Girdhardas Co. Ltd. v. Commissioner of Income-tax. That case turned upon its own facts and, even so, all that was laid down in that decision was that, where a party which has lost the case before the Tribunal applies for a reference and a reference is determined upon, the party which has won may apply for reference of other questions of law which arise from the order of the Tribunal. The ..... 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