TMI Blog2004 (9) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... - At the instance of the assessees who are four in number, the Income-tax Appellate Tribunal, Allahabad, by a consolidated order dated March 24, 1982, has referred the following two common questions of law under section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"), for the opinion to this court: "1. Whether, on the facts and in the circumstances of the case and on a true interpretation of the trust deeds, the Appellate Tribunal was justified in law in concluding that the interest of each of the beneficiaries under these trusts on each of the valuation dates, was indeterminate and the beneficiaries were unknown and accordingly in holding that the assessments of the beneficial interests in the trust properties of the beneficiaries could be made on the trustees only under section 21(4) of the Wealth-tax Act, 1957? 2. Whether, on the facts and in the circumstances of the case and on a true interpretation of the provisions of section 25(2) of the Wealth-tax Act, 1957, the Commissioner of Wealth-tax had validly assumed jurisdiction and was justified in law in holding that the assessments made by the Wealth-tax Officer under section 21(2) of the Wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that in case the son named therein died before attaining the age of majority or otherwise became incapable of acquiring any interest in property, the beneficiary will be the next surviving male child. They also provided that if Shri Pankaj Mohan, Hemant Mohan or Rakesh Mohan (as the case may be) did not beget a son and in any manner all possibilities of begetting a son disappeared and/or the male children having been born, died before attaining majority, the beneficiary would be Shri Pankaj Mohan, Hemant Mohan or Rakesh Mohan himself (as the case may be). Accordingly, the trustees named in each case, for the valuation dates as on March 31, 1973 to March 31, 1977, filed the return of wealth declaring the value of shares and accretions in regard thereto in the assessment years subsequent to 1973-74. The Wealth-tax Officer completed the assessments of these assessees in the status of individuals by invoking the provisions of section 21(1)/21(2) of the Act on the basis that on each of the valuation dates the beneficiaries were known and that their shares were determinate. Subsequent to the making of these assessments and in view of the objection raised in the audit note the We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing counsel appearing for the Revenue. Learned counsel for the applicants submitted that each of the trusts has 10 been validly created. The beneficiaries and their interest were also known and determinate and, therefore, they were assessable under section 21(1) of the Act and not under section 21(4) of the Act. He further submitted that the Commissioner of Wealth-tax had initiated proceedings under section 25(2) of the Act on the basis of an audit objection to which the stand of the Department was that the trust is assessable under section 21(1) of the Act and, therefore, the assessment order could not have been said to be either erroneous or prejudicial to the interests of the Revenue. He submitted that the proceeding initiated under section 25(2) of the Act was wholly illegal and unwarranted. He relied upon the following decisions: (i) CIT v. Brig. Kapil Mohan [2001] 252 ITR 830 (Delhi); (ii) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC); (iii) CIT v. Jagadhri Electric Supply and Industrial Co. [1983] 140 ITR 490 (P H); (iv) Oswal Traders v. CIT [1997] 228 ITR 195 (MP); (v) Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC); (vi) CWT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of reopening an assessment. It has further held that although an audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the Income-tax Officer to it. Law is one thing and its communication another. In the case of Jagadhri Electric Supply and Industrial Co. [1983] 140 ITR 490, the Punjab and Haryana High Court has held that only if the order is erroneous and is likely to prejudice the interests of the Revenue, the provision of section 263(1) of the Income-tax Act, 1961 which is analogous to the provision of section 25(2) of the Act, shall be attracted. In the case of Malabar Industrial Co. Ltd. [2000] 243 ITR 83, the apex court has held that the prerequisite for exercise of jurisdiction by a Commissioner suo motu under section 263 of the Income-tax Act, 1961, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of the twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e., if the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. He cannot permit his judgment to be influenced by matters not disclosed to the assessee nor by direction of another authority. In the case of Brig. Kapil Mohan [2001] 252 ITR 830, the Delhi High Court has held the First Son of Rakesh Mohan trust to be a valid trust. In the case of P. Bhandari [1984] 147 ITR 500, the Madras High Court has held that if a trust specifies the condition laid down in section 13 of the Transfer of Property Act, 1882, a trust may be created even in favour of an unborn person. In the case of L Gouthamchand [1989] 176 ITR 442, the Madras High Court has held that a valid trust can be created for prospective wives of minor sons. In the case of Aditanar Educational Institution [1997] 224 ITR 310, the apex court has held that the language of section 10(22) of the Income-tax Act, 1961, is plain and clear and the availability of exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. The emphasis is that for considering the exemption evaluation should be made each year regarding the purpose for which the institution existed. In the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the applicability of sub-section (1) or (4) of section 21 of the Act has to be determined with reference to the relevant valuation date. The Wealth-tax Officer has to determine who are the beneficiaries in respect of the remainder on the relevant valuation date and whether their shares are indeterminate or unknown. It is not at all relevant whether the beneficiaries may change in subsequent years before the date of distribution, depending upon contingencies which may come to pass in future and so long as it is possible that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of sub-section (1) of section 21 of the Act. It has further held that if on the relevant valuation date it is not possible to say with certainty and definiteness as to who would be the beneficiaries and whether their shares would be determinate and specific, if the event on the happening of which the distribution is to take place occurred on that date, the case will be governed by sub-section (4) of section 21 of the Act. The apex court has further held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd had independently arrived at the conclusion that the orders passed under section 16(3) of the Act by the Wealth-tax Officer was erroneous and prejudicial to the interests of the Revenue. The audit objection was only a piece of opinion which might have been taken into consideration by the Commissioner of Wealth-tax but his decision is not solely based on the audit objection. He has also applied his independent mind and, therefore, in view of the principle laid down by the apex court in the cases of Trustees of H.E.H. Nizam's Family (Reminder Wealth) Trust [1977] 108 ITR 555 and A. V. Reddy Trust [1999] 240 ITR 409, the view taken by the Wealth-tax Officer that the assessment should have been made under section 21(1) of the Act is unsustainable in law. Thus, the orders are not only erroneous but also prejudicial to the interests of the Revenue. In this view of the matter, the Commissioner of Wealth-tax was justified in assuming jurisdiction under section 25(2) of the Act. So far as the question as to whether the shares of the beneficiaries were determined or not is concerned, it may be mentioned here that each of the four trust deeds contained identical clauses with variations i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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