1989 (4) TMI 72 - HC - Wealth-tax

Court rules invocation of Section 17(1) unjustified, notice to trust invalid, assessment on trustee, appeals allowed

The court allowed the appeals, ruling that the invocation of Section 17(1) of the Wealth-tax Act was unjustified as there was no reasonable basis for ... Charitable Trust, Reassessment, Wealth Tax Issues Involved:1. Applicability of Section 17(1) of the Wealth-tax Act.2. Applicability of Section 21A of the Wealth-tax Act.3. Validity of the notice issued.Detailed Analysis:Issue 1: Applicability of Section 17(1) of the Wealth-tax ActThe appellant, a public charitable trust, contended that the invocation of Section 17(1) of the Wealth-tax Act was unjustified. The Wealth-tax Officer (WTO) must have 'reason to believe' that net wealth has escaped assessment due to the omission or failure to file a return or disclose material facts. The court noted that the officer's belief must be based on reasonable grounds, not mere suspicion or investigation. The court found that there was no material to support the officer's belief that wealth had escaped assessment. The invocation of Section 17(1) was deemed invalid as it was based on the need to investigate the applicability of Section 21A, which does not justify the issuance of a notice under Section 17(1).Issue 2: Applicability of Section 21A of the Wealth-tax ActThe court examined whether Section 21A, introduced to address the diversion of property or income from trusts, imposed an obligation on the trust to file a return. The court concluded that Section 21A merely enables assessment in cases of diversion and does not mandate the filing of returns. The trust's consistent exemption under Section 5(1) of the Wealth-tax Act, as upheld in previous judgments, negated any statutory obligation to file a return. The court rejected the argument that the introduction of Section 21A necessitated filing returns by every trust.Issue 3: Validity of the Notice IssuedThe notice addressed to 'Thanthi Trust' was challenged as invalid since a trust is not a juristic or corporate person. The court emphasized that under Section 21(1) of the Wealth-tax Act, assessment should be made on the trustee or manager, not the trust itself. The court found that proper service of notice is a jurisdictional requirement, and the notice in question failed to meet this criterion. The defect in the notice was deemed incurable under Section 42C of the Wealth-tax Act, as it was not merely procedural but fundamental to jurisdiction.ConclusionThe court allowed the appeals, concluding that:1. The invocation of Section 17(1) was unjustified.2. Section 21A did not impose an obligation on the trust to file returns.3. The notice issued was invalid due to improper addressing and service.The appeals were allowed with no order as to costs.