1983 (10) TMI 90 - AT - Wealth-tax

Tribunal upholds deduction under Wealth-tax Act, 1957, rejecting Commissioner's challenge.

The Tribunal held that the Wealth Tax Officer's original order allowing a deduction under section 5(1A) of the Wealth-tax Act, 1957, in the assessment of ... Kerala Joint Hindu Family System (abolition) Act Issues Involved:1. Whether the Wealth Tax Officer (WTO) correctly allowed a deduction under section 5(1A) of the Wealth-tax Act, 1957, in the assessment of the assessee-trust.2. Whether the Commissioner was justified in setting aside the WTO's order and directing a fresh assessment without granting the deduction under section 5(1A).Issue-Wise Detailed Analysis:1. Deduction under Section 5(1A):The WTO originally assessed the assessee-trust by applying section 21(1A) of the Wealth-tax Act, 1957, and allowed a deduction under section 5(1A) in respect of the net wealth covered by the shares held by the trust. The Commissioner, however, found this deduction to be erroneous and prejudicial to the revenue, arguing that such a deduction should not have been granted. The Commissioner set aside the WTO's order and directed a fresh assessment, excluding the deduction under section 5(1A).The learned counsel for the assessee contended that the WTO's order was correctly made, arguing that section 21(1A) applies to 'such' assets, which are chargeable to tax under the Act. According to the counsel, assets exempted under section 5, such as those under clause (xxiii), should not be included in the net wealth, and hence, the assessee-trust was entitled to the deduction under section 5(1A).2. Justification of the Commissioner's Order:The department argued that section 21(1) specifies the manner of assessment, and section 21(1A) refers to the chargeability of the residue. The department maintained that since the beneficiaries' shares already received reliefs under section 5(1A), no further exemptions should apply to the trust. The assets, they argued, belong to the same beneficiaries, and the exemption under section 5(1A) is in respect of the same individual assets. Therefore, no separate relief should be granted to the trust.Tribunal's Analysis:The Tribunal noted that section 21 deals with assessments where assets are held by trustees, and section 21(1) levies wealth-tax on a representative assessee in the same manner as it would be levied on the beneficiary. Section 21(1A) addresses the scenario where the value of the interests of the beneficiaries falls short of the value of the assets. The Tribunal emphasized that section 5 provides exemptions while computing net wealth, and section 5(1A) caps the maximum exemption allowable.In the original assessment, the WTO deducted the interest of the life tenant and remaindermen from the net wealth of the trust and brought the balance to tax under section 21(1A), while granting relief under section 5(1A) up to Rs. 1,50,000. The Commissioner argued that this deduction should not have been made, resulting in a higher taxable net wealth.Tribunal's Decision:The Tribunal held that the WTO's original order was properly made and accepted the assessee's contention. The Tribunal reasoned that the assessment of a trust should be made in the same manner as for an individual, HUF, or company, and all exemptions available under section 5 should apply. Therefore, the deduction of Rs. 1,50,000 under section 5(1A) was justified.The Tribunal also pointed out that section 21(1A) refers to 'such assets', meaning only taxable assets under section 21(1). Exempt assets under section 5 should not be included in the net wealth for the purposes of section 21(1A). The Tribunal concluded that the WTO's order was correct and according to law, and the Commissioner's view was not upheld.Conclusion:The Tribunal canceled the Commissioner's order and allowed the appeal, affirming that the deduction under section 5(1A) was correctly granted by the WTO in the original assessment of the assessee-trust. The Tribunal emphasized that the assessment should be consistent with the exemptions available under section 5, and the method adopted by the WTO, despite being technically incorrect, arrived at the correct result.