2002 (12) TMI 9 - SC - Wealth-tax

Supreme Court upholds High Court decision on Wealth-tax Act exclusion

Commissioner of Wealth-Tax Versus Lov S. Kinariwala

The Supreme Court dismissed the appeal challenging the High Court's decision under section 27(3) of the Wealth-tax Act regarding the exclusion of assets ... Whether the Tribunal is right in confirming the order of Commissioner of Wealth-tax (Appeals) directing the AO to exclude the value of the assets transferred to body of individuals from the wealth of the assessee - Once it is found, as a fact, that the creation of the BOI and assignment of assets was not sham and bogus activity, the question sought to be referred would not arise and, therefore, the Tribunal u/s 27(1) and the HC u/s 27(3) were right in rejecting the application of the Revenue. Issues:Appeal from High Court's order under section 27(3) of the Wealth-tax Act regarding exclusion of assets transferred to a body of individuals from the wealth of the assessee.Analysis:The appeal before the Supreme Court stemmed from the High Court of Gujarat's decision on an application under section 27(3) of the Wealth-tax Act. The High Court declined to direct the Tribunal to state a question of law regarding the exclusion of assets transferred to a body of individuals from the wealth of the assessee. The High Court cited two grounds for rejection: first, the Tribunal's decision was based on factual considerations, and second, it relied on a judgment in Sunil J. Kinariwala v. CIT [1995] 211 ITR 127. The Revenue contended that since the Supreme Court had reversed the judgment in Sunil J. Kinariwala, the appeal should be allowed. However, the Supreme Court disagreed with this submission.The facts leading to the appeal revealed that the respondent-assessee was a beneficiary of a trust, and the income assigned to the trust was distributed among beneficiaries, including the assessee. The assets were then assigned to a body of individuals. The Assessing Officer initially rejected this arrangement as a sham transaction, but the Commissioner (Appeals) and the Tribunal overturned this decision. The Supreme Court emphasized that if the creation of the body of individuals and asset assignment was not sham, the question raised for reference would be irrelevant. Both the Tribunal and the High Court were justified in rejecting the Revenue's application under the Wealth-tax Act.Regarding the High Court's reliance on the judgment in Sunil J. Kinariwala, which was later reversed by the Supreme Court, the Supreme Court clarified that the facts of the present case were distinct. The earlier judgment dealt with income diversion to a trust, while the current case focused on the legitimacy of the body of individuals and asset assignment. The Supreme Court found no merit in the appeal and dismissed it, along with other related appeals, in line with the decision in Civil Appeal No. 1858 of 2002. No costs were awarded in any of the appeals.