COMMISSIONER OF WEALTH TAX Vs. THIRUVENKATA REDDIAR V

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench (hereinafter called "the Tribunal"), has referred to this court under Section 27(1) of the W.T. Act, 1957 (hereinafter called "the Act"), the following questions of law as arising out of its order dated 16th March, 1978, in W.T.A. No. 108(Coch)/76-77 :

(2.) THE assessment year with which we are concerned is the year 1973-74. THE assessee is a minor and she was assessed to wealth-tax through her father as guardian. THE minor, assessee, is a beneficiary in a private trust called "Seematti Trust". She is interested to the extent of 18% in the income and assets of the said trust. THE Seematti Trust had deposits in various banks amounting to Rs. 3,16,428. In the return filed by the assessee, the assessee had claimed deduction under Section 5(1)(xxvi) of the Act in respect of 18% of the amounts lying in deposit in various banks as per the books of the trust. THE WTO took the view that the assessee was entitled to exemption only to the extent of 18% of Rs. 1,50,000 inasmuch as she had only an 18% share in the assets of the trust. In taking this view the WTO had applied to the case the principle embodied in Rule 2 of the W.T. Rules, 1957. It was on that basis that he had held that the assessee was entitled to get a deduction of only Rs. 27,000 representing 18% of Rs. 1,50,000, which is the ceiling limit specified in Sub-section (1A) of Section 5 of the Act, in respect of the quantum of exemption admissible under Clause (xxvi) of Sub-section (1) of Section 5. Aggrieved by the said decision of the WTO the assessee carried the matter in appeal before the AAC but the said appeal was dismissed. THEreafter, the assessee filed a second appeal before the Tribunal. THE Tribunal held that the principle embodied in Rule 2 of the W.T. Rules had no application at all to the instant case since the minor assessee was neither a partner in a firm nor a member of an association of persons. THE Tribunal took the view that under Sub-section (1) and (2) of Section 21 of the Act the WTO was bound to treat the beneficiary of a trust like any other assessee and when the beneficiary under a trust is directly subjected to an assessment to wealth-tax under Section 21(2) the assessee would be entitled to claim the full extent of exemption allowed by Clause (xxvi) of Sub-section (1) of Section 5. Accordingly, the Tribunal allowed the appeal filed by the assessee and held that the assessee was entitled to the deduction of her share in the fixed deposits by virtue of the exemption conferred by Section 5(1)(xxvi) of the Act. This reference has been made by the Tribunal at the instance of the revenue.

(3.) WE, accordingly, answer the first question referred in the affirmative, that is, in favour of the assessee and against the department.