ARUNDHATI BALKRISHNA SMT Vs. G M SINGHVI ITO

JUDGEMENT

(1.) THE first petitioner herein is an individual having a life interest in certain trusts. Petitioners 2A, 2B and 2C are the trustees of those trusts and the question arises regarding the assessment of the beneficiary, the first petitioner herein, for the purposes of wealth -tax and also the assessment of the trustees of the same trusts in which the first petitioner has a lief interest.

(2.) THE short facts leading to this case may not be stated. The assessment years under consideration are assessment years 1961 -62 to 1964 -65. By a deed of settlement dated September 7, 1945, the father of the first petitioner settled certain shares of Indian companies upon trust for the benefit of the first petitioner and other beneficiaries. By another deed of settlement dated October 12, 1945, the father of the first petitioner settled shares of Uganda Cotton Company Ltd. upon trust for the benefit of the first petitioner and other beneficiaries. All the terms of the two deeds of settlement so far as is material for the purposes of this judgment are identical. Under clause 3(a) of the trust deed, the net income of the trust was to be paid till January 1, 1948, to the two sons of the settlor, Arvind N. Mafatlal and Yogindra N. Mafatlal, in equal shares absolutely at the end of every calendar year and under clause 3(b) from and after the first day of January, 1948, the whole of the residue of the net income of the trust fund is to be paid to the first petitioner during her life at the end of every calendar year absolutely. Sub -clauses (c) and (d) of clauses 3 of the trust deeds provide for the eventuality of the first petitioner dying childless. However, it is common ground between the parties that the first petitioner has got children and, therefore, the eventuality contemplated by clause 3(c) and clause 3(d) is not likely to arise. Under clause 3(e) an option is given to the first petitioner after she has attained the age of majority and after the birth of her first child to call upon the trustees to pay her a part of the corpus of the trust fund from time to time but in the aggregate she cannot receive more than one -half of the corpus of the trust fund by exercise of this option and the trustees are to be freed and discharged from the trusts and provisions of the trust deeds as soon as they hand over the corpus on such exercise of the option by the first petitioner. It is common ground that this option was exercised by the first petitioner. It is common ground that this option was exercised by the first petitioner by writing a letter of July, 1958, and one -half of the corpus of each of these two trusts has been paid to the first petitioner some time in the early part of 1959, either in February, 1959, The accounts of the income of the corpus of both the trusts are maintained in one set of books of account and for the purposes of account and taxation both the trusts are treated as a single unit. The first petitioner submitted the returns of net wealth for the assessment years 1961 -62 to 1964 -65 and at the time of assessment she had a specific and determinable share in the trust properties and her interest in the trust funds was not an asset within the meaning of section 2(e) of the Act but her interest in the trust funds was a right to an annuity which could not be included in the net wealth of the petitioner. We may state at this stage that this contention of the petitioner has now been decided finally by a decision of the Supreme Court in the case of this very petitioner in respect of these very trusts and, therefore, the exclusion sought for on the ground that her interest under the trust deeds was an annuity is not now available to her. The Wealth -tax Officer, the first respondent herein, considered the life interest of the petitioner to be determinable share and assessed the first petitioner to wealth -tax after including in her net wealth, the value of the life interest of the first petitioner in the trust funds. The assessment for the assessment year 1961 -62 was finalised by the order dated April 19, 1965, and the assessment for the years 1962 -63 to 1964 -65 was finalised on May 1, 1965. Petitioners Nos. 2A, 2B and 2C in their capacity as trustees had also submitted returns of the net wealth of the trust funds for assessment years 1961 -62 to 1964 -65 in regard to the properties held by them under these two trust deeds. The first respondent, the Wealth -tax Officer, also finalised the assessment of the trusts for the said years. The trustees contended that the beneficiaries were known and the shares of the beneficiaries were determinate and known and hence the trustees should be assessed under section 21(1) of the Wealth -tax Act and not under section 21(4) of the Wealth -tax Act. It was also submitted that if the value of the life interest of the first petitioner in the trust funds was to be included in the total wealth of the first petitioner, a corresponding deduction should be allowed in the assessment of the trusts while determining the wealth of the trusts. The Wealth -tax Officer held that the shares of the beneficiaries could not be said to be determinate or known as on the valuation date and he assessed the trustees under section 21(4) of the Act. Since he assessed the trustees undersection 21(4) he further held that as there was no provision in the Act for deduction as was sought for by the trustees the deduction could not be granted. The assessees took the matter in appeal to the Appellate Assistant Commissioner but it appears that the trustees did not press the ground of section 21(1) and they merely proceeded upon the footing that the interest of the first petitioner was an annuity. The ground that the shares of the beneficiaries in the trust funds were known and determinate was not pressed before the Appellate Assistant Commissioner. The second respondent, Appellate Assistant Commissioner, held that the value of the life interest of the first petitioner in the trust funds as determined should be allowed as deduction in order to arrive at the net wealth of the trust. He, however, held that the first petitioner's life interest in the trusts was not in the nature of an annuity and hence was not exempt from wealth -tax. Against the decision of the Appellate Assistant Commissioner the revenue went in appeal and the first petitioner also went in appeal to the Tribunal. The decision of the Supreme Court in the case of the first petitioner regarding these very trusts was pronounced and hence the Tribunal rejected the contention of the first petitioner that her life interest in the trust funds was an annuity and to that extent the Tribunal confirmed the orders passed by the Wealth -tax Officer and the Appellate Assistant Commissioner. When the appeals filed by the revenue against the decision of the Appellate Assistant Commissioner came up for hearing before the Tribunal, on behalf of the trustees, petitioners 2A, 2B and 2C, it was contended that the beneficiaries and their shares were determinate and known and the trust, therefore, should not have been assessee under sub -section (4) of section 21 of the Act. However, the Tribunal did not permit the trustees to raise this contention because when the appeals were heard before the Appellate Assistant Commissioner, the assessment order passed by the Wealth -tax Officer had not been challenged on this particular ground. The Tribunal accepted the contention of the revenue that as the assessment was made under section 21(4) of the Act, no deduction for the life interest of the beneficiary could be allowed while determining the net wealth of the trust. Thus, the appeals filed by the revenue were allowed. The first petitioner by her application dated November 30, 1972, approached the commissioner of Wealth -tax for deletion of the addition made in the case of the first petitioner for the value of the life interest in the trust funds. Simultaneously, she also moved the Income -tax Appellate Tribunal for rectification of the orders passed in her case by filing a miscellaneous application. The Tribunal in the rectification application proceedings held that there was no mistake apparent on the face of the record which needed to be rectified under section 35 of the Act and by its order dated May 10, 1973, dismissed the application for rectification. The present special civil application is directed against annexure 'I', the order passed by the Tribunal in rectification proceedings.

(3.) THE question then arises as to whether the rectification proceedings under section 35 of the Wealth -tax Act could have been maintained on the ground of their being an error apparent from the record. Relying on certain observations of the Supreme Court in Income -tax Officer v. S. K. Habibullah : [1962]44ITR809(SC) , Mr. Kaji for the respondents contended that though there might have been error apparent from the record of another case, namely, the case of the trustees, there was no error apparent from the record of the case so far as the first petitioner was concerned. It must be remembered that the rectification application was preferred by the first petitioner. Mr. Kaji relied upon the following passage from the judgment of Subba Rao C.J., speaking for the Division Bench of the Andhra Pradesh High Court in Kanumarlapudi Lakshminarayana Chetty v. First Additional Income -tax Officer, Nellore : [1956]29ITR419(AP) , where the Andhra Pradesh High Court was concerned with the question whether the record of the assessment of the firm may be regarded as the record of the assessment of the individual partner. The following passage from the judgment of Subba Rao C.J. was approved by the Supreme Court in Income -tax Officer v. S. K. Habibullah : [1962]44ITR809(SC) , and it was held that this passage lays down the law correctly :