COMMISSIONER OF WEALTH TAX Vs. ARVINDPRASAD N MAFATLAL

JUDGEMENT

(1.) THE facts giving rise to this reference are quite simple. The assessment year in question is 1960 -61, and the corresponding valuation date within the terms of the Wealth -tax Act, 1957, is the 31st of March, 1960. The assessee by a trust deed dated the 23rd of March, 1960, transferred 500 shares of the Surat Cotton Spinning and Weaving Co. Ltd. to trustees upon the trusts set out therein. The first recital to the trust deed stated that the settlor was desirous of setting the shares in question for the benefit of his daughter, Maithili, and her issue and in certain events for the benefit of his other children and their issue in the manner and subject to what was provided in the said deed. The material portion of the operative part of the said document provided that the trust property was to be held upon the following trusts :

(2.) THE Wealth -tax Officer included the value of the said 500 shares of the Surat Cotton Spinning and Weaving Co. Ltd., in the net wealth of the assessee, purporting to do so under section 4(1)(a)(iii) of the Wealth -tax Act. The said section, inter alia, enacts that, in computing the net wealth of an individual, there is to be included, as belonging to him, the value of assets which on the valuation date are held by the persons to whom such assets have been transferred by the assessee other wise than for adequate consideration for the benefit of the assessee or his wife or minor children. The order of the Wealth -tax Officer was reversed by the Appellate Assistant Commissioner and the order of the Appellate Assistant Commissioner was confirmed by the Tribunal which followed the decision of the Supreme Court under the corresponding provision of the Indian Income -tax Act, 1922, in the case of Commissioner of Income -tax v. Manilal Dhanji. In the said case it was held that since the provision that is to be found in clause (b) of section 16(3) of the Indian Income -tax Act, 1922, created an artificial liability to tax, it has to be strictly construed and that an assessee can only be taxed on the income of a trust created for the benefit of his minor child, if in the year of account the minor child derived some benefit thereunder. In the present reference which arises out of that order of the Tribunal, the following question of law has been referred to us :

(3.) IN my opinion, the present case is on all fours with Yeshwant Rao Ghorpade's case in so far as, in the present case also on the valuation date which was 31st March, 1960, the assessee's daughter, Maithili, had no interest whatsoever in the income of the property which was settled on trust by the assessee, though, as in Yeshwant Rao Ghorpade's case, she was the ultimate beneficiary under that trust deed. I am bound by the view taken by the Supreme Court in the said case that, in order to attract the applicability of section 4(1)(a)(iii) of the Wealth -tax Act, 1957, the minor child of an assessee must under a trust created in his or her favour have an interest in the income on the valuation date. In the present case also, it must, therefore, be held that the value of the 500 shares of the Surat Cotton Spinning and Weaving Co. Ltd., in respect of which the assessee had created a trust by the trust deed dated the 23rd of March, 1960, could not be included in the net wealth of the assessee under section 4(1)(a)(iii) of the Wealth -tax Act, 1957, in respect of the assessment year 1960 -61.