Abdul Sathar Haji Moosa Sait … vs Commissioner Of Income-Tax on 6 April, 1987

JUDGMENT

T. Kochu Thommen, J.

1. The following questions have been, at the instance of the assessee, referred to us by the Income-tax Appellate Tribunal, Cochin Bench :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the Wealth-tax Officer has not exceeded his jurisdiction in making fresh assessments on the assessee for the assessment years 1961-62 to 1969-70 by his orders dated November 11, 1975?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that no portion of the wealth held by the assessee-trust is exempt under Section 5(1)(i) of the Wealth-tax Act?

3. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the Wealth-tax Officer could, while making the reassessments for the above-mentioned assessment years, include items which were not considered in the original assessments ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in not adopting the method of capitalisation of income for determining the value of Chittoor Road properties which are in the occupation of tenants ?”

2. The assessment years in question are 1961-62 to 1969-70. The assessee is a trust created by one Abdul Sathar Haji Moosa Sait by his will dated 25th day of Kanni, 1099 M.E. (annexure-A). The assessee holds properties under a trust. It is claimed that a portion of this wealth is held under trust for charitable or religious purposes and is, therefore, exempt from the levy of wealth-tax under Section 5(1)(i) of the Wealth-tax Act, 1957 (the “Act”). In Commr. of Agri. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker), this court had occasion to construe the relevant provisions of the trust in question, as evidenced by annexure-A will. This court held that the dominant purpose of the trust was not charitable and properties held by the assessee were not held under trust wholly for religious or charitable purposes, but they were held in part only for such purposes. This court further held that in so far as one-fourth of the income derived from these properties was utilised for a public charitable purpose, that portion of the income qualified for exemption from tax under Section 4(b) of the Kerala Agricultural Income-tax Act, 1950, which at the relevant time read :

“Any agricultural income derived from property held under trust or other legal obligation wholly for religious or charitable purposes and in the case of property so held in part only for such purposes, the income applied thereto.”

3. A In terms of that provision, this court held that three-fourths of the income did not qualify for exemption. The finding that the properties were held in part only for religious or charitable purposes and that three-fourths of the income derived from those properties were not applied to public charitable purposes was confirmed by the Supreme Court in Abdul Sathar Haji Moosa Suit Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5 (SC).

4. One of the important points arising for consideration in this case is whether any portion of the wealth held by the assessee under annexure-A, the terms of which were the subject-matter of consideration in the aforesaid decisions, is exempt under Section 5(1)(i) of the Act. Two other points which arise in this case are as regards the scope of the remand order of the Appellate Assistant Commissioner, pursuant to which the Wealth-tax Officer withdrew certain allowances granted under the original order and made certain additions and the method of valuation adopted by the Tribunal in regard to certain buildings.

5. In response to the notices issued under Section 17 of the Act, the asses-see filed returns for the assessment years in question. It valued the immovable properties at their original acquisition cost. Subsequently, on the request of the Wealth-tax Officer, the properties were valued by an approved valuer on the basis of the land and building method. The Wealth-tax Officer accepted the valuation of the approved valuer. The assessee’s claim that 31.25 per cent. of the wealth was exempt from tax under Section 5(1)(i) of the Act was rejected by the officer for the years 1961-62 to 1966-67, but that claim was allowed for the three subsequent assessment years 1967-68 to 1969-70. Assessment was completed on April 29, 1972, for each of the years in question. The assessee preferred appeals contending that the Wealth-tax Officer ought not to have adopted the land and building method, but should have valued the immovable properties on the basis of capitalisation of the annual rent; the Wealth-tax Officer ought to have deducted 31.25 per cent. of the total net wealth as the portion held for public charitable purposes for the assessment years 1961-62 to 1966-67 as he had done for the subsequent three years; the immovable properties in question being encumbered by the trust and not transferable have no market value and, therefore, were not includible in computing the net wealth of the assessee, etc. The Appellate Assistant Commissioner, without expressing any view on the merits of the contentions of the assessee, set aside the assessment with a direction to the Wealth-tax Officer to redo the assessment according to law and after stating the reasons. Accordingly, the Wealth-tax Officer by annexure-E series dated November 11, 1975, made a fresh assessment for each of the years. He determined the value of the immovable properties in Chittoor Road on the basis of the average value by adopting the land and building method as well as the method of capitalisation of the annual net yield. The officer rejected the assessee’s claim for exemption under Section 5(1 )(i) of the Act in relation to 31.25 per cent. of the value of the properties for all the assessment years including 1967-68 to 1969-70. He thus refused to recognise the claim for exemption. He noticed that certain amounts for the assessment years 1961-62 to 1969-70 had not been included in the original assessments and he, therefore, added them. Aggrieved by this order, the assessee appealed to the Appellate Assistant Commissioner, reiterating its earlier contentions and also stating that the Wealth-tax Officer exceeded his jurisdiction in so far as he travelled outside the directions contained in the order of remand. The Appellate Assistant Commissioner accepted these contentions and allowed the appeals. Against that order, the Revenue preferred appeals before the Tribunal. The Tribunal held that no portion of the wealth of the assessee was exempt under Section 5(1)(i) of the Act. The Tribunal rejected the contention that the value of the assets ought to be determined by the capitalisation method. It pointed out that the assessee had not questioned the valuation made by the approved valuer on the basis of the land and building method. Considering the fact that most of the buildings were more than 20 years old, but situated in an important locality in Ernakulam Town, the Tribunal fixed the value at Rs. 2,25,000 for all the assessment years under consideration. The Tribunal also held that the Wealth-tax Officer did not exceed his jurisdiction in making the fresh assessments by denying the exemption under Section 5(1)(i) in respect of all the assessment years and by adding the amounts which had not been included in the original assessments.

6. I shall first consider the contention regarding the scope of the remand order and the jurisdiction of the Wealth-tax Officer. The Appellate Assistant Commissioner, by his order dated October 12, 1972 (annexure-D), set aside the original orders of assessment with a direction to the Wealth-tax Officer to make a fresh assessment for each year according to law by means of a reasoned order. His order contains no words limiting the jurisdiction of the Wealth-tax Officer. His direction is in the widest terms and cannot be read in any manner to restrict the powers of the Wealth-tax Officer. The assessee’s counsel refers to Sub-section (5B) of Section 23 of the Act which reads :

“(5B) The order of the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision
thereon and the reasons for the decision.”

7. Pointing out that the order of the Appellate Assistant Commissioner must necessarily contain “points for determination” and “the reasons for the decision”, counsel for the assessee contends that the Wealth-tax Officer ought to have restricted himself to specific points to which specific reference had been made by the Appellate Assistant Commissioner.

8. Sub-section (5B) of Section 23 of the Wealth-tax Act, 1957, and Sub-section (6) of Section 250 of the Income-tax Act, 1961, are identical. Referring to the latter provision, Kanga and Palkhivala in “The Law and Practice of Income-tax”, Vol. 1, 7th edn., page 1128, says :

“The Appellate Assistant Commissioner must state facts and give reasons for his findings, for the purpose of enabling the Tribunal to see whether the findings are supported by the facts of the case. This principle which was judicially recognised under the 1922 Act, is given statutory effect by this sub-section.”

9. This shows that the specific requirements of Sub-section (5B) of Section 23 of the Act are intended for the benefit of the Tribunal and they do not in any manner restrict the power of the Wealth-tax Officer to whom an order of remand is made in general terms indicating in no way that the Officer should limit his enquiry to particular matters. Discussing the scope of an order of remand made by the Appellate Assistant Commissioner under the Income-tax Act, 1961, this court stated in K. P. Moideenkutty v. CIT [1981] 131 ITR 356, 360 (Ker):

“The scope of the proceedings after remand will necessarily have to be determined with reference to the terms of the order whereby the Appellate Assistant Commissioner had remitted the case to the Income-tax Officer. Where, on appeal from an assessment, the Appellate Assistant Commissioner sets aside the assessment and directs the Income-tax Officer to make a fresh assessment, without imposing any restrictions or limitations as to how the fresh proceedings are to be conducted by the Income-tax Officer, the Income-tax Officer has the same powers in making such fresh assessment as he had originally when making the assessment under Section 143 of the Act. So long as no restrictions have been placed by the appellate authority on the scope of the proceedings after remand while directing a fresh assessment to be made by the Income-tax Officer, the Income-tax Officer is competent to redo the assessment in accordance with law after taking into account all matters and aspects that would be relevant in making the original assessment. It is undoubtedly open to the Appellate Assistant Commissioner to limit the scope of the enquiry by the Income-tax Officer to any specified aspect or issue.

But, so long as that has not been done but the order of assessment has been set aside in toto and the Income-tax Officer directed to redo the assessment afresh, the powers of the Income-tax Officer are untrammelled by anything that he might have said or omitted to say in the original order of assessment which was set aside by the Appellate Assistant Commissioner. This is the view that has been taken by the Allahabad High Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. CIT [1963] 47 ITR 906 and Abhai Ram Gopi Nath v. CIT [1971] 79 ITR 339, with which rulings we are in respectful agreement.”

10. The power of the Appellate Assistant Commissioner under the Wealth-tax Act is as wide as it is in the case of his counterpart under the Income-tax Act, 1961 : (See Section 23 of the Wealth-tax Act, 1957, and sections 2 50 and 2 51 of the Income-tax Act, 1961). They have identical powers of remand. The observation of this court in K.P. Moideenkutty v. CIT [1981] 131 ITR 356, 360, is, therefore, applicable with equal force to the facts of this case. In so far as the order of remand is couched in the widest terms, it was open to the Wealth-tax Officer, as he has done in the instant case, to include the amounts which had not been originally included and also to redetermine the validity of the claim for exemption under Section 5(1)(i) in respect of all the assessment years in question. I see no error of jurisdiction in the orders of the Wealth-tax Officer and the Tribunal has, in my view, rightly held so. Accordingly, I answer questions Nos. 1 and 3 in the affirmative, that is, in favour of the Revenue and against the assessee.

11. As regards the method of valuation, the Tribunal says :

“21. …It is significant that the assessee has not questioned the
valuation made by the approved valuer by adopting the land and building
method…”

12. This finding of fact by the Tribunal has not been challenged by the assessee by seeking a reference on the point. In the circumstances, it is not open to the assessee to question the Tribunal’s finding which is based on the approved valuer’s report, although the Tribunal, notwithstanding the importance of the location, reduced the value of the buildings in consideration of their age. Accordingly, I see no merit in the challenge against that finding of the Tribunal. Question No. 4 also is, therefore, answered in the affirmative, that is, in favour of the Revenue and against the assessee.

13. I shall now deal with question No. 2 relating to the claim for exemption under Section 5(1)(i) of the Act. The contention on behalf of the assessee is that, in so far as this court has held in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker), that a quarter of the income derived from the assets and applied to public charitable purposes qualified for exemption under Section 4(b) of the Kerala Agricultural Income-tax Act, 1950, and in so far as that finding has remained unchallenged, that portion of the wealth which produces the income devoted to public charity must be regarded as exempt from wealth-tax. I would have rejected this argument at the outset, as what is devoted to public charity is a mere quarter of the income : Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 (SC); Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709 (Bom). But counsel says that the matter requires deeper consideration in the light of certain decisions. He says that a trustee being a representative-assessee, the charge is not on the corpus, but on the beneficial interests. The public, being an indeterminate body of persons entitled to the benefit of charity in terms of the trust, their beneficial interests, it is contended, must be treated as a separate entity, representing a separate portion of the assets yielding the 25 per cent. of the income, and such portion of the assets must be treated as being held under a separate trust and qualified for exemption under Section 5(1)(i) of the Act.

14. Much reliance is placed by the assessee’s counsel upon the observation of the Supreme Court in CWT v. Trustees of H. E. H. Nizam’s Family (Remainder Wealth) Trust[1971] 108 ITR 555. That case was not concerned with the question of exemption under Section 5(1)(i) of the Act, but with the method of computation of wealth-tax in respect of assets held by a trust. The Supreme Court pointed out that, for the assessment of a trustee, Section 3 of the Act should operate subject to and in accordance with Section 21. Under Sub-sections (1) and (4) of Section 21, it was the beneficial interest which was taxable in the hands of the trustees in a representative capacity. The court pointed out that the Revenue had the option to assess the beneficial interest either in the hands of the trustee in a representative capacity or assess it directly in the hands of the beneficiary. In either case, what was taxed was the interest of the beneficiary in the trust properties and not the corpus of the trust properties. This meant, the charge was on the actuarial valuation of the beneficial interests and not on the market value of the corpus. The court then gave an example (p. 595):

“Let us, by way of illustration, take a case where property of the value of Rs. 10 lakhs is held in trust under which the income of the property is given to A for life and on his death, the property is to be divided equally between B and C. The beneficiaries in this case are clearly A, B and C, A having life interest in the trust property and B and C having equal shares in the remainder. The Revenue has option to assess the beneficial interest of A, B and C in the trust property in the hands of the trustee or to make direct assessment on each of the three beneficiaries. If the trustee is assessed under Sub-section (1) of Section 21, three separate assessments would have to be made on him, one in respect of the actuarial valuation of the life interest of A, which may be, to take an ad hoc figure, say, Rs. 5 lakhs, and the other two in respect of the actuarial valuations of the remaindermen’s interests of B and C, which may be, to take again an ad hoc figure, say, Rs. 2 lakhs each. But, as pointed out above, the Revenue may, instead of assessing the trustee, proceed to make direct assessment on each of the three beneficiaries A, B and C and in that case, Rs. 5 lakhs, Rs. 2 lakhs and Rs. 2 lakhs would be included in the net wealth of A, B and C, respectively. The result would be that though the value of the corpus of the trust property is Rs. 10 lakhs, the assessments, whether made on the trustee or on each of the three beneficiaries, would be only in respect of Rs. 5 lakhs, Rs. 2 lakhs and Rs. 2 lakhs and the balance of Rs. 1 lakh would not be subject to taxation.”

15. The court pointed out that since the trustee could be assessed only in accordance with Section 21, it should necessarily follow that no part of the value of the corpus in excess of the aggregate value of the beneficial interests, determined on an actuarial basis, could be brought to tax in the hands of a trustee. The court said (p. 596) :

” It would be clearly erroneous to assess the trustee to wealth-tax on the excess of the value of the corpus over the actuarial valuations of the life interest and the reversionary interest of the beneficiaries.”

16. The position was the same, as the court pointed out, whether the assessment was made on the trustee or on the beneficiary. It was this differential tax, which thus escaped assessment under the Act, that was roped in, as I shall presently show, by the amendment of 1980.

17. In the construction of Section 21 of the Act, the Supreme Court adopted the decisions rendered under Section 41 of the Indian Income-tax Act, 1922, and Section 161(2) of the Income-tax Act, 1961, as the relevant provisions of these statutes, the court observed, were identical. The court in this connection cited with approval the observation of Chagla C.J. in CIT v. Balwantrai Jethalal Vaidya [1958J 34 ITR 187 (Bom) and also followed its own decision in C.R. Nagappa v. CIT [1969] 73 ITR 626 (SC), where Shah J. (as he then was) adopting the construction of Section 41 of the Indian Income-tax Act, 1922, by Chagla C.J. in Vaidya’s case [1958] 34 ITR 187 (Bom), observed that “the same, considerations must apply in the interpretation of Section 161(2) of the Income-tax Act, 1961.”

18. What Chagla C.J.. stated in Vaidya’s case [1958] 34 ITR 187 (Bom) was that the liability of the trustee to income-tax was a vicarious liability and it was co-extensive with that of the beneficiaries. In no case could it be a larger or wider liability. If the assessment was made upon a trustee, whatever the nature of the income, whatever the mode of computation, his liability to pay the tax had to be determined in terms of Section 41 of the Indian Income-tax Act, 1922. This is what the learned Chief Justice stated (p. 195 of 34 ITR):

“The basic idea underlying Section 41, and which is in conformity with principle, is that the liability of the trustees should be co-extensive with that of the beneficiaries and in no sense a wider or a larger liability. Therefore, it is clear that every case of an assessment against a trustee must fall under Section 41, and it is equally clear that, even though a trustee is being assessed, the assessment must proceed in the manner laid down in Chapter III. In other words, even though the income to be assessed is the income of a trustee, the income must be put under one of the heads mentioned in Chapter III and the provisions laid down with regard to the computation of that income in Chapter III must be carried out. Section 41 only comes into play after the income has been computed in accordance with Chapter III. Then the question of payment of tax arises and it is at that stage that Section 41 issues a mandate to the Taxing Department that, when they are dealing with the income of a trustee, they must levy the tax and recover it in the manner laid down in Section 41. Therefore, there is no inconsistency between the provisions of Sections 9, 10 and 12 and the provisions of Section 41.”

19. It is important to notice that neither Chagla C.J. nor Shah J. (as he then was) had occasion to consider in the above cases the distinction between the value of the corpus and the actuarial valuation of the beneficial interests, for those cases arose under the Income-tax Act where the charge was upon the income derived from the assets, and the value of the assets was, therefore, irrelevant. It was in CWT v. Trustees of H.E.H. Nizam’s Family Trust [1977] 108 ITR 555, that the Supreme Court had occasion to consider in detail this distinction. But what is relevant and fundamental is that the liability of a trustee, whether under the Income-tax Act or under the Wealth-tax Act, is co-extensive with that of the beneficiary, for it is a vicarious liability. His liability cannot be greater than that of the beneficiary. This is the common feature of the relevant provisions of both the enactments.

20. The principle stated by the Supreme Court in CWT v. Trustees of H.E.H.

Nizam’s Family Trust [1977] 108 ITR 555 (SC) about the nature and method
of the representative assessment and the vicarious and co-extensive

liability of the trustees does not support the assessee’s specific contention, as it appears from the question referred, that a portion of the assets qualifies for exemption under Section 5(1)(i) of the Act. Nor is that contention supported by the decision of the Supreme Court in CIT v. Manilal Dhanji [1962] 44 ITR 876, which arose under the Indian Income-tax Act, 1922. What was decided in that case was that by a single document more than one trust could be created. The court held (p. 886):

“The assessee’s father created two trusts by that trust deed, one requiring the trustees to pay the trust income to the assessee and the other requiring the assessee, who was himself a trustee, to spend the income for the maintenance, education arid benefit of his children. It is not disputed that by a single document more than one trust may be created. It is not, therefore, true to say that the subject-matter of the trust in the present case was merely a beneficial interest under a subsisting trust.”

21. Elaborating the aspects of the specific question referred on the point, counsel for the assessee submits that a quarter of the income earmarked for charity pertains to a distinct and beneficial interest relating to a distinct portion of the wealth held under a separate trust, and such asset qualifies for exemption under Section 5(1)(i) of the Act. In other words, a portion of the wealth generating a quarter of the income is, according to counsel, exempt. I see no substance in this contention. In the first place, it must be noticed that, in terms of the instrument creating the trust, no part of the wealth is traceable to the portion of the income devoted to public charity and no part of the beneficial interest is capable of identification with any particular portion of the corpus. Secondly, the instrument does not disclose a second trust or other legal obligation, There is no entrustment or charge twice over in the present case as was the position in CIT v. Manilal Dhanji [1962] 44 ITR 876 (SC), which arose under the Indian Income-tax Act, 1922, and where the trustees were entrusted to pay the income to the assessee, and the assessee himself, as a trustee, was required to spend the income for the maintenance, etc., of his children. That is not the position here. The public have not more than a beneficial interest under a subsisting trust in a portion of the income, and there is no distinct portion of the property, being the subject-matter of the trust, which is transferable to the public so as to constitute a separate trust or other legal obligation. (See Section 8 of the Indian Trusts Act, 1882). Thirdly and significantly, unlike under the Income-tax Act, where the charge is on the income, and where both the object of the trust to which the property is devoted and the actual application of a portion of the income derived from such property solely towards that, object would, subject to the statutory provisions, be a relevant and decisive consideration for that portion of the income to qualify for exemption, what is relevant for exemption under Section 5(1)(i) of the Act under which the levy is not on income, but on wealth, is the predominant purpose for which the asset is held under trust or other legal obligation, and not the actual application of the income therefrom, although the extent and the end to which the income is directed by the constituent and dominant terms of the trust to be devoted would, besides the other provisions, bo a sure guide to determine the predominant object of the trust holding the asset which yields the income. For the purpose of a levy on wealth, assets cannot be apportioned with reference to the proportionate source of the income applied to charity. The observation in CIT v. Manilal Dhanji [1962] 44 ITR 876 (SC), does not advance the case of the assessee any more than the decision of this court in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sail [1971] 81 ITR 230, which also turned on the application of the income for the purpose of assessment under the Kerala Agricultural Income-tax Act, 1950. Nor does the observation of the Privy Council in All India Spinners’ Association v. CIT [1944] 12 ITR 482, advances the case of the assessee. That case arose under the Indian Income-tax Act, 1922, and the clear finding of the Privy Council on the construction of the constituent and dominant terms was that the primary object of the trust was the relief of the poor and the advancement of general public utility and that the income applied to such charitable purposes was clearly exempt under Section 4(3)(i) of that Act. Fourthly, the submission at the bar is not supported by pleas or findings. The object of the trust or other legal obligation must, in the final analysis, be determined, for the purpose of the Act, with reference to the terms constituting it, as evidenced by its instrument or otherwise, and not with reference to the actual application of the income. See the observation of Sabyasachi Mukharji J. of the Calcutta High Court (as he then was) in Managing Shebaits of Bhukailash Debutter Estate v. WTO [1977] 106 ITR 904 (Cal). Diversion of property held under trust or income derived therefrom will, of course, invite other consequences : (See Section 21A of the Act). But that is a different matter altogether.

22. It is true that the courts have held that the right of a beneficiary to receive an aliquot share of the net income derived from properties comprised in a wakf-alal-aulad is itself property within the meaning of Section 2(e): (See Ahmed G.H. Ariff v. CWT [19661 59 ITR 230 (Cal)–on appeal [1970] 76 ITR 471 (SC) and also Purshottam N. Amarsay v. CWT [1973] 88 ITR 417 (SC)). It is an intangible right appurtenant to the corpus, and is, therefore, includible among the assets for the computation of the net wealth, although the corpus itself is not exigible to tax. But that principle does not advance the case of the assessee. Assuming that the beneficial interest of the public to receive charity has any conceivable value if sold in the open market or in an “assumed market” so as to be regarded as an asset within the meaning of Section 2(e) of the Act and to be capable of having a capitalised value–an assumption which is not supported by the pleadings before the authorities, and an aspect which does not arise for consideration here–even so, the specific argument that the intangible right is a separate and distinct entity so as to form an independent trust under the instrument, apart and distinct from the trust of which three-fourths of the income is applied to private purposes, is totally unsupported by any material or findings and opposed to the terms of the instrument of trust. The instrument does not disclose a trust upon a trust, but it discloses only one trust under which properties are held. The beneficial interest of the public in relation to the quarter share of the income, assuming that it is an asset which is capable of a capitalised value, is only a small part of the beneficial interests relatable to the properties held on trust.

23. The fact that it is no more than a quarter of the income that is directed under the instrument to be devoted to public charity militates against the claim for exemption under Section 5(1)(i). It is this aspect which is highlighted by the Bombay High Court in Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709, at p. 716 ;

” If one turns again to Section 4(3)(i) of the Indian Income-tax Act, 1922, under Clause (i) to earn the exemption, income is required to have been derived from property under trust wholly or in part held for religious or charitable purposes. If it was wholly held on trust for religious or charitable purposes, the whole of the income is exempt, and in case of property held in part only for such purposes, the income applied or finally set apart for application thereto is exempt. This is of course subject to other requirements mentioned in the sub-section and in the proviso. Now, in the case of the Wealth-tax Act, where a property is held on trust for objects which are partly charitable and partly non-charitable, there cannot be any apportionment as is to be found under the Indian Income-tax Act. Such apportionment is possible only in case of income and is not possible with respect to the corpus or assets which yield income. In my view, the omission of the word ‘wholly’ in the above section of the Wealth-tax Act and the omission of a similar provision as is to be found in the later part of the sub-section in the Indian Income-tax Act was deliberate and intentional and the Legislature advisedly avoided or omitted the said word. The reason for this also is not far to seek. In the case of income, as stated earlier, arising from property held partly on trust for a public charitable purpose and partly for other objects, apportionment was possible and so Section 4(3)(i) of the Indian Income-tax Act provided for exempting a portion of the income, As indicated earlier, this was not possible in respect of the corpus. The question then was for the Legislature to consider whether in the case where the corpus is held on trust for various objects, some of which are of a public charitable nature and others not, is any exemption to be granted ? The view contended for by learned counsel for the Revenue is that unless all the objects of the trust are of a public charitable nature, the corpus would not qualify for exemption. The other view is that if it can be said that primarily or predominantly the objects of the trust are of a public charitable nature, the corpus would qualify for exemption under Section 5(1)(i) of the Wealth-tax Act. In my view, the latter view is the better view. According to me, this was the intention of the Legislature when in enacting the Wealth-tax Act, 1957, it omitted the use of the word ‘ wholly ‘ as a qualifying word as regards the requirements concerning the objects of the trust when a similar word was to be found in Section 4(3)(i) of the Indian Income-tax Act, 1922.”

24. This observation of the Bombay High Court is fully supported by the earlier observation of the Supreme Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47, affirming the decision of the Bombay High Court in [1968] 70 ITR 600, which arose under the Wealth-tax Act. Referring to the primary object of the trust, the Supreme Court stated (p. 52 of 88 ITR):

“Now, let us turn to the other question, viz., whether the trust in question can be considered as a trust created for public purpose of a charitable or religious nature. As seen earlier, the trust in question was created primarily for the benefit of the members of the family of Gordhandas Govindram Seksaria. That is clear from the title given to the trust as well as from the various provisions to which we have made reference earlier. Therefore, it is not possible to hold that the trust in question is a trust for any public purpose. It is clearly a private trust.”

25. In that case, no attempt was made or could have been made to split the income on the basis of its application and apportion the assets with reference to the proportionate source of the income applied to charity. Such apportionment is not possible for a levy on the wealth. The observation of this court in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230, 241 :

“Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust.”

must be understood with reference to Section 4(b) of the Kerala Agricultural Income-tax Act, 1950, as it stood at the relevant time, which exempted from the levy of tax so much of the income derived from property, held under trust in part only for religious or charitable purposes, as was actually applied thereto. There is nothing in the later decision of the Supreme Court in CWT v. Trustees of H.E.H. Nizam’s Family Trust [1977] 108 ITR 555 which militates against the proposition laid down by the Supreme Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 or by the Bombay High Court in Trustees of K.K.H.M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709.

26. Wealth-tax is charged in respect of the net wealth (section 3). In computing the net wealth of an individual, the value of the assets specified under Section 4(1) must be included. The value of any asset, other than cash (or other than assets held under trust prior to April 1, 1980) has to be estimated on the basis of the market value on the valuation date (Section 7). In the computation of net wealth, certain assets are exempt under Section 5 and certain assets are excluded under Section 6. Section 5(1)(i) exempts from charge the value of any property held by an assessee under a trust or other legal obligation for any public purpose of a charitable or religious nature in India. Even when a property is not wholly or exclusively held for such a purpose, it would still qualify for exemption under Section 5(1)(i), provided it is predominantly held for such a purpose : (See Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 (SC) and Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709 (Bom)). But if the predominant purpose, as seen from the instrument of trust, does not fall within Section 5(1)(i), such property does not qualify for exemption. In computing the net wealth, the value of all assets (other than exempted or excluded assets) as determined in accordance with the provisions of the Act must be included. While in respect of assets not held under trust, their value is determined, as stated above, on the basis of the market value, the value of assets held under trust (subject to the exemption granted under Section 5(1)(i)) had to be determined at the material time, not with reference to the market value, but with reference to the actuarial valuation of the beneficial interests. Where the beneficiaries are more than one, and their shares are indeterminate or unknown, assessment would be made upon the trustees and the tax recovered from them as if the beneficiaries were a single, individual (Section 21(4)). This means that, as the law stood at the relevant time, the charge fell, in the case of any property held under trust, only upon that part of the value of the corpus which was equal to the aggregate value of the beneficial interests determined on an actuarial basis. This is what was decided in CWT v. Trustees of H.E.H.

27. Nizam’s Family Trust [1977] 108 ITR 555, 596 (SO, and that case is not an authority for the proposition canvassed on behalf of the assessee that the dominant object of the trust, or the extent to which income derived from the corpus is directed to be utilised for the fulfilment of that object, as disclosed by the constituent and dominant terms of the trust, is irrelevant to the consideration of the question under Section 5(1)(i).

28. Section 21 has since been amended by the Finance (No. 2) Act, 1980, with effect from April 1, 1980. The words “subject to the provisions of Sub-section (1A)” have been inserted at the beginning of Sub-section (1) and Sub-section (1A) has been added. Sub-section (4) has been amended by substituting it in part. Section 7 has also been amended by adding an Explanation to Sub-section (1) thereof. There are also certain other changes which are not material. I shall now read these amended provisions. Sub-section (1) of Section 21, as amended reads :

“(1) Subject to the provisions of Sub-section (1A) in the case of assets chargeable to tax under this Act, which are held by a court of wards or an administrator-general or an official trustee or any receiver or manager or any other person, by whatever name called, appointed under any order of a court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of wakf), the wealth-tax shall be levied upon and recoverable from the court of wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be liable upon and recoverable from the person on whose behalf or for whose benefit the assets are held, and the provisions of this Act shall apply accordingly.” (inserted words underlined).

29. The new Sub-section (1A) of Section 21 reads :

“(1A) Where the value or aggregate value of the interest or interests of the person or persons on whose behalf or for whose benefit such assets are held falls short of the value of any such assets, then, in addition to the wealth-tax leviable and recoverable under Sub-section (1), the wealth-tax shall be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person or trustee aforesaid in respect of the value of such assets, to the extent it exceeds the value or aggregate value of such interest or interests, as if such excess value were the net wealth of an individual who is a citizen of India and resident in India for the purposes of this Act, and–(i) at the rates specified in Part I of Schedule I; or

(ii) at the rate of three per cent., whichever course would be more beneficial to the Revenue.”

30. The material portion of Sub-section (4) of Section 21 reads :

“(4) Notwithstanding anything contained in this section, where the
shares of the persons on whose behalf or for whose benefit any such assets
are held are indeterminate or unknown, the wealth-tax shall be levied
upon and recovered from the court of wards, administrator-general,
official trustee, receiver, manager, or other person aforesaid, as the case
may be, in the like manner and to the same extent as it would be leviable upon
and recoverable from an individual who is a citizen of India and resident in
India for the purposes of this Act………” (the substituted words are underlined)

31. Section 7(1) reads :

“Value of assets how to be determined.–(i) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.

Explanation.–For the removal of doubts, it is hereby declared that the price or other consideration for which any property may be acquired by or transferred to any person under the terms of a deed of trust or through or under any restrictive covenant in any instrument of transfer shall be ignored for the purpose of determining the price such property would fetch if sold in the open market on the valuation date.”

32. Sub-sections (1) and (1A) of Section 21 must be read together as one provision making the trustee liable for payment of tax in respect of the net wealth determined on the basis of the market value of the assets, without regard to any special price or other consideration or any restrictive covenant contained in the instrument of trust (See Explanation 7(1)). It is significant that the liability of the trustee is no longer limited to the aggregate of the actuarial value of the beneficial interests, but it is determined with reference to the market value of the assets. The words “in the like manner and to the same extent” appearing in Sub-section (1) must be read into Sub-section (1A) also as the two sub-sections must be telescoped into each other for determining the liability of the trustee for payment of the tax in respect of the assets held in his hands for and on behalf of the beneficiaries. The identical words “in the like manner and to the same extent” appearing in Sub-section (4) make it clear that, whether the beneficiaries are indeterminate or unknown or otherwise, the liability of the trustee to be assessed to wealth-tax is identical with that of the beneficiary. It is that tax which can also be levied directly in the hands of the beneficiaries or recovered from them in terms of Sub-section (2). It is again that tax which the trustee, after paying the same, is entitled under Sub-section (5) to recover from the beneficiaries or to retain out of the assets held on their behalf. In other words, the difference between the market value of the corpus and the actuarial valuation of the beneficial interest, which was considered by the Supreme Court in CWT v. Trustees of H.E.H. Nizam’s Family Trust [1977] 108 ITR 555, to determine the liability of a trustee, is no longer relevant after the amendment of 1980.

33. A trustee, as seen above, is a representative assessee. His liability is vicarious. It is co-extensive with the liability of the beneficiaries. It is in no sense a wider or larger liability. This is the basic principle on which Section 21 operates. The decisions of the Supreme Court cited earlier on the point leave no doubt as to the ambit of the representative assessment contemplated under Section 21 of the Act or the identical provisions of the income-tax statutes of 1922 and 1961. The provisions of Section 21 of the Act must, therefore, in the absence of any indication to the contrary, receive a construction which is in harmony with the concept of representative assessment. It is not the legislative intent to fasten upon the trustee, by the amendment of 1980, a liability which is greater than the liability of the beneficiaries or to deny the Revenue the right to assess in the hands of the beneficiaries or recover from them the tax due in respect of properties held under trust to the full extent allowed by the law.

34. The amendment of 1980 is a reassertion of the legislative intent in enacting Sections 3, 4, 5, 6 and 7. As stated earlier, the charge levied under Section 3 falls upon the net wealth which is determined on the basis of the value of the assets on the valuation date by reference to the market value referred to in Section 7 after excluding from the computation of the net wealth, the assets falling under Section 5(1)(i) and Section 6. It is, therefore, the market value of the assets that is intended to be taken into account in computing the net wealth exigible to tax in the hands of the assessee even when he is a mere trustee. But the section, as it then stood, did not fully and effectively articulate the legislative intent, as a result of which, as the Supreme Court pointed out, what was assessed in the hands of the trustees, unlike in the case of an ordinary assessee, was not the value of the corpus, but only an aggregate of the actuarial value of the beneficial interests, and the differential value escaped assessment. It is that evil which was remedied by Parliament by the amendment of Section 21 introducing Sub-section (1A) and the other provisions with effect from April 1, 1980, so as to rope in what would otherwise escape assessment.

35. What is important for the levy of wealth-tax is the value of the assets computed in accordance with the relevant provisions of the Act. Whether it is the market value of the assets that is assessed in the hands of the trustee after the amendment of 1980 or only the actuarial value of the beneficial interests as was the position prior to 1980, the levy in either case is always upon the net wealth, the value of which is computed in accordance with the relevant provisions in force. The decision of the Supreme Court in CWT v. Trustees of H.E.H. Nizam’s Family Trust [1977] 108 ITR 555, is perfectly consistent with this position. Apart from the method of valuation of the beneficial interests for the purpose of assessment in the hands of the trustees, or in the hands of the beneficiaries themselves, this decision has no particular relevance to the facts of this case. It does not throw any light on the question regarding the claim for exemption under Section 5(1)(i) of the Act, and that question must be determined, as stated by Sabyasachi Mukharji J. of the Calcutta High Court (as he then was) in Managing Shebaits of Bhukailash Debutter Estate v. WTO [1977] 106 ITR 905, with reference to the dominant purpose of the trust as disclosed by the terms of the instrument and not with reference to the actual application of the income.

36. An individual may be possessed of properties which are not held under trust as well as properties held under trust. In respect of the former, he is liable to be assessed under the Act with reference to the market value of the assets. In respect of the latter, the question would arise whether the assets held under trust qualify for exemption under Section 5(1)(i). If they do, they are totally exempt. If they do not, they had to be assessed in the hands of the trustee prior to April 1, 1980, with reference to the actuarial value of the beneficial interests. But what is fundamental for determination of the question under Section 5(1)(i) of the Act is the predominant object of the trust. No property qualifies for exemption unless it is held under trust or other legal obligation predominantly or primarily for a public purpose of a charitable or religious nature.

37. A charitable trust must be a trust of a public character. There is no such thing as a private charitable trust. The trust must have been founded predominantly or primarily for public purposes of a charitable or religious nature in order that the properties held by it qualify for exemption under Section 5(1) of the Act. (See Powell v. Compton [1945] Ch 123; [1945] 1 All ER 198 (CA); M.F.A. Caffoor v. CIT [1961] AC 584, 601 (CA), Oppenheim v. Tobacco Securities Trust Co. Ltd, [1951] 1 All ER 31 (HL), Koettgens Will Trusts, In re [1954] 1 Ch 252 (HL), Trustees of the Charity Fund v. CIT [1959] 36 ITR 513 (SC), Trustees of Gordhandas Govindram Family Charity Trust v. CIT [19731 88 ITR 47 (SC), Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5 (SC), Trustees of K.B.H.M. Bhiwandiwalla, Trust v. CWT [1977] 106 ITR 709 (Bom), Gordhandas Govindram Family Charity Trust v. CIT [1968] 70 ITR 600 (Bom), CIT v. Moosa Haji Ahmed [1964] 52 ITR 147 (Guj), CIT v. Keshari Singh Nahar [1964] 51 ITR 699 (Cal) and Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker)).

38. To sum up : The dominant purpose of the trust in question, as evidenced by the instrument creating it, has been finally and conclusively determined to be not charitable or religious. Construing that document in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker) and Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5 (SC), this court and the Supreme Court both found that three-fourths of the income derived from the properties in question were directed to be utilised for non-charitable purposes. This court held that the properties were not wholly held for charitable or religious purposes, but were held in part only for such purposes and the dominant purpose of the trust was not charitable or religious. No specific portion of the properties was found to be utilised for public charitable purposes, but only a quarter of the income derived from all the properties was meant to be utilised for such purposes. The instrument creating the trust created only one trust in respect of all the properties and not several trusts relating to different and distinct properties. The entire income from the properties is directed to be utilised for various purposes and what is directed towards public charity is only a small portion of it. The predominant object of the trust is, therefore, not one of public charity. The properties held by the trust are predominantly utilised for private purposes. Viewed in this light, no portion of the wealth held by the assessee-trust qualifies for exemption under Section 5(1)(i) of the Act.

39. Accordingly, I answer question No. 2 in the affirmative, that is, in favour of the Revenue and against the assessee.

40. I direct the parties to bear their respective costs in these tax referred cases.

Radhakrishna Menon, J.

41. I regret, I am unable, to agree with the answer given by my brother to question No. 2 although I concur with the views expressed by him while answering questions Nos. 1, 3 and 4. Hence, this separate judgment.

42. At the instance of the assessee, the following questions have been referred :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the Wealth-tax Officer has not exceeded his jurisdiction in making fresh assessments on the assessee for the assessment years 1961-62 to 1969-70 by his orders dated November 11, 1975?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that no portion of the wealth held by the assessee-trust is exempt under Section 5(1)(i) of the Wealth-tax Act ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the Wealth-tax Officer could, while making the reassessments for the above-mentioned assessment years, include items which were not considered in the original assessments ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in not adopting the method of capitalisation of income for determining the value of Chittoor Road properties which are in the occupation of tenants ?”

43. I shall now state the essential facts requisite for determining the issues involved in this case. The assessee is a trust created under a will executed by one Abdul Sathar Haji Moosa Sait on 25th day of Kanni, 1099 M.E. (annexure-A). The various clauses in the will disclose that the properties held by the trust are partly for public purposes of a charitable or religious nature in India and partly for private purposes. Construing the will, this court in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230, has held that “though the dominant purpose of the trust deed was not charitable, the first quarter of the income covered by paragraph 8 was clearly a public charitable trust, as the dominant intention of the founder was to benefit the public”. This decision was later confirmed by the Supreme Court. (See Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commissioner of Agricultural Income-tax [1973] 91 ITR 5).

44. As the Wealth-tax Officer was of the view that the wealth belonging to the trust has escaped assessment for the years of assessment 1961-62 to 1969-70, he served on the assessee a notice under Section 17 of the Wealth-tax Act. In response to the said notice, the assessee filed the returns for the above years. Rejecting the contention of the assessee that the value of the properties should be fixed at their original acquisition cost, the assessing authority charged it by adopting the land and building method. Although the Wealth-tax Officer accepted the contention of the assessee that 31.25% of the trust properties was exempt from tax under Section 5(1)(i) of the Wealth-tax Act for the years of assessment 1967-68 to 1969-70, he rejected the said contention in regard to the assessment for the assessment years 1961-62 to 1966-67. The assessments were made on April 29, 1972, and they are annexures C, C-1 to C-8, respectively.

45. Aggrieved by the orders of assessment, the assessee preferred WTA Nos. 18E to 26E/1972-73 before the Appellate Assistant Commissioner. By his order dated October 12, 1972, the Appellate Assistant Commissioner set aside the assessments and directed the Wealth-tax Officer to make fresh assessments. While doing so, he observed that the Wealth-tax Officer should consider the claim of the assessee that the properties require to be valued only by adopting the method of capitalising the annual yield for all the assessment years. He also directed that the assessing authority shall consider the claim of the assessee for exemption in respect of 31.25% of the value of the properties under Section 5(1)(i) of the Wealth-tax Act for the asssessment years 1961-62 to 1966-67 also.

46. Pursuant to the above directions, the Wealth-tax Officer made fresh assessments on November 11, 1975. Regarding the value of the immovable properties, he determined the value by taking the average of the values of the properties determined by adopting the land and building method and also by adopting the capitalisation of the net annual yield method. So far as the claim for exemption is concerned, he found that the assessee is not entitled to the exemption.

47. The assessee thereupon filed WTA Nos. 24E to 32E/1975-76 before the Appellate Assistant Commissioner of Wealth-tax, Ernakulam, wherein he reiterated the various contentions he had raised before the Wealth-tax Officer. An additional contention raised was to the effect that the Wealth-tax Officer should have made “fresh assessment only in accordance with the direction given by the Appellate Assistant Commissioner in his order dated October 12, 1972, and that the Wealth-tax Officer exceeded his jurisdiction in so far as he determined the value of immovable properties by taking the average of the values arrived at by adopting the land and building method and the rent capitalisation method and in declining to grant exemption under Section 5(1)(i) of the Wealth-tax Act for the assessment years 1967-68 to 1969-70 and in including fresh items of movable properties”. The Appellate Assistant Commissioner accepted the above contentions of the assessee and as a consequence thereof held that the Wealth-tax Officer should have completed the assessments only in accordance with the directions given by his predecessor in his order dated October 12, 1972. He also held that the determination of the market value in the way in which it has been determined by the Wealth-tax Officer was not acceptable. He accordingly held that the immovable properties which had been let out should be valued only by adopting the rent capitalisation method- It is seen from the order that he has also accepted the assessee’s contention that 31.25% of the value of the immovable properties qualifies for the exemption under Section 5(1)(i) as the income therefrom is spent for public charitable and religious purposes.

48. Aggrieved by the above order, the Department preferred appeals before the Income-tax Appellate Tribunal. Relying on a decision of the Madras High Court in CIT v. Seth Manicklal Forma [1975] 99 ITR 470, the Department contended that when once the order of assessment was set aside by the Appellate Assistant Commissioner and the matter was remanded to the Wealth-tax Officer for fresh assessment, the assessing authority had ample power to consider every aspect of the assessment, even aspects which were not considered at the time of the original assessnent de novo before the assessment was made. This contention of the Department was seriously opposed by the assessee. According to the assessee, the assessing authority had no jurisdiction to go beyond the directions contained in the remand order and if that be so, the order of the assessing authority after the remand including fresh items of wealth was liable to be interfered with. In support of this argument, he relied on a decision of the Punjab and Haryana High Court in Kartar Singh v. CIT [1978] 111 ITR 184.

49. Accepting the argument of the Department, the Tribunal held that “while it was obligatory for the Wealth-tax Officer to carry out the directions of the Appellate Assistant Commissioner, it did not prevent him from considering other matters even though they might not have been considered in the original assessments made by him”. Accordingly it held that the Wealth-tax Officer could not be said to have exceeded the jurisdiction in making the fresh assessments. The Tribunal in this connection has relied on the decisions of the Madras High Court in Sri Gajalakshmi Ginning Factory Ltd. v. CIT [1952] 22 ITR 502, of the Allahabad High Court in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. CIT [1963] 47 ITR 906 and again of the Madras High Court in CIT v. Seth Manicklal Forma [1975] 99 ITR 470.

50. Considering the claim of the assessee for exemption under Section 5(1)(i) of the Wealth-tax Act in respect of the 31.25% of the value of the trust properties, the Tribunal held that the assessee was not entitled to the said exemption since the properties in question were not “wholly” held in trust for religious and charitable purposes. The Tribunal also observed that there was nothing in the said section warranting exemption being given in respect of a “proportionate value of the properties held in trust partly for religious and charitable purposes and partly for private purposes”. In support of this view, the Tribunal has relied on a decision of the Bombay High Court in Trustees of K.B.H.M. Bhiwandiwala Trust v. CWT [1977] 106 ITR 709. The Tribunal, therefore, held that, no portion of the wealth of the assessee-trust was exempt under Section 5(1)(i) of the Wealth-tax Act.

51. Considering the point pertaining to the valuation of the properties in, Chittoor Road and at Mattancherry, the Tribunal held that neither the capitalisation method nor the determination of the value on the land and building method was proper. Accordingly, it struck a new method and the correctness of the value thus determined is under challenge in question No. 4.

52. The Tribunal then proceeded “to consider the inclusion of certain items of movable properties, namely, the amounts set apart in the (1) family members account, (2) payment of charity, and (3) property purchase account for the purpose of assessment. Noticing that the Appellate Assistant Commissioner had not considered the propriety or otherwise of the inclusion thereof, the Tribunal directed the Appellate Assistant Commissioner to consider the correctness or otherwise of the inclusion of the amounts on its merits”. The copy of the order of the Tribunal dated October 31, 1978, is annexure-J.

53. The questions aforesaid arise from the above order of the Tribunal.

54. I shall first consider the arguments of counsel for the parties pertaining to the remand order and the jurisdiction of the Wealth-tax Officer based thereon. The Appellate Assistant Commissioner of Wealth-tax, by order dated October 12, 1972, set aside the orders of assessment with a direction to the assessing authority “for fresh disposal after deciding this question”. This observation was made while considering the additional ground taken by the assessee, namely, that “since there is a restriction clause in the terms of the trust deed, creating the appellant trust, prohibiting the trustees from alienating the trust properties by sale or pledge or encumbrance in any other manner, the properties are not transferable at all, and hence these are not includible in the assessments. The bulk of the assets included in the assessments under appeal are represented by immovable properties……”

55. Yet another additional ground taken by the assessee and disposed of by the order is this : “It is seen that in the assessments for the years 1967-68, 1968-69 and 1969-70, a deduction of 31.25% ‘attributable to charity’ has been given from the value of assets, both movable and immovable. It is not known why this deduction has not been given for the years 1961-62 to 1966-67”. The direction, in regard to this point discernible from the order of remand, reads :

“This question will also be considered and decided in the course of the fresh assessment proceedings…”. Regarding the two original grounds, the direction reads : “Now that the assessments are to be set aside for being redone, the Wealth-tax Officer will consider both the claims in the course of the fresh assessment proceedings……”

56. From the above excerpts, it is clear that the orders under challenge were set aside. After setting aside the orders, the assessing authority has been directed to redo the assessments. That means the remand order does not impose any restriction in regard to the exercise of the jurisdiction of the assessing authority in making the assessments.

57. Learned counsel for the assessee, however, contended that the scope of the order of remand requires to be considered in the light of the specific provisions contained in Sub-section (5B) of Section 23 of the Wealth-tax Act. It reads :

“The order of the Appellate Assistant Commissioner (or, as the case may be, the Commissioner (Appeals)) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision.”

58. The appellate authority, in view of this provision, could consider and dispose of only those points the appellant had raised in the appeal. If that be so, it was further contended, there was no scope for upsetting the orders of assessments in so far as they pertained to matters which were not appealed against. The decision in respect of such matters, in the absence of specific attack against them before the appellate authority, could not be raked up after the remand unless it be that the order of remand disclosed that those matters were also considered and disposed of by the appellate authority, on the same being specifically raised by the assessee, learned counsel submits. I am not impressed by these arguments.

59. The previsions contained in this sub-section, I am of the view, are in the nature of instructions to the appellate authority and emphasising that the order disposing of the appeal shall be a speaking order. The order shall not be cryptic. The order shall be self-explanatory. This sub-section, therefore, would not support the argument of learned counsel that the order of the appellate authority shall not travel beyond the points raised in the appeal.

60. In disposing of an appeal, the appellate authority has also the power to consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the appellate authority. (See Sub-section 5(A) of Section 23). Considering all such matters, the appellate authority can dispose of the appeal by passing such order as it thinks fit. (Sub-section 5 of Section 23). This being the scope of the relevant provisions of Section 23, I am of the view that the appellate authority has the power to set aside the order of assessment and direct a de novo assessment. The ruling of this court construing identical provisions in the Income-tax Act in K. P. Moideenkutty v. CIT [1981] 131 ITR 356 (Ker) supports the above view of mine. The party who is aggrieved by such orders has the right to challenge the same before the Appellate Tribunal. The assessee did not challenge the order by filing an appeal. The, order thus has become final. He, therefore, is bound by that.

61. In the light of what is stated above, I am of the view that the assessing authority has not exceeded his jurisdiction in making fresh assessments pursuant to the order of remand. Questions Nos. 1 and 3, therefore, are answered against the assessee and in favour of the Department.

62. Coming to question No. 2 :

Construing the deed creating the trust, this court in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 has stated thus (p. 241):

“…Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust. The dominant intention of the founder is to benefit the public.”

63. This ruling has been affirmed by the Supreme Court in Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5. The Supreme Court has held thus (p. 7):

“From the above provisions it is clear that the 3/4ths of the income of the B schedule properties was primarily earmarked for the benefit of near relations of the testator. Hence, we are in agreement with the High Court that this part of the bequest cannot be considered as a public charitable trust.”

64. The Revenue, therefore, has rightly not sought for the interpretation of the trust deed. However, it has contended for the position that, inasmuch as the property of the trust is not held wholly for charitable or religious purposes, the assessee is not entitled to the benefit of Section 5(1)(i) of the Wealth-tax Act. According to learned counsel for the Revenue, the omission of the word “wholly” in Section 5(1)(i) coupled with the fact that there is no provision for exempting part only of the property held for religious or charitable purposes, makes it clear that the assessee, in a case like the one on hand where admittedly a part only of the property held under the trust is earmarked for charitable purposes, is not entitled to the exemption. The reason, according to counsel, is that division of properties held in trust into charitable and non-charitable is not possible so as to have separate assessments under the Wealth-tax Act. In support of this argument, learned counsel relied on a decision of the Bombay High Court in Trustees of K.B.H.M. Bhiwawdiwalla Trust v. CWT [1977] 106 ITR 709. I shall deal with this argument in due course.

65. Construing Sections 2(m), 3 and 21 of the Wealth-tax Act, the Supreme Court in CWT v. Trustees of H.E.H. Nizam’s Family Trust [1977] 108 ITR 555 has laid down the following principles:

(a) Section 2(m) makes it clear that any property wherever located, belonging to the “assessee at the relevant valuation date is liable to be included in the net wealth of the assessee”.

(b) On a combined reading of Sections 3 and 21, it is clear that whenever assessment is made on a trustee, it must be made in accordance with the provisions of Section 21. He cannot be assessed apart from and without reference to Section 21.

(c) The assessment contemplated under Sub-section (1) or Sub-section (4) of Section 21 on the trustee, is an assessment in a representative capacity in that the assessment really is made on behalf of the beneficiaries who are liable to be assessed in respect of their interest in the trust properties held by him. Therefore, there would be as many assessments as there were beneficiaries. However, there can be only one assessment order specifying the tax due in respect of the net wealth of each beneficiary.

(d) Section 21 does not impose any taboo disabling the Revenue from making a direct assessment on the beneficiary in respect of his interest in the trust properties. In short, the beneficiary can always be assessed in respect of his interest in the trust properties since such interest belongs to him.

(e) Whether the assessment is against the trustee or upon the beneficiary, it is significant to note that in either case what is taxed is only the interest of the beneficiary in the trust properties and not the corpus of the trust properties. Here it is relevant to note that in the case of every other assessee, the assessment is on the value of the corpus of the properties.

(f) Where beneficiaries are more than one and, therefore, their shares are indeterminate or unknown, the trustees will be assessed in respect of their beneficial interest in the trust properties, as if they belonged to one individual. In such cases, it is not possible to make a direct assessment on the beneficiaries, because their shares are indeterminate or unknown and that is why “it is provided that the assessment may be made on the trustee as if the beneficiaries for whose benefit the trust properties are held were an individual”.

(g) The cumulative effect of Sub-sections (1) and (4) of Section 21 is that no part of the corpus of the trust properties can be assessed in the hands of the trustee under Section 3 and if any such assessment is made it would be contrary to the plain mandatory directions contained in Section 21.

(h) The amount of tax payable by the trustee would be the same
as that payable by each beneficiary if he was assessed directly.

(i) The difference between the value of the corpus of the trust properties and the aggregate value of the beneficial interests of the beneficiaries cannot be brought to tax in the hands of the trustee under Section 21.

66. It can thus be seen that the Supreme Court held In Nizam’s Family Trust’s case [1977] 108 ITR 555, that the difference between the value of the corpus of the trust properties and the aggregate of the value of the interest of the beneficiaries and remaindermen cannot be subjected to tax under Section 3 or Section 21. In order to overcome the said verdict, Parliament by the Finance Act, 1980 (44 of 1980), has introduced Sub-section (1A), the Explanation to Section 7(1) and has also suitably amended Sub-sections (1) and (4) of Section 21 of the Wealth-tax Act. Section 21(1A) reads:

“Where the value or aggregate value of the interest or interests of the person or persons on whose behalf or for whose benefit such assets are held falls short of the value of any such assets, then, in addition to the wealth-tax leviable and recoverable under Sub-section (1), the wealth-tax shall be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver manager or other person or trustee aforesaid in respect of the value of such assets, to the extent it exceeds the value or aggregate value of such interest or interests, as if such excess value were the net wealth of an individual who is a citizen of India and resident in India for the purposes of this Act, and-

(i) at the rates specified in Part I of Schedule I; or

(ii) at the rate of three per cent., whichever course would be more beneficial to the Revenue.”

67. This sub-section provides that in addition to wealth-tax leviable and recoverable in accordance with the provisions contained in Sub-section (1), tax could be levied upon and recoverable from the trustee, receiver, etc., in respect of the excess value aforesaid. The Explanation added to Section 7(1) plugged the loophole for avoidance of tax by providing restrictive clauses in the trust deeds like, say for instance, “in case any of the beneficiaries exercises his option to buy any assets held by the trustees after the death of the last surviving beneficiary or otherwise, the property shall be sold to him for the sum specified in the document ignoring the market value”. The amendment thus has recognised and kept intact the principles, other than the one which was got over by the amendment, laid down by the Supreme Court in Nizam’s Family Trust’s case [1977] 108 ITR 555.

68. It is thus clear that whether the assessment is upon the trustee or against the beneficiary, what is taxed is only the interest of the beneficiary in the trust properties and not the corpus of the trust properties.

69. It, therefore, follows that so far as the accountability of the trustee to wealth-tax in respect of the properties held in trust is concerned, the same requires to be determined with reference to the interest of the beneficiaries in the trust properties and not with reference to the value of the corpus of the trust properties unless it be that the assessment is one contemplated under Sub-section (1A) of Section 21. If that be so, the beneficial interest of the beneficiaries for whose benefit the trust is created has to be found out first before the tax is levied.

70. For the reasons stated above, the argument of learned counsel for the Revenue set out in paragraph 21 is rejected.

71. The question that immediately arises for consideration is, whether the interest of the beneficiary in the trust properties would be an “asset” within the meaning of the Wealth-tax Act and could the capitalised value of such a right be assessable under the Wealth-tax Act ? The answer to this question depends upon the interpretation of Sections 2(e), (m) and Section 3. The language employed in Section 2(e) shows that it was intended to include property of every description, movable and immovable, barring the exceptions stated therein and under other provisions of the Wealth-tax Act. The word “property”, as observed by the Supreme Court in Ahmed G. H. Ariff v. CWT [1910] 76 ITR 471, “is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy”. The Supreme Court accordingly held that the language used in Section 2(e) shows that the word “asset” was intended to include property of every description. The Supreme Court, therefore, declared that the right of a person to receive an aliquot share of the net income of the trust property, i.e., the right to receive a share of the income, under a wakf, is an asset within the meaning of the Wealth-tax Act and the capital value of such a right is assessable to wealth-tax. This view has been reiterated by the Supreme Court in a later decision in Purshottam N. Amarsay v. CWT [1973] 88 ITR 417 (SC). It is relevant in this connection to have a specific reference to the following passage from the decision of the Calcutta High Court in Ahmed G.H. Ariff v. CWT [1966] 59 ITR 230 which was affirmed by the Supreme Court in [1970] 76 ITR 471, at page 237 :

“It is not the ownership of the wakf properties which can be made taxable for the purpose of the Wealth-tax Act; it is only the right of the assessee to receive some benefit out of the income of the property which is
exigible.”

72. It can thus be seen that the right of a person to receive a portion of the income derived from the property is also exigible to tax under the Wealth-tax Act. The right of the beneficiaries to get the income from the trust properties, therefore, would be asset/property, exigible to tax under the Wealth-tax Act. It is irrelevant to consider the question whether “the property out of which the right to receive the income arose” belonged or did not belong to the beneficiary. It is only the asset of the assessee which has got to be taken into account. As observed by Mitter J., “if the right to receive the income is an asset, it belongs to the assessee no matter whether the right is dependent on the existence of some property and springs out of it “.

73. These principles should be borne in mind while considering the main point, namely, whether the twenty-five per cent. of the income of the (rust properties directed to be spent for a public purpose of a charitable or religious nature, is eligible for the exemption provided for under Section 5(1)(i) of the Wealth-tax Act. The scope and ambit of Section 5(1)(i) of the Wealth-tax Act requires to be considered in this connection. Section 5(1)(i) reads :

“5. (1) Subject to the provisions of Sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-

(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India. ”

74. The section extends exemption only to a particular class of property. The conditions stipulated in the section are : (1) the asset could be any property; (2) it should be held under trust or other obligation ; (3) it should be held for charitable or religious purposes of public character ; and (4) it should be held in India.

Regarding condition No. 1.

75. The employment of the words “any property” in the section, I am of the view, was intended to qualify “properties of every description”. It has already been found that the right of the beneficiaries to get one-quarter of the income as provided for under paragraph 8 of annexure-A will, is an asset/property, includible in the net wealth of the assessee because it falls within the meaning of “property of every description” as explained by the Supreme Court. The use of “the indefinite numeral adjective” “any”, instead of an “adjective of quantity” “whole” before the word ” property ” in the section (Section 5(1)(i)) is thus apposite, significant and meaningful. This condition accordingly is satisfied.

Regarding the second condition that the property should be held under trust or other legal obligation :

76. The investigation should be geared to the question whether there was any provision in the will which would show a trust or binding obligation. Paragraph 8 of annexure-A will is relevant in the context. It provides that :

“after meeting the expenses of upkeep, maintenance, etc., of the trust properties, the remaining income should be divided into four equal parts at the end of every year and one such patt should be utilised for providing food, clothing, etc., to indigent members of the founder’s parents’ families and to new converts to Islam; for teaching Islamic tenets ; for popularising other languages among Muslims ; for renovating damaged mosques ; for giving ard for constructing new mosques; for constructing new mosques; for purchasing land for mosques and for burial grounds ;. for digging free wells; for burying unclaimed dead bodies of Muslims; for providing food, clothing, etc., to indigent Cutchi Memons and widows in Travancore and Cochin ; and for giving alms to the poor during Ramzan. The trustees are given freedom to spend this quarter of the income on one or more heads–one head alone or more of them. It is also provided that the whole of this quarter should be spent every year. ” (See [1971] 81 ITR 230, 234)

77. Construing the will (annexure-A), the Division Bench in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 has observed that the testator has created two trusts, one for non-charitable purposes (as seen from paragraphs 9 and 12 of the will) and one for charitable purposes (as seen from paragraph 8 of the will). This is what the Division Bench has said regarding the scope of paragraph 8 of the will (p. 241):

“Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust. The dominant intention of the founder is to benefit the public.”

78. It is thus clear that the testator by incorporating paragraph 8 in the will has impressed 25 per cent. of the income of the trust properties with a trust for charitable purposes. That in a single document there can be more than one trust is no more a moot question, in view of the decision of the Supreme Court in CIT v. Manilal Dhanji [1962] 44 ITR 876. It is, therefore, clear that the directions to the trustee, contained in paragraph 8 of the will, are enforceable obligations. The Department, in fact, has accepted the findings of the Division Bench. Whatever that be, the authorities concerned have proceeded with the assessments, as if paragraph 8 of the will has correctly been interpreted by the Division, Bench. In my judgment, paragraph 8 shows “a trust or binding obligation so to carry it on “.

79. It is beyond dispute that the terms of a written instrument bind the parties thereto. If that be so, the terms contained in paragraph 8 of annexure-A will, would bind not only the trustees but the beneficiaries for whose benefit the trustees hold the properties. Any departure by the trustees from the above terms would be a breach of trust or legal obligation which the court could restrain. It is interesting to note that even “a formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees” and the beneficiaries inter se. I hold that at least there is such a trust or a legal obligation discernible from paragraph 8 of annexure-A will and that is all that the section (Section 5(1)(i)) requires. I am fortified in this view by a decision of the Privy Council in All India Spinners’ Association v. CIT [1944] 12 ITR 482 where, construing a similar provision in the Indian Income-tax Act, 1922, the wording of which read “Section 4(3)(i) –Income derived from property held under trust or other legal obligation wholly for charitable purpose”, the Privy Council has held thus (at p. 487):

“The purpose is to be ascertained from the constitution. In their Lordships’ judgment, its provisions already quoted show a trust or binding obligation so to carry it on. The constitution is a written instrument, the terms of which bind not only the trustees and Council, but the members who by their application for membership accept its rules. Any departure either by the trustees or Council or members from the rules would be a breach of trust or legal obligation which the court could restrain. A formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees, the Council and the members inter se. Their Lordships hold that there is such a trust or at least that there is a legal obligation which is all that the section requires. ”

80. It is thus clear that even if it is said that one-quarter of the income mentioned in paragraph 8 of annexure-A will is not held by the trustee under trust, the terms contained in the said paragraph clearly and positively show that the trustee is legally obliged to spend the said money for a public purpose of a charitable nature. The said income, in other words, can be said to be held by the trustee under a legal obligation for a public purpose of a charitable nature. The beneficiaries in the circumstances can get the said obligation enforced through a court of law. The facts already discussed would show that the other two requirements also have been satisfied. If that be so, I am of the view that the right of the beneficiaries to get the twenty-five per cent. of the income of the trust properties is an asset falling within the meaning of “property of every description”, eligible for exemption provided for under Section 5(1)(i) of the Wealth-tax Act.

81. One-quarter of the income covered by paragraph 8 of annexure-A, in my judgment, is property coming under Section 5(1)(i) and hence eligible for the exemption provided for under the said section. Question No. 2, therefore, is answered in the negative, i.e., against the Department and in favour of the assessee.

82. So far as the method of valuation of the properties situated on Chittoor Road are concerned, the Tribunal has entered the following findings :

“It is seen that the value given by the approved valuer for this property is Rs. 5,01,357, made up of Rs. 2,16,500 being the value of the 88 cents of land and Rs. 2,84,857 being the value of the 10 buildings thereon. The value arrived at by capitalising 20 times the annual letting value is Rs. 1,45,900. The annual letting value has been taken by the Income-tax Officer as Rs. 7,295 without allowing for collection charges and he has capitalised the same at 20 times. As already stated, he has made an addition of Rs. 67,500 as the value of the excess land. It is significant that the assessee has not questioned the valuation made by the approved valuer by adopting the land and building method. The fact remains that the buildings have been let out, but it is not correct to say that the rent cannot be increased. Even the Rent Control Act provides for increase of rent under certain circumstances. Considering the location of the property and the fact that it has been let out for small rental, we do not think that the value should be determined only by adopting the rent capitalisation method. Considering the fact that most of the buildings are more than 20 years old and the fact that they are all situate in an important locality in Ernakulam town, we think that their value can be fixed at Rs. 2,25,000 for all the assessment years under consideration.”

83. The assessee has not challenged the above findings by raising a separate question. The assessee thus has accepted the said findings. The findings are based on cogent reasons. It cannot be said that they are perverse. In these circumstances, I am of the view that question No. 4 requires to be answered against the assessee and in favour of the Department. I do so. No costs.

V. Bhaskaran Nambiar, J.

84. On a difference of opinion between my two learned brethren, Dr. Justice T. Kochu Thommen and Mr. Justice K.P. Radhakrishna Menon, these matters have been placed before me under Section 28 of the Wealth-tax Act on question No. 2, referred to the High Court by the Income-tax Appellate Tribunal, Cochin Bench. This question reads thus :

“Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that no portion of the wealth held by the assessee-trust is exempt under Section 5(1)(i) of the Wealth-tax Act ?”

85. The assessee under the Wealth-tax Act is a trust and the assessment is for the years 1961-62 to 1969-70. Abdul Sathar Haji Moosa Sait by his will dated 25th day of Kanni, 1099 M. E. created a trust of the B schedule properties mentioned in the deed. Paragraph 8 of the deed provided that the income from the trust properties after deducting the expenses of upkeep, maintenance, etc., should be divided into four equal parts at the end of every year and one such part should be utilised for providing (a) food, clothing, etc., to indigent members of the founder’s parents’ families and to new converts to Islam; (b) for propagating Islamic tenets; (c) for popularising other languages among Muslims ; (d) for renovating mosques damaged ; (e) for constructing new mosques and for giving aid to such construction ; (f) for acquiring lands for mosques and for burial grounds; (g) for digging wells; (h) for burying unclaimed dead bodies of Muslims ; (i) for providing food, clothing, etc., to indigent Cutchi Memons and widows in Travancore and Cochin ; and (j) for giving alms to the poor during Ramzan. It also provided that the whole quarter should be spent every year. Paragraph 9 and the subsequent paragraphs provide for utilisation of the remaining part of the income mainly, if not exclusively, for the benefit of the founder’s family. The short question is whether the bequest under paragraph 8 of the deed and the trust created therein constitute a public charitable trust entitled to exemption under Section 5(1) of the Act.

86. At one time, the question arose whether agricultural income derived from these trust properties covered by paragraph 8 of the deed was “wholly for religious or charitable purposes and was, therefore, exempt from taxation under the Agricultural Income-tax Act, 1950”. The Department and the Tribunal granted the exemption holding that it was a public charitable trust. The exemption was limited to the share of income covered by paragraph 8 and did not extend to the remaining share of income covered by paragraph 9. It was contended by the assessee that the entire trust deed should be treated as a public charitable trust and that it was not sufficient if one-quarter of the income alone was given exemption. This matter came up for decision before this court in a reference in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230. This court held (p. 241 and 242):

  "Thus, regarding the first quarter of   the income covered   by paragraph 8, there  is  no doubt  that  it is  a  public charitable trust.    The dominant intention  of   the founder is to benefit the public......regarding the two quarters of the income mentioned in paragraph 9 of the document, there is no doubt that that was intended only to create a private trust." 
 

 87. The matter was taken in appeal to the Supreme Court and the decision is Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5. The Supreme Court observed thus (pp. 6 and 7): 

“The High Court came to the conclusion that the income of the property bequeathed under the will had been divided into four parts : 1/4th was exclusively reserved for public charitable purpose, 2/4ths was reserved for giving assistance to the poor relations of the testator and the remaining 1/4th was earmarked for the purpose of augmenting the corpus. The High Court agreed with the assessee that the first 1/4th should be considered as charitable trust, but it rejected the contention of the assessee in other respects. We are now to consider whether the High Court was justified in coming to that conclusion.”

and held :

“From the above provisions it is clear that the 3/4ths of the income of the B schedule properties was primarily earmarked for the benefit of near relations of the testator. Hence, we are in agreement with the High Court that this part of the bequest cannot be considered as a public charitable trust.”

88. It is thus evident that the authorities and the High Court held that the income derived from the property held under trust and covered by paragraph 8 of the deed is a public charitable trust.

89. On the same grounds, the assessee claimed exemption under Section 5(1) of the Wealth-tax Act in respect of the identical income covered by the same paragraph 8 of this trust deed. The reference arose when the Tribunal refused the exemption and denied the benefit under Section 5(1) of the Act in respect of the income specified in paragraph 8 of the deed.

90. I would have thought that after the decision of the Supreme Court in CWT v. Trustees of H.EM. Nizam’s Family Trust [1977] 108 ITR 555, the answer to the question posed no problem ; but in the light of the difference of opinion expressed by two learned judges, I shall advert in some detail to the relevant paragraphs in the Supreme Court decision and also
to the relevant statutory provisions.

91. In Nizam’s Family Trust’s case[1977] 108 ITR 555 (SC), confirming the judgment of the Andhra Pradesh High Court, the Supreme Court proceeded to consider the contention that the assets held by a trustee in trust for others cannot be said to be assets “belonging to the trustee” and, therefore, cannot constitute “net wealth” chargeable to duty under Section 3 of the Act as the assets belonged to the beneficiaries and not to the trustee. A decision of the Gujarat High Court in CWT v. Kum. Manna G. Sarabhai [1972] 86 ITR 153 was pressed into service. Observing that there was force in the argument, the Supreme Court did not express any final opinion upon it as the alternative argument advanced–sufficiently substantial–left “no room for judicial doubt or hesitation”. Thereafter, the Supreme Court held thus (pp. 592, 593, 594, 596, 597) :

“It would, therefore, be clear on a combined reading of Sections 3 and 21 that whenever assessment is made on a trustee, it must be made in accordance with the provisions of Section 21. Every case of assessment on a trustee must necessarily fall under Section 21 and he cannot be assessed apart from and without reference to the provisions of that section. To take a contrary view giving option to the Revenue to assess the trustee under Section 3 without following the provisions of Section 21 would be to refuse to give effect to the words ‘subject to the other provisions of this Act’ in Section 3, to ignore the maxim generalia specialibus non derogant and to deny mandatory force and effect to the provisions enacted in Section 21……It must, therefore, be held to be incontrovertible that whenever a trustee is sought to be assessed, the assessment must be made in accordance with the provisions of Section 2 (…The revenue has thus two modes of assessment available for assessing the interest of a beneficiary in the trust properties : it may either assess such interest in the hands of the trustee in a representative capacity under Sub-section (1) or assess it directly in the hands of the beneficiary by including it in the net wealth of the beneficiary. What is important to note is that in either case what is taxed is the interest of the beneficiary in the trust properties and not the corpus of the trust properties. So also where beneficiaries are more than one, and their shares are indeterminate or unknown, the trustees would be assessable in respect of their total beneficial interest in the trust properties. Obviously, in such a case, it is not possible to make direct assessment on the beneficiaries in respect of their interest in the trust properties, because their shares are indeterminate or unknown and that is why it is provided that the assessment may be made on the trustee as if the beneficiaries for whose benefit the trust properties are held were an individual. The beneficial interest is treated as if it belonged to one individual beneficiary and assessment is made on the trustees in the same manner and to the same extent as it would be on such fictional beneficiary. It will, therefore, be seen that in this case too, it is the beneficial interest which is assessed to wealth-tax in the hands of the trustee and not the corpus of the trust properties. This position becomes abundantly clear if we look at Sub-section (5) which clearly postulates that where a trustee is assessed under sub-section (1) or Sub-section (4), the assessment is made on him ‘in respect of the net wealth’ of the beneficiary, that is, the beneficial interest belonging to him. Now, wherever there is a trust, it is obvious that there must be beneficiaries under the trust, because the very concept of a trust connotes that though the legal title vests in the trustee, he does not own or hold the trust properties for his personal benefit but he holds the same for the benefit of others, whether individuals or purposes. It must follow inevitably from this premise that since under Sub-sections (1) and (4) of Section 21, it is the beneficial interests which are taxable in the hands of the trustee in a representative capacity and the liability of the trustee cannot be greater than the aggregate liability of the beneficiaries, no part of the corpus of the trust properties can be assessed in the hands of the trustee under Section 3 and any such assessment would be contrary to the plain mandatory provisions of Section 21……Once it is established that a trustee of a trust can be assessed only in accordance with the provisions of Section 21 and under these provisions, it is only the beneficial interests which are taxed in the hands of the trustee, it must follow as a necessary corollary that no part of the value of the corpus in excess of the aggregate value of the beneficial interests can be brought to tax in the assessment of the trustee. To do so would be contrary to the scheme and provisions of Section 21……

It is, therefore, obvious that no part of the corpus of the trust funds could be assessed in the hands of the assessees, but the assessment could be made on the assessees only in respect of the beneficial interests of the beneficiaries in the trust funds under Sub-sections (1) and (4) of Section 21.”

92. Section 3 of the Act, the charging section reads thus :

“Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule.”

93. Net wealth is defined in Section 2(m) and means the assets, wherever
located, belonging to the assessee.

94. Assets include property of every description, movable or immovable.

95. Section 3 is subject to Section 21 of the Act, and Section 21, as it stood at the relevant time, in so far as it is necessary for our purpose, is extracted below :

“21. (1) In the case of assets chargeable to tax under this Act, which are held by a court of wards or an administrator-general or an official trustee or any receiver or manager or any other person, by whatever name called, appointed under any order of a court to manage property on behalf of another, or any trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise (including a trustee under a valid deed of wakf), the wealth-tax shall be levied upon and recoverable from the court of wards, administrator-general, official trustee, receiver, manager or trustee, as the case may be, in the like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf the assets are held, and the provisions of this Act shall apply accordingly.”

“21. (4) Notwithstanding anything contained in this section, where the shares of the persons on whose behalf any such assets are held are indeterminate or unknown, the wealth-tax may be levied upon and recovered from the court of wards, administrator-general, official trustee, receiver, manager or other person aforesaid as if the persons on whose behalf the assets are held were an individual for the purposes of this Act.”

96. Section 5(1) providing for exemption extracted :

“5. Exemption in respect of certain assets.–(1) Subject to the provisions of Sub-section (1A), the wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-

(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India. ”

97. Section 3 of the Wealth-tax Act is subject to the other provisions of the Act and thus subject to Section 21 also. No assessment can be made under Section 3 “apart from and without reference to Section 21″. The assessment on a trustee must necessarily fall under Section 21 and whenever a trustee is sought to be assessed, the assessment must be made in accordance with the provisions of Section 21. What is taxed under Section 21 is ” the interest of the beneficiary in the trust properties” and the Department has the option to proceed against the beneficiaries or assess the interest in the hands of the trustee in a representative capacity. The trustee is assessable “in like manner and to the same extent” as the beneficiary and, therefore, (a)” the amount of tax payable by the trustee would be the same as that payable by each beneficiary,in respect of his beneficial interest, if he were assessed directly ” ; (b) the assessment of the trustee would have to be made “in the same status as that of the beneficiary” whose interest is sought to be taxed in the hands of the trustee ; and (c) there could be as many assessments as there are beneficiaries, though there may be only one assessment order. When thus the beneficiary’s interest alone is taxed, “it must follow as a necessary corollary that no part of the value of the corpus in excess of the aggregate value of the beneficial interest can be brought to tax in the assessment of the trustee”. It is, therefore, obvious “that no part of the corpus of the trust funds could be assessed in the hands of the asses-see”. In this view, it is unnecessary for me to probe in further detail whether the income derived by the assessee-trustee on behalf of the beneficiaries “belonged to him” in which case alone the liability under Section 3(1) of the Act would have arisen, though under the basic principles of trusts, the trustee does not have the ownership of the beneficial interest.

98. The income derived by the assessee as a trustee on behalf of the beneficiaries is thus liable to be taxed under Section 3 read with Section 21. As the assessment of the trustee would have to be made “in the same status as that of the beneficiary”, the status and liability of the beneficiary assume relevance and importance to fasten liability on the trustee. If the beneficiary cannot be made liable, the trustee also cannot be held liable. It is, therefore, necessary to consider whether the beneficiary will be exempt under Section 5(1) and for that purpose, the nature of the trust, whether it is a public charitable trust, has to be considered. The nature of the trust created under paragraph 8 of the deed thus becomes the crucial aspect. This trust has been held to be a public charitable trust in Commr. of Agrl. I.T. v. Abdul Sathar Haji Moosa Sait [1971] 81 ITR 230 (Ker). On appeal, the Supreme Court in A.S.H.M. Sait Dharmastapanam v. Commr. of Agrl. I.T. [1973] 91 ITR 5 has also held that the deed creates two trusts, a public charitable trust as held by the High Court, and a private trust in respect of the remaining income. The public character of the trust created in paragraph 8 of the deed can, therefore, be no longer in dispute. If so, the exemption claimed under Section 5(1) automatically follows.

99. I am, therefore, of the view that the decision of the Supreme Court in Nizam’s Trust’s case [1977] 108 ITR 555, squarely applies to the facts and circumstances of this case and the assessee is entitled to exemption under Section 5(1) of the Act.

100. Counsel for the Revenue, however, contended that the deed should be read as a whole and that only 1/4th of the income is set apart for a public charitable purpose while 3/4ths of the income is to benefit the founder’s family and, therefore, the trustee is not entitled to any exemption under Section 5(1) of the Act. He stressed that the court has to take note of the dominant intention of the testator, and if the lion’s share, viz., 3/4ths of theincome is set apart for private purposes, the deed cannot be held to create a trust for a public charitable purpose. This submission ignores two vital aspects: (1) that, there is already a decision that the income specifically set apart in paragraph 8 is for a public charitable purpose and there is nothing to show that the previous decision, though under another, but similar provision, has to be ignored ; and (2) that the same document can create more than one trust. The will executed created two trusts and the dominant intention has to be gathered in respect of each trust. If so, it seems to be very clear that the dominant intention that can be gathered from the recitals in paragraph 8 is that the testator intended to create a public charitable trust. It is significant to note that under the two trusts created under the deed, there are two classes of beneficiaries–two different categories–one public and the other, the members of the founder’s family. The contention of the Revenue in this regard cannot be accepted.

101. The Revenue then contended that the corpus has not been earmarked for any public charitable trust and at best paragraph 8 can only relate to the income and not to the corpus of the property. If the corpus was not entitled to the benefit of exemption under Section 5(1) of the Act, it is contended that the provision for exemption cannot be relied upon when the trustee is made liable to pay under Section 21. In other words, the contention is that the application of Section 5(1) will arise only before and not after secton 21 is applied. I cannot agree. The exemption provision of Section 5(1) specifically says that wealth-tax shall not be payable by an assessee in respect of the exempted assets. The payment by the asses-see will arise after an assessment is made. The assessment can be made only in accordance with the provisions contained in Section 21. At that stage, therefore, a decision has to be rendered whether the income in the hands of the trustee is property held by him for any public charitable purpose. Otherwise, the result would be that the beneficiaries of a public charitable trust when proceeded against, will not be liable to pay any wealth-tax while the trustee who derived such income from the same properties and retained and utilised them on behalf of the beneficiary will be liable to pay the tax. As stated already, the liability of the trustee is co-extensive with that of the beneficiary and if the beneficiary is entitled to exemption, the trustee also is entitled to the same statutory protection. The applicability of Section 5 will, therefore, have to be considered when the statutory liability arises under Section 21. Moreover, when a trustee is made liable under the wealth-tax, the income and not the corpus is the basis for taxation.

102. It was argued that only property which is transferable can be assessed to wealth-tax and the beneficial interest is not transferable under Section 8 of the Trusts Act. Section 8 of the Trusts Act as such may not apply, even though the principles stated therein are of universal application. I believe that the contention is misconceived for the reason that a trust postulates an obligation annexed to the ownership of property for the benefit of another or of another and the owner. Thus it is that we have the author of the trust, the trustee and the beneficiary. The Trusts Act specifically states in Section 3 that the “beneficial interest” or “interest of the beneficiary” is his right against the trustee as “owner of the trust property”. The subject-matter of the trust in this case is property transferable to the beneficiary, the income as specified in paragraph 8. Paragraph 8 does not involve “a transfer of a mere beneficial interest under a subsisting trust” to attract the vice of Section 8. Section 8 of the Trusts Act only provides that when once a trust is created, when that trust is subsisting, the beneficial interest created under that trust shall not be the subject-matter of another trust, for, then, the object for which the original trust was created is frustrated. In the present case, paragraph 8 created an independent trust for the benefit of the public and there is no transfer of that beneficial interest, the ownership continuing in the beneficiary, viz., the public as specified therein.

103. The contention that the deed creates a trust over a trust is equally untenable. In the present case, there are two different, independent and separate trusts. This is not a case of one trust created overlapping with another trust.

104. What is sought to be assessed is the income from the trust properties. It is the trustee who is to be proceeded against and not the beneficiary and, therefore, the income in his hands alone constitutes wealth. That income is property and that property is held for a public charitable purpose and in this view, the assessee will be entitled to the protection of Section 5(1) in respect of the income which he derives under the terms specified in paragraph 8 of the trust deed.

105. For the reasons stated above, question No. 2 is answered in the negative, i.e., against the Department and in favour of the assessee.