WTO NON CORPORATE WARD - 1 (1), CHENNAI V. M/S. MURASOLI MARAN FAMILY TRUST, CHENNAI

WTA 12/CHNY/2022

AI Insights

The case revolves around the Wealth Tax assessment of the Murasoli Maran Family Trust for the Assessment Year 2006-07. The Wealth Tax Officer had reopened the assessment under Section 17 of the Wealth Tax Act, adding the value of certain properties and cash as taxable wealth. The Trust contested this assessment, arguing that it was not liable for wealth tax as it was a private family trust with determinate shares, and the income was taxed in the hands of the beneficiaries. The Commissioner of Wealth Tax (Appeals) agreed with the Trust, leading to the Revenue's appeal to the Income Tax Appellate Tribunal. The Tribunal upheld the CWT(A)'s decision, emphasizing the legal interpretation of Section 21AA and the determinate nature of the Trust's shares.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396947 (ITAT-CHENNAI)
• Appeal Type: Wealth Tax Appeal
• Pronouncement Date: 30-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. ANITHA
• Assessee Lawyers: K. RAMAKRISHNA; C.A

Judgement Text

"आयकर अपीलीय अिधकरण ‘सी’ \u0010ा यपीठ, चे\u0016ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI मा ननीय \u001bी मनु क ुमा र िग र, \u0010ा ियक सद एवं मा ननीय एस. आर. रघुना था , लेखा सद क े सम( BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI HON’BLE S.R. RAGHUNATHA, ACCOUNTANT MEMBER WTA No.12/Chny/2022 िनधा 6रण वष6 /Assessment Year: 2006-07 The Wealth Tax Officer, Non Corporate Ward-1(1), Chennai. Vs. M/s. Murasoli Maran Family Trust, No.4, Second Avenue, Boat Club Road, Chennai – 600 028. [PAN: AAATM 0863H] (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीलाथC की ओर से/ Assessee by : Shri K. Ramakrishna, C.A EFथC की ओर से /Revenue by : Ms. R. Anitha, Addl. CIT सुनवाई की तारीख/Date of Hearing : 08.04.2025 घोषणा की तारीख /Date of Pronouncement : 30.05.2025 आदेश / O R D E R PER MANU KUMAR GIRI, J.M: The captioned appeal filed by the Revenue is directed against the order of the Ld. Commissioner of Wealth Tax (Appeals)-18 Chennai [hereinafter “CWT(A)” in short] dated 25.08.2022 for Assessment Year 2006-07. WTA No.12/Chny/2022 :- 2 -: 2. Brief facts of the case are as under:- The case is reopened u/s 17 of the Wealth Tax Act for the reason that the assessee is in possession of assets that would attract Wealth tax. In response to the notice the assessee filed return of wealth on 10.02.2014 returning NIL taxable wealth. The Wealth Tax Officer (‘WTO’ in short) completed the assessment by adding the value of property at Mahabalipuram of Rs.17,89,601/- and Boat Club of Rs.1,56,45,743/- and excess cash in hand of Rs.2,73,936/-. 3. Aggrieved, the assessee challenged the assessment order before the CWT(A). The CWT(A) allowed the appeal filed by the assessee by holding as under: “8.1 Before going into the additions made by the AO, it is pertinent to note that the appellant during the course of appeal proceedings has submitted on the issue of application of Sec.21AA which bears an effect on the assessment of AOP. The appellant's submission was, \"The appellant is a private family trust. The shares of the beneficiaries are determinate and therefore the income of the trust is distributed to the beneficiaries every year and those beneficiaries thereon pay the applicable tax. The appellant is assessed to income tax in the status of AOP all along. Therefore, as per the provisions of section 3 of the Wealth tax Act, which is the charging section, the appellant is not liable to wealth tax and hence no wealth tax return has been filed\". The appellant Trust was assessed as AOP and it further submits that, \"Without prejudice to the above, as we are a trust with the shares of the beneficiaries are determinate, the incomes are offered in the hands of the beneficiaries and the taxes were paid by them. However, the AO assessed us as AOP for the purpose of Wealth Tax. This leads to the presumption that the AO though not mentioned in the assessment has misled himself and applied the provisions of sec.21AA wrongly. Now, we analyze the technicalities of Sec.21AA(1) which reads as 'Where assets chargeable to tax under this Act are held by an association of WTA No.12/Chny/2022 :- 3 -: persons, other than a company co-operative society (for society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India), and the individual shares of the members of the said association in the income or assets or both of the said association on the date of its formation or at any time thereafter are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from such association 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 32(purposes of this Act [***]].\" Therefore, on going through the provisions of Sec.21AA of the Act it is clear that if an AOP's members have an indeterminate shares, the tax is leviable on the AOP as leviable on an individual who is resident and citizen of India. 8.2 Here, it is also pertinent to note that the appellant submitted that an AOP cannot be taxed under the charging section 3 of the WT Act, since, only three types of persons viz., Individual, HUF and Company are only subject to WT, and that is why an amendment was necessary whereby Sec.21AA was inserted by Finance Act, 1981 by which an AOP can be taxed where members' shares are indeterminate. The contention of the AO was that individual has to be understood broadly so as to include an AOP. The appellant further states that, \"The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.\" On this issue Hon'ble Supreme Court in the case of M/s.Bangalore Club Vs. CIT in Civil appeal No.3964-7 of 2007 after discussing many decisions of various Hon'ble Courts has exhaustively discussed about the issue stated that \"..it is clear that if Sec.3(1) alone were to be looked at, the Bangalore club neither being an individual nor a HUF nor a company cannot possibly be brought into the Wealth Tax net under this provision\" On the same issue it also stated that, \"..in the case of charging Section 3 of the WT Act, the phraseology of the charging Section 3 of the Indian Income-tax Ac t, 1922 has not been adopted. Unlike Section 3 of Income-tax Act, Section 3 of Wealth Tax Act does not mention a firm or an association of persons or a body of individuals as taxable unit of assessment.\". The assessee here is a private trust and shares are determinate as per the Trust Deed dated 28.06.1983. Therefore, on this issue the appellant has a case and thus its grounds are allowed. Due to the allowance of this main ground, the WT additions made on various properties overlooking the issue of Sec.21AA of the Act are struck off. WTA No.12/Chny/2022 :- 4 -: 8.3 Therefore, going through the intricacies of Sec. 21AA and Sec. 3 of the Act, and on the basis of the discussions above, I find no legal validity in the AO's WT assessment Order for the AY 2006-07. 9. In the result, the appeal is treated as allowed.” Now, the revenue is in appeal before us. 4. The ld. DR, Ms. Anitha, Addl.CIT submitted that the Ld. CWT(A) has overlooked the Section 21AA of the Wealth Tax Act. She further submits that the CWT(A) has not given specific finding as to whether the shares of the members are determinate. 5. The Ld. counsel for the assessee reiterated the submissions which were taken before the ld. CWT(A). “The appellant is a private family trust. The shares of the beneficiaries are determinate and therefore the income of the trust is distributed to the beneficiaries every year and those beneficiaries thereon pay the applicable tax. The appellant is assessed to income tax in the status of AOP all along Therefore, as per the provisions of section 3 of the Wealth tax Act, which is the charging section, the appellant is not liable to wealth tax and hence no wealth tax return has been filed. Without prejudice to the above, as we are a trust with the shares of the beneficiaries are determinate, the incomes are offered in the hands of the beneficiaries and the taxes were paid by them. However, the AO assessed us as AOP for the purpose of Wealth Tax. This leads to the presumption that the AO though not mentioned in the assessment has misled himself and applied the provisions of sec 21AA wrongly. For the purpose of argument, the provisions of section 21 AA are extracted below for the convenience: Assessment when assets are held by certain associations of persons. 21AA. (1) Where assets chargeable to tax under this Act are held by an association of persons, other than a company or co-operative society \"for society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force WTA No.12/Chny/2022 :- 5 -: in any part of India), and the individual shares of the members of the said association in the income or assets or both of the said association on the date of its formation or at any time thereafter are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from such association 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 32[purposes of this Act [***]]. Underlining is for the purpose of emphasis From the above it is clear that even the provisions of sec.21AA are not applicable to our case as shares are determinate - Copy of the trust deed is enclosed. In this regard your kind attention is invited to the decision of the supreme Court in the case reported as 229 ITR 1 (SC) in which the lordships have held that- \"...Three units of assessment have been mentioned in the charging section, individual, Hindu undivided family and company. The contention of the revenue is that 'individual' has to be understood broadly so as to include an association of persons. The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. Unlike the Income-tax Act, 1961 which is also a direct tax, the charging section does not speak of a body of individuals or an AOP or a firm. If the legislative intent was to tax the wealth of a body of individuals or an AOP or a firm, the Legislature would have said so in so many words as was done in the Indian Income tax Act. The Legislature, however, decided to exclude \"firms, association of persons and body of individuals\" from the ambit of the charge of wealth-tax. What has been specifically left out by the Legislature cannot be brought back within the ambit of the charging section by implication or by ascribing an extended meaning to the word 'individual so as to include whatever has been left out..\" The position has been placed beyond doubt by insertion of section 21AA in the Wealth-tax Act itself. This amendment was effected by the Finance Act, 1981 with effect from 1-4-1981. It provides for assessment of association of persons in certain special cases and not otherwise. Section 21AA is: \"Assessment when assets are held by certain associations of persons. -(1) Where assets chargeable to tax under this Act are held WTA No.12/Chny/2022 :- 6 -: by an association of persons, other than a company or co-operative society or society registered under the Societies Registration Act, 1860(21 of 1860) or under any law corresponding to that Act in force in any part of India, and the individual shares of the members of the said association in the income or assets or both of the said association on the date of its formation or at any time thereafter are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from such association 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. It will be seen that the assessment as an association of persons can be made only when the individual shares of members of the association in the income or assets or both of the association on the date of its formation or any time thereafter are indeterminate or unknown. It is only in such an eventuality that an assessment can be made on an association of persons, otherwise not. Sub-section (2) of section 21AA deals with cases of such associations as mentioned in sub-section (1). That means only association of persons in which individual shares of the members were unknown or indeterminate can be subjected to wealth tax. Sub- section (3) also deals with association of persons referred to in sub- section (1). Sub-sections (4) and (5) deal with some consequences, which will follow the members of an association of persons spoken of in subsection (1) in the case of discontinuance or dissolution.\" Therefore, in our view, section 21AA far from helping the case of the revenue directly goes against it. An AOP cannot be taxed at all under section 3 of the Act. That is why an amendment was necessary to be made by the Finance Act, 1981 whereby section 21AA was inserted to bring to tax net wealth of an AOP where individual shares of the members of the association were unknown or indeterminate. Therefore, on this count also the assessment is illegal and void, as the appellant trust is not liable to wealth tax at all. Therefore the rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words he cannot be taxed at all. The learned AO has never made an effort to understand as to how when the shares are determinate, we are assessable to wealth tax and failed to show how even sec.21AA is applicable. Hence the assessment made on presumption without any backing of law is illegal and void The CIT(A) may annul the assessment.” WTA No.12/Chny/2022 :- 7 -: 6. We have heard the rival submissions and perused the record and case laws filed. We find that there is nothing on record to suggest that the shares of the members are indeterminate. Instead, it is the case of the assessee that the appellant is a private family trust. The shares of the beneficiaries are determinate and income of the trust is distributed to the beneficiaries every year. The beneficiaries offered and pay their applicable tax thereon. In any event, it is not the case of the revenue that particulars of members were unknown or their interests in the assets of the trust were indeterminate. 7. Hence, following the judgment of the Hon’ble Supreme Court in the case of CWT Vs Ellis Bridge Gymkhana [1997] 95 Taxman 143 (SC)/[1998] 229 ITR 1 (SC) and M/s Banglore Club Vs CWT AIR 2020 SC 4204, we are of the considered view that the assessee is a private trust and shares are determinate as per Trust Deed dated 28.06.1983. Hence, we affirm the order of the ld. CWT(A) in toto. 8. In result, the appeal of the Revenue is dismissed. Order pronounced on 30th May, 2025. Sd/- Sd/- (एस. आर. रघुनाथा) (S.R. Raghunatha) लेखा लेखा लेखा लेखा सद\u0011य सद\u0011य सद\u0011य सद\u0011य /Accountant Member (मनु क ुमार िग र) (Manu Kumar Giri) \u0010ाियक सद / Judicial Member चे\u0013नई/Chennai, \u0016दनांक/Dated: 30th May, 2025. EDN/- WTA No.12/Chny/2022 :- 8 -: आदेश क\u0019 \bितिल प अ े षत/Copy to: 1. अपीलाथ\u0007/Appellant 2. \b थ\u0007/Respondent 3. आयकर आयु\u000f/CIT, Chennai 4. िवभागीय \bितिनिध/DR 5. गाड\u0018 फाईल/GF "