H. H. YESHWANT RAO GHORPADE vs. THE COMMISSIONER OF WEALTH TAX, BANGALORE

CIVIL APPEAL No. 1133/1965Supreme Court1966 INSC 12406 May 1966Bench: 3 JudgesAuthor: K.N. WANCHOO, J.C. SHAH, S.M. SIKRI17 pages
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What were the facts?

The assessee, H. H. Yeshwant Rao Ghorpade, created two trusts in August 1957: a charitable trust and a family trust. He transferred shares to the family trust, which stipulated that during the minority of his three children, the property would be vested in trustees for the benefit of the charitable trust. After specified periods, the corpus and income were to be held for the beneficial ownership of the children. Clause 9 stated that beneficiaries' interests would vest immediately upon execution. Clause 21 allowed trustees to use income for the charitable trust or accumulate it. Clause 26, however, allowed trustees to expend income for the beneficiaries' maintenance, education, health, marriage, and advancement. The Wealth Tax Officer and Appellate Assistant Commissioner included the value of these shares in the assessee's net wealth for assessment years 1958-59 and 1959-60, citing Section 4(1)(a)(iii) of the Wealth Tax Act, 1957. The Appellate Tribunal reversed this, but the High Court ruled against the assessee.

What did the Supreme Court hold?

The Supreme Court, in a majority decision (per Wanchoo and Sikri, JJ.), held that the shares transferred to the trustees were not held for the benefit of the three minor children as on March 31, 1958, and March 31, 1959, within the meaning of Section 4(1)(a)(iii) of the Wealth Tax Act, 1957, and therefore could not be included in the net wealth of the assessee. The reasoning was that by the terms of the deed, the charitable trust was entitled to the income of the shares during the years before the minor children attained majority; the children had no interest in that income during that period. Thus, it could not be said that the settlement was for the immediate benefit of the minor children. The Court also held that the words 'immediate or deferred' introduced into Section 4(1)(a)(iii) by Act 46 of 1964 were not merely declaratory but made a deliberate change, and the word 'benefit' prior to the amendment meant 'for the immediate benefit of the individual or his wife or minor child'. The majority allowed the appeals. Justice Shah, in his dissenting opinion, held that the primary intention was to provide for the children, and Clauses 9 and 26 together indicated a vested interest immediately arising in favour of the children, making the shares liable for inclusion in the assessee's wealth.

What were the issues?

1. Whether the word 'benefit' in Section 4(1)(a)(iii) of the Wealth Tax Act, 1957, meant 'immediate or deferred' benefit, or only immediate benefit, prior to the 1964 amendment. 2. Whether the amendment to Section 4(1)(a)(iii) by the Wealth Tax (Amendment) Act, 1964, introducing the words 'immediate or deferred', was merely declaratory or made a substantive change. Assessee's Contentions: The assessee contended that the shares were not held for the benefit of the minor children within the meaning of Section 4(1)(a)(iii) of the Act, as the income was primarily for the charitable trust during the children's minority. The assessee also argued that the amendment by Act 46 of 1964 was not merely declaratory. Revenue's Contentions: The Revenue argued that the word 'benefit' in Section 4(1)(a)(iii) meant 'immediate or deferred' benefit. They further contended that the amendment by Act 46 of 1964 was in effect only declaratory and that the intention of the settlement, as evidenced by the preamble and other terms of the family trust deed, was to make a settlement for the benefit of his minor children even prior to the amendment.

Which sections of the Income-tax Act were involved?

Section 4(1)(a)(iii),Section 27(1)

AI-generated summary — verify with the full judgment below

• • ~,..( L I I B c 419 H. H. YESHWANT RAO GHORPADE v . THE COMMISSIONER OF WEALTH TAX, BANGALORE May 6, 1966 [K. N. WANCHOO, J.C. SHAH ANDS. M. SIKRI, JJ.] Wealth Ta:c Act 1957, s. 4(1)(a)(iii)-whether the word "benefit" meant '1immediate 01' deferred" benefit or only imm.ediate bene- ~ .

Wealth TilJJ: (Amendment) Act 1964, s. 4-effect of-whether only declaratory, In August 1957 the appellant created two Trusts by two sepa- rate deeds one of which was a charitable trust and the other a fa- mily trust'. He then transferred certain shares to the family trust the scheme of which was that during the minority of each of three children of the appellant the property in Schedules A, B and C' to the deed qua each beneficiary was to remain vested ir. the trustees for the benefit of the charitable trust, and after the expiry of the D period specified in each case, the corpus and income was to be herd for the beneficial ownership of the three children. E F G H By C'Iause 9 df the family trust deed, it was provided that the interests granted or created in the respective beneficiaries shall vest in them immediately upon execution of the deed; Clause 21 conferr

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