COMMISSIONER OF WEALTH TAX vs. PRASHANT JIVANLAL KINARIWALA

WTR/39/1987HC GujaratGJHC24012215198724 September 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages

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What did the High Court hold?

The High Court held that the issue was settled by its own decision in Sunil J. Kinariwala vs. C.I.T., 211 I.T.R. 127. In that case, it was held that if an assessee divests himself of the income-producing apparatus or asset by creating an overriding title in favour of the beneficiaries of a trust, the income arising from such assets is not taxable in the hands of the assessee. Applying this principle, the Court found that once the income-producing apparatus or asset was transferred by an overriding title to the beneficiaries of the Trust, there was no reason to hold that the transferred interest would constitute wealth assessable in the hands of the assessee. Therefore, the Tribunal was correct in holding that the amount of Rs. 2,08,889/- could not be included in the net wealth of the assessee. The question referred to the Court was answered in the affirmative, in favour of the assessee and against the revenue.

What were the facts?

The assessee, Prashant Jivanlal Kinariwala, created a family trust and transferred 40% of his share of profits and 19% of losses from the partnership firm M/s. Ramniklal Jivanlal and Co. to this trust. The assessment year in question is 1979-80, with the relevant valuation date being 31/12/1978. The Income Tax Officer treated this transfer as invalid and included the income in the assessee's hands. Consequently, in wealth tax proceedings, the Wealth Tax Officer held that the transferred capital interest still belonged to the assessee and was includible in his net wealth. The Appellate Assistant Commissioner and the Income Tax Appellate Tribunal (ITAT) deleted this addition, following their view in the income tax proceedings.

What were the issues?

1. Whether the assessee had validly transferred 40% of his share of profits and 19% of losses from the partnership firm M/s. Ramniklal Jivanlal and Co. in favour of the Prashant J. Kinariwala Family Trust, thereby creating an overriding title. 2. Whether, as a result of such valid transfer, the amount of Rs. 2,08,889/- could be included in the net wealth of the assessee. Assessee's Contention: The judgment does not explicitly record the assessee's arguments, but it implies that the transfer created an overriding title, divesting the assessee of the income-producing apparatus or asset. Revenue's Contention: The revenue argued that the transfer was invalid and the interest in capital still belonged to the assessee, making it includible in his net wealth. The revenue relied on the Income Tax Officer's initial assessment.

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

WEALTH TAX REFERENCE No 39 of 1987

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

Whether it is to be circulated to the Civil Judge? : NO

The order continues below.

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