Law: Wealth Tax Act, 1957

Section: 5,5(1)(i)

[Indian Wealth Tax Act, 1957].......Section 5(1)(i)-Wealth Tax-Exemption--Charitable and religious trust-Objects including spending of income outside the taxable territories-Trustees deciding not to spend outside the taxable territories-Decision not exercised irrevocably-Whether entitled to exemption-Held no. The Nizam created the Nizams Religious and Endowment Trust with securities of Rs. 40 lakhs for carrying out the objects of the trust specified in the trust deed. While two objects of the trust deed enjoin the trustees to spend income on the objects within the taxable territories, the other two require the trustees to spend on objects outside the taxable territories. While expressing desire that the income should be spend for all the four purposes equally, the settlor, however, left absolute discretion with the trustees to spend the income in such shares and proportions and in such manner as they deemed lit During the lifetime of the settlor, the income should be accumulated and the trust becomes effective only after the death of the settlor. After the death of the settlor, the trustees have resolved to spend the income of trust on objects within the taxable territories. The claim of the assessee for exemption under Section 5(1)(i) of the Wealth Tax Act was rejected by the Wealth Tax Officer. On appeal, the Appellate Assistant Commissioner confirmed the levy of wealth tax on the trust property. On further appeal, the Tribunal allowed the claim of the assessee. On a reference at the instance of the revenue: Held, that in order to be entitled to exemption under Section 5(l)(i) of Wealth Tax Act, the property must be held under trust for religious and charitable purposes and such purpose must be confined in its scope to the taxable territories. Under the Income Tax Act, it is immaterial whether the charitable or religious purpose for which the trust is created are confined to the taxable territories, it is essential that they must be applied or accumulated for application or set apart for application within the taxable territories and thus the area of application of income is relevant under the Income Tax Act. However, under the Wealth Tax Act, area of purpose…

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