COMMISSIONER OF WEALTH TAX, BIHAR, PATNA versus MAHARAJA KUMAR KAMAL SINGH

J. These appeals by certificates arise against a decision of the Full Bench of tho Patna High Court. Several. . questions were referred to the High.Court of Patna under Section 27 (1). · of the Weahh Tax, Act, 1957, hereinafter re.ferred to as lhe Act. Two of these qu;ztions have been answered .against the assessee, one was held to be not entertainable and one misconceived. The question answered against the revenue in that reference before the High Court wa• question· No. (iii) meatione·c'. in the judgment of B.D. Singh. J . . and .th~ question as follows:-

p. 636, margin C

"Whether, the facts and circumstances of the case, t)le Tri.bunal was right in . including in the assess's net wealth. a positive figure, ·on account of Zamindary compensation wito\Jt taking into consideration th.e arrears of agricultural . income tax instead of.taking the figure of compensation receivable from Government of Bihar at mil'.

p. 636, margin E

Tn ord~r to appreciate the question, it may. be ncessary to nofer to some facts. The question involved before the Full Bench was for the ~ssessment years I 959-60, 1960-61, and H6I-62, .rnrresponcl.'ng valuation .dates of· which were the 3lst October, 1958, 3rd Octob~r, '1959 and 31st October,.1960:lThe assessce is an individual. His estate vested in the State of Bihar under the Bihar Land Reforms Act, 1950 on ·and from' 1st July, 195_2, and he is entitled-to recieve compensation under the Act from the government, Under Section 3 of the. Act, the · ·question arose about the inclusion in the, assessee's "net wealth" the value. of the estimated amourit of compensation receivable· by him • ,

p. 636, margin F

·~ fro,m the Bihar Government under the Bihar Land Reforms Act,, J 950. In the assessment year 1959-60, the Wealth-tax Officer estimated the ' value at is. 10,25:123 and· included· it in the n•i wealth onhe assessee. For the assessment vears l 960-6r and 1961-62, the assessee

p. 637

produced Jetter from the District C~llector; Arnih, to show that the. · , assessee is entitled to compensation of Rs. 4,39,713 only .. The wealth-tax 'officer estimated 75% the,eof as the market value of the right ·of the ass~ssee to receive the compensation. Accordingly he included· the assessee's net wealth ·Rs. 3,29,784. · On appeal, tlie

p. 637, margin A

Appeilate Assista.nt Commissioner 'reduced the valuati01i for· the. Jst -< year to Rs. \29;?84. For the riext two .years, namely 1960-61 and 1961-62, the Appellate Assistant Commissioner held that it would ·be reasonable to est1rnate the market. value· of the compen<ation to be'received ·by the ~ssessee at.65°1, of the face valu~.

p. 637, margin B

The assessee preferred ·appeals before the Appellate Tribunal regarding assessments for the aforesaid three years and reiterated his contention· tliat the' right to receive compensation under'. the Land Reforms Act not aq asset within the' meaninr: or' Section 2 ,(m) of the Act and. cou1d not be inclu{i.ed in the assessee's net wealth. The --Tribllnal held that the estiniat~d amount of · za1nind1ri colTjpensation .. payable· to th~ assessee 'was an ·as'set and had to. be iuclu(l.ed in the assessee's net wealth, However, it directed the Wealth-tax Officer to

p. 637, margin C

. '

p. 637, margin D

estimate !he value atid compensation be re~eiveci. by the assess_ee .at L65% even for the rst year, i.e 1959-.60, as w!'ts <'.one by,the Appellate\ ·.Assistant Commissipner whh regard to .th.e s~cond and third yearn i.e.- 196Q-61 and 1961-62. l ·

p. 637, margin E

The contention: of the asessee fUrther that the unpaid agricu.itural income-fax as a .debt was lieductihe while computing. his net wealth. , , His claim was that this. debt was Rs.' 5,10,831 in the first year,> Rs. 4,76;46LOO in the second year an\i Rs. 4,75,706 in the 'third year. A sum of· R < ·' 24.430 being agricultural income-tax demand for 1363 fasli was allow.er. to be. ~.<'ducted by the Wealfh-dx: _Officer .for ·the second and third yCars" arrears of inCome~ tax, ihe assessee had. pro<1.uced Government letter io show that the . amount of compensation receivable by the assessce would be nil. Accor-·. ding to the enquiries fron1 the re.venue depart1nellt. ·11 also ~ppcarect that the final con;ipcnsation money.payable in respe~t of th• assessee's zamindari was less than the a·gricu'ltµral ii\com.,.,tax dues outstanding aganist ·him,.and·so.it was hot possible to effect r.ealisatiort of t~e dues ·' of ai;ricu1tural income-tax only by adjustment from the final compensation muney. The Triqunal, therefore, held that except Rs. 2(430 which was agricultural income-tax demand for 1363 fasli and .which. was allowed to be deducted by the wea!th-.tax Officer, thi; other amounts as 'cla.i;ned by the assessee were not 'deductible as the arrears were outstanding for more than ·12 months, in view of th<i provisi01;is contained under Section. 2 (m)of the Act and the Government Jetter was.·

pp. 637–638, margin E

. ' not f>t all h.elpful to the assess.ee. Then reference was·made to the High Court under Section 27(1).of the Act raising five questions out of which .. question No._ (iii) as set out ·hereinbefore is before us.

p. 638, margin B

The questiOns before the High Court including' t\le question w,hich is before us were referred to a Foll Bench of the court and the reference was disposed of by .the 'Full Ben.ch o( Patna High Court on 17th September, 1~'71: anil the decision is reported in 84 LT.R. p. 240.

p. 638, margin C

The Fu'H-Bench decided.the. question ,in issue before us against the revenue and in favour of the assessce holding thereby that in the facts arid circumstances of the case as · nothirg was receivable 1'y the assessee--in view of the arrears of agricultural· inCcmc-taX, t.he value of the asset to the assessee was nil. · · ·

p. 638, margin D

. .

p. 638, margin D

Though at one point of time .there was certain controversy as to whether the right t~ receive comp!n~sati9n on ·the vesting of the estate of the appellant m the" Government was an asset a11d as .such ·fts .value had to bi; taken in computing the net value of assets or not,. . There is t\o doubt that it is and it was not urged before us that it is not an·;rsset. The only questioil, is:· how should it be va.lued. H was cori-. tended before us that the Act pcohibit~ setting off of deductions of debts which are outstanding for more than .. 12 months .on account of · the arrears of 'tax· on income, agricultural or otherwise. - Therefore .it was urged that if the arrea;s of agricultural inc0111e-tax. due as in .this case· are taken into account against the value of the. compensation receivable by . the asse.ssee, then it would not •be in accordanc.e with

p. 638, margin E

the scheme of the .Act and it would permit defeating the intention of ·,the legi~lature, namely, permitting deduction of arrears of .agricul\ural income-tax•outstanding for more than 12. months by indirect meihod which is prohibited c\irectly in terms .of Section 2 (m) (iii) of th.i; Act ·This.is the que.stion for our consideration in these app.eals. .. · · ·i

pp. 638–639, margin E

·we may at a glance examine. the pro~isiori," or"the llihar Land Reforths Act, under which compensation was pa'yable .t0 the asseisee · and the 'value of which was under consideratio.n in this case. Before · we do that, it is necessary to note the r~levant pro~isions ofthe Wealth Tax Act and to find out the scheme under ih~ W_ealth 'fax Act~. to how the assets have to be val~ed. Section 3 of the said Act is the charg- . ing section which imposes a tax for. every assessment year in respect of' th!' net wealth on the corresponding valuation date. Section 4 make.• some deeming inclusion of certain assets as assets ofthe assessee. It i•·

p. 639, margin A

not necessary to deaLwith these in c'.etail ii'iitit may be mentione<l that ~certain assets which are not standing· in the name .cif th~ asses see ire · ··included .in the net wealth, for exa,mple,. assets •transferred to spouse : or· minor child or partner of a firm etc. These deal with the assets wh1'ch are not in the name or standing in the name.of assessee· but .which .. really belong to the a.ssessec acc\mi.ing. to the scheme. of the legislation

p. 639, margin B

may note }iere as·-it.w~:.S conVaS-scrl. before us.that under sub·-sectjon _ we (3) of Sectio~ 4 of the Act which ·provides that w.here the value ohny asset is to, be ihcluded. in the net' wealth of a·~ assessee ii~ accordance - with cbuse (a)' of sub,se~tion (l) or sub-sMion (JA).11\ere ·shall be ·ded'uced· from such valuQ>any debts owing on the valuation <late by· the tfansferree mentioned i~ that clause in so f~r as such debts are

p. 639, margin B

' . .. . referable to' such assets; .and the provisions of Section 5 shall apply

p. 639, margin D

in·rehitiOn to s~cli.~ssets as Ir s·ucJi a·}sE:ts'.were assets ~o th.~ · assessee. S~ction 5 deals with the exemption of certain assets. I· Section 6 excludes .. ce.rtain -l,;sets an_d ·debts ?utside India_: . Section '-<l.-1 1s import.ant which ·provides~ the metho0 .. how the .1• . to be assessed. ·n -provides th.at it shall be esti'matec\ to be the price which in the. opi,Jlion of the Wealt!Hax Officer ii wol)ld fetch if sold in the open market on the valuation .date.' Section 2 (m) clea1'· -..·ith '_'n~t wealth" _upon wliich tax is levied and read• as follows :

p. 639, margin D

.. . "2 (m)-"nei wealth" me~ns the ~mount by which. the i aggregate value· co~puted. in accordance . with the. provision• of ·this .Act of all tlfe assets,· wherever located, belonging, to tho , assessee on the Valuation date, including assets required to b6 induded in his net wealth as on· that date under thi• Act, ii

p. 639, margin E

excess.of the. aggregate value pf all the debts m;,ed by the aoie .. ec ~-· on the valuation c.,;te other than-. . . • (i) .debts which ·under section 6·are not t• bO tak•a ·isl@ account;

p. 639, margin G

..

p. 640

SUPRE~fE [1984] 2 s.c.R. (ii) debtn~hich are secured· on or which !)ave been incurred in . relation to, any property in respect of which wealth-tax is

p. 640

not chargeable under this Act;, and • . (iii) the amount of the tax, penalty or interest apayable inconsequcnce of any order passed under or in pursuance of this.· Act or any law relating to taxation of income or profits, - or the Estate :buty Act, 1953 (34 of !953j, the Expe.rlditure Tax Act, 1957 (29 ofl957),.j)r the Gift-tax Act, 1958 (18 of

p. 640, margin A

1958),- . . . - , (a) which is outstanding on the valuation date and- is claimed by the assessee in appeal, revision or other proceed-

p. 640, margin B

ing as not being payable by liim; or (b) which, although not claimed by the assessee as not being· payable by 'him, is rit!Vertheless, outnding for a period of more than twelve months on ·the valuation

p. 640, margin B

,·date".

p. 640, margin D

The main contention of the revenue is •that the amount of tax, penalty 01; interest payable in consequence o'f any order passer. unc'.er or in pursuance of the ACt. or any lawrelating to taxation of income___}or profits, or the Estate Duty Act which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proccedillgs as not being payable by him and which, although not claimed by the assessee as not .being payable by him, is ll!'vertheless_ outstanding for more than twelve months on the valuation date should not be considere~. to be debt entitled to be deducted from net wealth. 'Net wealth' as we have noticed mearis the amount by which the aggregate value computed in accordance with the P!ovisions of the, Act, of all the_ assets wherever.located, belonging to theassessee 'is in excess of the aggregate value of all debts exclml.ing the debts mentioned in Section 2 (m) of the Act. Therefore the scheme of·imposition of wealth tax in ,case of an assessee which is not a company and the present assessee is not a company ahd the c0mputation ~f the wealth tax of an asses see which is a company might be done under s.ub-sectlon (2) of Section 7 of the Act,. must be ·done by fir~t estimating the value of the assets in in acc_ordance with the provisions of .'the Act. That is the first 'step. ·Therefore the estimation of the value of the assets is first necessary

p. 640, margin D

· c:w.T, v. KAMAL (lefukharji, J.)' 64\ in accordance with the provisions of the- Act: The material provision of the Act forthb-1:mrpcise in the' said Act would be Section 7 (I) _which enjoins,hc-,Wea•th·tax Officet"rn case Of an asset other _t:ha!'- cash(to estimate the. prk'- which, in his opinion, it would fetch if sold in t]\~. open market on rne valuation date. 1:hcrefore tlw first step in the facts and circumstances of this case was .that the Wealth-tax Officer to esti! mate the. price .which in his opinion the right to compensation of the assessee would fetch if sold ju the open market, and· after determining the value in the manner aforesaid to deduct therefrom debts owed by

p. 641

. the assessee excluding however the debts which are m'entioned in clause ' '~~ (i), (ii) and (iii) of Section 2 (m) of the Act.

p. 641, margin A

. . . ' - .. _ Keeping this scheme .. Jr, the Act in "mird. we have to examine the nature of compensation under Bihar Lant! Reforms Act, 1950 .. Section 3 provides• for th~ notification vesting an cst~te 'or tenure in the .State and from-'the date· specified·in the notification, the estates· or

p. 641, margin C

. ' tenures of a proprietor or te_nureholder,·~pecified in the notification, will pass oi: to and become vested in the State. ,It is 'not disp~ted that · iii"this case this has happened in respect of,the property in question. . ,section'. 4_ deals with the consequences of the vesting of an estate or tenure in the State and stipulates different conseque&es. We are riot really concerned with-.all the various consequences. We may,'h-.;wever, • mention clause (c) of SectiQn 4 which is important for our pi·esent purpose. It provides as it in<\icates .that the arrears of re.venue and

p. 641, margin C

remainin)I ]awfully due in respect of the estate tenure shall coritinue to be recoverable from him in spite o~the vesting of the estate· and "shall without_ prejudice ·to any· other 'rnod,e af recovery, be recoverable (emphasis supplied) when so ordert:<l, by· the Collector, by the (!,eduction thereof from the amount payable to such interrnediary ·under Section 32, Section 32A or Section 33". Reference was made to Section, 14 which _deals with__pro~isions r~lating to certairidebts of proprietors and tenure-holde!S. 'sections 19 '23 arid-24 were also referred to. which we do not thiJi,k are material for our present purpose. Section 26 onwards deal with the p1iblication ofCompeus~tion · Assessmeni-rdll. Section. 32 provides for the .manner of pay- . ment of compen•ation. 'Secti-on 32A provides as follows:-

p. 641, margin F

...... . .

p. 641, margin G

"32A-Where the Compensation Officer considers that delay is likel,- to occur in.payment of compensation under section 32, he may, subject to the provisions of section 32B, pav).n the . manner, io far as· may. be applicable, provided in section 32;

p. 641, margin G

•. ...

pp. 641–642, margin H

[1984) 2 to the person entitled thereto under thi~ Act a sum not exceeding .fifty per centum ·of the· approximate aniount of compensation payable in him under .section 32. calculated in the mal\l)er ·prescribed in this behalf. · ·

p. 642

Provided that, if subsequently it .is t~und.by th~ Compensation Officer·or the Collector that any amount has been paid to ahy person fo excess of the amount payable to him under section 32 or that the person to .whom the aomount has been paid was . not entitled to it under this Act. the amount so paid shall, after~ giving the ,person concerned ,a reasonable opportunity of being, heard, be recoverable frnm him together 'with intere~t at 6t per centum per annum as if it were a public d.e1nand". sectio~ 40 is also. important and is as follows~

p. 642

..

p. 642, margin B

"40--(·1) The Collector, the Claims Officer or the Compensation·0fficer may,.at any time either before or after the date · of vesting, by a written order served in the presecribM manner, 'require any intermediary or any other, person in possession of ar estate or tenure or any part thereof or any agents or employees of such intermediary or other person, as the case m;\y be, 'to produce, at a tifl!e and place specified in the order, such documents,. __ ).. or.to furnish an affidavit otherwise such information relating to hny estate or tenure of s.uch intermediary as the Collector; Claims· Officer or the Compensatipn· Officer may, from time to time require f~r any of the purposes of this· Act or for giving effect· to any provision thero( ·

p. 642, margin D

Where any intermediary or other · person, referred to in ·~l!b-scctiol\ (!), if so required by'a written order of the Col)ector, fails without sufficient cause, to prcc.uce s11ch docments, or to furnish such information at' such time and pla~ as may be specified in the circler, such intermediary or other person, as the .case may be:shall be liable to.a,penalty which may;extend to fifty rupees for evei·y day after the expiration .of such time until such documents have been produced or such infotmatfon has · b~en furnished and such penalty' shall be realised as a public demand:. ·

p. 642, margin F

Provided that where the· sum of s~ch· penalty exceeds five hund~ed rupees, the Collector shall 'refer the mauer to. the Commissioner .whose orders thereon shall be final: · '

p. 643, margin A

Pr0vided further that the Commissioner may at any time, of his own motion or oh the _application of any· iriterinediary.- .revise any .order of the Collector imposing any ·pe.iJalty and the order of the Commi~sion~r on revision shall be fi~a]". - section 33 which provides for !]laking ad interim· payments to proprietors, sub,scction (2) of. which contains the . followirig proviso :. . • ".Provided that the Collector. shall 'have the . power. to refuse, suspend or stop any sue\" ad inteq111, payment in the case . of any proprietor or tenure-holder wh6 in his opinion has failed tpr neglected to comply wii)l any.order under sectioii: 40":.

p. 643, margin A

The Patna High: Court was of the opinio;· that in view .of the ' ; facts an<l spocially. the letter given by· the Collector, the market value of the right of ihe asseSs~c _to rece!~e ad, intefim coJhpt;:~satiori' sh~ul,<l be Mtennined in veiw, of the p'rovisions of Section 4(9 of·

p. 643, margin D

Binar.Land Reforms Act, 1950, and. keepjng in .view' the correspon-· . "(_ dence passing. behveeri the collector.and the' assessee. It is frue.ihat the tax1.ng authority has adopted 65 % of the fa_ce value of the amount discounting the rest oi\ accouJ!t bf delayed ·payment. It may be .mentioned tha.t these compensations were payable in 40 years .. That is a factor which has to be taken into. account and discounted but the other vital factor affecting the value of the asset namely, the liability. aiid the obligation to have the amount deductedmider Section 4 (c} of the Bihar Land Reforms Act has not'beentaken into account at. 'all. 'In case ;here bonds have_' been iss~ed .after' taking inio °C9nsidera- - . tiqn the_Iiability under Section 4.(c) of the BiharLand Reforms Act or where liability ,under .Section 4 (c) has been determined and dedu- "cted fr~m' the compensaiton, in ·such a cas.e up question of <le_duction on accouiit of the arrears of agricultural incorrie-tax mentioned in Section 4 (c) of the,Bihar Land Reforms' Act' would.arise but in all other. cases, !his is a liability; a h~zard, a factor, .. a clog or a jeopardy whiCh _detracts from' the val.ue. of the· asset and. in estimating ' the value which-,one_has to·do on the bas.is .which a. wiliing purchaser ~' ' ' would pay for buying the said asset in· open· market, the Wealth-ta; Officer must take that factor into account, otherwise it woi.ild be an unreal estimate. This chance and hazard inust influence all .buyers. ~

pp. 643–644, margin D

, -

p. 644, margin A

. There are two different stages. One is estimation o{ the value of the assets agd the other deduction ther~from the debts owed by the ass~ssee .. In last mentioned stage, surely in view of the provisions· of Section 2 (m), the.debt in respect of income-tax which is outstanding for more than 12 months ca11not be dtdui:ted. But in estimating the · value of the assets, this possibility, which is indeed in the nature of an obligation of the Compensation Officer, is a hazard,. a clog or a hindr:ince which if a proper estimate is made under Section 7 (1) by the W<ealth-tax Officer, he has to take into consideration. It is not ·a quc •. stion of deducting the,. debt 'but a quest1~n of estimation of the ~alue· of tl11: asset rn question. •

p. 644, margin A

'- '';~ . Learned counsel for the aS:Sessec drew our attention · to the 'i:cision of this Court in the case of Standard Mills Co. ;Ltd. v. Commissioner of Wealth-tax, Bombay"> and to Bench decision of the Bombay ·High Court in the case of Commissioner of Wealth-tax Bombay City II v: Purshottam N. 'Amersey and Anoth&r These decisions; in our opnion, are not relevant at an.: Reliance was also pliced on a dCcison of this Court i.n the case,of Pandil Lakshmi Kant Jha v. Commissioner of Wealth-tax Bihar and Orissa'~l. This question was not in issue but it was reiterat~d that under ~e Bihar Land Reforms Act, 1950 as soon.'_) as the esta.te or,1 tenure of a proprietor or tenll!l' holcler vested in the State, he becan1e entitled-to receive compensation. The rjght to receive compensation from the State was a valuable right. The fact that compensation was not . payable immediately and its P';'Yment might be spread over a period of 40 years would be relevant only for the purpose of evaluating his right of compensa,tion. The right to receive compen- • sation ·even though the date of payment ls d•ferred fa property and constituted an asset for the pw·pose of Wealth _Tax Act.

p. 644, margin C

We are ~!early of .the opinion that the possibility of deductj~n of the dues· of the assessee for agricultural income tax under Section -;-·-------- .

p. 644, margin G

(!) 63 I.T.R. p. 470.

p. 644, margin H

I.1.R. p. (3) 90 I, T.R.j 97.

p. 644, margin H

. , 4 (c) of the Bihar Land :Reforms Act from the compensation money . is a factor that aifects•price or value of the compensation money recei: vable by the assessee .under .the Bihar Land Reforms Act and nntil it has been finallydetermii1ed that no arrears of agrienltural income tax is payable at all; will remain a hindrance and the value of which must' be quantified and deducted before a proper estimate ·of the value of the asset money rec~ivable by the a~sessee is prepared ... Except in cases where the question of arrears of 'agricultural income. tax is settled, this is a factor which goes to the ,diminution.of the·value of the asset. To what extent that·would affect the value Of the asset is a matter of

p. 645

. quantification. We are not concerned with that question. of actual ·-,,.:-~--·quantification: We are concerned. with _the question whether that factor is a matter which hastb be taken into ccrnsideration in estimating the value of the asset in question. We are of the opinion that it is a factor cerfainly td. be taken into c~nsideration in estimating what it . • would fetclt in the· ~pen market. ft is .not a case as was contci1ded on· . behalfof the revenue, that this was ·permitting indirectly deduction of debt ~hich ;.~s prohibited by the legislation. Sectio; 7 and 2 (m) of the Act though must be· read harmoniousiy apply to two different· stages. Section 7 is the estimation,..of the market valu~ of the asset, section 2 (m.) enjoins that from the same the debt owed by the assessee · to be deducted. Such· debt owed ·,would be computed in a~cordance wi~h· ~ection 2 (in) but the estimat,i.on of the value of asset is ·on. the basis which such as,set :vould fetch i~ the open market taking intqlc~l'-- . sideratfon the view pomt of a willmg purchaser. . F

p. 645

. I

p. 645, margin E

We ~ust mention-that' our attention was drawn to certain cit~er '--"provisions of the Inc.ome-tax Act. a~d also Wealth. Tax Act. and it was contended that any debt which is exclude<\ under thie provi;ions of · · Wealth Tax Act cannot be deducted . and on the same principle a .i.ebt which is not deductible befanse of provision of Section 2 (m) should .not be takewinto-consideration in estimating the v~luc.of an asset. 'we are unable to accept this position in the facts and circumst~nces of this case. · . . . · · ·

p. 645, margin E

.. :.our attention ·was .dr~ t~ certa.in other. rules namely,··" Rule 34 of'the Bihar Land Reforms Rules, 1951. We do not think it fa. material ,to discuss these ruies any further.

p. 645, margin E

In the view_ we have taken, we.are of the opinion that the Full Bench of the Patna High Court was ~ight in its conc!U:sion. The'appeais thGrefore fail· and are accordingly dismissed with costso

p. 645, margin E

,. . "'H.S.K'. .. Appeal . dismissed.,

p. 645, margin E