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C.W.T. Vs. Kishan Lal Babna [1993] INSC 374 (21 September 1993)

Bharucha S.P. (J) Bharucha S.P. (J) Jeevan Reddy, B.P. (J)

CITATION: 1994 SCC (1) 60 JT 1993 (6) 511 1993 SCALE (3)803

ACT:

HEAD NOTE:

The Judgment of the Court was delivered by BHARUCHA, J.- This is an appeal by special leave against the judgment of the High Court at Bombay on a reference under the provisions of Section 27(1) of the Wealth Tax Act, 1957.

The question arose in respect of the Assessment Year 1962- 63, for which the relevant valuation date was March 31, 1962, and it read thus:

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that under Section 4(1)(a)(iii) of the Wealth Tax Act, 1957 it is the value of the assets which have been actually transferred by the assessee that should be included in the net wealth of the assessee, the transferor, although the form of assets transferred has undergone a change since the date of the transfer, and the value thereof, on the valuation date, is different?"

2. The assessee, an individual, created two trusts, on February 18, 1957 and November 11, 1957, for the benefit of his two minor daughters. Thereby the respective amounts of Rs 25, 1 01 and Rs 21,201 were settled upon trust and transferred to the trustees. After the trusts had been created the trustees purchased shares out of the trust funds. On the valuation date the trust funds were held in shares, the valuation of which was Rs 75,610. In determining the wealth tax payable by the assessee the Wealth Tax Officer took the view that it was the market value of the shares on the valuation date that was to be included in the wealth of the assessee. He rejected the contention that only the sum of Rs 46,302 which was settled by the assessee upon trusts was to be taken into account in computing his wealth. The decision of the Wealth Tax Officer was confirmed in appeal. In a further appeal before the Income 62 Tax Appellate Tribunal the assessee's contention was upheld and, arising out of its judgment, the question quoted above was referred to the High Court. The High Court, upon an interpretation of Section 4(1)(a)(iii) of the Wealth Tax Act, 1957 answered the question in the affirmative and in favour of the assessee. The Revenue is in appeal before us.

3. Section 4(1)(a)(iii) of the Wealth Tax Act reads thus:

"4. (1) In computing the net wealth of an individual, there shall be included, as belonging to him- (a) the value of assets which on the valuation date are held- (iii) by a person or association of persons to whom such assets have been transferred by the individual otherwise than for adequate consideration for the benefit of the individual or his wife or minor child;

whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise;

4. The High Court in its judgment CWT v. Kishanlal Bubnal said that the identification of the words "such assets" used in sub-clause (iii) were to be found in clause (a) of sub- section (1) of Section 4. The assets which were contemplated in clause (a) were the assets held by the transferee to whom such assets had been transferred by the assessee. The words "such assets" indicated and pin pointed the specific assets as being those which had been transferred. That this was the intention was made very clear by the latter part of the section because it said "whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise". The object of this latter part of the section was that regard is to be had to the valuation of the original assets irrespective of whether they were retained in the form in which they were transferred or were converted into different types of assets. In either case it was the value of the assets that were transferred that had to be determined as on the relevant valuation date. There could be no controversy as regards the value of the assets transferred when the assets transferred were in the form of monies; then, irrespective of whether the transferees retained the monies settled or invested them in other modes, for the purpose of Section 4(1)(a)(iii) it was the value of the monies that were transferred that had to be taken into account and not the value of the assets into which they were converted. In the absence of clear and express provisions it was not possible to accept the contention raised on behalf of the Revenue, merely because it emphasized the expression "value of assets which on the valuation date are held". The value on the valuation date that had to be determined was the value of the original assets which were transferred.

1 (1976) 103 ITR 56 (Bom HC) 63

5. Learned counsel for the Revenue assailed the correctness of the interpretation placed in the impugned judgment upon Section 4(1)(a)(iii). In support of his case he drew attention to the judgment of the Madras High Court in V. Vaidyasubramaniam v. CWT2 wherein the impugned judgment had been discussed. The Madras High Court was considering a case where the assessee had gifted the sum of Rs 90,000 to his wife, who had constructed a house therefrom. The assessee claimed that the value of the assets to be included in his wealth tax assessment was Rs 90,000 only and not the actual value of the house on the valuation date. Counsel on his behalf laid stress on the word "such" qualifying the word "assets" occurring in the provision and contended that the words "such assets" must refer only to the sum of Rs 90,000 which had been transferred by the assessee to his wife. The High Court was unable to place that construction on the word "such" qualifying the word "assets". It held that because of the specific provision at the end of sub-clause (v), namely, "whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise", it was not necessary that the assets transferred should be the same as the assets held by the spouse on the valuation date. The word "such" merely indicated the correlation between the asset transferred and the asset held by the spouse on the valuation date. The Madras High Court was unable to agree with the reasoning in the judgment impugned before us. It said that the impugned judgment led to this anomaly that the value to be included in the net wealth of the assessee was the value of an asset which was no longer in existence and, though the existence of the different form of the asset on the valuation date had to be taken note of for the purpose of the inclusion of the asset, its value as on the date of the valuation was completely ignored.

6. Learned counsel for the Revenue also drew attention to the judgment of this Court in Mohini Thapar (Smt) v. CIT3 which considered the provisions of Section 16(3)(a)(iii) of the Indian Income Tax Act, 1922. That provision said that "in computing the total income of any individual for the purpose of assessment, there shall be included (a) so much of the income of a wife or minor child of such individual as arises directly or indirectly ... (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart ;". This Court held that the income which could be brought to tax under Section 16(3)(a)(iii) had to have a nexus with the assets transferred, directly or indirectly. Learned counsel urged that the object of Section 16(3)(a)(iii) of the Indian Income Tax Act, 1922 was the same as that of Section 4(1)(a)(iii) of the said Act, namely, that where assets had been transferred by an assessee to or for the benefit of his wife or minor child, such assets should continue to be treated as belonging to the assessee and all income derived from them should be treated as income derived by the assessee.

2 (1977) 108 ITR 538 (Mad) 3 (1972) 4 SCC 493 : 1974 SCC (Tax) 302: (1972) 83 ITR 208 64

7. The assessee, though served, has remained unrepresented.

8. Reading Section 4(1)(a)(iii) as a whole, we have no doubt that the provision contemplates that where the asset which has been transferred has been converted to some other asset, it is the value of the converted asset on the valuation date which has to be taken into account in computing the net wealth of the transferor assessee. The words "such assets" in sub-clause (iii) do, no doubt, refer to the assets described in clause (a) in the sense that they mean "those assets". But we do not think that the use of the words "such assets" implies that it is only the value on the valuation date of the assets that were actually transferred which has to be taken into account and not of any assets to which the transferred assets may have been converted. The words " whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise" appear to us to put the matter beyond doubt. Where what is transferred by the assessee is money and the transferee utilizes that money to acquire an asset, it is the value of the asset on the valuation date which is relevant for the purposes of computing the net wealth of the assessee. Where what is transferred by the assessee is an asset and the transferee disposes of that asset and acquires from the consideration received another asset, it is the value of that acquired asset on the valuation date which is relevant for the purposes of computing the net wealth of the assessee. The object of this provision is much the same as the object of the provisions in the Income Tax Acts by reason of which income arising from an asset transferred to or for the benefit of an assessee's wife or minor child is treated as the income of the assessee.

9. The interpretation placed by the impugned judgment, we may add, would, in given cases, make the provision wellnigh impossible to work when the assessee has transferred not money but an asset and that asset has been converted by the transferee into some other asset. An asset held neither by the assessee nor by the transferee on the valuation date could prove difficult to value.

10. In the result, the appeal is allowed. The judgment under appeal is set aside. The question referred to the High Court is answered in the negative and in favour of the Revenue. There shall be no order as to costs.

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