Commissioner of Wealth Tax, Patna Vs.
Raghubir Narain Singh [1984] INSC 37 (20 February 1984)
MUKHARJI, SABYASACHI (J) MUKHARJI, SABYASACHI
(J) FAZALALI, SYED MURTAZA
CITATION: 1984 AIR 963 1984 SCR (2) 625 1984
SCC (3) 59 1984 SCALE (1)312
ACT:
"Net wealth"-Valuation of "net
wealth,, under section 7 read with section 2(m) of the Wealth Tax Act,
1957-Treatment of (a) compensation amount receivable under the Bihar Lands
Reforms Act;(b) the debt in the nature of Agriculture Income Tax due to Government,
and deductible from the receivable compensation;(c) the amount of money decree
fully attached by Garnishee orders of competent court and (d) claims under
decrees not yet executed, explained.
HEADNOTE:
The assessee is an individual and his estate
stood vested in the State of Bihar under the Bihar Land Reforms Act, 1950 as
and from 1st of July 1952, and he is entitled to receive compensation under the
Act from the Government.
The assessors during the relevant assessment
years had obtained two monetary decrees from his debtors, but the amounts
receivable by the assessee were attached by two garnishee orders issued by the
Calcutta High Court on 13th January 1960 and 21st June 1961. The
assessee also had some claim decrees but as they were not yet executed, they
were shown in his book of accounts as still outstanding. The assessee had to
pay Agricultural Income Tax to the Government and this debt has to be deducted
from the compensation receivable by the assessee. In these five appeals by
certificate of fitness, question arose as to whether the answers of the High
Court of Patna given in the Tax references on the question of correctness of
valuation of the "net wealth" under section 7 of the Wealth Tax Act,
1957 are correct.
The Revenue urged the following five propositions:-
(l) For the purposes of computation of net-wealth of an assessee each Asset
belonging to him and each debt owed by him has to be valued separately.
(2) The difference between the aggregate
value of the assets and the aggregate value of the debts represents his
net-wealth.
626 (3) In determining the market value of an
asset (or the residue of the asset diminished by an over- riding title on the
asset itself), any liability or debt incurred in relation to it has to be
ignored as the debt or liability has to he separately evaluated.
(4) What is the market value of a certain
asset or the residue asset as referred to above, is a question of fact, to be
determined finally by the Income- tax Appellate Tribunal taking into account
the relevant evidence and considerations put forward by both the sides and the
High Court cannot interfere with such a fielding of fact unless it is found to
be based on irrelevant consideration or is arrived at by ignoring , relevant
evidence (5) When the debt is represented as an asset, its market value has to
be determined in the same manner as the market value of any other asset
irrespective of the fact whether such an asset- debt is encumbered by another
debt owed from the assessee, because the later-mentioned debt can qualify for
deduction at its market value independently.
Dismissing the appeals the. Court,
HELD: 1.1 Section 7 and 2(M} of the Wealth
Tax Act, 1957, though must be read harmoniously, apply at two different stages.
Section 7 deals with the estimation of the market value of the asset, while
section 2(M) enjoins that from the same, the debt owned by the assessee to be
deducted. The debts may be deducted from the value of assets but the valuation
of an asset has to he done in terms of Section 7(1) taking into consideration
all the hazards including the possibility of an amount on account of debt being
deducted from the value of the asset is a factor which will influence a
prospective buyer in the open market, depending upon the facts and
circumstances of each case.
[633-EF 1.2. Agricultural income tax dues
from the assessee which are deductible from the compensation under Section 4(c)
of the Bihar Land Reforms Act. 1950, if the same has not been deducted before
the issue of the compensation bond, then the possibility and the hazard of its
being deducted from the compensation involved is a factor which has to be taken
into account in estimating the value of the right of compensation for the
purpose of estimating the net wealth of the assessee on the valuation date
under the Wealth Tax Act.
The arrears of agricultural income-tax is not
to be deducted from the net wealth as such but is a factor which willing
purchaser will take into consideration in estimating the value of these' assets
and that is a factor which should be taken into consideration. The Tribunal
will estimate the values taking into consideration the possibility of deduction
on account of the liability of the assessee on account of agricultural
income-tax if it had not been already deducted in accordance with the
provisions of the Act and determine the net value of the assets of the
assessee, accordingly. [629A-D] 627 kumar Kamal Singh (Civil Appeal Nos. 1238
to 1240 (NT)/1973 decided on 20-2-84 relied on.
2.1. If there is an asset which is subject to
certain hazards including, the liability of certain debt to be deducted from
the said asset, then that factor would be a relevant factor diminishing the
market value of the asset in open market and has to be estimated taking into
consideration that factor. [633D] B 2.2. Merely because the assessee had shown
the full decretal amounts in his books as still due, would not upso facto lead
to the conclusion that they 'should be valued at those slums without taking
into consideration the lizards of realisation of the decrees. These decrees had
not been executed and in the process of execution there may be hazards and the
Wealth Tax officer must estimate the price of the decree by anticipating what a
willing purchaser would have paid for those decrees taking the hazards into
consideration in open market on the valuation date and should estimate the
price of the asset in question accordingly. [631C-D]
2.3 When assesses had a claim decree against
its debtor, the Wealth Tax officer should ascertain the price that a reasonable
person would have paid' for it on the relevant date, and value in open market
considering that this claim decree can only be satisfied, wholly opartly from
the compensation which the debtor would receive under the Bihar Land Reforms
Act, 1950. The claim decree is an asset, but it should be valued by estimating
that it would fetch in the open market on the valuation date taking into
consideration all the hazards. [631H, 632A] 3.1. For the purposes of
computation of net-wealth of an assessee each asset belonging to him and each
debt owed by him has to be valued separatly. [632E] 3.2. The difference between
the aggregate value of the assets an the aggregate value of the debts
represents his net-wealth [632F]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 1233- 1237 of 1973.
Appeals from the Judgment and order dated the
5th May, 1972 of the Patna High Court in Tax Cases Nos. 64 to 68 of 1967 G.C;
Sharma, B. B. Ahuja & Miss A. Subhashini for the Appellant.
628 P.K. Chatterjee and Rathin Dass for the
Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These appeals from the judgment of the High Court of
Patna have-come to this Court by certificates granted under Section 29 of the
Wealth Tax Act, 1957. The questions upon which the certificates of fitness of
appeal to this Court have been granted are question Nos.
(2), (3) and (4) in Tax Cases Nos. 64 to 68
of 1467. The questions are as follows:
"QUESTION No. 2. Whether, in the facts
and circumstances of the case, the decrees obtained by the assessee against
Shri A.H. Lal and Shri D.D. Tulsi for Rs. 1,11,747 and Rs. 51,525 respectively,
have been valued under the Wealth Tax Act, 1957, by correctly applying the
provisions of section 9 of the Act for the purpose of including their values in
the net wealth of the assessee? Question No. 3-Whether, the sum of Rs. 32,266,
the amount of Agricultural income-tax due from the asessee, falls for deduction
in hands of the assessee in arriving at his total wealth for the years 1957-58,
1958 59, 1959-60 and 1960-61? Question No. 4-Whether, the sums of Rs. 597909
due from Tikait Girja Prasad Singh, Rs. 40001 due from Sri Gangeshwar Prasad
Singh, Rs. 64000 due from Mahanth Mahabir Das, Rs. 37773 due from Sri Lakshmi
Narain Singh, Rs. 2600 due from Sri Jamuna Prasad Missir, Rs. 1250 due from Sri
Sarjug Kumar, Rs. 15344 due from Sri Nandkishore Singh, and Rs. 388760 due from
Raja Prithivichand Lal Chaughury under claim decrees obtained against them by
the assessee under the Bihar Land Reforms Act are assets of the assessee within
the meaning of Wealth Tax Act, 1957, and have been valued under the said Act by
correctly applying, the provisions of section 7 of the Act for the purpose of
including their values in the net wealth of the assessee' ? 629 Regarding
Question No. 3 which is the question whether, the A amount of agricultural
income-tax dues from the assessee is a factor which has to be taken into
account for valuing the compensation payable to the assessee, we have held that
agricultural income-tax dues from the assessee which are deductible from the
compensation under Section 4 (c) of the Bihar Land Reforms Act, 1950, if the
same has not been deducted before the issue of the compensation bond, then the
possibility and the hazard of its being deducted from the compensation involved
is a factor which has to be taken into account in estimating the value of the
right of compensation for the purpose of estimating the net wealth of the
assessee on the valuation date under the Wealth Tax Act.
The arrears of agricultural income-tax is not
to be deducted from the net wealth as such but is a factor which a willing C
purchaser will take into consideration in estimating the value of these assets
and that is a factor which should be taken into consideration. The point has
been discussed by this Court in the case of Commissioner of Wealth Tax, Bihar,
patna v. Maharaja Kumar Kamal Singh (Civil Appeal Nos. 1238 to 1240 (NT) of
1973). The question, is, therefore answered as the answerer given in the said appeals
and the Tribunal will estimate the value by taking into consideration the
possibility for deduction on account of the liability of the assessee on
account of agricultural income-tax if it had not been already deducted in
accordance with the provisions of the Act and determine the net value of the
assets of the assessee, accordingly.
These questions are for the wealth tax
assessments of the assessee for the assessment years 1957-58, 1958-59, 1959-60,
1960-61 and 1961-62. The assessments involved were for those years in which the
relevant valuation dates were 20th September, 1956, 21st March, 1958, 21st
March, 1959, 21st March 1960 and 20th March 1961 respectively. In the first
year the assessee had filed return of wealth for Rs. 447065. The Wealth Tax
officer, however, determined the total wealth of the assessee at Rs. 1608863.
The Wealth Tax officer included in the net wealth of the assessee, various
amounts of money due under the decrees which the assessee had- obtained against
certain debtors, as well as the compensation payable to him under the Bihar
Land Reforms Act after valuing the bonds. It may be mentioned that the assessee
had appealed to the Appellate Assistant Commissioner and thereafter he had
carried appeals to the Tribunal also and had obtained some relief in the
process.
For the subsequent assessment years of
1958-59, 1959-60, 1960-61 and 1961-62, similar considerations had come up
before the Wealth Tax officer, on the assessee filing separate returns and
similar results were followed. In each year 630 the assessee had claimed
certain deductions, including an amount of Rs. 32266 due as agricultural income
tax. The later sum has been consistently disallowed. This point we have
disposed of in terms of the decision of this Court in Civil Appeal Nos. 1238 to
1,240 (NT) of 1973.
So far as Question No. 2 is concerned, while
computing- the net wealth, the Wealth Tax Officer had included the sums of Rs.
8000 and Rs. 13011 for the year 1957-58, due from Sri A.K.Hazra and Sri N.
Sahay respectively, on the basis of usfructuary mortgage in favour of the
assessee as his assets. On the last point the assessee has obtained relief from
the Appellate Tribunal for the year 1957-58 and for that reason these two sums
were excluded from the net wealth of the assessee for the subsequent assessment
years and that point had given rise to the reference in Tax Cases Nos. 23 to
271 of 1966. On the other questions raise(l by the assesses, reference in Tax
Cases Nos. 64 to 68 of 1967 had arisen.
Now the facts material for question No. 2 are
as follows:
The assessee had obtained civil court decrees
for Rs. 111747. and Rs. 51525 against Sri A.H. Lal and Shri D.D. Tulsi. The
decrees are still pending execution. In the books of the assessee these two
decretal amounts were shown as at still outstanding. So far as the decree
obtained against Shri D.D. Tulsi, the position seems to be that Tulsi owed a
decree to the assessee and the assessee owed money to the bank. In connection
with the decree obtained against D.D.
Tulsi, it had been contended before the
Tribunal that at the instance of the official Liquidator, the Calcutta High
Court had issued a Garnishi order on 13th January, 1960 for setting of the
assessee's liability to the Pacific Bank and, therefore, the decree did not
represent wealth which could be valued under the Act. it was recorded by the
Tribunal that the order Of the Calcutta High Court had been passed after the
relevant dates of the first three assessment years and it held that even for
the assessment years 1960-61 and 1961-62, the order of attachment could not
indicate that the value of the decree was 'nil', as was the assesses case.
Hence, the decree against Sri Tulsi was
valued by the Wealth Tax officer at Rs. 51525. As regards the decree against
Sri A.H. Lal, the attachment order passed by the Calcutta High Court was on
21st June, 1961, that is to say, even after the valuation date for the 631
assessment year 1961-62. The decree was therefore valued by the Wealth Tax
Officer at the figure of Rs.. 111747. It was the contention of the assessee
that the two decrees had been erroneously valued and the principles for
valuation under Section 7 (1) had not been followed. On the other hand it was
contended on behalf of the revenue that decrees had.
been correctly valued under Section 7 (2) (a)
Of the Act.
The High Court held and in our opinion
rightly that two decrees had not been valued under Section 7 (2) of the Act at
all and had been valued under Section 7 (1) of the Act.
We are in agreement with the High Court that
merely because the assessee had shown the full decretal amounts in his books as
still due, would not ipso facto lead to the conclusion that they would be
valued at those sums without taking into consideration the hazards of
realisation of the decrees. These decrees had not been executed and in the
process of execution, there may be hazards and the Wealth Tax officer must
estimate the price of the decree by anticipating what a willing purchaser would
have. paid for those decrees taking the hazards into consideration in open
market on the valuation date and should estimate the price of the asset in
question accordingly. The High Court answered this question in the negative. We
are of the opinion that in view of the well-settled principles which we have discussed
in the case of Commissioner of Wealth Tax Bihar, Patna v. Maharaja Kumar Kamal
Singh (Civil Appeal Nos. 1238 to 1240 (NT) of 1973, the High Court was right in
its decision.
So far as the Question No. 3 is concerned,
the same question would have to be answered in the manner indicated above and
the High Court has done the same and we affirm the said decision in view of the
decision of this Court in Civil Appeal Nos. 1238 to 1240 (NT) of 1973. The
facts regarding question No. 4 after taking into consideration statement of
this case as also the supplementary statement of the case sent to the High
Court pursuant to its directions are as follows:
In respect of sums due from Tikait Girja
Prasad Singh, the High Court has observed that assessee was entitled in respect
of the zamindari compensation of Tikait Girja Prasad Singh which had. vested in
the Government and the value of the compensation had been estimated at 75 per
cent of certain figure. The High Court directed that when assessee had a claim
decree against its debtor, the Wealth Tax officer should ascertain the price
that a reasonable person would have paid for it on the relevant date, valuation
632 in open market considering that this claim decree can only be satisfied
wholly or partly from the compensation which the debtor would receive under the
Bihar Land Reforms Act, 1950. The claim decree was an asset, the High Court
held, but it was wrongly valued by the authorities and directed to be valued by
estimating that it would fetch in the open market on the valuation date taking
into consideration all the hazards.
On the same principle, the other decrees
mentioned in the questions have been disposed of by the High Court. We are of
the opinion that in view of the principles discussed by this Court in the case
of Commissioner of Wealth Tax Bihar, Patna v. Maharaja Kumar Kamal Singh the
High Court was right in its conclusion. Indeed this question was not seriously
pressed before us separately.
We may reiterate that learned counsel for the
revenue urged b before us certain propositions, namely:
(1) For the purposes of computation of
net-wealth of an assessee each asset belonging to him and each debt owed by him
has to be valued separately.
(2) The difference. Between the aggregate
value of the assets and the aggregate value of the debts represents his
net-wealth.
(3) In determining the market value of an
asset (or the residue of the asset diminished by an over- riding title on the
asset itself), any liability or debt incurred in relation to it has to be
ignored as the debt or liability has to be separately evaluated:
(4) What is the market value of a certain
asset (or the residue asset as referred to above, is a question of fact, to be determined
finally by the Income-tax Appellate Tribunal taking into account the relevant
evidence and considerations put foreward by both the sides anthem High Court
cannot in- 633 terfere with such a finding of fact unless it is found to be
based on irrelevant consideration or is arrived at by ignoring relevant evidence,
(5) When the debt is represented as an asset, its market value has to be
determined in. the same manner as the market value of any other asset
irrespective of the fact whether such an asset- debt is encumbered by another
debt owed from the assessee, because the later-mentioned debt can qualify for
deduction at its market value independently.
About proposition No. (I) and (2) above,
there cannot be any dispute. But as regards Proposition No. (3), as this Court
has discussed in Commissioner of Wealth Tax, Bihar Patna v. Maharaja Kumar
Kamal singh, if there is an asset which is subject to certain hazards -.
including the liability of certain debts to be deducted from the said asset,
then that factor would be relevant factor diminishing the market value of the
asset in open market and has to be estimated taking into consideration that
factor. Regarding Proposition No. (4), it may be stated that while it is a
question of fact but if the Tribunal has arrived at the conclusion by taking
wrong principles into consideration, then such a finding would not bind the
High Court. Regarding Proposition No. (5), it may be stated that (debts may be
deducted from the value ' of assets but the valuation of an asset has to be
done in terms of Section 7 (l) talking into considerations all the hazards
including the possibility of an amount on account of debt being deducted from
the value of the asset is a factor which will influence a prospective buyer in
the open market, depending upon the facts and circumstances of each case.
In the aforesaid view of the matter, we
affirm the decision of the High Court in all these points and dismiss these
appeals with costs.
S.R. Appeals dismissed.
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