LAKSHMI KANT IHA v. COMMISSIONER OF WEALTII TAX BIHAR AND ORISSA

On appeal the Appellate Assistant Commissioner affirmed the decision of the Wealth Tax Officer on the three questions mention ed above. The Appellate Assistant Commissioner also held that the items of jewellery could be considered only under section 5 ( 1 )(xv) oi the Act and not under any other provision. On further appeal to the Income Tax Appellate Tribunal, the Tribunal rejected the claim of the assessee for deduction on account of brokerage commission. So far as the jewellery was concerned, the Tribunal dealt with the submission made on behalf of assessee that clause (xv) of section 5 ( 1 ) of the Act had been deleted by the Finance Act of 1963 and o~rved that as long as that clause was in the statute book, that clause · governed exemptions granted by section 5 in preference to clause (viii). The Tribunal consequently rejected the claim of the assessee in respect of the jewellery. As regards the compensa1tion payable under the Bihar Land Reforms Act to the assessee, contention was raised on behalf of the assessee that the market value of the compensation bonds was about 50 per cent of its face value. The Tribunal observed in this connection that the value was generally estimated at 65 per cent oi the amount of compensation determined by the Compensation Officer. It was accordingly held that the valuation of the bonds should be determined to be 65 per cent of the face value. The questions reproduced above were thereafter referred to the High Court at the instance of the assessee. A B c D E The High Court while dealing with the first qeustion, observed that in estimating the value of an asset regards must be had to the value it would fetch. The word "fetch", in the opinion of the High Court, must mean the quoted price only and brokerage and other inevitable expenses would have to be ignored. On question No. (2), the High Court expressed the opinion that the jewellery was outside the scope of clause (viii) of section 5(1) of the Act and could be dealt with only under clause (xv). As regards question No. (3), the High Court relied upon its earlier decision in the case of Maharajkumar Kamal Singh v. Commissioner of Wealth Tax.(') It was observed that merely because the amount of compensation payable to the assessee had not yet been paid and there was likely to be much delay in paying the same, the said amount could not be deducted from the assets for the purpose of the Act. Questions ( 1 ) and ( 2) were accordingly answered in the negath·e while question No. (3) was answered iii the affinuative. F G · ll (1) (1967] 65 I. T. R. 460. L. K. JHA v. c.w.T. (Khanna,/.) 977 A B c 0 E F G H In appeal before us Mr. Kolah on behalf of tl; te appellant has assailed the correctness of the answers given by the High Court on all the three questions. As against that, the learned Additional Solicitor General has canvassed for the correctness of the judgment of the High Court so far as the answers to questions ( 1 ) and ( 3} are concerned. As regards question No. (2), the Additional Solicitor General has made certain submissions to which reference would be made hereafter. We may at the .outset deal with question No. (2) relating to the jewellery. As mentioned earlier, the High Court took the view that as jewellery was dealt with specLfically under clause (xv) of section 5 (I) of the Act, the jewellery would be outside the scope of clause (viii) altogether. This view of the High Court cannot be sustained because of the decision of this Court in the· case of Commissioner of Wealth Tax, Gujarat v. Arundhati Ba/ Krishna.(') It was observed in that case by this Court that section 5 (I )(xv) dealt with jewellery in general whether intended for personal use of the assessee or not, while jewellary intended for personal use of the assessee came within the scope of section 5 (1 )(viii) of the Act. It was accordingly held that the value of jewellery of the assessee intended for personal use of the assessee would stand excluded under section 5 (1) (viii) of the Act in· the computation of the net wealth. The learned Additional Solicitor General has frankly conceded that in view of the aforesaid deci~ion of this Court, he cannot support the view taken by the High Court It has, however, been sutlmitted by him that we in the respect. should remand the case with a view to ascertain as to how much ' of the jewellery in question was intended for the personal use of the assessee. We find it difficult to accede to tltls contention. The matter is rather old as it relates to the assessment year 1957-58. The case of the assessee before the Wealth T-ax Officer was that the entire jewellery worth Rs. 27,27,330 was intended for his personal use and should not be included in the total wealth. The Wealth Tax Officer disallowed the claim of the assessee irr this respect on the ground that the items of jewellery were covered by caluse (xv) and not by clause (viii) of section 5(1) of Act. The claim of the assessee that the jewellery in question was intended for the personal use of the assessee was not rejected. No plea was also raised in appeal before the Appellate Assistant Commissioner or the Tribunal that the jewellery was not intended for the personal use of the assessee. It, therefore, cannot be said on the 11eord that the claim of the assessee that the jewellery in question was intended for his personal use has been controverted. In the circumstances, we must proceed on the assumption for the purpose of the assessment during the- relevant year. that jewellery was intende.~. for the personal use of the assessee. (!) [19701 77 I. T. R. 505. 978 SUPREME COURT REPORTS [1973] 3 s.c.R. It may be mentioned that jewellery has been excluded by section 32 ol the Finance (No. 2)Act of 1971 (Act 32 of 1971) from the purview of clause (viii) of section 5(1) of the Act with effect from April 1, 1963. This amendment made in clause (viii) would not make any material difference because the said amendment is to operate with effect from April 1, 1963, while. we are dealing with the assessment year 1957-58. As such, the said amendment .can oblviously not apply to the assessment in question. Question No. (1), as would appear from the above, relates to 1he claim of the assessee for deduction on account of brokerage .commission from the value of shares and stocks held by hini. The ·stand which has been taken on behalf of the assessee is that as :and when he sells the shares and stocks in question, he would have 'to pay brokerage commission. As such, it is urged ,computing the value of this asset, the price which it would fetch 1n the market should be reduced by the brokerage which would 'have to be paid on account of the transaction of the sale. We find jt diffioult to accede to this contention. Section 7 ( 1) of the Act I.eads as under : H$ubject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall ble estimated to be the price which in the opinion of the Wealth-tax Qfficer it would fetch if sold in the open market on the valuation date." follow therefore. 'Bare readinR of the section makes it plain that subject to any rules which may be made in this behalf, the value ol the assets, ·other than cash, has to be the price which the assets, :opinion ol the Wealthtax Officer, woqld fetch in the open market .on the valuation date. It would, in the absence of any rule prescribing a different criterion, the ·value of an asset, other than cash, should be taken to be the price which it would fetch if sold in the open market on the valuation date. No rules prescribing a different criterion in respect of the ·value of quoted stocks and shares have been brought to our notice. Rule 1-C of the Wealth-tax Rules relates 'to the market value of unquoted preference Shares, while rule 1-D of the said rules -relates to market value of unquoted equity shares of companies -other than investment companies and managing agency• companies. The value of the stocks and shares in question, in the cireum. stances, would have to be estimated to be the price which they would fetch if sold in the open market on the valuation .date. The authorities concerned under the Aot for this purpose ·accepted the valuation as given in stock exchange quotations and ·the quotations furnished by "1\'ell-known brokers. No objection. can Indeed, this was the mode be taken to this mode of valuation. A B c D E F G H L. K. JHA v. C.W.T. (Khanna,/.) A which had been adopted by the assessee himself in the filed by him. 979 retut11 . C 8 There is nothing in the language of section 7 ( 1) of the Ac\ which permits any deduction on account of the exp11nses of sale which may be borne by the assessee if he were to sell the asset in question in l)ie open market. The value according to section 7 ( 1 ) has to be the price which the asset would fetch ii sold in In a good many cases, the amount which the the open market. vendor would receive would be less than the price fetched by the asset. The vendor may, for example, have to pay for the brokerage ·commission or may have to incur other expenses for effectuating the sale. It is not, however, the amount which the vendor would receive after deduction of those expenses but the price which the asset would fetch when sold in the open market as would constitute the value of the asset for the purpose of section 7 (1 ) of the Act. To accede to the contention advanced on behalf of the appellant would be reading in section D 7 (1 ) the words "to the asses see' after the words "it would fetch", although the legislature has not inserted those words in the statute. Sm:h a course would not be permissible unless there is anything in the relevant provisions which may show that the intention of the legislature was that the value of an asset would be the price fetched after ded11cting the sale expenses. E F G H It, no doubt, appears to be somewhat harsh that in com puting the value of an asset only the ·price it. would fetch if sold m the open market bas to be taken into account and the expenses which would have to be l:llOrne in making the ~ale have to be excluded from consideration, This, however, is a matter essen- tially for the legislature. No resort can be made to an equitable principle for there is no equity about a tax. So far as construction of section 7 ( 1) of the Act is concerned, in view of its plain language, there i~ no escape from the conclusion that the expenses in effecting the sale of the asset in the open market cannot be deducted. The material part of the language of section 7 ( 1) of the Wealth-tax Act, 1957 is similar to that of sub-section (1) of section 3 6 of the Estate Duty Act which was J:>rougbt on the statute book elidier in 1953. Sub-section. (1) of section 36 of the Estate Duty Act reads !IS under : " ( 1) Tl1e principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open inarket at the time of the deceased's death." 980 SUPREME COURT REPORTS (1973] 3 S.C.R. Section 48 of the Estate Duty Act was as under : "Where the Controller is satisfied, that any addi tional expe~se in administering or in realising property has. been incurred by reason of the property Ueing situate out of India, he may make an allowance from the value of the property on account of such expense not exceeding in any case five per cent on the value of the property." On account of the similarly in language of the material parts of section 7 (1) of the Wealth Tax Act and section 36( 1) of the Estate Duty Act, the value cf on asset, other than cash, for the purpose of. section 7 (1) of the Wealth Tax Act should tie the same as its value for the purpose of section 36(1). of the Estate Duty Act. Section 48 of the Estate Duty Act reproduced above allows a deduction up to 5 per cent on account of expenses for administring or realising property situated out of India in com puting the value of that property. above that where the legislature intended that allowance or deduction should be made from the value of property, it made an express provision to that effect. The fact that no provision was made in respect of expenses which may have to be borne by the assessee in effecting the sale of an asset shows that in comput ing the value of an asset, such expenses cannot be deducted from the price which the asset would fetch if. sold in the open market. It would follow from Section 36 ( 1) of the Estate Duty Act was based upon section 7 ( 5) of the U.K. Finance Act, 1894 and section 60(2) of the U.K. Finance Act, 1910, while section 48 of the Estate Duty Act was based upon section 7(3) of the U.K. Finance Act, 1894. According to section 7(5) of the U.K. Finance Act, 1894, "the · principal value of any property shall be estimated to be the price which, in the opinion of the commissioners, such property would fetch if sold in the open market at .the time of the death of the deceased". Section 60(2) of the U.K. Finance Act, J910 pro vides that "in estimating the principal value of any property under section 7 ( 5) of the principal Act. . . -the commissioners shall fix the price of the property according to the market price at the time of the death of the deceased, and shall not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to ~ placed on the In the context of the above market at one and the san1e time". provisions, it has been observed on page 393 of Green's Death Duties, Sixth Edition : "The price which property 'fetches' is the gross price paid by the purchaser, without deduction for the vendor"s costs and expenses. This is so, even where the property is subject to a trust for sale. But if the property to be B c D E F G H L, K. JHA v. C.W.T, (Khanna, J.) 98 I A valued is merely a share in an unadministered estate, or in the proceeds of sale of trust property which must be realised for the purpose of distribution, the expenses of the executors or trustees under the old title should be taken into account." B The matter has been dealt with in Dymond's Death Duties, Forteenth Edition, page 569 in the following words : c D "The price which the property fetches js the gross sale price, without deduction for the costs of sale, except that, if the property is part of an unadministered estate or a share of property subject to a operation which involve~ conversion, or if the property consists of certified chattels of national, etc., interest (see P. 868), allowance for costs may be made." trust already The House of Lords had to deal with this aspect of the matter in the case of Duke of Buca/euch v. Inland Revenue Commis sioners.(') After referring to section 7(5) of the U.K. Finance Act, 1894 Lord Reid observed: "I am confirmed in' my opinion by the fact that the Act permits no deduction from the price fetched of the expenses involved in the sale (except in the case of property abroad under sub-section (3))." E Lord Morris in this context observed: "The value of a property is to be estimated to be the price which it would 'fetch' if sold in the open market at , the time of the death of the deceased. This points to the price which a purchaser would pay. The net amount that a vendor would receive would be less. There would be costs of and incidental to a sale. It would seem to be harsh or even unjust that allowances cannot ~ made in respect of them. But the words of the statute must be followed." F Similar observations were made by Lord Hodson and Lord Guest. G We are, therefore, of the view that the High Court rightly answered question No. (I) relating to the claim for deduction on account of brokerage commission against the assessee. Question No. (3) pertains to the compensation payable to the assessee under the Bihar Land Reforms Act. Two contentions have been advanced on hehalf of the appellant in this Court wfth fo is argued in the first instance that regard to the above question. compensation payable to the assessee under the Bihar Land H (I) [1967] A. C. 506, 982 SUPREME COURT REPORTS (1973] 3 s.c.R. Reforms A~t does not constitute an asset as can be taken account in computing the total wealth cl the assessee.. In the alternative, it is urged that in computing the value of compensation the Tribunal should have taken the value to be 5 0 per cent and and not 65 per cent of the amount of compensation. None of these contentions, in our opinion, is well founded. The Bihar Land Refonns Act, 1950, (Bihar Act 3 of 1950) provides for the transference to the State of the interests ol proprietors and tenure. holders in Ian.ct and of other interests in land. According to sec tion 3(1) of the Act, the State Government may, from time to time, by notification declare that the estates or tenures of a pro prietor or tenure holder, specified in the notification, have passed to and become vested in the State. Section 4 enumerates the con sequences of the vesting of an estate or tenure in the State. One of those consequences is that the estate or tenure, including the interest of the proprietor or tenure-holder in such an estate or tenure shall, with effect from the date of vesting, vest absolutely in the State free from all incumbrences and such proprietor or tenure-holder shall cease to have any interests in such estate or tenure, other than the interests expressly saved by or under the provisions of the Act. Section 19 makes provision for the appoint ment of Compensation Officer who shall in the case of an estate or tenure which has vested in the State, prepare in tl!e prescribed form and manner a Compensation Assessment-roll containing the gr08S asset and the net income of each proprietor and tenure-holder of estates and tenure~ and the compensation to be paid in accor dance with the provisions of the Act to such proprietor or tenure holder and all other persons whose interests are transferred to the State. Section 23 prescribed the mode of computation of net in come, while section 24 gives the rate of compensation and the mode of its determination. According to section 26 there should be a preliminary publication of Compensation Assessment-roll. Section 27 gives a right of appeal from an order passed by a Com pensation Officer to a Judge of the High Court.· After all objec tions and appeals have been disposed of, there has to be a final publication of the Compensation Assessment-roll in accordance with section 28 of the Act. Section 32 provides for the manner of pay, me111 of compensation. Sub-section (2) of that section reads. "The amount of compensation so payab\e in terms of a Compensation Assessment-roll as finally published shall be paid in cash or in bonds or partly in cash and partly in bonds. The bonds shall. be either negoti- able or non-negotiable and non-transferable and be payable in forty equal instalments to the person named therein and shall carry interest at two and a hall' per centum per annum ,..ith effect from the date of issue." A B c D f, F G H L. K • .JHA y, C.W.T. (Khanna,/;) 983 A B C D E F G . Section 33 makes provisio~ for ad interim paymept to the pro pnetors after the date of vesting and before the day of payment of compensation under su~section (2) of section 32 of the Act, Perusal of the different provisions of Bihar Land Refonns Act shows that as soon as the estate or tenure of a proprietor or a ten~holder vests in the State, he becomes entitled to receive compensation. The fact that the payment of compensation in tenns of the provisions of the Act may be deferred and be spread over a number of years does ilot affect the right of th~ proprietor oi tenure-holder to the compensation. The assessee, in our opinion, was vested with a right to get compensation immediately his land was vested in the State. Section 2 ( e) of the Act defines "assets" to include property of every description, movable or immovable, but does not include certain catgories of property with which we are not concerned. The word "property", as mentioned tiy this Court in the case. of Ahemed G. H. Arifj and Others v. Commis sioner' of JV ca/th tax(') is a term of the widest import and sub- ject to any limitation which the context may require, it signifies every-possible interest which a person can clearly hold and enjoy. The definition of the "assets" as given in section 2(e) of the Act, though not exhaustive shows its wide anlplitude and we see no reason as to why the right to receive compensation cannot be· included amongst the assets of an assesee, According to Mr. Kolah, the amount of compensation had not been determined by the valuation date and as such it could not be included in the assets o~ the assessee. There is, however, no material on the record to -show that the amount of compensation had not been detennined by the valuation date. The fact that the assessee had originally shown the amount. of compensation payable to be Rs. 92,27,422 in his return and it was only in the revised return . that he stated that t]).e amount of compensation payable to· him had been determined by the Compensation Officer to be Rs. 36, 87, 419 would not necessarily show that the amount of compensation had not been determined tw the valuation date. According to the order of the Wealth Tax Officer the contention which was raised on behalf of tho assessee was that the compensa tion money should not be included in the total wealth because· it was not known as to when and in what manner the amount would be received. The Appellate Income Tax Tribunal in this; context observed : H - "The value of the zamindary compensation payable to the assessee had been determined by the Componsa tion Officer at Rs. '3.6,87,419. For the purpose of assessment the Wealth Tax Officer had determined the (I) [1970] 76 I. T. K: 471. 984 SUPREME COURT REPORTS (1973] 3 S.C.R. value at 7 5 % of the compensation determined. This· has been sustained on appeal by the App. Asst. Com, missioner who has found that a part of the compensatio1f had been adjusted against Government dues outstanding from the assessee. So, the assessee is deemed to have received full value for that part of the compensation. It is subbnitlted on behalf of the assessee that the market value of the Bihar Zamindary Compensation bonds is about 50% of the amount of the bonds. The Tribunal has taken all these facts into consideration in determin· ing the value of compensation payable under the Bihar Land Reforms Act in the case of several-assessees and the Tribunal has generally estimated such 'l?lllue for the amount of Wealth Tax purposes at 65% of In this case also we would compensation determined. direct that the valuation be taken at 65% of the amount compensation determined by the Compensation Officer." A B c The above observations as well as the form of question No. (3) show that no controversy was raised by the assessee on score that the amount of compensation had not been determined. by the valuation date. the D Assuming for the sake of argument that the amount of .compensation paya[lle to the assessee had not been determined by the Compensation Officer by the valuation date, tllat fact would not justify the exclusion Of the compensation payable E from the assets of the assessee. The right to receive compensatioJ! because vested in the assessee the moment he was divested of his estate and the same got vested in the State in ·pursuance of the provision of Bihar Reforms Act. As the estate of the assessee . which vested in the State was known and as the formula fixing the amount of compensation was prescribed by the statute, the F amount of compensation was to all intents and purposes a matter of calculation. The fact that the necessary calculation had. not been made and the amount of. compensation had consequently not Wen quantified by the valuation date would not take com• pensation payable to the assessee out of the definition of assets or make it cease to be property. The ·compensation from the State is a valuable right. more so when it is based upon statute and the liability to pay is not denied by the State. It is no doubt true that the compensation is not payable immediately and its payment might be spread over a µeriod of 40 years. but that £act would be relevant only for the µurpose of evaluating the right to compensation. It would not ·detract from the proposition that the right to. receive compensation, H even though the date of payment is deferred is propertv and .constitutes asset for the purpose of Wealth Tax Act. receive G · 11 • i;.. K. JHA v. c.w.T. (Khanna, J.) 985 The Patna High Court in the case of Maharajkumar Kamal Singh v. Commissioner of Wealth Tax (supra) held that the right to receive compensation under the Bihar Land Reforms Act constituted "asset" for the purpose of Wealth Tax Act. The view taken in that case was approved by a Full Bench of Patna High Court in the case of Maharaj Kumar Kamal Singh v. Commissioner of Wealth Tax( 1). We see no cogent ground to take a different view. It may also be observed that the Andhra Pradesh Hig11 Court in five cases, namely, Mir lmdad Ali Khan v. Commissioner of Wealth Tax('), Rani Bhagya Laxmamma v. Commissioner of Wealth Tax("), V. Chandramani Pattamaba Devi v. Commissioner of Wealth Tax('), Vandrevu Venkappa Rao v. Commissioner of Wealth Tax(') and P. V. G. Raju v. Commissioner of Wealth Ta.~(') has held that the compensation payable on the abolition of estates can be taken into account for the purpose of Wealth Tax Act. Similar view has been taken biy the Madhya Pradesh High Court in Sardar C. S. Angre v. Commissioner of Wealth Tax(') and Allahabad High Court in Maharaja Pateshwari Pd. Singh v. Commissioner of Wealth Tax('). Mr. Kolah has invited our attention to a decision of Calcutta High Court in the case of Commissioner o~ Wealth Tax v. U. C. Mahatab (') wherein that court held that till the final the Compensation Assessment-roll under the publication of West Bengal Estates Acquisition Act, the assessee had no legal right to compensation and the same could not be included in the definition of "assets" in the Wealth Tax Act. It is, in our opinion. not necessary to express any view with regard to •the correctness of that decision. Suffice it to say that the decision in that case procee ded upon the assumption that the provisions of the West Bengal Estates Acquisition Act, 1953 were materially different those of the Bihar Land Reforms Act. It was, in fact. on that ground that the learned Judges of the Calcutta High Court distin guished the case of Maharaj Kumar Kamal Singh v. Co111missioner of Wealth Tax (supra) as well as the decision of the Patna High Court which is now the subject matter of the present appeal. We are also nO'I: impressed by the contention advanced on behalf of the appellant that the value of the compensation should have been determined for the purpose of Wealth Tax Act to be 50 ,per cent of the amount o.f compensation and not 65 per cent. !1) [1972) 84 I. T. R. 240. 131 [1966] 62 l. T. R. 60 (5) [1968] 69 l. T. R. 552. (7) [t968] 69 I. T. R. 336. (9) [t970] 78 I. T. R. 2t4. 15-797Sup. Cl/73 (2) [1961) 50 I. T. R. 2t6. (4) [1967) 64 I. T. R. 147. (6) [1970] 78 !. T. R. 60 (8) [1970) 78 I. T. R. 581 B c D E F G 986 SUPREME COURT REPORTS [1973] 3 S.C.R. As would appear from the order of the Tribunal, the value of A compensation payable under the Bihar Land Reforms Act has been generally estimated for the purposo of Wealth Tax Act to be 6S per cent of the amount of compensation deterinined. We see no cogent ground to interfere in this respect. As a result of the above, we .uphold the answers given by the Hiib Court in respect of the first and third questions. So far as question No. (2) is concerned, we vacate the answer given by the Hiib Court and answer that question in the affirmative in favour of the assessee. The appeal is disposed of accordingly, In the circumstances, the parties are left to bear their own costs of this Court as well as in the High Court. B s. c.