oN,
Sd ~ a oa 7 “ow € . 625 oO : * a . % - COMMISSIONER OF WEALTH TAX, PATNA - : RAGHUBIR NARAIN SINGH 7 ae , ee a February. 20, 1984 ~ ‘ : [ V.D..TULZAPURKCAR AND SABYASACHI Muxnarn, Spo . “Net wealth” ~ Valuation of" net wealth,, ‘under s section 7 read with section 20m)
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 gleductible from the recewable compensation; (c) the ‘amount of money decrees. fully attached ‘by Garnishee orders of competent court and (a) claims under aecrees not yet executed, explained.
re ‘ . a _ .
The assessee is an individual and his estate stood vested in the State of Bikar
“under the Bihar Land Reforms Act, 1950 as and from Ist of July 1952, and he -is.
entitled to receive compensation under the Act from the Government. ‘The, assessee
~~ a «during the relevant assessment years had obtdined twé“monetary decrees ° ‘from his debtors, but the amounts receivable by the’ ‘assessee were attached by two? ” garnishee - orders issued by the Caldutta 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 assessce: In these ° five appeals by ‘certificate of . , F fitness, question arose as to whether thé answers of the High Court of Ratna 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. _ ws
- .
' The Revenue urged the following five propositions:-;- ~ . - . . . . . . ;
~ ’ tO
“(). For the’ purposes of computation of ne(-wealth of an Sissossec each asset ;
‘belonging tok Aime and gach debt owed by. him has to ‘be valued Scarately. , NX , 2.
»
(2): The difference between the asgresate value of the assets and the agare-
' gate value of the debts represents his net-wealth. ow t
. 626 os SUPREME COURT REPORTS 11984] 2 s.c.r.
,
8)" In determining the market value"of an asset (or the résidue of the diminished by an over-riding title on the asset itself), ° any ‘Viability or debt incurred in relation to it has to be ignored as the debt or’ Hability, has to be separately evaluated.
‘4
(4) What i is “the market value ofa a certain asset or the residue asset as 5 referred to above, i is-a question of fact, to be’ determined finally by the 7 income-tax
” Appellate Tribunal taking into account the relevant evidence and considerations put. forward by both the sides and the High Court cannot inter-
* dere with such a finding of fact unless it “is found to be based on irrelevant asset |
_«, consideration or is arrived at by j ignorir g relevant evidence. wo
" (5) When the debt is represented as an asset, its market valuc has to be deter- mined in the same manner as the mar ket value of any other asset irres- pective of the fact whether such an asset- debt is encumbered by another debt owed from thé assessee, because the lator-mentioned debt can qualif y ’ for deduction: at its: market value ‘independently.
’ . . toe .
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 esti-
Mhation of the market value of the asset, while section 2(M) enjoins that froni the .
same, the debt ownéd by the assessee to be deducted. The debts may .be deducted from the value of assets but the valuation y of an asset hes to be done in lerms of Section 7(1) taking into considerations all-the hazards including the possibility of
_ anamount on account of debt being deducted from the value of the asset is a factor . ‘which. will influence a prospective bufer in the oper market, “depending upon -the facts and cirucumstances 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 sate has not been deducted before the issue of the compensation bond,' then the possibility and the hazard of its being duducted from thescompensation involved~ is a factor which has to be taken into account in estimating the value of the right, of compénsation for the purpose of estimating the net wealth of the assessee on the © valuation date’ under the Wealth Tax Act. The arrears of agricultural in come-tax is not to. bé deducted from the net wealth as such but is a factor which willing purchaser will take into consideration in estimating the value of these asséts and that is a- factor ‘which should be taken into consideration, The Tribunal will estimate’ the value taking into consideration the possibility of deduction on account of the liability of the assessec on account of agricultural income-tax if it had not been already deducted in accordance with the provisioris of the Act and determine’ the net value ‘of the assets of the assessee, accordingly. [629A- D]
a a — , cv. T. W. RAGHUBIR NARAIN, co 627 a
- Commissioner of Wealth Tax, ‘Bihar, Patna Vs. Maharaja Kumar Kamal Singh. (Civil Appeal Nos. 1238 to 1240 (NT)/1973 decided - on 20-2. 84 relied - ‘on. ,
. LO 4 ~ oo ’
24. If there i is an asset ‘which i is ‘subject to certain hazards including ‘the liabic °
_,) - lity-of certain debt to be deducted from the said asset, then that factor would. be a relevant factor diminishing the marhet value of the asset in open market and has .
‘to, be estimated , taking into consideration that factor. is38D1. * we
2,2, Merely becatise the assessee had shown the full decretal amounts in his Books as still: duc, would. not ipso facto lead) to the conclusion that’ they ‘should’ ,be | valued at those suns without taking into consideration the hazards of realisation ‘of the decrees. These decrees had not “beet 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]
AY hh co 2.3. When assessee.had a claim decree against its debtor, thé Wealth Tax
_ Officer should ascertain the price that a’ reasonable. Person would have paid for it on the releyant date, and value in open market ‘considering that this’ claim decree can only be sattsfied, wholly opartly from the compensation which the debtor
‘would receive under the Bihar Land Reforms Act, 1950. <The claim decrée i8* an
" asset, but it should be’ valued by estimating what it would fetch i in the open’ market on the valuation ‘date taking into coasideration all the hazards. [631H, 632A] °
Ne, : . . te * od
- - * ‘ . . ‘ , ‘
. wa 3.1. For the put poses of computation of niet-wealth of. an assessee each asset - mm belonging to him and each debt owed by, him has to be valued separately. [6325]
3.2. The difference between the aggregate value of ihe assets and the aggre- aan gate value of. the debts represents h his net-wealth. ° ‘[632F] .°
* a Civin APPELLATE JURISDICTION: Civil Appeal Nos. 1233-1237 of 1973,
+ 7 . 7 “Appeals from the Fidgmént and Order dated the 5th May, | 1972 ef the Patna High’ Court i in Tax Cases Nos. 64 to 68 of 1967. | 4
G.c. .- Sharma. B. B. “Aha & ‘Miss A. “Subhashini for the _ x oe » Appellant, m _ , ‘ oA
<<
* 628 . _ SUPREME COURT REPORTS |" (1984) 2 SOR.
i
PAK Chater and Rathin Dass for: the Respondent. /
The Fudgnient of the Court was delivered by: . . _
SABYASACHI Muxuaril, J: These appeals from the “judgment
"of the High Court of Patna have come to this Court by certigcates 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 gtanted are question Nos. (2), (3) and (4) in Tax Cases Nos. 64 to 68 of 1967. The questions are as follows: . ge ean:
yo '
“« “Question No. 2.. Whether, in the facts and circumstances ef the case, the decrees obtained by the assessee against Shri A.H.
- Lal anid Shri D.D. Tulsi for Rs. 1,11,747 and Rs, 51,525 respec- ~ tively, have been valued under the Wealth Tax Act, 1957, by’. S 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 Agricultiral 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 La) Chaughury under claim decrees obtained against them by. the .assessee under the Bihar Land Reforms Act are assets of fhe assessee within.
the meaning of Wealth Tax Act, 1957, and have been. valued under the. said Act by correctly applying che vrovisions of.
section 7 of the Act for the purpose of including their values —
- inthe net wealth of the assessee”"? -
Loge
_ * amount of agricultural: incomé-tax dues from the assessee is a ‘factor *which has to be taken into account for ‘valuing the compensation pay-"
able to the assessee, we have held that agricultural.income-tax dues ° from the assessee which are deductible from the. compensation under
* °
Regarding Question No! 3 which is the question whether,*the
. 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 compén- sation involved is a factor which has.to be taken into account in esti- : mating the value of the right of compensation for the purpose of éstimating ‘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 purchaser will take into consideration in-estimatifig, the value of these assests and that is ‘a factor which should be taken into consideration.
“GW.T. ve RAGHUBIR NARAIN sucha, 7 629 ,
The point has been discussed by this Courtin the case of Commissioner'* *-
\ of Wealth. Tax,’ Bihar, Patna v. Maharaja Kymar Kamal Singh (Civil , Appeal Nos. 1238 to 1240 (NT) of 1973). The question, is, therefore ° answered asthe answerer given in the'said appeals and the Tribunal
’ will estimate the value by taking into cgnsideration the possibility for deduction on account. of the liability of the asseéssee on account of
-agricultural . ingome-tax, if it had not been already deducted in accor-' dance with: the provisions of the Act and determine the net value of .the assets of the assessee, accordingly. ; ag
4 t
These, questi®ns are for the. wealth tax assessments of the asses- -_.see for thé assessment years 4957-58, 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, Sl
‘Inthe firsqyear theassessee 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, vations 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 Re-
. forms’ 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 srelief in the process: For the subsequent: agsess- ° ~ ment years of 1958-59, 1959-60, 1960-61 and 1961-62, similar con-.
siderations had come up before the Wealth Tax Officer, on the assessee filing separate returns and similar results were followed. In each year ty) a
630 - - .. SUPREME COURT. REPORTS “119844 2° csr. .
the assessee had claimed certain deductions. including an amount of
_ Rs. 32266 due as agriciiltural income tax. The later sum has .been- - consistently disallowed. ‘This point we have ‘disposed of in terms of the decision of this Court i in Civil- Appeal Nos. 1238 to 1240 an of
So far as Question No. 2:is concerned, whilé 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 usufructuary mortgatge in favour - of the assessee as his assests. 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 asses- ° see for the subsequent assessment years and that point had given rise "to the reference in Tax Cases Nos. 23 to 27 of 1966. On the other questions raised by the assessee, reference i in Tax, Cases Nos. 64 to.
i 68 of 1967 had arisen, ~ . Now the facts material for Question No. 2 are as follows:
. AN i . a
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 tstill 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 assessée owed money to the bank. Jn 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 issucg. a Garnishi order: on 13th January; 1960 for setting off the assessée’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 Caltutta High Court had been passed after the relevant dates ° of thé first three assessment years and it held that even for thé “assess- ment years 1960-61 and 1961-62, the order of attachment could not _
_ indicate that the value of the decree was ‘nil’, as was the assessee’s ‘ease. 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 Fune, 1961, thatis to’say, even afier the valuation date for the
,
“MU oa . '
~ C.W.T. V. RAGHUBIR NARAIN (Mukharji, J.) °° -631 assessment year 1961-62. The decree was therefore valued by the Wealth _3 | ° Tax Officer at the figure of Rs. 111747." It was the contention. of i the assessce that the two decrées had been erronéously valued and the, _ principles for. valuation under Section 7 (1): had’ not been followed.
. - On the other hand it was cbntended ' on. behalf of the revenue that decrees had been correctly valued’ under Section 7 (2) (a) of the .Act.
ro (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 ~.
a . High Court that merely because the assessee had shown. the full decre-
- tal amounts in his-books as still due, would notipso 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
- hazards and the Welath' Tax Officer nfust estimate the price of the decree
; _ by anticipating what a willing purchaser. would have paid for those. ‘. - decrees taking thé hazards into consideration ‘in open market on’ the -
_ + valuation date and should estimate the price of thé asset in question
. accordingly. The High Court answered this question’ in the negative.-
. . Weare 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 (ND of 1813, the High Couit. was right in its decision.
Lo . “Se ¥ ~ -+ of 1973. The facts regarding question No. 4. after taking into conside- ration staterhent of this case as also the supplementary statement of ©: the case sent to the High © Court, pursuant ‘to its, direetions are as.
"follows : . . co
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 Gitja Prasad Singh | which had > . yi vested in the Government and the valne of. the compensation ‘had been‘.
estimated ‘at’ 75 per cent. of’ certain « figure. The High Court . dirécted that - when assessee had a claim decree against -its debtor, the Wealth Tax Officer should ascertain the price that a reason- mo able. person would have paid for. it on tte relevant ‘date, - - valuation i?
‘had not been executed and in the process of execution, there may be ;
y So > far as the Question No. 3-is concerned, the’ same question : oe, 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 No$.” 1238 to 1240 (NT)
- 1 . ‘
632k . SUPREME COURT REPORTS '(1984] 2 scr. . in open market Considering that this claim dectee can only be satisfied ‘wholly or partly from the. compensation which the. debtor would - ~ 2 teceive under the Bihar Land Reforms “Act, 1950.8 The claim decree was ‘an asset,. the High Court held, but-it was wrongly valued by the authorities and directéd to be valued by estimating what it would fetch in the open market on the valuation date taking into conside- oT ation all the. hazards. |
‘On the s 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 thé principles discussed by.this Court in the case of Commis- y~- . Sioner 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. ° °
« , s , , , te . . We may reiterate that learned counsel for the revenue urged: before us certain propositions, namely: + 4 :
(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:
4 ’
(2), The difference between the aggteagate value of | _» the ‘assets and the agregate value of the debts represents his net- wealth, 7 a
~ : - ¢ a
(3) Tn determining the’ market value of an asset (or the residue (yf of the asset diminished by an over-fiding title on the asset itself), any ‘liability or debt incurred in relation to it has to be ignored as the debt of liability has to be separately evalua-
* ted.
t ™‘
(4) What is “the market value of a certain asset ot te residue asset as referred to ‘above; is a question of fact, to be deter- + + mined finally by the Income-tax Appéllate-Tribunal taking: _ into account the relevant evidence and» consid® “ations put _foréwatd by both the sides and the High Covr cannot in-”*
}
>
“ && wes | | og a Appeals dismissed.
ing relevant evidence, F cd
(5) When the debt is represented ‘as an asset, its market, value - has.to’ be determined inthe Same manner as the. market value of any other asset irrespective of the fact.whether such —
_ an asset-debt i is encumbered by another ‘debt owed from the assessee, because the later-mentioned debt can qualify for ! . deduction a at its market value independently:
soe
; ~ About proposition No. () and’ Q) 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 certdin 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 Propositon
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 (1) taking into considerations all the hazard§ including the possibility — ~ ofan 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. :
s
Tn the aforesaid view of the matter, we affirm the decision of the
'. - High Court in all these points and dismiss these appeals with costs. ~ o.w.T.¥ RAGHUBIR NARAIN (Mubhari, J) 633 ff terfere with such a fiiding of fact unless it Is found to be . based. on irrelevant consideration or is arrived at byi ignor-