2002 (2) TMI 21 - HC - Wealth-tax

Whether the claim of the petitioner in respect of Ummed Bhawan Palace as to the exemption from payment of wealth-tax by virtue of section 5(1)(iii) of the Wealth-tax Act which is equivalent and parallel to clause (19A) in section 10 of the Income-tax Act for income-tax exemption in the case of an ex-Ruler liable to be succeeded? Held that even if only a part of a palace or building is in the self-occupation of a Ruler and the rest has been let out, the exemption will be available for the entire palace.

Summary

Issues Involved:
1. Legality of the reassessment order dated March 27, 1997, under the Wealth-tax Act, 1957.
2. Exemption under section 5(1)(iii) of the Wealth-tax Act for Ummed Bhawan Palace.
3. Deduction of land and building tax liability.
4. Inclusion of annual compensation received for requisitioned land in the net wealth.

Issue-wise Detailed Analysis:

1. Legality of the Reassessment Order:
The petitioner challenged the reassessment order dated March 27, 1997, issued by the Revenue under section 17(2)/16(3) of the Wealth-tax Act, arguing it was without jurisdiction. The original assessment for the year 1983-84 was completed on March 15, 1988, and revised under section 35. The Revenue reopened the assessment, issuing notice under section 17(1)(c)/18(2), which the petitioner contended lacked subsisting grounds. The court concluded that the reopening of the assessment was arbitrary and whimsical, especially since previous decisions had settled the matter.

2. Exemption under Section 5(1)(iii) of the Wealth-tax Act:
The petitioner claimed exemption for Ummed Bhawan Palace under section 5(1)(iii) of the Wealth-tax Act, which parallels section 10(19A) of the Income-tax Act. The court noted that both provisions exempt "one building in the occupation of a Ruler" declared as an official residence. The Revenue argued that only the portion in occupation should be exempt, not the entire palace. However, the court held that splitting the palace into exempt and non-exempt parts was not contemplated by the legislature. Citing previous decisions, the court affirmed that the entire palace, including requisitioned land, was exempt from wealth-tax.

3. Deduction of Land and Building Tax Liability:
The petitioner argued that the deduction of Rs. 40,62,000 for land and building tax liability had been previously accepted. The appellate authority had settled this issue, and the Revenue did not challenge it further. The court held that the reassessment on this ground was unjustified, as the matter stood concluded by previous decisions and the Revenue's acceptance.

4. Inclusion of Annual Compensation for Requisitioned Land:
The Revenue included the value of land requisitioned by the defense and annual compensation received in the net wealth. The court noted that the requisitioning of land was not voluntary but for defense purposes, and the compensation received did not constitute wealth. The court held that the requisitioned land, part of the official residence, could not be split up for wealth-tax purposes. The court supported this view by referencing previous judgments and the Central Board of Direct Taxes' circular exempting the entire land appurtenant to Ummed Bhawan Palace.

Conclusion:
The court allowed the writ petition, quashing the reassessment order dated March 27, 1997. It directed the respondents to act in accordance with the conclusions drawn, reaffirming the exemption of Ummed Bhawan Palace and its appurtenant land from wealth-tax. The court emphasized that reopening the assessment was not permissible under the Wealth-tax Act or the Income-tax Act, given the settled nature of the matter by previous judicial decisions.