2012 (9) TMI 670 - HC - Wealth-tax

Non inclusion of value of the silver bars in the wealth of the assessee - confiscation order under the Smugglers & Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 was subsequently set aside in appeal and the appeal was pending on the date of valuation - Held that - In the present case, undisputedly, there was an order of forfeiture of the subject assets, which was in operation during the period between 8.6.1979 to 24.6.1992 till it was set aside by the Appellate Tribunal. Thus, during the said period, which encompasses the valuation dates corresponding to the assessment years under consideration, the subject assets stood vested in the Central Government free from all encumbrances. During such period, though the assessee had challenged the order of forfeiture before the Appellate Tribunal for Forfeited Property, the assessee could not claim to be the legal owner of the subject assets nor could it be stated that the goods belonged to him. As for the purpose of computing the net wealth of an assessee what is to be taken into consideration is the aggregate value of all the assets, wherever located, belonging to the assessee on the valuation date. Thus, for the purpose of computing the net wealth of an assessee, the assets have to belong to the assessee on the valuation date corresponding to the said assessment year. In the present case, on each valuation date in relation to the assessment years under consideration, admittedly the subject assets stood forfeited. The forfeiture came to an end only on 24.6.1992 when the order of competent authority came to be set aside by the Appellate Tribunal for Forfeited Property. However, till then, the same stood vested in the Central Government. Under the circumstances, when the subject assets did not legally belong to the assessee during the period under consideration, the same could not have been included while computing his net wealth. As during the relevant valuation dates, the order of forfeiture had been stayed by the higher forum. In support of such contention, the learned counsel had placed reliance upon a communication dated 6.11.1992 addressed by the assessee to the Assistant Commissioner of Wealth Tax where it is nowhere stated therein that the High Court had granted interim stay against the order passed by the competent authority under section 7 of the Act. From the facts as emerging from the record, it is apparent that against the order passed by the competent authority under the SAFEMA, the assessee had preferred an appeal before the Appellate Tribunal for Forfeited Property but no order staying the order passed by the competent authority appears to have been placed on record - in favour of assessee.

Summary

Issues Involved:
1. Whether the value of the silver bars confiscated under SAFEMA could be included in the wealth of the assessee despite the confiscation order being subsequently set aside in appeal and the appeal pending on the valuation date.

Issue-wise Detailed Analysis:

1. Confiscation and Ownership of Silver Bars:
The silver bars weighing 518 kgs were seized from the assessee under SAFEMA and ordered to be forfeited to the Central Government by the competent authority on 8.6.1979. The Appellate Tribunal for Forfeited Property set aside this order on 24.6.1992. The assessee claimed that the value of the silver bars should not be included in their wealth as they were not the owner on the valuation dates. The Assessing Officer included the value in the assessee's wealth, which was upheld by the Commissioner of Wealth Tax (Appeals). However, the Tribunal allowed the assessee's appeal, holding that the silver bars were not the assessee's property on the valuation dates as they were confiscated and forfeited to the Central Government.

2. Legal Finality and Effect of Forfeiture Order:
The court examined whether the order of forfeiture, which was in effect until set aside by the Appellate Tribunal, affected the ownership of the silver bars. The court noted that the forfeiture order under section 7 of SAFEMA meant the property stood forfeited to the Central Government free from all encumbrances. This forfeiture was in effect from 8.6.1979 until 24.6.1992, during which the assessee did not legally own the silver bars. The court emphasized that the liability to wealth tax arises out of ownership of the asset on the valuation date.

3. Impact of Pending Appeal:
The court discussed the appellant's argument that the forfeiture order had not attained finality due to the pending appeal. It was held that a judgment, decree, or order continues to be final, effective, and binding until set aside, unless stayed by a higher forum. The court cited several precedents, including Kunhayammed and others v. State of Kerala and another, which established that the pendency of an appeal does not affect the finality of the order unless a stay is granted.

4. Distinction Between Confiscation and Forfeiture:
The appellant argued that the Tribunal had equated confiscation with forfeiture without considering the distinction. The court referred to the Supreme Court's decision in State of W.B and others v. Sujit Kumar Rana, which distinguished between confiscation and forfeiture. However, it concluded that in the present case, the forfeiture under SAFEMA resulted in the property vesting in the Central Government, and the distinction did not aid the appellant's case.

5. Wealth Tax Act Provisions:
The court examined the relevant provisions of the Wealth Tax Act, particularly the definition of "net wealth" and the requirement that assets must belong to the assessee on the valuation date. It was concluded that since the silver bars were forfeited and did not belong to the assessee on the valuation dates, they could not be included in the net wealth for those years.

Conclusion:
The court affirmed the Tribunal's decision, holding that the value of the silver bars, which stood confiscated under SAFEMA, could not be added to the wealth of the assessee despite the confiscation order being subsequently set aside in appeal. The appeals were dismissed with no order as to costs.