1986 (10) TMI 8 - HC - Wealth-tax

Summary

Issues Involved:
1. Interpretation of the term "held by the assessee" under section 5(3) of the Wealth-tax Act, 1957.
2. Eligibility for exemption of a fixed deposit under section 5(1)(xxvi) of the Wealth-tax Act, 1957.

Detailed Analysis:

1. Interpretation of the term "held by the assessee" under section 5(3) of the Wealth-tax Act, 1957:
The primary issue revolves around the interpretation of the term "held by the assessee" as mentioned in section 5(3) of the Wealth-tax Act, 1957. The court examined whether the assessee's pledging of a Fixed Deposit Receipt (FDR) as security for a loan to a company meant that she no longer "held" the FDR for the purposes of claiming exemption.

The court referenced various precedents to interpret the term "held." In particular, the court noted that the term "held" can mean both actual possession and legal ownership, depending on the context. For instance, the case of *Manohar v. G. G. Desai* highlighted that "held" can mean "be the owner of," while *K. K. Handique v. Member, Board of Agrl. IT* emphasized that "holds" includes both actual possession and legal title.

The court also considered the case of *CWT v. Harshad Rambhai Patel*, where it was concluded that "held by the assessee" means certificates registered in the name of the assessee, not merely those beneficially owned. Conversely, in *CWT v. C. Rai*, the term "held" was interpreted more broadly to include shares possessed or owned by the assessee, even if not registered in their name.

2. Eligibility for exemption of a fixed deposit under section 5(1)(xxvi) of the Wealth-tax Act, 1957:
The second issue was whether the assessee was eligible for an exemption for the FDR under section 5(1)(xxvi) of the Wealth-tax Act, which exempts certain deposits with banking companies from wealth tax.

The court analyzed the facts: the assessee had taken out an FDR of Rs. 50,000 and pledged it to secure a loan of Rs. 47,000 for a company. The Wealth-tax Officer, Appellate Assistant Commissioner, and the Tribunal had all rejected the exemption claim on the grounds that the assessee did not "hold" the FDR for the required period due to the pledge.

However, the court noted that the FDR remained in the name of the assessee until its maturity on April 20, 1973, and that the interest accrued on the FDR was credited to her account. The court held that the assessee had constructive possession of the FDR and retained control over it, as she could have repaid the loan and retrieved the FDR at any time before its maturity.

The court concluded that the fixed deposit, being in the name of the assessee until its maturity, entitled her to the exemption under section 5(1)(xxvi). The court emphasized that the term "held" should be interpreted in light of the purpose and context of the provision, which aims to exempt certain financial assets from wealth tax to encourage specific types of investments.

Conclusion:
The court answered the reference in the negative, ruling in favor of the assessee. It held that the Tribunal was not legally correct in rejecting the exemption claim for the FDR under section 5(1)(xxvi) of the Wealth-tax Act. The court concluded that the assessee constructively held the FDR for the required period and was entitled to the exemption. Costs were made easy in the circumstances of the case.