1984 (4) TMI 7 - HC - Wealth-tax

Summary

Issues Involved:
1. Entitlement to exemption under section 5(1)(iv) of the Wealth-tax Act, 1957.
2. Ownership of property after being thrown into the common hotchpotch of a Hindu undivided family.
3. Interpretation of sections 4(1A) and 5(1)(iv) of the Wealth-tax Act, 1957.

Detailed Analysis:

1. Entitlement to exemption under section 5(1)(iv) of the Wealth-tax Act, 1957:

The core issue was whether the assessee was entitled to exemption under section 5(1)(iv) of the Wealth-tax Act, 1957, for the value of his 1/4th share in the house property, which he had thrown into the common hotchpotch of the Hindu undivided family (HUF). The Wealth-tax Officer initially denied this exemption, stating that the property ownership had shifted from the individual to the HUF, making them two different entities. However, the Appellate Assistant Commissioner and subsequently the Tribunal held that the assessee was entitled to the exemption under section 5(1)(iv).

2. Ownership of property after being thrown into the common hotchpotch of a Hindu undivided family:

The Wealth-tax Officer argued that once the property was thrown into the common hotchpotch, the ownership transferred from the individual to the HUF, thus changing hands and making the property not owned by the assessee. This interpretation was challenged, and the Tribunal found that despite the property being thrown into the common hotchpotch, it should be considered as belonging to the individual for the purposes of section 5(1)(iv) exemption.

3. Interpretation of sections 4(1A) and 5(1)(iv) of the Wealth-tax Act, 1957:

The court examined sections 4(1A) and 5(1)(iv) to determine the applicability of the exemption. Section 4(1A) deals with the inclusion of certain assets in the net wealth of an individual, even if those assets were transferred to the HUF. Section 5(1)(iv) provides an exemption for one house or part of a house belonging to the assessee. The court referred to various precedents, including S. Naganathan v. CWT, V. Vaidyasubramaniam v. CWT, CWT v. K.M. Eapen, CWT v. C. Rai, and Damji Jairam v. CWT, which consistently held that the benefit of section 5(1)(iv) should be available even if the property was transferred to the HUF.

The court concluded that the phrase "belonging to the family" in section 4(1A) was used for uniformity and did not restrict the application of section 5(1)(iv). It emphasized that the legal fiction created by section 4(1A) should be given effect, allowing the exemption under section 5(1)(iv) for the property deemed to belong to the individual.

Conclusion:

The court affirmed the Tribunal's decision, holding that the assessee was entitled to the exemption under section 5(1)(iv) of the Act for the value of his 1/4th share in the house property, which was included in his net wealth under section 4(1A). The question referred to the court was answered in the affirmative, in favor of the assessee and against the Revenue. The parties were directed to bear their own costs, and the Appellate Tribunal was to be informed in accordance with section 27(6) of the Act.