1984 (10) TMI 8 - HC - Wealth-tax

Issues Involved:
1. Whether the Tribunal erred in law in excluding the value of 10 shares transferred by the assessee to his wife in computing the net wealth of the assessee.

Detailed Analysis:

1. Facts and Background:
The assessment year under consideration is 1966-67, with the valuation date being March 31, 1966. The assessee, an individual, held shares in M/s. Seraikella Glass Works Private Limited, which were not quoted. On August 6, 1965, the assessee sold 10 shares to his wife at Rs. 3,250 per share. The Wealth-tax Officer, however, valued these shares at Rs. 8,666.58 per share, based on the valuation of Rs. 8,739 per share in the previous assessment year, concluding that the shares were not transferred for adequate consideration. Consequently, the value of the shares was included in the net wealth of the assessee under section 4(1)(a)(i) of the Wealth-tax Act, 1957.

2. Appellate Assistant Commissioner's Decision:
The assessee appealed, arguing that the shares should be valued at Rs. 6,663 per share, totaling Rs. 66,630, and that Rs. 32,500 received from his wife should be excluded from the net wealth. The Appellate Assistant Commissioner directed the Wealth-tax Officer to re-examine the valuation and consider the exemption under section 5 of the Gift-tax Act, 1958, if the valuation did not exceed Rs. 50,000.

3. Tribunal's Decision:
The Tribunal, following its earlier order in I.T.A. No. 21857 (Pat) of 1967-68, held that section 64(1)(iii) of the Income-tax Act, 1961, was not applicable to the transfer of shares. Therefore, it excluded the value of the 10 shares from the total wealth of the assessee. The Tribunal also referenced its decision in R.A. Nos. 84 and 85 (Pat) of 1971-72, where the Department's petition was dismissed, holding that no question of law arose.

4. Revenue's Argument:
The Revenue contended that the Tribunal erred in excluding the value of the shares, as the valuation of Rs. 3,250 per share was inadequate compared to the fair value of Rs. 6,378 per share, as determined in the wealth-tax assessment for the same year.

5. Court's Analysis:
The court examined the provisions of section 4(1)(a)(i) of the Wealth-tax Act and section 64(1)(iii) of the Income-tax Act, noting their similarity in requiring the inclusion of assets transferred to a spouse for inadequate consideration. The court found that the valuation of Rs. 3,250 per share was inadequate compared to the fair value of Rs. 6,378 per share. Consequently, the difference of Rs. 31,280 (Rs. 63,780 - Rs. 32,500) should be included in the net wealth of the assessee.

6. Relevant Case Law:
The court referred to the following cases:
- Rai Bahadur H. P. Banerjee v. CIT [1941] 9 ITR 137 (Patna High Court): This case discussed the concept of "adequate consideration" and its legal interpretation.
- H. N. Patwardhan v. CIT [1970] 76 ITR 279 (Bom): This case established that only the portion of income or asset value attributable to inadequate consideration should be included in the assessee's wealth.
- Smt. V. Amirtham Ammal v. CIT [1976] 102 ITR 350 (Mad): This case reiterated that "adequate consideration" means consideration equal or nearly equal to the value of the assets transferred.

7. Conclusion:
The court held that the Tribunal erred in excluding the value of the 10 shares transferred by the assessee to his wife. The difference of Rs. 31,280 should be included in the net wealth of the assessee. The question was answered in the affirmative and in favor of the Revenue. However, due to the peculiar circumstances, the Revenue was directed to bear its own costs.

Separate Judgment:
UDAY SINHA J. concurred with the judgment.

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