1962 (11) TMI 84 - HC - Wealth-tax

Summary

Issues Involved:
1. Inclusion of the value of shares owned by the assessee in his net wealth under section 4(1) of the Wealth-Tax Act.
2. Inclusion of the compensation sanctioned by the Government on the abolition of the assessee's jagir in his net wealth under section 4(1) of the Wealth-Tax Act.

Issue-wise Detailed Analysis:

1. Inclusion of the Value of Shares in Net Wealth:
The primary issue is whether the value of the shares owned by the assessee in limited companies should be included in his net wealth as on the valuation date under section 4(1) of the Wealth-Tax Act, 1957. The assessee contended that since the shares represent the wealth of the limited company, the company is liable to pay tax on the same, and the wealth represented by the shares should not be included again in his net wealth. This contention was rejected by the Income Tax Officer, the Appellate Assistant Commissioner, and the Tribunal. The Tribunal held that the wealth of the limited companies is not the same as the wealth of a shareholder as represented by the value of the shares. Since the assessee was the owner of the shares, they were properly included in his net wealth.

The court noted that the principle of double taxation is relevant to this question. The taxing section 3 of the Wealth-Tax Act imposes a tax on the net wealth of individuals, Hindu undivided families, and companies. Section 4 specifies what should be included in computing the net wealth of an individual, including assets held by his wife, minor child, or transferred to others for the benefit of the individual or his family. Section 5 enumerates the assets exempted from inclusion in the net wealth.

The court concluded that shares in a limited company held by an assessee are assets owned by him and not by the company. The value of the shares should be included in the net wealth of the assessee, subject to the relief provided under rule 2 of the Schedule to the Wealth-Tax Act to avoid double taxation. Therefore, the answer to the first question is that the value of the shares owned by the assessee in limited companies is properly includible in his net wealth, subject to the application of rule 2 of the Schedule to the Wealth-Tax Act.

2. Inclusion of Compensation for Abolition of Jagir in Net Wealth:
The second issue is whether the compensation sanctioned by the Government on the abolition of the assessee's jagir, though not paid but due as on the valuation date, should be included in the net wealth of the assessee under section 4(1) of the Wealth-Tax Act. The court examined the definitions of "assets" and "net wealth" under the Act. Every kind of property, movable or immovable, the valuation of which is computable under the Act, constitutes the net wealth assessable under section 3.

The court analyzed whether commutation amounts are "assets" within the meaning of section 2(e) of the Act. The commutation sum for every jagir is calculated based on the basic annual revenue of the jagir. The commutation amount represents the net value of compensation payable to the jagirdar in liquidation of his rights in the jagir. The court concluded that the commutation amount payable to the assessee is his asset within the meaning of section 2(e) of the Wealth-Tax Act.

The court also addressed the contention that the commutation amount is a right to an "annuity" under section 2(e)(iv). The court rejected this contention, stating that the commutation amount is a capitalized amount of the value of the jagir taken over by the Government and is not a right to an annuity. The court further rejected the argument that the commutation amount is exempt under section 5(1)(xviii) of the Wealth-Tax Act, which exempts property received from the Government in pursuance of any gallantry or merit award. The commutation amount is not granted for gallantry or merit and is not an award instituted or approved by the Central Government.

Therefore, the answer to the second question is in the affirmative, meaning that the compensation sanctioned by the Government on the abolition of the assessee's jagir is properly includible in the net wealth of the assessee.

Conclusion:
The court concluded that the value of the shares owned by the assessee in limited companies is properly includible in his net wealth, subject to the application of rule 2 of the Schedule to the Wealth-Tax Act. Additionally, the compensation sanctioned by the Government on the abolition of the assessee's jagir is properly includible in the net wealth of the assessee. The reference was answered accordingly with costs. Advocates' fee was fixed at Rs. 100.