1980 (3) TMI 38 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the Tribunal was right in not considering the non-existent tax on notional capital gains in determining the value of shares and debentures under section 7(1) of the Wealth-tax Act, 1957.

Detailed Analysis:

Issue 1: Non-existent Tax on Notional Capital Gains

Facts and Initial Arguments:
The assessee valued her shares and debentures at Rs. 10,19,527, which was accepted by the Wealth-tax Officer (WTO). She claimed that since the market value of the shares was higher than the cost price, a notional capital gains tax liability of Rs. 80,200 should be deducted from the net wealth. This claim was rejected by both the WTO and the Appellate Assistant Commissioner (AAC).

Tribunal's Decision:
The Tribunal upheld the rejection, stating that notional capital gains could not be chargeable to any tax.

Counsel's Argument:
The assessee's counsel cited the Supreme Court decision in CWT v. P. N. Sikand [1977] 107 ITR 922, arguing that the notional capital gains tax should be considered as a burden on the asset and thus deductible.

High Court's Analysis:
The court referred to previous judgments, including the Madras High Court decision in Late T. S. Srinivasa Iyer v. CWT [1976] 104 ITR 625 and the Allahabad High Court decision in Bharat Hari Singhania v. CWT [1979] 119 ITR 258, which held that notional capital gains tax is not an allowable deduction from the value of the property under section 7(1) of the Act.

Supreme Court Precedent:
The court examined the Supreme Court's decision in Sikand's case, where the valuation of a leasehold interest in land was considered. The Supreme Court allowed the deduction of 50% of the unearned increase in the value of the land, as it was a burden or restriction affecting the value of the asset.

Distinguishing Factors:
The court noted that unlike in Sikand's case, where the liability to pay 50% of the unearned increase was a covenant running with the land, the notional capital gains tax does not affect the ownership rights of the assessee in the shares and debentures. The liability to pay capital gains tax arises only upon the sale of the shares, and thus, it is not an overriding charge on the asset.

Debt Owed Argument:
The counsel alternatively argued that the notional liability should be treated as a debt owed under section 2(m) of the Act. The court referred to Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767, which defined "debt" as a present obligation to pay an ascertainable sum of money. The court held that a fictional liability to capital gains tax does not constitute a present liability and thus cannot be considered a debt owed.

Conclusion:
The court concluded that the notional capital gains tax could not be deducted from the value of the shares and debentures under section 7(1) of the Act. The question was answered in the affirmative and against the assessee.

Final Judgment:
The Tribunal was right in not taking into account the non-existent tax on notional capital gains in determining the value of the shares and debentures as at the valuation date in terms of section 7(1) of the Wealth-tax Act, 1957. There was no order as to costs.