1974 (9) TMI 10 - HC - Wealth-tax

Summary

Issues:
Interpretation of proviso to section 4(1)(a) of the Wealth-tax Act regarding exclusion of assets gifted to wives in wealth-tax assessment for the assessment year 1967-68.

Analysis:
The case involved a question referred to the court under section 27(1) of the Wealth-tax Act regarding the exclusion of assets gifted to wives by the assessee for the assessment year 1967-68. The assessee filed his wealth return showing a wealth of Rs. 10,08,588 and claimed exclusion of gifts made to his wives amounting to Rs. 1,96,950 under the proviso to section 4(1)(a). The Wealth-tax Officer initially rejected this claim, stating that the proviso only applied to gifts made in the relevant years. However, the Income-tax Appellate Tribunal held that the assets transferred to spouses should be excluded from the net wealth, regardless of gift-tax chargeability. The Tribunal allowed the appeal, leading to a further challenge by the revenue.

The revenue contended that subsequent amendments to the proviso indicated that gifts made before March 31, 1964, should not be exempted. The court analyzed the proviso and its purpose to prevent wealth-tax evasion through property transfers to spouses or children. The court noted that the proviso aimed to provide wealth-tax exemption for transfers under specific clauses of section 4(1)(a) up to the assessment year commencing after March 31, 1964. The court emphasized that the exemption period was crucial, and assets transferred under the mentioned clauses should not be included in the net wealth calculation until the assessment year following March 31, 1964.

The court clarified that the proviso's wording, though not ideal, clearly intended to exempt transfers made under specified clauses from being computed in the net wealth until the assessment year following March 31, 1964. The court upheld the Tribunal's view, stating that transferred assets, whether subject to gift-tax or not, should not be included in the individual's net wealth calculation until the specified assessment year. The court answered the question in favor of the assessee, affirming the Tribunal's decision and awarding costs accordingly.