1975 (4) TMI 22 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the dividend declared by Martin Burn Co. Ltd. on 26th March 1965, payable on or after 1st April 1965, constituted taxable wealth in the hands of the assessee on the valuation date, 31st March 1965.

Issue-wise Detailed Analysis:

1. Declaration of Dividend and Creation of Debt:
The primary issue revolves around whether the declaration of a dividend by Martin Burn Co. Ltd. on 26th March 1965 created a debt in favor of the shareholder (assessee) and whether this debt constituted taxable wealth on the valuation date, 31st March 1965.

The Wealth-tax Officer included the dividend amount in the assessee's net wealth, asserting that the declaration of dividend created an indisputable right in favor of the assessee as of 26th March 1965. The officer argued that the market value of this right should be the same as the declared amount in the warrant.

2. Conditionality of Dividend Payment:
The Appellate Assistant Commissioner of Wealth-tax held that due to the stipulation that the dividend would be paid on or after 1st April 1965, the amount did not accrue as income on the valuation date. Consequently, the dividend amount could not be treated as an asset in the assessee's hands on 31st March 1965.

3. Tribunal's Decision:
The Tribunal followed its earlier decision in Wealth-tax Appeal No. 37 of 1965-66, concluding that a valuable right accruing to the assessee might be treated as an asset. However, in this case, the resolution was conditional, and no enforceable right could be said to have arisen before the valuation date. The Tribunal thus ruled in favor of the assessee.

4. Revenue's Argument:
The revenue contended that the declaration of a dividend created a debt in favor of the shareholder, irrespective of the payment being deferred. They cited several Supreme Court and High Court decisions, including Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, which discussed the concept of "debt" and "debt owed." The revenue argued that a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation.

5. Assessee's Argument:
The assessee argued that the dividend could only be demanded on 1st April 1965, and no enforceable right existed before that date. They contended that the debt was a debt "in futuro" and not "in praesenti."

6. Court's Decision:
The court, after considering various precedents, held that the declaration of a dividend on 26th March 1965 resulted in an existing debt, creating an immediate right in favor of the assessee, even though the payment was deferred. The court reasoned that if the amount set apart for dividend payment was not treated as wealth in the hands of the company, it should be considered wealth in the hands of the shareholders.

The court concluded that the dividend declared on 26th March 1965 constituted an asset assessable under the Wealth-tax Act in the hands of the assessee on the valuation date, 31st March 1965. The question was answered in the negative, favoring the revenue.

7. Final Judgment:
The court answered the question in the negative, holding that the dividend declared constituted taxable wealth in the hands of the assessee on the valuation date. No order as to costs was made.

Conclusion:
The judgment clarified that the declaration of a dividend creates an immediate right in favor of the shareholder, making it an assessable asset under the Wealth-tax Act, even if the payment is deferred. The court's decision underscores the principle that a debt, whether payable immediately or in the future, constitutes taxable wealth if it results from a present obligation.