1974 (8) TMI 22 - HC - Wealth-tax

Summary

Issues:
1. Whether the amount of Rs. 4 lakhs can be included in the total assets of the assessee?
2. Whether the amount of Rs. 4 lakhs was in the nature of 'Quaraza-e-Hasana' and justified in accepting it, especially when a portion of it was repaid?

Analysis:

Issue 1:
The case involved a reference under section 27(1) of the Wealth-tax Act, 1957, where the Tribunal sought an opinion on whether the amount of Rs. 4 lakhs should be included in the total assets of the assessee. The respondent had given Rs. 4,00,000 to an individual orally, without any written documentation or entry in account books. The respondent claimed exemption for this amount, stating it was neither a loan nor an obligation. However, the Wealth-tax Officer and the Appellate Assistant Commissioner included the amount in the total wealth. The Income-tax Appellate Tribunal considered the concept of "Quaraza-e-Hasana" from Quaranic law, where it is viewed as a loan given in goodwill without legal obligation for repayment. The Tribunal held that as there was no legal obligation for repayment, the amount should not be included in the net wealth.

Issue 2:
The second question was whether the amount of Rs. 4 lakhs was in the nature of 'Quaraza-e-Hasana' and if it was justified to accept it, especially when a portion had been repaid. The contention was that since a portion was repaid and the individual had become a partner in the respondent's firm, it should be considered a loan and included in the wealth. However, the Court referred to the definition of "net wealth" under the Wealth-tax Act, emphasizing that a debt must be legally recoverable to be included. Citing legal precedents and interpretations, the Court concluded that as the amount was not legally recoverable and there was no obligation for repayment, it could not be considered a debt owed by the assessee. The repayment made by the debtor voluntarily did not change the nature of the original transaction, which was viewed as a combination of gift and debt without legal enforceability.

In summary, the Court held that the amount of Rs. 4,00,000 could not be included in the total assets of the assessee as it did not meet the criteria of a legally recoverable debt. The Court affirmed the Tribunal's view that the amount was in the nature of "Quaraza-e-Hasana" and that even though a portion was repaid, it did not alter the original nature of the transaction. The case was remitted to the Income-tax Appellate Tribunal for further action in line with the Court's opinion, with no order as to costs.