1973 (1) TMI 23 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the compensation for the resumed jagir is includible in the net wealth of the assessee in his individual status under the Wealth-tax Act.
2. Whether the distribution of the sale proceeds of the Garh among family members constitutes a transfer of assets under the Gift-tax Act.

Issue 1: Wealth-tax Act

The primary question in the wealth-tax reference is whether the compensation payable under the Rajasthan Land Reforms and Resumption of Jagirs Act, 1952, for the jagir of Badnore, and the immovable properties comprised in the said jagir, were includible in the net wealth of the assessee in his individual status. The assessee argued that the jagir was ancestral property and belonged to the Hindu undivided family (HUF), hence not taxable as an individual asset.

The Wealth-tax Officer rejected this contention, holding that the jagir was the absolute property of the assessee due to the rule of primogeniture, and the compensation awarded was thus his asset. The Appellate Assistant Commissioner and the Appellate Tribunal upheld this view, stating the jagir was a fresh grant to the assessee, making him the absolute owner. However, the Tribunal noted that the market value of the compensation on the valuation dates should be considered in computing the net wealth.

Upon reference to the High Court, it was clarified that the jagir was ancestral and governed by the rule of primogeniture, making it part of the joint family property. The court cited several precedents, including Baijnath Prasad Singh v. Tej Bali Singh and Shiba Prasad Singh v. Rani Prayag Kumari Debi, which established that impartible estates, though not divisible, retain their character as joint family property. Consequently, the compensation for the resumed jagir should be assessed as part of the HUF's wealth, not as the individual property of the assessee.

Issue 2: Gift-tax Act

The second issue concerns whether the distribution of Rs. 2,00,000, received from the sale of the Garh at Badnore, among the assessee, his wife, and his sons, constitutes a transfer of assets liable to gift-tax. The assessee contended that the Garh was part of the ancestral impartible estate belonging to the HUF, and the distribution was a partition, not a transfer.

The Gift-tax Officer and the Appellate Assistant Commissioner treated the distribution as a transfer, making it liable to gift-tax. However, the Appellate Tribunal accepted the assessee's contention, holding that the jagir, including the Garh, was ancestral property governed by the law of primogeniture, and the distribution was a partition among HUF members, not a transfer.

The High Court upheld this view, emphasizing that the jagir, including the Garh, was part of the joint family property. The court referenced the Supreme Court's decision in Pushpavathi Vijayaram v. P. Visweswar, affirming that impartible estates, though not divisible, retain their character as joint family property. Consequently, the distribution of the sale proceeds was a partition among HUF members and did not constitute a transfer liable to gift-tax.

Conclusion:

The High Court concluded that the compensation for the resumed jagir should be included in the net wealth of the HUF, not the individual wealth of the assessee. Additionally, the distribution of the sale proceeds of the Garh among family members was a partition, not a transfer, and thus not liable to gift-tax. The references were disposed of accordingly, with no order as to costs.