1979 (3) TMI 1 - SC - Wealth-tax

Net Wealth - Family Arrangement - assessee succeeded in wiping off her liability to the extent of ₹ 11,00,000 by transfer of war stock. The balance of the liability, i.e., ₹ 19,00,000, remained due and continued to be due on all the three valuation dates - Whether the sum of ₹ 19 lakhs could constitute a debt owed by the assessee and deductible under the W.T. Act from the value of the total assets as on December 31, 1959 - Held, yes

Summary

Issues:
Assessment of wealth-tax liability based on a family arrangement and liability to pay a sum of money as per a letter dated May 14, 1953.

Analysis:
The judgment by the Supreme Court involved three appeals by the Commissioner of Wealth-tax, Mysore, regarding the assessment of wealth-tax liability of the Dowager Maharani of Gondal. The dispute arose from a family arrangement following the death of her husband, the late Maharaja Saheb, involving their sons, Maharaja Vikramsinghji and Shivaraj Singhji. The issue revolved around the liability of the Dowager Maharani to pay Shivaraj Singhji a balance amount of Rs. 30,00,000 as per her letter dated May 14, 1953. The High Court ruled in favor of the assessee, leading to the appeals.

The main contention in the appeal was whether the liability arising from the letter dated May 14, 1953, constituted a debt owed by the assessee and was deductible under the Wealth Tax Act. The appellant argued that the agreement lacked consideration and was void under Section 25 of the Contract Act. However, the court disagreed, considering the family arrangement binding based on the totality of facts found by the Tribunal and the High Court's judgment. The court emphasized that the family arrangement was a valid consideration, making the agreement enforceable, and not impacted by Section 25 of the Contract Act.

Furthermore, the court highlighted that even if the letter did not establish a binding agreement initially, the subsequent conduct of the parties led to a concluded family arrangement. The court noted that the liability became enforceable when the future event contemplated in the contingent contract, i.e., the failure of the elder son to pay the specified amount, occurred. The liability of the mother to pay the sum of money was deemed enforceable by law by a certain date.

In analyzing previous court decisions cited by the appellant, the court differentiated the present case by emphasizing the creation of a liability through the family arrangement. The court clarified that even if the liability was contingent, it became a subsisting debt before the relevant valuation dates, making it deductible under the Wealth Tax Act. Ultimately, the court found no merit in the appeals and dismissed them with costs, upholding the High Court's decision in favor of the assessee.