1984 (2) TMI 1 - SC - Wealth-tax

Tribunal was right in including in the assessee s net wealth a positive figure on account of zamindari compensation without taking into consideration the arrears of agricultural income-tax instead of taking the figure of compensation receivable from the Government of Bihar at nil

Summary

Issues Involved:
1. Inclusion of zamindari compensation in the assessee's net wealth.
2. Deductibility of unpaid agricultural income-tax as a debt while computing net wealth.
3. Valuation of the right to receive compensation under the Bihar Land Reforms Act, 1950.
4. Applicability of Section 2(m)(iii) of the Wealth Tax Act, 1957.

Issue-wise Detailed Analysis:

1. Inclusion of Zamindari Compensation in the Assessee's Net Wealth:

The primary issue was whether the Tribunal was correct in including a positive figure for zamindari compensation in the assessee's net wealth without considering the arrears of agricultural income-tax. The Full Bench of the Patna High Court decided against the Revenue, holding that the value of the asset to the assessee was nil due to the arrears of agricultural income-tax.

2. Deductibility of Unpaid Agricultural Income-Tax as a Debt:

The assessee contended that unpaid agricultural income-tax should be deductible while computing net wealth. The Tribunal allowed a deduction of Rs. 24,430 for the agricultural income-tax demand for 1363 Fasli but disallowed other amounts as they were outstanding for more than 12 months. The Full Bench of the Patna High Court upheld this view, stating that debts outstanding for more than 12 months cannot be deducted according to Section 2(m)(iii) of the Wealth Tax Act, 1957.

3. Valuation of the Right to Receive Compensation:

The valuation of the right to receive compensation under the Bihar Land Reforms Act, 1950, was a critical issue. The Wealth Tax Officer (WTO) initially estimated the value at Rs. 10,25,123 but later revised it to Rs. 3,29,784 for subsequent years. The Tribunal and the Appellate Assistant Commissioner (AAC) settled on 65% of the face value for valuation. The Full Bench of the Patna High Court, however, concluded that the value of the asset should be considered nil due to the arrears of agricultural income-tax.

4. Applicability of Section 2(m)(iii) of the Wealth Tax Act, 1957:

The Revenue argued that Section 2(m)(iii) prohibits the deduction of debts outstanding for more than 12 months. The Supreme Court examined the scheme of the Wealth Tax Act and the Bihar Land Reforms Act, 1950. It was concluded that while Section 2(m) prohibits direct deduction of such debts, the potential deduction of agricultural income-tax dues under Section 4(c) of the Bihar Land Reforms Act must be considered in estimating the value of the asset. This factor affects the market value and must be taken into account by the WTO when estimating the asset's value.

Conclusion:

The Supreme Court upheld the Full Bench decision of the Patna High Court, stating that the potential deduction of agricultural income-tax dues is a factor that affects the value of the compensation receivable by the assessee. This factor must be considered in estimating the market value of the asset. The appeals were dismissed with costs, affirming that the value of the asset should be considered nil due to the arrears of agricultural income-tax.