1986 (10) TMI 2 - SC - Wealth-tax

Whether, the properties in respect of which registered sale deeds had not been executed, but consideration had been received, belonged to the assessee for the purpose of inclusion in his net wealth within the meaning of section 2(m) - held that from the terms of the agreement that there was an express stipulation precluding commutation - it comes within sub-clause (iv) of section 2(e) and the assessee was entitled to exemption - question, is answered in negative & in favour of the assessee.

Issues Involved:
1. Whether the properties for which registered sale deeds had not been executed but consideration had been received belonged to the assessee for inclusion in net wealth under section 2(m) of the Wealth-tax Act, 1957.
2. Whether the assessee's right to receive Rs. 25 lakhs annually from the State Government was an asset for inclusion in net wealth under the Wealth-tax Act, 1957.

Issue-Wise Detailed Analysis:

Issue 1: Properties Without Registered Sale Deeds
The first issue concerns whether properties for which registered sale deeds had not been executed, but full consideration had been received, belonged to the assessee for the purposes of inclusion in his net wealth under section 2(m) of the Wealth-tax Act, 1957. The Wealth-tax Officer included the market value of these properties in the assessee's net wealth, a decision upheld by the Appellate Assistant Commissioner with certain deductions. However, the Tribunal held that the assessee had ceased to be the owner of these properties, as the purchasers, having paid the consideration and taken possession, were protected under section 53A of the Transfer of Property Act, 1882. The High Court, following CIT v. Nawab Mir Barkat Ali Khan, answered the question in favor of the Revenue.

The Supreme Court noted that "net wealth" under section 2(m) includes assets "belonging to the assessee on the valuation date." The term "belonging to" was interpreted to mean having lawful dominion over the asset. The Court discussed various legal precedents and concluded that despite the purchasers having possession and the right to enforce specific performance, the legal title remained with the assessee. Thus, the properties legally belonged to the assessee for wealth-tax purposes. The Court emphasized that equitable considerations are generally irrelevant in tax law and that the expression "belonging to" indicates legal ownership. Consequently, the first question was answered in favor of the Revenue, affirming that the properties belonged to the assessee for inclusion in his net wealth.

Issue 2: Right to Receive Rs. 25 Lakhs Annually
The second issue pertains to whether the assessee's right to receive Rs. 25 lakhs annually from the State Government was an asset for inclusion in his net wealth under the Wealth-tax Act, 1957. This payment arose from the accession of the Hyderabad State to the Union of India, where the Government agreed to pay the Nizam Rs. 25 lakhs annually in lieu of his income from private properties.

The Wealth-tax Officer treated this sum as an annuity and capitalized it, including it as an asset in the assessee's net wealth. The Appellate Assistant Commissioner agreed, but the Tribunal held it was an annual payment for surrender of life interest and included the capitalized value in the net wealth. The High Court concurred, stating it was possible to commute the annual payment into a lump sum grant, thus making it part of the wealth.

The Supreme Court referred to section 2(e) of the Wealth-tax Act, which excludes a right to an annuity from assets if the terms preclude commutation into a lump sum grant. The Court examined whether the Rs. 25 lakhs could be commuted and found no express provision precluding commutation. However, considering the background and nature of the payment, which was similar to a privy purse (non-commutable), the Court inferred an express stipulation precluding commutation. Therefore, the Rs. 25 lakhs was deemed an annuity exempt from wealth-tax under section 2(e)(iv). The second question was answered in favor of the assessee, excluding the annual payment from his net wealth.

Conclusion:
The Supreme Court concluded that the properties without registered sale deeds legally belonged to the assessee for wealth-tax purposes, answering the first question in favor of the Revenue. However, the right to receive Rs. 25 lakhs annually was deemed an annuity exempt from wealth-tax, answering the second question in favor of the assessee. The judgment of the High Court was modified accordingly, with no order as to costs.

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