1986 (4) TMI 105 - AT - Wealth-tax

Summary

Issues Involved:
1. Existence and disruption of the bigger HUF.
2. Taxability of assets (jewelry) of late Maharani Kishore Kumari.
3. Taxability of assets of late H.H. Sawai Man Singhji outside India.
4. Computation of arrears of wealth-tax liabilities under Section 2(m) of the WT Act.

Detailed Analysis:

1. Existence and Disruption of the Bigger HUF:
The primary controversy revolves around whether the bigger HUF of H.H. Sawai Man Singhji continued to exist after his death or was disrupted. The Department contended that H.H. Sawai Man Singhji held assets in his individual capacity, and upon his death, the assets were inherited individually by his heirs. However, the Tribunal had previously ruled that for the assessment years 1969-70 and 1970-71, the income-tax assessments should be framed in the status of HUF. The CWT(A) followed this view for the assessment years 1971-72 to 1976-77, holding that the bigger HUF ceased to exist after the Maharaja's death due to a notional partition. The Tribunal, referencing the Supreme Court decision in State of Maharashtra vs. Narayan Rao Sham Rao Deshmukh, held that the HUF should be deemed to continue as no partition order under Section 171 of the IT Act was passed. Consequently, neither 1/6th nor 1/36th share in the assets of the bigger HUF could be said to have devolved on the assessee HUF, and the assets remained within the bigger HUF.

2. Taxability of Assets (Jewelry) of Late Maharani Kishore Kumari:
The assessee claimed that Maharaja Prithvi Raj inherited 1/3rd of Maharani Kishore Kumari's jewelry in his individual capacity, with the remaining 1/3rd shares inherited by Maharaja Jai Singh and H.H. Sir Sawai Man Singh. Upon the latter's death, his 1/3rd share was claimed to devolve as ancestral assets among his heirs. The CWT(A) held that the 1/18th share in these assets was assessable in the individual status of Maharaja Prithvi Raj, not in the HUF status. The Tribunal upheld this view, stating that the jewelry assets devolved as individual assets and not as ancestral assets, thus assessable in the individual hands of Maharaja Prithvi Raj.

3. Taxability of Assets of Late H.H. Sawai Man Singhji Outside India:
The assets located outside India were returned in the individual capacity of H.H. Sawai Man Singhji. The assessee HUF declared a 1/6th share in these assets in the HUF status. The CWT(A) held that the 1/6th share in these assets was assessable in the individual status of Maharaja Prithvi Raj. The Tribunal affirmed this position, recognizing that the assets were held by the late Maharaja in his individual capacity, thus assessable in the individual hands of Maharaja Prithvi Raj.

4. Computation of Arrears of Wealth-Tax Liabilities under Section 2(m) of the WT Act:
For the assessment year 1977-78, the Tribunal directed the WTO to compute the arrears of wealth-tax liabilities under Section 2(m) of the WT Act, 1957, in accordance with the Supreme Court decision in CWT vs. Kanti Lal Manilal. The Supreme Court held that a debt could be considered outstanding on the valuation date only if the notice of demand was served on the assessee before the valuation date. The WTO was instructed to allow the exemption to the assessee under Section 2(m) in accordance with this legal principle.

Conclusion:
The appeals filed by the assessee and the Department were partly allowed. The Tribunal's findings were based on the interpretation of legal precedents and statutory provisions, affirming the continuity of the bigger HUF and the individual assessment of certain assets. The computation of wealth-tax liabilities was directed to be in line with the Supreme Court's ruling.