1983 (5) TMI 89 - AT - Wealth-tax

Summary

Issues:
Treatment of cash seized in wealth-tax assessment.

Analysis:
The appeal before the Appellate Tribunal ITAT MADRAS-B involved the treatment of cash seized from the assessee by the income-tax department in the context of a wealth-tax assessment. The key issue revolved around whether the seized cash should be considered as part of the assessee's net wealth for the relevant valuation date.

The case pertained to an individual assessee and the valuation date was 31-3-1976. Initially, a sum of Rs. 3 lakhs was seized during a search on 31-7-1974. Subsequently, an order was passed under section 132(5) of the Income-tax Act, 1961, determining the undisclosed income of the assessee at Rs. 4,21,000 and the tax payable at Rs. 3,00,003. The assessee made a voluntary disclosure under the Voluntary Disclosure of Income and Wealth Ordinance, 1975, resulting in a reduced tax liability. After adjustments, a sum of Rs. 1,24,306 was found to be refundable to the assessee. The Commissioner held the seized cash until it was returned to the assessee on 23-2-1977.

The Wealth Tax Officer (WTO) added the sum of Rs. 1,24,306 as an asset of the assessee for the assessment year 1976-77 but declined to grant exemption under section 5(1)(xxvi) of the Wealth-tax Act, 1957. The assessee contended that the seized cash and the amount paid back should not be treated as assets as of the valuation date. The revenue argued that the assessee remained the owner of the cash and was liable for it, and the Commissioner's role did not change this ownership status.

The Tribunal held that the seized cash did not cease to be an asset of the assessee as it was not confiscated. The voluntary disclosure reduced the tax liability, making the balance due to the assessee. The Commissioner held the balance as a bailee for the assessee, who remained the owner. The Tribunal cited legal precedents to support the assessee's ownership rights over the seized cash. Additionally, amendments to section 5(3) clarified that ownership sufficed for exemption under section 5(1)(xxvi), even if the asset was not physically held by the assessee.

Consequently, the Tribunal directed the WTO to recompute the net wealth by excluding the sum of Rs. 1,24,306 from the assessee's assets. The appeal was partly allowed in favor of the assessee.