1983 (5) TMI 96 - AT - Wealth-tax

Summary

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

Analysis:
The appeal involved the treatment of cash seized from the assessee by the IT Department in a wealth-tax assessment. The assessee, an individual, had Rs. 3 lakhs seized during a search in July 1974. An order under section 132(5) was passed by the ITO, estimating undisclosed income at Rs. 4,21,000 and determining tax at Rs. 3,00,000, retaining the cash towards tax payment. Subsequently, the Voluntary Disclosure of Income and Wealth Ordinance, 1975 was promulgated, allowing the assessee to disclose the seized cash and benefit from a reduced tax rate. The assessee filed returns showing Rs. 3,62,980 spread over assessment years 1971-72 to 1975-76, resulting in a refundable amount of Rs. 1,25,306. The CIT deposited the seized cash in a bank until it was returned to the assessee in February 1977. The WTO added Rs. 1,24,306 as an asset of the assessee for the assessment year 1976-77 but denied exemption under section 5(1)(xxiv) of the Wealth Tax Act, stating the deposit was not held by the assessee. The AAC upheld the assessment, considering the seized cash as representing an amount due to the assessee, not retaining the character of cash.

In the appeal, the assessee argued that the seized cash, appropriated towards tax and received back in 1977, should not be treated as an asset as of the valuation date in March 1976. Alternatively, it was contended that the deposit in the bank entitled the assessee to exemption under section 5(1)(xxiv). The revenue contended that the order under section 132(5) was provisional, and the assessee remained the owner of the asset, liable for inclusion in net wealth. It was argued that the CIT, not being the assessee's agent, holding the amount in the bank was irrelevant for exemption consideration. The revenue further claimed that if the deposit was considered, it accrued to the assessee only from December 1975, not meeting the six-month ownership requirement for exemption.

The Tribunal held in favor of the assessee, stating that the cash seized remained the assessee's asset as it was not confiscated. The voluntary disclosure reduced the tax liability, making the remaining amount held by the CIT a bailee for the assessee. Citing legal precedents, the Tribunal emphasized that the assessee retained ownership, and the CIT held the amount on behalf of the owner. The Tribunal noted the amendment to section 5(3) of the Wealth Tax Act, clarifying that ownership sufficed for exemption, even if not physically held by the assessee for six months. Therefore, the seized amount was not assessable as part of the net wealth, directing the WTO to recompute the net wealth by excluding Rs. 1,24,306. The appeal was partly allowed.