1995 (4) TMI 118 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the Potu Mirasi right is an asset within the meaning of section 2(e) of the Wealth-tax Act.
2. Whether the Potu Mirasi right is exempt under sections 5(1) and 21A of the Wealth-tax Act.
3. Whether the Potu Mirasi right can be valued for wealth-tax purposes.
4. Whether the Potu Mirasi right should be included in the net wealth of the assessee.
5. Whether the deduction of 50% towards estimated expenses is justified.

Detailed Analysis:

1. Whether the Potu Mirasi right is an asset within the meaning of section 2(e) of the Wealth-tax Act:

The primary contention of the assessee was that the Potu Mirasi right is not a property or an asset within the meaning of section 2(e) of the Wealth-tax Act, as it is a personal right incapable of being alienated. The Assessing Officer, however, held that the Potu Mirasi right is an asset, emphasizing that the word 'asset' includes property of every description, movable or immovable, except those specifically excluded. The Tribunal noted that the Wealth-tax Act does not define 'property' and that the term should be understood in its broadest sense, subject to the context in which it is used. The Tribunal concluded that the Potu Mirasi right, being hereditary and non-transferable to outsiders, does not qualify as a saleable asset and thus cannot be treated as property for the purposes of the Wealth-tax Act.

2. Whether the Potu Mirasi right is exempt under sections 5(1) and 21A of the Wealth-tax Act:

The assessee argued that even if the Potu Mirasi right is considered an asset, it should be exempt under sections 5(1) and 21A of the Wealth-tax Act. The Assessing Officer rejected this contention, stating that the assessee-family is not holding the right in trust for any public or charitable purposes. The Tribunal did not find it necessary to delve deeply into this issue, as it had already concluded that the Potu Mirasi right is not an asset within the meaning of section 2(e).

3. Whether the Potu Mirasi right can be valued for wealth-tax purposes:

The Assessing Officer valued the Potu Mirasi right based on the average annual income derived from it and applied Rule 1B of the Wealth-tax Rules. The Tribunal, however, highlighted that the Potu Mirasi right is non-transferable and that the assumption of a hypothetical market cannot convert a non-saleable asset into a saleable one. Therefore, the standard measure of "the selling price between a willing seller and a willing purchaser" fails in this context. The Tribunal concluded that there is no other standard or measure provided in the Act or the Rules for valuing such a right.

4. Whether the Potu Mirasi right should be included in the net wealth of the assessee:

The Tribunal observed that the Potu Mirasi right is ambulatory in character, with each branch of the family exercising the right once in four years. The Tribunal agreed with the assessee's contention that the right falls under the exclusionary provisions of section 2(e)(v) of the Wealth-tax Act, which stipulates that "any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee" shall not be included in the definition of "assets." The Tribunal concluded that even if the Potu Mirasi right is considered property, it cannot be included in the net wealth of the assessee due to the specific provisions of section 2(e)(v).

5. Whether the deduction of 50% towards estimated expenses is justified:

The first appellate authority had allowed a deduction of 50% towards estimated expenses connected with the exercise of the Potu Mirasi right. The assessee argued that this deduction was on the low side, given the onerous duties and responsibilities involved. The Tribunal did not find it necessary to address this issue in detail, as it had already concluded that the Potu Mirasi right should not be included in the net wealth of the assessee.

Conclusion:

The Tribunal held that the lower authorities were not justified in bringing to charge the value of the Potu Mirasi right in the hands of the assessee. The appeals filed by the assessee were allowed, and the Potu Mirasi right was not included in the net wealth of the assessee for the assessment years in question.