2005 (1) TMI 364 - AT - Wealth-tax

Summary

Issues Involved:

1. Inclusion of the right to receive compensation in the net wealth of the assessee for wealth-tax purposes.
2. Valuation of the right to receive compensation as per section 7(1) read with Schedule III of the Wealth-tax Act.
3. Inclusion of the right to receive interest on the compensation as an asset chargeable to wealth-tax.

Issue-wise Detailed Analysis:

1. Inclusion of the Right to Receive Compensation in Net Wealth:

The primary issue was whether the right to receive compensation, which was under challenge on the relevant valuation dates, could be included in the net wealth of the assessee for wealth-tax purposes. The Tribunal referred to the Supreme Court decisions in *Pandit Lakshmi Kant Jha v. CWT [1973] 90 ITR 97*, *Mrs. Khorshed Shapoor Chenai v. Asstt. CED [1980] 122 ITR 21 (SC)*, and *CWT v. Smt. Anjamali Khan [1991] 187 ITR 345 (SC)*, which held that the right to receive compensation is a valuable right and an asset includible in the net wealth of the assessee. The Tribunal concluded that the right to receive compensation for land acquisition was chargeable to wealth-tax, even if the quantification was in dispute on the relevant valuation date. However, the Tribunal modified the valuation approach, directing the Assessing Officer to value the right to receive compensation at 60% of the additional compensation, allowing a 40% discount as on the relevant valuation dates.

2. Valuation of the Right to Receive Compensation:

The second issue was whether the right to receive compensation, incapable of being valued as per section 7(1) read with Schedule III, could be included in the wealth of the assessee. The Tribunal referred to *CWT v. Pachigolla Narasimha Rao [1980] 134 ITR 640 (AP)*, which held that section 7 provides the machinery for ascertaining net wealth and cannot be interpreted to exempt certain assets. The Tribunal found that the compensation amount was determinable in monetary terms and that the present value of future compensation could be determined. Therefore, the Tribunal rejected the contention that the right to receive compensation was not includible in the wealth of the assessee due to the absence of specific valuation rules in Schedule III.

3. Inclusion of Interest on Compensation as an Asset:

The third issue was whether the right to receive interest on the compensation was an asset chargeable to wealth-tax. The Tribunal referred to *Pachigolla Narasimha Rao*, where it was held that accrued interest is property and includible in net wealth. However, the Tribunal also considered *Smt. Rama Bai v. CIT [1990] 181 ITR 400 (SC)*, which addressed interest accrual in income-tax proceedings. The Tribunal concluded that in wealth-tax proceedings, assets belonging to the assessee on the relevant valuation date are included in net wealth. Since the interest became payable only after the Supreme Court's judgment on 22-7-1998, it could not be treated as an asset on valuation dates before that. Thus, the Tribunal reversed the authorities' inclusion of such interest in the net wealth for the years under consideration.

Additional Observations:

The Tribunal agreed with the assessee's contention that the value of other assets included by the Assessing Officer on an ad hoc basis was unsustainable. However, since the assessee did not provide details of other assets in the wealth tax returns, the Tribunal directed the assessee to furnish such details for verification. The Assessing Officer was instructed to consider the other deductions available to the assessee and allow them in accordance with the law.

Conclusion:

All six appeals of the assessee were partly allowed. The Tribunal provided a detailed analysis of each issue, modifying the valuation approach for compensation and excluding interest on compensation from net wealth for the relevant years. The matter regarding other assets was remanded to the Assessing Officer for fresh consideration.