2004 (12) TMI 19 - HC - Wealth-tax

Whether the Tribunal was right in holding that the amounts standing to the credit of the assessee in deposit account under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, constituted an asset within the meaning of section 2(e) of the Wealth-tax Act and the same were includible in the net wealth of the assessee? - We may observe that learned counsel for the parties have proceeded to make their submissions on the basis of the provisions of section 2(e)(1)(iv) of the Act which we find was applicable only up to the assessment year 1969-70 and not thereafter. - we answer the questions referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee

Issues Involved:

1. Whether the amounts under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, constituted an asset within the meaning of section 2(e) of the Wealth-tax Act, 1957, and were includible in the net wealth of the assessee for assessment to wealth-tax.
2. Whether the amounts standing to the credit of the assessee in deposits under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, were not annuities within the meaning of section 2(e)(2)(ii) of the Wealth-tax Act, 1957, and were to be treated as deposits with a bank.

Detailed Analysis:

Issue 1: Constituting an Asset under Section 2(e) of the Wealth-tax Act

The court examined whether the amounts deposited under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, should be considered as assets within the meaning of section 2(e) of the Wealth-tax Act, 1957. The applicants argued that these deposits were in the nature of annuities and thus excluded from the definition of assets. The assessing authority did not accept this claim and included the deposits in the net wealth. The Commissioner of Income-tax (Appeals) initially allowed the claim, but the Tribunal reversed this decision.

The court referred to the definition of "assets" under section 2(e) of the Wealth-tax Act, which includes property of every description, movable or immovable, but excludes certain items such as annuities under specific conditions. The court noted that the deposits made under the 1974 Act were repayable in five equal annual installments after a specified period, which the applicants argued constituted an annuity. However, the court emphasized that the definition of "assets" is broad and includes any property unless explicitly excluded by the Act.

Issue 2: Nature of Deposits as Annuities

The applicants contended that the deposits were annuities as they were repayable in fixed annual installments, referencing definitions and case law to support their argument. They cited decisions from the apex court and various High Courts to argue that fixed periodic payments should be considered annuities and thus excluded from assets.

The court, however, highlighted that the exclusion of annuities from assets under section 2(e)(2)(ii) applies only if the annuity is not purchased by the assessee or any other person in pursuance of a contract with the assessee, and the terms preclude commutation into a lump sum. Since the deposits under the 1974 Act were made by the applicants themselves, they did not meet these criteria for exclusion.

The court also noted that the parties had based their arguments on provisions applicable only up to the assessment year 1969-70, which were not relevant for the assessment years in question. Therefore, the court did not delve into the various cited decisions further.

Conclusion:

The court concluded that the deposits made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, constituted assets within the meaning of section 2(e) of the Wealth-tax Act, 1957, and were includible in the net wealth of the assessee. The court answered the questions referred to it in the affirmative, in favor of the Revenue and against the assessee, with no order as to costs.

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