2005 (7) TMI 38 - HC - Wealth-tax

Whether, in law and on facts of the case the Income-tax Appellate Tribunal was justified in excluding the amount deposited under C.D.S. from the net wealth of the assessee? - As in the present case exemption under section 5(1A) of the Act to the maximum limit of Rs. 1,50,000 has already been allowed, the question of granting any further exemption does not arise. We accordingly answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee

Summary

Issues:
1. Exclusion of amount deposited under C.D.S. from net wealth of the assessee.

Analysis:
The High Court of Allahabad was presented with a question of law under section 27(1) of the Wealth-tax Act, 1957, regarding the exclusion of the amount deposited under a Compulsory Deposit Scheme (C.D.S.) from the net wealth of the assessee for the assessment year 1978-79. The respondent-assessee, an individual, had filed a return of wealth declaring net wealth at Rs. 19,07,100. The dispute primarily revolved around the valuation of jewellery and the exclusion of the amount in the compulsory deposit scheme from taxable wealth under section 2(e)(2)(ii) of the Act.

During the assessment proceedings, the assessing authority valued the jewellery at Rs. 2,50,000, which was reduced to Rs. 1,80,000 by the Commissioner of Wealth-tax (Appeals). The respondent-assessee, feeling aggrieved, appealed to the Tribunal, raising the additional ground of excluding the amount in the compulsory deposit scheme from taxable wealth. The Tribunal, following precedent, allowed this ground and directed the exclusion of the compulsory deposit amount from the net wealth of the assessee.

The Revenue argued that the amount in the compulsory deposit scheme should not be exempted and should have been included in the net wealth, subject to the maximum prescribed limit of exemption for deposits in a banking company. On the other hand, the respondent-assessee contended that the compulsory deposit was made under statutory enactment and should be exempted from inclusion in net wealth.

The Court analyzed the relevant provisions of the Wealth-tax Act and held that the amount deposited in the compulsory deposit scheme did not qualify as an annuity under section 2(e)(2)(ii) of the Act. The Court referred to a previous case to support this interpretation. Additionally, the Finance Act of 1980 specified that the compulsory deposit amount should be treated similarly to bank deposits and was eligible for exemption under section 5(1A) of the Act, subject to specified limits. The Court emphasized that the amount in the compulsory deposit scheme was an asset belonging to the assessee and, unless specifically excluded, should be included in the net wealth.

Consequently, the Court answered the question in favor of the Revenue, stating that the amount deposited under the compulsory deposit scheme should not be excluded from the net wealth of the assessee, as exemption to the maximum limit had already been granted under section 5(1A) of the Act.