2013 (3) TMI 360 - HC - Wealth-tax

Initial compensation, enhanced compensation and interest - whether the right to compensation is an asset includable in the Net Wealth? - matter relates to the assessment year 1985-86 - Held that - As decided in Commissioner of Income Tax vs. Mehtab (U.C.) 1995 (3) TMI 7 - SUPREME COURT following it s earlier decision of CWT vs. Smt. Anjamli Khan (1990 (11) TMI 1 - SUPREME COURT) has clarified while issuing the direction that the value of the assessee s right to receive compensation can only be the present value, i.e. the value as on the valuation date of the amount. Thus only such amount which has been received by the assessee or receivable on the date of valuation can be added in the net wealth of the assessee. The claim of the assessee for enhancement of the compensation amount if ultimately is accepted by the Court, will be added in the net wealth of the assessee on the valuation date of that year. Tribunal is justified in holding that the initial compensation for the period from 14.12.77 to 10.05.91 was not assessable in the hands of the assessee.

Summary

Issues:
1. Interpretation of Wealth Tax Act regarding the assessability of initial compensation, enhanced compensation, and interest.
2. Valuation of right to receive compensation as an asset for wealth tax purposes.
3. Determination of net wealth based on compensation received or receivable on the valuation date.

Analysis:
The judgment involves an appeal under the Wealth Tax Act against an order passed by the Income Tax Appellate Tribunal. The substantial question of law raised was whether the Tribunal was correct in holding that the compensation and interest were not assessable before the Assessment Year 1992-93. The case pertained to the assessment year 1985-86, where the Wealth Tax Officer added a significant amount towards the wealth of the assessee for the right to receive compensation. The Commissioner of Income Tax (Appeals) partially allowed the appeal, leading to appeals by both the Department and the assessee for various assessment years. The Tribunal ultimately allowed the appeals of the assessee but dismissed those filed by the Department.

Regarding the valuation of the right to receive compensation, the Department argued that it should be considered an asset under the Wealth Tax Act and valued based on the amount finally received by the assessee. They relied on a judgment of the Apex Court in a similar case. The Apex Court clarified that the value of the right to receive compensation should be the 'present' value as on the valuation date, not necessarily equal to the amount payable under the Act. The Court emphasized that only the amount received or receivable on the valuation date should be added to the net wealth of the assessee.

In conclusion, the Court found no error in the Tribunal's order and dismissed the appeal. They reiterated that only the amount received or receivable on the valuation date should be considered for determining the net wealth of the assessee. The judgment provides clarity on the valuation of the right to receive compensation as an asset for wealth tax purposes, aligning with previous decisions of the Apex Court.