1977 (8) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Whether the enhanced compensation awarded by the High Court is includible in the net wealth of the assessee for the assessment years under appeal.
2. Whether the right to claim enhanced compensation constitutes an asset under the Wealth Tax Act.
3. Whether the counter guarantee furnished by the assessee should be treated as a liability and deducted for Wealth Tax purposes.

Detailed Analysis:

1. Inclusion of Enhanced Compensation in Net Wealth:
The primary issue is whether the enhanced compensation awarded by the High Court of Madras is includible in the net wealth of the assessee for the assessment years 1970-71 to 1975-76. The High Court had awarded an additional compensation of Rs. 3,93,338, which was stayed by the Supreme Court pending appeal. The Supreme Court allowed the assessee to withdraw the amount on furnishing a bank guarantee. The Wealth Tax Officer (WTO) included this amount in the assessee's net wealth for the assessment years under appeal.

The Appellate Tribunal referred to the ruling of the Calcutta High Court in the case of CIT, West Bengal-II vs. Hindustan Housing & Land Development Trust Ltd., which held that unless the compensation amount becomes determinate and payable, it cannot be said to accrue or arise. The Tribunal concluded that since the enhanced compensation was subject to the final decision of the Supreme Court, it could not be considered as having accrued or arisen to the assessee. Therefore, it should not be included in the net wealth for the assessment years under appeal.

2. Right to Claim Enhanced Compensation as an Asset:
The assessee contended that the right to claim enhanced compensation is an inchoate right and a mere right to sue, which does not constitute an asset under the Wealth Tax Act. The Tribunal referred to several rulings, including the Andhra Pradesh High Court in Khan Bahadur Ahmed Alladin & Sons vs. CIT, which distinguished between a right to claim and a right to get. The Tribunal agreed with the assessee that the right to claim enhanced compensation is not property and has no market value, especially since the final determination by the Supreme Court was pending.

3. Counter Guarantee as a Liability:
The assessee argued that the counter guarantee furnished to the bank for withdrawing the enhanced compensation should be treated as a liability and deducted under section 2(m)(ii) of the Wealth Tax Act. The Appellate Assistant Commissioner (AAC) rejected this contention, stating that the counter guarantee was a contingent liability and had not matured into a debt. The Tribunal upheld this view, agreeing that the counter guarantee did not constitute a liability that could be deducted for Wealth Tax purposes.

Conclusion:
The Tribunal allowed the appeals, holding that the enhanced compensation awarded by the High Court is not includible in the net wealth of the assessee for the assessment years under appeal. The right to claim enhanced compensation does not constitute an asset under the Wealth Tax Act, and the counter guarantee furnished by the assessee cannot be treated as a liability for Wealth Tax purposes. The Tribunal emphasized that no prudent purchaser would buy such a right, given the uncertainties involved in the pending litigation before the Supreme Court.