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TMI Blog1995 (4) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... ancient temple. He entrusted the various tasks concerning the rites and rituals of the temple to various persons, who were all his disciples. Thus, archakathvam--the duty of performing the daily and other poojas -- was entrusted to one of his disciples. The responsibility of preparing food and other items which are offered to the Lord was entrusted to another disciple of his, and so on. Though initially the responsibility for archakathvam running the kitchen attached to the temple and the like were entrusted to single individuals, by long custom and usage the responsibility became a hereditary right. 3. In this case we are concerned with the responsibility of running the kitchen attached to the temple, which goes by the name of 'Potu Mirasi'. As already pointed out, the Potu Mirasi is hereditary, and, with the passage of time, four branches of the same family came to possess the hereditary right to run the temple kitchen. It would also appear that the members of the said four branches came to an understanding whereby each branch will get its turn of Potu Mirasi once in four years. For the purpose of determining the year in which the turn or 'Vanthu' of a family will come, Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TTD to the effect that he would be in charge of the kitchen during the Brahmotsavam year concerned. On its part, the TTD, no doubt with a view to keeping the records straight, used to issue a Kararunama in favour of the concerned Potu Mirasi holder. The fact that the Potu Mirasi is a hereditary right notwithstanding, the Kararunama, a contractual document, ensured that the Potu Mirasi holder concerned would discharge the duties attached to the hereditary right held by him. In addition, the Potu Mirasi holder will have to submit to the TTD for its approval a list of Gumastas (who will be working in the kitchen during the Brahmotsavam year concerned). Thus, it may be seen that the hereditary right of Potu Mirasi was brought within the framework of contractual obligation as between the TTD on the one hand and the Potu Mirasi holder on the other, the intention being not to interfere with the hereditary right but to ensure that the rites and rituals of the temple are not thrown out of gear. With this end in view, the Kararunama gave the TTD the right to terminate the services of the Potu Mirasi holder for misconduct and misfeasance. 7. As pointed out, the assessee--family is one of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event on certain of the valuation dates, the assessee did not have the right assessable in his hands. (v) In any event in the absence of any marketable property the assumption of a notional buyer as envisaged in the case of Purshottam N. Amarsay v. CWT [1973] 88 ITR 417 (SC) and in the case of Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471 (SC) does not arise and the valuation of the right is incorrect, unacceptable nor can be substantiated on decided principles of valuation." 9. None of the said contentions found favour with the Assessing Officer, who held that wealth-tax was exigible on the value of the Potu Mirasi right. In this regard, he was impelled by the following considerations : (i) The word 'asset' occurring in section 2(e) of the Act includes property of every description, movable or immovable, except those that have been specifically excluded by and under that section. (ii) The word 'asset' occurring in the said section is of much wider import than the word 'property' occurring in the Transfer of Property Act. Consequently, " even personal assets like that of the right of the settlor in the income of the trust which was not possible of sale in the open market can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income attributable to the said Brahmotsavam year at Rs. 1,87,000. Thereafter he allowed an estimated deduction of Rs. 40,000 towards " travelling expenses to visit Tirumalai and maintenance of an office thereat " and arrived at the net income of Rs. 1,47,000. On this basis he computed the average annual net income at Rs. 36,750. Thereafter, applying Rule 1B, he computed the value of the Potu Mirasi right at Rs. 2,76,300 and added the said sum to the net wealth returned by the assessee. In relation to the assessment year 1979-80 also, taking into account the sum of Rs. 1 lakh received by the assessee from the contractor for the Brahmotsavam year October, 1975-September, 1976 and adopting the mode of computation detailed, he valued the Potu Mirasi right at Rs. 1,46,700 and added the sum to the net wealth returned by the assessee for the assessment year 1979-80. In the assessment for the assessment years 1981-82 and 1982-83 the Assessing Officer added a sum of Rs. 2,76,300 to the net wealth returned by the assessee. 11. In consonance with the line taken by him on this issue in relation to the assessment years 1979-80 to 1982-83, the Assessing Officer initiated reassessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol of the TTD. It was for this purpose that the TTD invariably enter into a Kararunama with the holder for the time being of the Potu Mirasi right and under the terms of the Kararunama the Potu Mirasi holder can be removed by the TTD for misconduct or misfeasance. According to Shri Srinivasan, the mere possession of Potu Mirasi right, in a vacuum as it were, does not have a value. The right should be exercised, that is to say, the duties and responsibilities attached to the right must be performed. It is only then that the right will yield income. And it is well settled, one of the basic principles of property is that it yields income. It should, therefore, follow that properly viewed the Potu Mirasi right is not an asset within the meaning of section 2(e) of the Wealth-tax Act. 16. The next limb of Shri Srinivasan's argument was that even if the Potu Mirasi right is regarded as an asset within the meaning of section 2(e) of the Wealth-tax Act, it cannot be included in the net wealth of the assessee by virtue of the specific provisions of section 2(e)(v) of the Act. That section clearly stipulates that " any interest in property where the interest is available to an assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On his part, Shri V. Venkataraman, the learned Departmental Representative strongly supported the impugned orders of the lower authorities. Relying on the Supreme Court cases of (a) Ahmed G. H. Ariff's case and (b) Purshottam N Amarsay's case he strongly contended that a right is very much there and that since that right was neither excluded from the definition of " assets " contained in section 2(e) nor exempted under section 5 of the Act. According to him, therefore, the light in question will necessarily have to be included in the net wealth of the assessee. Further, notwithstanding the fact that the assessee's Vanthu comes once in four years, yet the right exists during each and every year. The said right can be valued. In this regard he drew our attention to the observations of the Supreme Court in the case of CWT v. Smt. Anjamli Khan [1991] 187 ITR 345. True, in the said case the Supreme Court was concerned with the valuation of the right to compensation on acquisition of estates. Even so, the principles laid down by the Supreme Court in the context of valuation of such right are equally applicable to the case before us. 19. We have looked into the facts of the case. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alth of the assessee. According to the Department, the fact that the Potu Mirasi right is not transferable to outsiders for a consideration is neither here nor there, inasmuch as under the scheme of the Act the value of any property is the price that it would fetch if sold in the open market and that for the said purpose the existence of the market must be assumed. 22. The assessee's case, on the contrary, is that the Potu Mirasi right is not a property at all and hence not an asset within the meaning of section 2(e) of the Act, especially in view of the fact that income does not flow automatically from the said right. It is also the assessee's case that arising as it does only once in four years and not continuously every year, the Mirasi right clearly falls under the exclusionary provisions of section 2(e)(v). The alternative claim of the assessee is that even if it should be held that the Potu Mirasi right is an asset and consequently its value included in the net wealth of the assessee, a fairly large deduction must be given towards estimated expenses that will have to be incurred while exercising the right. 23. Broadly stated, under the scheme of the Wealth-tax Act, wealth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' as 'property of any kind', the Wealth-tax Act does not define the term 'property'. The difficulty is further compounded by the way the exclusion and exemption clauses have been drafted. 26. Now, the Income-tax Act, 1922, also presented such a difficulty. There the question was whether the term 'income' included all that was not either excluded or exempted by the old Act. Thus, in the case of CIT v. Shaw Wallace Co. AIR 1932 PC 138, the assessee-company did business as merchants and agents of several companies. Two of its principals decided to terminate the distribution agency of the assessee-company and paid large sums to the assessee-company on the termination of the distribution agency.The payment made by one principal was described as being " full compensation for the cessation of the agency ". The payment made by the other was described as "compensation for loss of your office as agents to the company ". Relying on the provisions of section 4(3)(v) of the old Act, the Department contended that the compensation received for the termination of the agencies in question was taxable income. The Privy Council rejected the said contention and held that the sums in question hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the said provision only states a self evident proposition that no transfer of interest can be made if the nature of the interest is not transferable, for it is but a natural and necessary consequence of such an interest that it cannot be transferred. To illustrate, res communes, such as light, air and water of rivers or the sea, which belong to nobody, are things which, from their very nature, cannot be transferred. Is it open to one to say that but for the said specific provision, res communes are the properties of an individual ? Certainly not. 31. Now, let us take an example from the Wealth-tax Act itself. Section 5(1)(vii) of the Act stipulates that the right of the assessee to receive a pension or other life annuity in respect of past service from an employer shall not be included in the net wealth of the assessee. Now, simply because the said clause makes a specific mention about the right of the assessees to receive a pension, does it follow that the right of the assessee to receive salary in respect of future service under an employer was intended by Parliament to be a part of the assessee's net wealth ? So far to our knowledge the Department has not made any attempt to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the said Article. Again, in the context of Art. 19(1)(f) of the Constitution, a case arising under the J and K State Evacuees (Administration of Property) Act, a Full Bench of the J K High Court held that interest of an allottee in the land does not constitute property within the meaning of the said Article. In the case of Kidangazhi Manakkal Narayanan Nambudiripad v. State of Madras AIR 1954 Mad. 385 the Madras High Court held that hereditary trusteeship being an office which was capable of being inherited necessarily involves the idea of property and that, therefore, it was property within the meaning of Art. 19(1)(f) of the Constitution even though there was no question of any beneficial interest. In the case of K. Sankaran Nair v. Nallacheri Govindan Nambiar AIR 1955 Mad. 120, the Madras High Court held that irrespective of the question of any beneficial interest in or emoluments attached to the office, a trustee or manager of a temple or endowment who obtains the right to the office by hereditary right would be entitled to it as his property. Section 2(1)(d) of the Provincial Insolvency Act, 1920 defines 'property' in an inclusive fashion and states that " 'Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we may now turn. 39. As has been pointed out by the Privy Council in Provincial Treasurer of Alberia v. C.B. Kerr [1933] AC 710 (PC) " the identification of the subject-matter of the tax is naturally to be found in the charging section of the statute, and it will only be in the case of some ambiguity to the terms of the charging section that recourse to other sections is necessary." Under section 3 of the Act, which is the charging section, the charge is on the " net wealth on the corresponding valuation date of every individual, HUF and company... " And section 2(m) of the Act defines the term " net wealth". 40. To understand the precise connotations of the term " net wealth ", it would suffice to notice in detail the decision of the Supreme Court in Union of India v. Harbhajan Singh Dhillon [1972] 183 ITR 582. In that case the virus of section 24 of the Finance Act, 1969, insofar as it amended the relevant provisions of the Wealth-tax Act, 1957, so as to bring to charge agricultural land and buildings, came to be examined by the Supreme Court. The High Court of Punjab and Haryana by a 4:1 majority held that such section was beyond the legislative competence of Parliament. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue' is well known to the English law of rating. In its basic sense capital value " is the selling price between a willing seller and a willing purchaser of the property in question subject to the restriction that it can be occupied substantially in its present condition ". Where the property is of a kind that is rarely let from year to year, either capital value as defined above or the actual cost of land and buildings are taken as a guide, appropriate corrections made, and converted into approximately equivalent term of annual value'. Where neither the actual rent nor the profits of trade offer evidence of annual rental value, a percentage on the cost of construction or structural value of the hereditament or of a substituted hereditament is sometimes taken as evidence. According to the Supreme Court : "...It will, therefore, not be improper to interpret the expression 'capital value of assets' as meaning the aggregate value of the assets which a willing purchaser would offer a willing seller for the property in its condition at the time of the transaction. Naturally, a purchaser would enquire into encumbrances of the property and charges thereon created by the seller but h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be concerned with any other debts or liabilities incurred by the seller for the purpose of acquiring the property or maintaining it. It is, therefore, that the expression 'capital value of assets' of an individual will take in only the assets less the charges secured but not any other liability. Capital value of assets thus is, to use the phraseology employed by Gajendragadkar J. (as he then was) in the case of Municipal Corporation v. Gordhandas Hargovandas AIR 1954 Bom. 188, " the real economic capital value of the asset ". 46. 'Net wealth', however, is a different concept. In relation to the assets owned by an assessee, 'net wealth' will naturally encompass 'capital value of the assets' as explained above. It does not stop there. It goes further and takes within its fold both the general liabilities of the owner and the debts owed by him in respect of the assets in question, that is to say, debts not being in the nature of encumbrances charged on the property. 47. The second principle that emerges is that for the purpose of determining the capital value of assets more than one standard or measure is available. The measure may be rent actually received in transactions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such properties would be to introduce double deeming, namely one to the effect that there is a hypothetical market for the property and the other to the effect that even though the property cannot be transferred owing to various circumstances, the property must be deemed to be transferable. Such double deeming cannot be imported unless there is clear statutory warrant therefor. In this connection we may refer to the Gujarat case of Baroda Traders Ltd. v. CIT [1965] 57 ITR 490. In that case, the assessee had suffered certain losses in the previous years which had been taken into account for the purpose of income taxation. In a subsequent year there was remission of the loss. But in that subsequent year the business was not in existence. The lower authorities brought to charge the amount of remission of loss by invoking the provisions of section 10(2A) of the 1922 Act. The assessee was unsuccessful before the ITAT. But the Gujarat High Court held that section 10(2A) creates two fictions, namely (1) that though the amount so received or the benefit in respect of trading liability would not be income, it is to be deemed to be profits or gains, and (2) that such profits or gains have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if the karta for the time being of the family were to transfer the right to an outsider? " The answer is simple. Given the undisputable hereditary character of the right and given the prescription of long custom which prohibits transfer, such a transfer will be invalid. The karta of the HUF qua the karta cannot support such a sale either on the ground of legal necessity or on the ground of pious obligation or on the ground that the sale was in the interest of the family. Again, since the right can be transferred only to lineal descendant, sale of the right to an outsider will be illegal. There is yet another aspect which is noteworthy. As pointed out earlier, through the instrumentality of a Kararunama the TTD, the regulatory body of the temple, has brought the hereditary right within the frame of a contract. Aware as it is of the history of the right, we have our own doubts whether the TTD will countenance such attempts to sell the right to outsiders. True, the Kararunama gives the TTD to terminate the Potu Mirasi right for misconduct and misfeasance but this is totally a different matter altogether. 54. Secondly, it is common ground that in a manner of speaking, the Potu Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Potu Mirasi right is one and indivisible -- indivisible in the sense that it is not susceptible of being physically divided into various parts. Any attempt to divide or partition the Potu Mirasi right among the various branches having a right over it would be impracticable and lead to confusion. It is, therefore, that, with a view to avoiding confusion or scramble, the four branches of the larger HUF agreed to act by turn without a partition of the right and the income arising therefrom. And it is a matter of record that this arrangement was accepted by the Department. This would mean that, vis-a-vis the Potu Mirasi right, the assessee--HUF before us has an interest in the right, which it can enjoy once in four years. In the intervening three years it has no interest in the right. It should, therefore, follow that the interest in question is one that is available to the assessee--HUF for a period not exceeding six years from the date the interest vests in it. In this connection we consider there is considerable force. In the argument of the learned counsel for the assessee to the effect that section 2(e)(v) does not talk of any interest in property where the interest is availab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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