9911796707
TMI Blog2005 (8) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest up to each valuation date will also be includible in the net wealth of the assessee. The assessee is not entitled to be a deemed holder of 61/2 per cent. Gold Bonds, or 7 per cent. Gold Bonds, 1980, or National Defence Gold Bonds, under the respective schemes, therefore, he is not entitled to claim exemption on the value of the asset belonging to him under section 5(1)(xvia). In the aforesaid circumstances it cannot be held that the value in respect of the asset in question be treated to be nil - - - - - Dated:- 18-8-2005 - Judge(s) : RAJESH BALIA., DINESH MAHESHWARI. JUDGMENT The judgment of the court was delivered by Rajesh Balia J. - In all these cases whether are references made under section 27 of the Wealth-tax Act, 1957, or are appeals under the same section as amended with effect from October 1,1998, the common set of facts giving rise to a common question, as raised in these cases, on the happenings which took place in the accounting period since 1965-66, the matters relate to various assessment years as per the details which are given in appendix "A". To make the record of proceeding complete we notice the questions referred in W.T. reference and W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was delivered by the assessee to the Government Treasury in the form of gold bars and is primary gold. The ownership was claimed by the assessee as on the respective valuation dates. The assessee has handed over the gold in question which is in the form of primary gold to the District Collector, Chittorgarh, for the purpose of weighing the then Prime Minister of India, Shri Lal Bahadur Shastri on December 11, 1965. However, before this transaction of weighing the then Prime Minister could take place, Shri Lal Bahadur Shastri died in Tashkent on January 10, 1966. According to the assessee, subsequent to the death of the late Shri Lal Bahadur Shastri, through his brother he had applied for purchase of gold bonds in the year 1966 itself. Before the aforesaid offer of the assessee to weigh Shri Shastri in gold could be responded to, an F.I.R. was lodged against the assessee and his brother and a complaint in the court of the Assistant Sessions Judge, Udaipur, was also filed under section 406, IPC, by Shri Gunwant Lal who too was claiming ownership over the same gold after the announcement of the aforesaid offer on All India Radio. He has complained that while effecting repair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sessions Judge, Udaipur, dated August 7,1978, an appeal was preferred by the State of Rajasthan, which is pending as SB Crl. Appeal No. 385/1978. It appears that in the said appeal at the stage of leave to appeal, by an interim order dated October 25, 1978, the court passed an order to the effect that the gold bricks, 57 in number, may not be given into the custody of the respondents and status quo shall be maintained. Thus, the gold in question remained in the custody of the Treasury, Chittorgarh. In this connection, it may also be noticed that the said Guhwant Lal was also claiming ownership over the same gold in question in his wealth-tax return, and it has been submitted by learned counsel for the assessee that he has been assessed to wealth-tax by accepting his ownership over the gold in question before the Tribunal. He has been assessed by the Department in Madhya Pradesh as he is the resident of Neemuch (MP) which is subject to Madhya Pradesh jurisdiction. While claiming himself to be the owner of the gold in question so deposited in the Government Treasury in December, 1965, the assessee is claiming that on the relevant valuation date, the gold in question was not in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to be the owner of the gold in question for the purpose of the Wealth-tax Act. The Tribunal has further held that the ownership and the possession of the primary gold in question was in contravention of the provisions of the Gold (Control) Act and since the gold in question has not been confiscated so far by the authorities under the Gold (Control) Act, it continues to remain the property of the assessee. The Tribunal has also rejected the plea of the assessee that, since the gold in question has been included in the assessment of Gunwant Lal as his wealth, it cannot be included again in the wealth of the present assessee. According to the Tribunal, since the assessee had accepted his ownership over the gold in question, the assessment made in respect of another assessee cannot affect the case of the present assessee. However, the Tribunal accepted the contention of the assessee that although his title over the gold in question was seriously disputed and the assessee has not obtained the possession of the primary gold which is held to be in contravention of the provisions of the Gold (Control) Act. Moreover, even if the ownership of the assessee was established, the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined as per the prevailing market rate, the assessee is liable to pay wealth-tax on the full value of the gold as per the market rate prevalent on the respective dates of valuation. It was further contended by the Revenue that the fact that the asset (gold) in question is not saleable in the open market does not render the asset to be worthless or of nil value. It was contended by the Revenue that every Hindu undivided family, individual or company, as the case may be, is liable to pay tax in respect of the assets which belong to the person. Even in cases where an asset is not alienable or there does not exist an open market in the sense that it is not traded regularly at a place where such commodity is usually brought and sold, the existence of such market is to be assumed as if there is a willing seller and a willing buyer and also there is availability of a commodity which is to be transacted in that market and according to that, the market value has to be determined for the purpose of computing the net wealth and taxed. The fact that somebody has disputed the title of the assessee to movable property does not affect the value of asset as on the valuation date. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, manufacture, supply, distribution, use and possession of, and business in, gold ornaments and articles of gold and for matters connected therewith or incidental thereto, vide promulgation of the Gold (Control) Ordinance, 1968, vide Notification dated June 29, 1968, and subsequently replaced by the Gold (Control) Act, 1968 (Act No. 45 of 1968), vide Notification dated September 1, 1968, published in the Gazette of India Extraordinary of the same date. In the first instance when the Gold (Control) Rules were brought into the Defence of India Rules on January 10, 1963, no prohibition was imposed on owning and possessing or having custody or control over any primary gold other than for the licensed dealers or refiners or the artisans (goldsmiths) who were certified/licensed to obtain, keep and use primary gold in terms of the regulatory conditions laid down in the Rules. However, for the first time by inserting sub-rule (1A) in rule 126H with effect from November 1, 1966, it was envisaged as under: "(1A) No person (other than a dealer or refiner licensed under this Part) shall, after the expiry of a period of six months from the commencement of the Defence of India (Fourth A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorise the person who is in possession, custody or control thereof to sell such primary gold or to deliver the same to a dealer or goldsmith for conversion thereof into ornaments the person who is in possession, custody or control of such primary gold shall within a period of two months from the date of expiry of the said period of four months, sell such primary gold to a dealer or refiner licensed under this Part and dispose of the proceeds of such sale in any manner authorised by law." It will be pertinent to notice here that the gold in question was offered by the assessee and delivered to the Collector from his possession in December, 1965, before sub-rules (1A) and (1B) were inserted in rule 126H of the Defence of India Rules, 1962. Hence, on commencement of sub-rules (1A) and (1B) of rule 126H, the assessee was claiming ownership of the gold but was not in possession thereof. Hence, clause (ii) and/or (iii) of sub-rule (1B) of rule 126H governed his case. The aforesaid provisions clearly postulated that law will not recognize any ownership right or control over primary gold of any person other than a dealer or refiner licensed or certified to keep primary gold. It also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above that the assessee has asked the Collector to take possession of the gold in question in December, 1965, and he was not in possession of the primary gold in question as on the date the newly inserted provisions in the Defence of India Rules commenced with effect from November 1, 1966. Apparently, unless the assessee had exercised any of the options in terms of clause (ii) of sub-rule (1B) of rule 126H of the Defence of India Rules, 1962, within four months of November 1,1966, the assessee's case would be governed by clause (iii) of sub-rule (1B) of rule 126H. Another important event which has taken place prior to prohibition imposed on ownership, possession and control of primary gold by persons other than a refiner and dealer licensed under the Act, the Government of India has promulgated three gold bond schemes as an incentive to the owners of gold whether of primary gold or in the form of articles and ornaments to part with that gold either permanently or temporarily by purchasing different types of gold bonds depending upon the scheme which the person may choose and on such acquisition of gold bonds, the income arising from such gold bonds, the transfer of gold bonds by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or transfer. The bonds were also exempted from gift-tax and were not chargeable to estate duty. For acquisition of such bonds, the applicant was to make an application in a prescribed form to the authorities named in clause 8 of the scheme. Subscription to National Defence Gold Bonds, 1980, commenced with effect from October 27,1965, and could be made lastly up to January 31, 1966. It could be closed earlier if the Government of India so notified. Similarly, 61/2 per cent, gold bonds were also issued for the price of the gold at the time of subscription and the bonds were redeemable in 1977. These bonds were exempted from wealth-tax in terms of section 5(1)(xvia) of the Act of 1957. Thus, with effect from November 1,1966, the ownership of gold as well as possession and control of primary gold were totally prohibited by law except to the extent which was required to be dealt with in terms of sub-rules (1A) and (1B) and other ancillary provisions contained in rule 126H under Chapter XII-A of the Defence of India Rules, 1962. Chapter XII-A of the Defence of India Rules continued to remain in force until the Gold (Control) Ordinance, 1968, came into force, which was subsequently r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix months from November 1, 1966, when sub-rules (1A) and (1B) were inserted in rule 126H of the Defence of India Rules, 1962. The assessee had claimed ownership of the gold in question at least since December 11, 1965, and was in possession thereof until it was delivered into the custody of the Collector, Chittorgarh, on December 16, 1965, to be deposited in the Treasury. The assessee has parted with the said primary gold by depositing the same in favour of the Collector, Chittorgarh, for a particular purpose. When sub-rules (1A) and (1B) came into force with effect from November 1,1966, the assessee was claiming ownership of the said primary gold but was not in possession of it. Therefore, the assessee's case would be governed by clauses (ii) and (iii) of sub-rule (1B) of rule 126H of the Defence of India Rules, 1962. When the 1968 Act came into force, there was no scope for owning and possessing any primary gold, since he was not in actual possession of it, his rights qua such primary gold were governed in terms of sub-rules (1A) and (1B) of rule 126H. Since, no option had been exercised by the assessee within four months of November 1,1966, under clause (ii) of sub-rule (1B) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise the price of the gold in question and deal with the proceeds in accordance with the manner prescribed under the law. Any person, who was owning or was in possession of any primary gold or who claimed ownership of primary gold as on November 1,1966, but was not in possession thereof was required to act in terms of sub-rule (1B) of rule 126H. His rights qua such primary gold stood determined in accordance with the said provisions. Upon failure of the person claiming ownership to exercise any of the options open to him, the ownership of primary gold would come to an end on the expiry of six months from November 1, 1966, and his right would be to get the price of the gold at which it could be sold up to May 1, 1967. It cannot be said that notwithstanding the clear statutory provisions, upon his failure to act in terms of clause (iii) of sub-rule (1B) of rule 126H, the assessee continued to own primary gold even after the expiry of six months from November 1, 1966, when he did not exercise his option to convert the primary gold into ornaments within that period in any manner. From the date of insertion of sub-rules (1A) and (1B) in rule 126H, the right of a person owning primary g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions, neither the continued ownership nor continued possession of the primary gold by any person was in contravention of the above provisions of the Defence of India Rules, 1962. Therefore, the question of confiscation of gold could not arise. The juridical ownership of primary gold in private persons ceased to be recognized by law, on the expiry of six months from November 1, 1966, and sub-rules (1A) and (1B) operated in respect of such primary gold. Possession of primary gold being not with the assessee, but with the State could not have been unlawful so as to attract the provisions of confiscation. Hence, to ignore the provisions of the Gold (Control) Act, on the ground that since the primary gold was not confiscated by an appropriate order, it continued to be owned by the assessee or for that matter any other individual in the present circumstances was not warranted. The Tribunal seriously erred in not examining the relevant provisions of the gold control law on assumption of continuous ownership of primary gold in the absence of an order of confiscation. In this connection, it may be stated that if the person in possession had failed to dispose of the primary gold wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of four months from November 1,1966, as per the rules framed in this regard. It was not envisaged under the provisions aforesaid that in the absence of exercise of option by an owner who is not in possession of the primary gold, his ownership would come to an end without any consideration in lieu of the gold. Two options rested with the assessee which were ultimately reduced to one by non-exercise of the option to authorize the person in possession to convert the primary gold into ornaments in terms of the option. The owner of primary gold in such event could be held entitled to receive the price of the gold which it could fetch within a two-month period from the expiry of four months from November 1,1966. The right to possession or to own the primary gold in the aforesaid circumstances did not survive beyond six months with effect from November 1, 1966. The position did not alter with the promulgation of the Gold (Control) Act, 1968, under section 8 of which, prohibition against the ownership and possession of the primary gold continued. No corresponding provisions to sub-rule (1B) were made in the Act of 1968, either extending the period for retaining the primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been defined under section 2(e) to mean the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date. The definition of asset has been indicated under section 2(e) of the Act of 1957 to include property of every description, movable or immovable. The expression "belonging" has been explained in Black's Law Dictionary to mean that which is connected with a principal or greater thing; an appendage, an appurtenance; also, ownership. In the context of the wealth-tax, the word "belonging" of assets has been used as ownership in its comprehensive sense. "Ownership" in a most significant denomination has been described by jurisprudence pundits to mean "that a person have, any right that is vested in him by law, and he may use it according to its own. It may be in relation to tangible or intangible property." The "property" in its comprehensive meaning includes the tangible and intan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m discussing those cases. However, it is demonstratively clear from the decision cited at the Bar by learned counsel for the assessee which are referable to the acquisition of immovable property that the courts have consistently held that once the property becomes the subject-matter of acquisition, the owner of such property retained a right only to receive compensation in lieu of the property so acquired and not of the land itself. In such case on each valuation date, until compensation is determined, the market value of land on successive valuation date cannot be included in the net wealth. But the estimated value of compensation determined as per the provisions of the respective acquisition law only is to be included in net wealth. If the same principles were to be applied in the facts and circumstances of the present case, on the commencement of the provisions contained in sub-rules (1A) and (1B) of rule 126H of the Defence of India Rules, 1962, the right which the owner of primary gold at the commencement of the provisions possessed in relation to the primary gold stood converted into the rights which such person held on the expiry of six months depending upon the option w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alienable. It cannot be sold and purchased in the open market. None the less it has its money's value. For finding its value it has to be assumed that there exists a free market, where there is a willing seller and a willing buyer of such an asset. On that assumption, the market value has to be arrived at. But this principle applies where the belonging of such asset or the ownership of such asset by such person is countenanced by law. If ownership itself is not countenanced by law or ownership in a particular form of an asset is not countenanced by law, one cannot assume that still a person owns or has right to possess such asset or such an asset belongs to him, in contravention of law, when no such contravention has also been shown. In the present case, as we have noticed the primary gold in question ceased to be a commodity or asset which could belong to the assessee on the expiry of the six-month period from November 1, 1966, i.e., the commencement of sub-rules (1A) and (1B) of rule 126H of the Defence of India Rules, 1962. The asset which the assessee held on the valuation dates subsequent thereto, was his right to receive the value of the primary gold as on May 1, 1967, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the receiving office. We are not concerned with the details of the scheme except with the date of issue of such gold bonds. The interest payable on the bond amount was exempted from wealth-tax. The capital gains arising from transfer of bonds were also not subjected to tax so also the bonds were exempted from wealth-tax. Further, as we have noticed above, that the desirous person who wanted to acquire the 7 per cent. Gold Bonds, 1980, could do so only until May 31, 1965, and the scheme was not open thereafter. While the scheme envisaged its closure earlier than May 31, 1965, it did not envisage extension of this time. In this scheme, the applicant was to be paid the price of the gold at the rate specified in clause 3 of the scheme, i.e., 53.58 per 10 gms. of 0.995 fineness equivalent to Rs. 62.50 per tola of the same fineness. It is not even the case of the assessee that he surrendered the gold in question at the receiving office prior to May 31, 1965. Hence, he did not acquire any right in respect of 7 per cent. Gold Bonds, 1980. In contrast, on October 19, 1965, another scheme was opened by the Central Government known as the National Defence Gold Bonds, 1980 Scheme. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if it were the bank, was under an obligation within a period of seven working days from the date of the acquisition, acceptance or receipt, as the case may be, to sell such gold to the Reserve Bank of India and, the Reserve Bank of India was authorised to acquire, accept or otherwise receive gold so sold. If the recipient was other than the bank, he was given the option as envisaged under sub-rules (1A) and (1B) of rule 126H in its clause (b) within a period of six months from the date of the acquisition, acceptance or receipt of primary gold, as the case may be, either to sell the said gold to a licensed dealer or certified goldsmith or get the said gold converted into ornaments through a licensed dealer or a certified goldsmith. Obviously, in such cases, clauses (ii) and (iii) of sub-rule (1B) of rule 126H would not operate. Thus, under the scheme, firstly, there was no occasion for the assessee to have opted for acquisition of the 7 per cent. Gold Bonds, 1980, or the National Defence Gold Bonds, 1980, as the case may, nor is it the case of the assessee that he made any such application to acquire National Defence Gold Bonds before the schemes which had closed on January 31, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of cash does not diminish because of such dispute. The fact that because of the dispute, if the parties decide to settle the same they may do at a lesser amount does not diminish the value of the right to receive cash or gold. The wealth-tax appeals are allowed. The order of the Tribunal is set aside and the matter is remitted to the Tribunal for passing fresh orders in the light of the aforesaid conclusions. In all the appeals submitted by the assessee, the second common question raised is that, "Whether the impugned gold having been assessed in the wealth of M/s Meghji Girdhar Lal (HUF), its inclusion in the hands of the appellant suffers from vice of double taxation?" We notice that there being no dispute that two persons, viz., the assessee in the present case Ganpatlal (HUF) and M/s Meghji Girdhar Lal (HUF) represented by Gun-want Lal, whose cases are within the jurisdiction of the Madhya Pradesh High Court, are claiming title to the right that survived in respect of the primary gold to the owner, in view of the provisions of the Defence of India Rules, 1962, and the Gold (Control) Act, 1968. In this connection, the title to such right has to be decided by the court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 16, 1965, by the respondent-assessee could not have been owned or possessed by him after the expiry of six months period from the commencement of sub-rules (1A) and (1B) of rule 126H of the Defence of India Rules, 1962, i.e., from November 1, 1966. However, on the expiry of the period envisaged under sub-rule (1B) (iii) of rule 126H, the right which belongs to the assessee was to receive the cash value in lieu of the primary gold as on May 1, 1967. The value of such right was includible in the net wealth of the assessee on a each successive valuation date. In case he is found to be entitled to any interest on such amount, the accumulated amount of interest up to each valuation date will also be includible in the net wealth of the assessee. The assessee is not entitled to be a deemed holder of 61/2 per cent. Gold Bonds, or 7 per cent. Gold Bonds, 1980, or National Defence Gold Bonds, under the respective schemes, therefore, he is not entitled to claim exemption on the value of the asset belonging to him under section 5(1)(xvia). In the aforesaid circumstances it cannot be held that the value in respect of the asset in question be treated to be nil. As a result, the question ref ..... 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