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TMI Blog1991 (5) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... holds U. P. Zamindari Abolition Compensation Bonds and U. P. Zamindari Abolition Rehabilitation Grant Bonds (hereinafter referred to as the "Compensation Bonds" and "Rehabilitation Bonds", respectively)The dispute pertains to the inclusion of the values of these bonds in the net wealth of the assessee for the assessment years 1971-72 to 1974-75. The market value of these bonds as included in the net taxable wealth of the assessee by the Wealth-tax Officer is quoted below against each assessment year. Rs. 1971-72 18,205 1972-73 18,205 1973-74 17,377 1974-75 17,185 The assessee went up in appeal before the Appellate Assistant Commissioner, impugning the inclusion of the value of the bonds in assessing the wealth-tax for the relevant assessment years, claiming that the value of the bonds which she held was liable to be exempted under section 5(1)(xxii) of the Act. The summary of what the Appellate Assistant Commissioner, Wealth-tax, held in a common appellate judgment boils down to a finding that "securities" contemplated under section 5(1)(xxii) of the Act are securities which have been voluntarily acquired by the person as a part of savings promotion which the Government i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of 1963) ; (xxva) any deposits under such National Deposit Scheme as may be framed by the Central Government and notified by it in this behalf in the Official Gazette ; (xxii) any security of the Central Government or a State Government not being a security referred to in clause (xvi) or clause (xvia) ; (1A) Nothing contained in sub-section (1) shall operate to exclude from the net wealth of the assessee any assets referred to in clauses (iv), (xv), (xvi), (xxii), (xxiii), (xxiv), (xxv), (xxva), (xxvi), (xxvii), (xxviia), (xxviib), (xxviii), (xxix), (xxxi) and (xxxii) (not being deposits under the Post Office Savings Bank (Cumulative Time Deposits Rules, 1959), to the extent the value thereof exceeds, in the aggregate, a sum of two hundred and sixty-five thousand rupees ; (2) Wealth-tax shall not be payable by an assessee in respect of any deposit made by the assessee with the Government or in any security of the Government or of a local authority not specified in clause (xv) or clause (xvi) or clause (xvia) of sub-section (1) which the Central Government may, by notification in the Official Gazette, exempt from wealth-tax but the value of any deposit or security so exempted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (2) or such other forms and for such other purposes of the Act as may be prescribed by Rules made under the Act. Rule 3 of the Public Debt (Central Government) Rules, 1946, runs as under : " 8. Forms of Government securities. -A Government security may be held or issued in the form of (1) a Government promissory note payable to or order of a certain person ; (2) a bearer bond payable to bearer provided the issue in this form is permitted in respect of this loan to which the security appertains by notification in the Gazette of India ; (3) stock in the manner laid down in rule 5 hereinunder; (4) a treasury bill payable to or to the order of a certain person; (5) a promissory note in Form 1 issuable to a Ruler of an Indian State." The aforesaid rules were made by the Central Government in exercise of powers under section 28 of the Public Debt Act, 1944. In exercise of the same powers, the Central Government formulated yet another set of rules known as the "Public Debt (Compensation Bonds) Rules, 1954, which define bonds other than an indemnity bond or security bond, to mean bond issued under rule 3, which runs as under ; "3. Form Bond issuable as Government security under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the provisions of the U. P. Zamindari Abolition and Land Reforms Act, 1950 (U. P. Act No. 1 of 1951), for the purposes of ascertaining the true meaning of "security" vis-a-vis Compensation Bond and Rehabilitation Bond, we consider it useful to refer to certain provisions contained in the Government Securities Manual (Second Edition issued by the authority of Government of India). Paragraph 2 of the Manual being relevant may be quoted as below. "2. The three main forms in which the rupee debt is held are (i) stock, or, as it is sometimes called, book debt ; (ii) bearer bonds (iii) promissory notes. (i) when a debt is held in the form of stock, the owner is given certificate to the effect that he has been registered in the books of the Public Debt Office as the proprietor of a certain amount of Government stock, This certificate is known as a stock certificate, and it is by that name that this form of debt is generally known, and will be referred to in this Manual. (ii) A bearer bond certifies that the bearer is entitled to a certain sum of rupees in respect of the loan to which the bond relates. (iii) promissory note contains a promise by the Governor-General in Council, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed as Zamindari Abolition Compensation Bonds. These bonds bear interest at the rate of 2.5 per cent. per annum on the principal that has not become payable calculated from the date of vesting, viz., July 1, 1952. No interest is payable on any amount of principal beyond the date on which its payment fell due even though the sum is not released by the holder of the bonds in the form of promissory notes. According to rule 64 of the Rules, the interest together with the principal of a bond in the form of promissory notes is to be paid in equated annual instalments except for the last, as described in Appendix IV during the period of 40 years beginning from the date of vesting ; provided that any bond in the form of promissory notes may be redeemed at an early date at the option of the Government. The provision relating to the payment of rehabilitation grant is contained in Chapter V of the U. P. Act 1 of 1951. Section 73, occurring in the said Chapter provides that there shall be paid by the State Government to any intermediary (other than the Thakedar), whose estate or estates have been acquired under the provisions of the said Act, a rehabilitation grant as contemplated under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In jagdambika Pratap Narain Singh v. CIT [1963] 50 ITR 678, AIR 1961 All 574, a Full Bench of this court, while considering the question whether the amount of interest paid on compensation bonds amounts to interest on security or income from other sources, held as under (p. 692) : "Thus, in order to be a Government security, a promissory note, or stock certificate, or a bearer bond has got to be in respect of any loan. In the present case, no loan as such was raised by the Government, though in a sense it may be said that by issuing bonds, the Government has compulsorily taken the compensation amount on loan. However, it is not in that sense that the word 'loan' has been used in the Indian Securities Act. Consequently in our judgment, the compensation bonds cannot be held to be a Government Security within the meaning of the Indian Securities Act." The Full Bench, however, held that the compensation bonds do come within the purview of the expression "Government security" as defined in section 2 (2) of the Public Debt Act, 1944. It observed as under (p. 692) : "In our opinion, the present bonds which are in the form of promissory note are fully covered by the definition given i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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