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TMI Blog1970 (2) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... paid. The facts of this case lie within a small compass. The statement of case refers to the assessments during 1957-58, 1958-59 and 1950-60. There are six reference applications upon which the statement of case is made raising the combined contention relating to the inclusion within the net wealth of the assessee the value of his right to receive compensation under the West Bengal Estates Acquisition Act, 1953. The admitted fact, as appeared in the statement of case, is that the assessee had extensive zamindary properties which vested in the State of West Bengal under the provisions of the West Bengal Estates Acquisition Act. The Wealth Tax Officer assessed the right to receive compensation at ₹ 32,00,000 for each of the three years under reference. The Appellate Assistant Commissioner, however, reduced the value of the assessee's right to receive compensation to ₹ 3,25,000 for each year. It is said that the Appellate Assistant Commissioner held that there was a debt owed by the Government under the Estates Acquisition Act to the assessee which could be quantified under the provisions of that Act. In other words, the Appellate Assistant Commissioner took the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays of the offer of payment. 3. The logic of the Tribunal is that the intermediary is not entitled to receive any compensation until the compensation assessment roll has been prepared and finally published under Section 21 of the Act although he may be allowed ad interim payment from time to time against the compensation receivable by him after the final publication of the compensation roll. Therefore, the Tribunal came to the conclusion. (1) that the Wealth Tax Officer was wrong in assuming that the assessee had a right to receive compensation upon the claim preferred by him in Form 3A under Rule 10 (3) of that Act and (2) the Appellate Assistant Commissioner was wrong in holding that the assessee had an actionable claim which had a hypothetical market value, on the valuation date. 4. The Tribunal repelled also the argument made on behalf of the Revenue that the provision for interest suggests a different conclusion. It was argued that under Section 23(1) of the West Bengal Estates Acquisition Act, which is quoted above interest was payable at the rate of 3% on that compensation accruing from the date of vesting. Therefore it was argued by the Revenue that the fact the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able has not been finally determined and not known when the amount would be paid. This objection cannot be entertained as the right to receive compensation remains with the assessee and amount of compensation can be determined with reference to the Estates Acquisition Act. As the claims filed by the assessee before the compensation officer have not been disclosed and there is no material before me from which it can be ascertained what would be the compensation money receivable by the assessee, I, on the basis of the agricultural income determined by the Agricultural Income Tax Officer as per his order dated 28th November 1956 estimate the income at ₹ 15,00,000 and therefrom value the right to receive compensation at ₹ 32,00,000. The big issue unquestionably then is that this land to begin with is agricultural land which has been expressly excluded by Section 2(e) of the Wealth Tax Act as forming part of the assets in the scheme of the Wealth Tax Act but the Revenue authorities contend that by a statutory provision a new kind of property described as right to receive compensation, has been created independently of all concept of agricultural land and its exemption. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banchharam Majum-dar v. Adyanath Bhattacharja, (1909) ILR 36 Cal 936 at p. 941, where Jenkins, C. J. observed : A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation . And where Mookherjee, J. observed : That a debt was no less a debt because it had not yet matured, if it would certainly become payable in the future. 7. The other case on which the Andhra Pradesh High Court decision relied on is the Supreme Court authority in Sasoon (E. D.) and Co. Ltd. v. Commr. of Income Tax [1954]26ITR27(SC) , where the Supreme Court dealing .. with the question when managing agency commission became payable to the managing agents of a Company observed as follows : If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. 8. Finally, reference is also made to the well-known decision of Dawson v. Preston (Law Society, Garnishees), (1955) 3 AllER. 314. 9. It will not be necessary to say an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our opinion,-distinguishes the Madhya Pradesh decision from the present Reference before us. Here in the present reference this is not a sum certain It may be observed also that at page 342 of that report it has been said: As this asset of unpaid compensation instalments is a 'cash asset', the question of determining its market value clearly does not arise. Section 7 of the Act speaks for the determination of the market value of any asset other than cash. Now, this is a consideration which is absent in the instant reference before us and quite a good deal of argument has been advanced from the Bar on this aspect of the problem which we shall presently discuss. 11. The third case on which reliance was placed by the Revenue authorities is one reported in the Same volume under the title Lakshmi Kant Jha v. Commr. of Wealth Tax, Bihar and Orissa [1968]69ITR545(Patna) . That case came up under the Bihar Land Reforms Act holding that as soon as the estate of an ex-proprietor vested in the Government under the provisions of Bihar Land Rel'orms Act, the proprietor was entitled to receive compensation though the date of payment of the compensation and the manner of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must not only be a debt but one solvendmn in praesenti. A debt accruing is not within the section. 14. The next case to which reference was made by the learned counsel for the Commissioner is [1967]65ITR460(Patna) . There the assessee's estate vested in the State of Bihar under the Bihar Land Reforms Act, 1950 and he was held to be entitled to compensation under the said Act. The Tribunal held in that case that the right to receive compensation. under the Bihar Act was an asset and its market value had to be estimated as provided under Section 7(1) of the Wealth Tax Act. The decision or the Patna High Court was (1) that the right to receive compensation was one relating to property and, hence, fell within the definition of 'asset' in the Wealth Tax Act and (2) its value had to be computed for inclusion in the net wealth. There also the basis of calculation for wealth tax valuation was the agricultural income taxes paid on assessee's zamindary income. It must be emphasised here again that the assessee there admittedly received interim compensation of ₹ 41,000 from the State of Bihar and it is expressly said by the learned Judge at page 463: That presuppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yedpore and Bhittery in perpetuity. In 1795 a dispute arose between Babu Ausan Singh and his zamindars, which ended in 1837 by a compromise between the British Government and the then Jagirdar, whereby the Government granted a pension to the Jagirdar and his heirs in perpetuity, the quantum of pension being calculated on the basis of 1/4th of the net revenue collections of the Jagir. The question was, therefore, whether the amount received by the respondent during the relevant period on account of pension was agricultural income in his hands. The decision was that it was not so on those facts. The present case before us, however, is not of a treaty or an arrangement or a compromise between the parties and contestants but of a compulsory acquisition of the estates under the West Bengal Estates Acquisition Act of the lands and specially agricultural land in this case, belonging to the intermediary. 16. The next case cited for the Revenue was the Privy Council decision of Commr. of Income Tax, Bihar and Orissa v. Raja Bahadur Kamakhya Narayan Singh holding interest on arrears of rent payable in respect of land used for agricultural purpose is not agricultural income within the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a hypothetical market, what would be the price if the interest was sold. In that Bombay decision the Court came to the conclusion that the assessee was entitled to raise the question that his share and that of his wife in the trust fund were indeterminate and unknown and that, therefore, having regard to the provision of Section 21(4) the Revenue department could only assess the trustees and not the assessee. The main distinguishing feature of the decision from the instant reference before us is that it was a case of a trust created by parties or their predecessors and concerning a life interest, but it is not so in the instant reference before us. The importance of this distinction will appear later when we consider this point later in this judgment. 18. The third case in this group cited for the Revenue is Ahmed G. H. Ariff v. Commr. of Wealth Tax, Calcutta, in Civil Appeals Nos. 2129-2132 of 1968 in the Civil Appellate Jurisdiction whose judgment is yet unreported, laying down the principle of open market test as a notional concept. But there again the distinctive point between that case and the instant Reference before us is that it was again a case of trust deed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an other competitors, or in case where he is the only purchaser of the potentiality, more than the value of the land without the potentiality is to be disregarded, their Lordships venture respectfully to differ from the learned Judge. For these reasons, their Lordships have come to the conclusion that, even where the only possible purchaser of the land's potentiality is the authority that has obtained the compulsory powers, the arbitrator in awarding compensation must ascertain to the best of his ability the price that would be paid by a willing purchaser to a willing vendor of the land with its potentiality in the same way that he would ascertain it in a case where there are several possible purchasers Here again, this case is distinguished on the ground that it was not concerned with a sale, if possible, of a right to compensation under the West Bengal Estates Acquisition Act. 20. The last of the cases in this series cited for the Revenue was another decision of the Judicial Committee of the Privy Council in Maori Trustee v. Ministry of Works, 1959 AC 1, following the previous decision of the Judicial Committee just cited. Broadly speaking, this concludes the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the West Bengal Estates Acquisition Act. Jurisprudence has given many definitions of property as a bundle of rights , tangible and intangible, moveable and immovable and in diverse other ways. We are not concerned with the general definition, of property in its juristic connotation in this context. Our immediate concern is what is the nature of this right to compensation on which this Wealth Tax is being imposed and to consider whether that is a kind of property or asset within the meaning of the Wealth Tax Act. 23. The first step in this construction is to find out from the West Bengal Estates Acquisition Act what is this right to compensation which is said to be the property on which Wealth Tax is imposed in this case. In the first instance, is it a right at all ? or, is it a mere chance or expectancy, a possibility which may or may not mature ? 24. The argument for the Revenue seemed to assume that it was a legal right complete in itself. This, in our view, is the basic fallacy in the arguments for, the Revenue. If this is at all any kind of a right, it appears, on an analysis of the different sections of the West Bengal Estates Acquisition Act, that it is at bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Compensation Officer has not therefore necessarily proceeded to make payment of any compensation to the intermediary assessee. On a plain reading of the situation, therefore, there is no right to compensation as yet. 27. No doubt, immediately on the notification under Section 4 of the West Bengal Estates Acquisition Act under Chapter II, the assessee's rights vested in the State. But this vesting under the scheme of the West Bengal Estates Acquisition Act does not immediately create any right to compensation. There are many steps which have to be taken before that right to compensation arises. For this purpose, Section 5 of the Act may also be seen. Indeed, Section 7 of the Act says that even all arrears of land revenue, cesses, taxes and other impositions by the State due from any intermediary prior to the date of vesting will continue to become recoverable in the same manner as before against the intermediary. The amount of Compensation is also thus wholly uncertain anil indeterminate. The next step is also vital and significant and that is when the Collector shall take charge of the estate and interest of the intermediary under Section 10 of the West Bengal Estates Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition qualified by the words movable or immovable which followed. Naturally these words 'movable or immovable' are qualifying words which necessarily restricted the plenitude of the meaning of 'property of every description'. Was it intended then that it was only property considered from the angle of vision of whether it is movable or immovable property, that is included and not properties which do not ordinarily answer the test of movability or immovability such as intangible right or incorporeal rights. This point apparently does not seem to have been decided directly in any of the decisions. Almost all the decisions appear to have taken for granted and are satisfied with the words 'property of every description' and come to the conclusion that, therefore, all properties must be included whatever their nature and have almost treated the expression 'movable or immovable' appearing in that definition as otiose or meaningless appendage. The base of tax in a taxing statute should, in our view, be clearly indicated and not left to mere inference. If property of other description was really intended to be asset within the meaning of the Wealth Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural land in Item No. 21 of List II of the Seventh Schedule of the Government of India Act, 1935 discussed this particular expression and came to the conclusion that agricultural land includes any interest therein whether that of a zamindar or tenure-holder or under-tenure holder or raiyat or under-raiyat . The learned Counsel for the assessee, therefore, contends that the expression 'agricultural land' is not necessarily the soil itself but also any interest which should include even a complete legal right to compensation arising by virtue of its acquisition. In its broadcast implication that contention of the assesses cannot be accepted and there are decisions, already discussed, which would indicate that in appropriate circumstances the tangible property may be considered independently and dissociated from a right to compensation arising from it. 37. But even if the assessee's contention is not to be accepted broadly there are other implications arising from the scheme of the West Bengal Estates Acquisition Act which require examination. Before proceeding to such examination a reference may at this point be appropriately made to the decision of [1967]64IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Estates Acquisition Act in the instant reference no compensation may ultimately be payable at all and nothing may be due to the assessee. In considering this aspect of the problem the first thing to remember is that this West Bengal Estates Acquisition Act began its career by providing such limits as 2, 3, 5 or 8 years for payment of compensation but as it stands now it has no longer any time limit and the Act in its present state does not indicate that compensation is payable within any number of years. The time for payment or any compensation is therefore now indeterminate and there is no statutory time within which it must be paid. That makes it, in the first instance, indeterminate. In the second instance, the scheme of the West Bengal Estates Acquisition Act conclusively shows that nothing may be payable at all as compensation to the assessee. This point is illustrated by reference to Section 7 which expressly provides that all arrears of land revenue, cesses, taxes and other impositions due from any intermediary shall remain recoverable from the assessee as provided therein, followed by Section 16 laying down how the gross and the net income is to be computed for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is only property or wealth or income which the assessee acquires or inherits is the subject of a tax on the ground that such acquisition or inheritance is rendered possible by the existence of an orderly State or Government. If the land was there as such with the assessee, in this case then the Wealth Tax itself was completely exempt, as stated, on the ground that it was agricultural land. The State has taken away that property by compulsory statutory acquisition. It now says that has now created a property for the assessee, which is the right to compensation apart from the compensation itself, which may or may not become payable and for which there is no time limit any more under the statute to pay and for which the basic conditions of publication or preparation of the Final Compensation Assessment Roll have not been fulfilled and where nothing has been paid as ad interim or other compensation in the meantime, although to-day in 1970 sixteen years have elapsed since the vesting took place in 1954. The plain contention of the State is that this property is created by the compulsory statutory acquisition for the assessee by giving him this curious, inchoate and indeterminate rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to taxation as wealth by conversion of the exempted agricultural land into a right o compensation independently of the agricultural land. What are the Revenue authorities trying to do in the present instance ? They are treating this alleged right to compensation, which is a misnomer for a legal right, as a kind of property which is an asset attracting Wealth Tax under the Wealth Tax Act, and that Wealth Tax is being computed on the basis, which is entirely hypothetical, notional and imaginary, of that very agricultural Income Tax which he had to pay, if the assessee had the use, enjoyment and the Ownership of these agricultural lands which were excluded from Wealth Tax. So, because the State had compulsorily acquired these agricultural lands of the assessee, the State is supposed to have created by its acquisition a new kind of taxable property for the assessee and therefore he .goes on paying Wealth Tax on the basis of agricultural Income Tax of these very properties. This in our view is taxing indirectly what could not be taxed directly. We are unable to accept these contentions of the Revenue Authorities. 42. Learned Counsel for the Revenue here wanted to apply which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... octrine of measure, in spite of the fact that for the valuation of this newly created Wealth or asset the base of agricultural Income Tax operates. In one breath the State says that it is not agricultural land any more or else it could not tax, and in the other breath says that the computation of the tax will continue to be on the basis of the fixation as though he is still paying agricultural Income Tax on this very land, a process by which the Wealth Tax Officer has computed the wealth tax in this very case. We do not think that the doctrine of measure was intended to save or serve such a situation for the Revenue. 43. This brings us to the next vexed question of valuation of such wealth. The embarrassment of the Revenue Authorities in the present case is plain from the fact that at one time the valuation of this alleged right to compensation is said to be ₹ 32,00,000 for each of the three years according to the Wealth Tax Officer but which, according to the Appellate Assistant Commissioner, be comes very much smaller and comes to only ₹ 3,25,000 for each year. Behind this yawning disparity lies an unexpressed confusion that such a wealth was not intended at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation to the intermediary who is entitled to such compensation in terms of the compensation assessment roll . The statutory provisions in the scheme, therefore, indicate that this compensation is only for the intermediary and no one else and such right to compensation cannot be sold by him nor can it be imagined to be sold conceptually for the purpose finding a price in a hypothetical market even under Section 7 of the Wealth Tax Act. In Abdul Khaleque v. Medaswar Hossain AIR1967Cal56 this right to compensation under West Bengal Estates Acquisition Act was considered along with the question whether it could be sold under it. The observations made there at pp. 60-61 are relevant on the point and are as follows: From the practical point of view I cannot see how a right to proceed against compensation money can itself be sold. There are enormous practical difficulties. A right to compensation is a total right under the West Bengal Estates Acquisition Act. In the first place the final publication of the Compensation Assessment Roll under Section 21 read with the manner of payment of compensation under Section 23 and Sections 16 and 17 of the Act dealing with the gross and net inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act. But they are relevant also for the purpose of examining how far such an asset like right to compensation, even if it be a right and even if it be an asset, could be valued. -The authorities are now well settled that the difficulties of valuation would not exclude a property from, being an asset under the Wealth Tax Act, because any imaginary or hypothetical market has to be contemplated. But the point is that hem it is not merely difficulty in valuing but legal disqualification under the statute to sell it at all. That consideration raises the basic problem whether this was at all a kind of property or an asset which is contemplated to be taxed under the Wealth Tax Act. We have already shown the wide disparity among the taxing authorities in valuing such a right. It is not a question of one valuer differing from another. The whole principle, even including the principle of notional and imaginary market and price under Section 7 of the Wealth Tax Act appears to be inapplicable in the present context of this instant reference. 45. There is yet one more consideration about the valuation under Section 7 of the Wealth Tax Act which is not a .mere difficulty in the process o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the wealth tax and the other for the compensation. 46. We cannot over-emphasize the fact and we repeat that compensation either interim or final when paid certainly becomes an asset, a part of the wealth and will attract wealth tax under the Wealth Tax Act within the definition of asset in Section 2(e) of the Wealth Tax Act and we also repeat that mere physical or other mechanical difficulties of valuing an asset, will be no deterrent under Section 7 of the Wealth Tax Act, so long it does not suffer from legal prohibition of being sold in real or imaginary open market. The Wealth Tax Officer will have to do as best. as he can in this respect. Once the land or the right is computed in money either legally or physically, then that money unquestionably is asset attracting wealth tax. The further fact that whether it is payable at once or payable in instalments or spread out for a longer number of years will not affect its chargeability or assessability to wealth tax. 47. The learned Counsel for the Revenue submits that Section 5 of the Wealth Tax Act lists the exclusion and this right to compensation or compensation itself is not one in the excluded list. We accept that argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is here again that we come back to the question of the method of determining the value of the asset under Section 7 of the Wealth Tax Act. The difficulties of the valuation as contemplated under Section 7 of the Wealth Tax Act in such a case therefore are not difficulties in the mechanism or process of valuation to find a hypothetical price in a hypothetical market but it relates back to the basic principle that this was not an asset under the Wealth Tax Act and, therefore, the application of the mechanism. of valuation would also be not applicable to such an asset. 50. Before concluding we may make a brief reference to the concept or property and actionable claim referred to in the decision of the Tribunal. It will be recalled that Section 2(e) of the Wealth Tax Act defines asset as including any property of every description, movable or immovable . Section 3 of the Transfer of Property Act defines immovable property to say that it does not include standing timber, growing crops or grass. It is a negative definition. Transfer of Property Act has no definition for immovable property. The General Clauses Act has a definition for immovable property to say immovable property shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mage caused or likely to be caused or for any injury suffered or likely to be suffered by virtue of any provisions of this Act or any rules made thereunder or by anything in good faith done or intended to be done in pursuance of this Act or any rules made thereunder. This is the usual traditional proverbial immunity clause. The bar to the jurisdiction of the Civil Court however appears in Section 46 of the West Ben-gal Estates Acquisition Act but it will not e relevant for our purpose. Independently of Sections 58 and 46, which in our view do not apply in the present Reference, we come to the conclusion that it is not a legal right at all in the facts and circumstances of the case in the instant reference. 52. Mr. Panda appearing for the asses-see at one stage submitted that under Section 2(e) of the Wealth Tax Act, property of every description, moveable or immovable only meant tangible property and not intangible property and not rights arising from such property'. In support of this contention, he tried to attract us by the word located in Section 2(m) appearing therein viz. Net wealth means the amount by which the aggregate value computed in accordance with the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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