) I

. '

COMMISSIONER OF INCOM&TAX, WEST BENGAL

CALCUTTA

CALCUITA DISCOUNT CO., LTD.

April 10, 1973

[K. S. HEGDE AND H. R. KHANNA, JJ.]

lncome-tax-Riglzt of assessee to avoid tax. ,4 ppel/ate Tribunal-Disposal of appeal on 'teclmica/ities-Duty tu conshirr substance of the matter. .

The assessee company floated a subsidiary co.mpany during the ele- \'ant previous year and transferred to that su}Jtdtary company vanou5 l>harc! held by it at a certain rate. The authonttes under the lncome-tlx

Act. 1922. held that the assessee and its subsidiary were two different kg01J entities that the transact:on was a bona fide transacttnn and that the assessee had not maJe any secret profits out of that transaction. The locomc-tax Officer, however, valued the shares transferred at the market

riltc and held that the assessee company must he deemed to have made a profit. In appeal, the Appellate Assistat Commissioner . set a.1ide thr order of the Income-tax Officer and rcrrutted the case to h1m for findin~ out whether the assessee bad really mad.: any profits from the tran-

, action.. 'The Tribunal dismed the appeal of the lncome-[a:t Offktr "l:!ain5t that order, summarily, on the ground that the Income-ta.-c Officer hotd not taken the necessary pleas that the dl!cision of the Appdlate

A"i.tant Commisioncr was incorrect in law.

On reference. the High C..ourt held that the order of the Tribunal was an interlocutory on~ and that an application to male a reference to the High Court did not lie.

Di.missing the appeal to this Court.

HELD: ( l) The Tribunal, instead of dealin~ with the substance or the matter had been unduly influenced by procedural technicalith:s. The

concluion of the Tribunal that the appeal memorandum was not in o.ccordance with law was alo not correct a.'! no specific formula i~ r.eccsary for seeking relief at the hand of any court or tribunal if the

necc~'ilry grounds are t-ahn.

[.9550-E]

(2) Dut the view of the Appellate Assistant Commissioner was corred .r.n.d there was no necessity to decide whether the Tribunal errcJ. in

d•mJ!I.\Jng the appeal summarily. (958F-G}

. lt is. a well ac~~~ priciple o! law that an ll!i~~:ssee can sv arraol!, e lu' nff:urs u~ t_o mlnt_m1s_e ht~ taJt burden.

Hc:nce, if the assssc to th1s 4:4.-'C_:m<lngcd t_ts. Wfa1rs tn such a manner ll!i t&.l reduce it! tax liability by

t.; tl1mg a subsJJ, ary comp; my anJ transferring its shares to that subsidi- ".Lry coa1pay a.nll thU5. orgo1ng part of its own protl~ and at thll same lime tn_ahn~; JU su})\h.Jiary to earn some profits, such a courc is not

trnpermt~.aJblc under lilw.

I957E-F]

Commi5:.lont>r ul /ncom~ Tax, Gujarat,· v. A. Raman and Co. 67 J.T.R.

II followed.

, Sri Ri.Jmalinga ChooJumbikai Mill:J Ltd. v, Commisslonu of Jncomt .u.t. J.fadral. 28 1.1 .R. 95:!. approved.

Sharkey (/nsprctor of Taxn) v. Wunl; r 1956 Appeal Cases 58 and II

/}r~Vars 1'a Cu. Lrd. v.- <;:om.misslonrr of Agricullura/ Jncor; 1.:-!~~. IV1'.1t tfirnNI, ". l.T . .R. G. dtst•n~Uishcd and uplainc:J.

...,

\ '' I I

I I

. 'I

C.I.T, v. CALCUTTA DISCOUNT C:O. (Hegde, ],) 953

CIVIL APPllLLATE JURISDICTION : C.A.No. 495 of 1970.

Appeal by certificate from the judgment and order dated July 2S, 1969 of the Calcutta High Court in Income.Tax Refe renee No. 61 of 1966.

S. C. Manchanda, S. P. Nayar and R. N. Sachthey, for the appellant.

Sachin Chaudhuri, M. C. Chagla, T. A. Ramachandran'and D. N. Gupta, for the respondent.

The Judgment of the Court was delivered by

HEGDE, J.-This is an appeal by certificate.

It arises from the decision of the Calcutta High Court in a reference under S. 66(1) of the Indian Income-tax Act, 1922 (to be hereafter referred to. as the 'Act'). Three questions of law were referred to the High Court for ascertaining its opinion. Those que.-stions are .--

0) Whether in view of the fact that the Tribunal's order dated 22nd July 1964 was an interlocutory order the Tribunal was competent to entertain an applicatioll purported to be under Section 66(1) of the Indian Income Tax Act, 1922, in respect of such order ?

(2) If the answer to question No. 1 above be in th~ affirmative, whether on the facts and in the circum .. stances of the case the Tribunal exercised its discretion judicially in not allowing the applicant's petition for raising the additional grounds ?

( 3) , Whether on the facts antL in the circumstances of lhe case, the Tribunal erred in dismissing the appeal summarily on the grounds stated in its appdlate order dated 3-9-1964 ?

The High Court answered the first question in favour of the assessee and came to the conclusion that it was unnecesary to amwer the remaining two questions.

Mr. Manchanda. learned coumel for the Revenue did not seek to get any answer from us on questions 1 and 2. His arguments were confined to question No.3.

The material facts of the case as could be gathered from the case stated by the Tribunal are as follow~

Herein we are concerned with the assessment of the assessee H for the assessment year 194 7-48, relevant accounting year being the financial year 1946-4 7. The assessee company floated a subsidiary company named Messrs. Clive Row Investment ~H0ld 13-L797Sup.Cll73

954 SUPREME COUllT REPORTS [1973] 3 s.c.R.

ing) Co., Ltd., quring the relevant previous year and transferred to that subsidiary company various shares held by it. In return the subsidiary company transferred to the assessee company its shares of the value of Rs. 1,38,81,173/ ... The book value of the shares transferred by the assessee company to its subsidiary was Rs. 1,66,69,391/~. Thu~ the assessee company sustained a loss of Rs. 27,02,398,/ but it did not claim that loss in the return made on the ground that the transfer in question was made to its own subsidiary. The Income Tax Officer valued the shares transferred b(y the assessee company to its: subsidiary at the market rate

nnd on that basis came to the conclusion that the assessee company must be deemed t~ have made a profit of. Rs. 1,02,40,546/-.

The Income Tax Officer did not hold that the transaction between the assessee company and its subsidiary was not a bona fide transaction or the assessee company had made any secret profits out of that transaction. In other words, according to the Income Tax Officer even though the assessee company had not nl.ade any profits ]n fact, it must be deemed o have made

a profit of Rs. 1,02,40,546/- solely on the ground that the market value of the shares transferred by the assessee company to its subsidiary is much more than their book value.

Aggrieved by the decision of the Income Tax Officer the

[tsessce went up in appeal to the Appellate Assistant Commis~ sioner. The Appellate Assistant .Commissioner opined that the basis adopted by the Income Tax Officer was unsustainable and .hence set aside the order of the Income Tax Officer and remitted the case back to that Offir for finding out whether tbe assessee had really made any profits in the transaction in quesion . As al!ainst that order the Income Tax: Officer went up in appeal to the Income Tax Appellate Tribunal. In the appeal memo the Income Tax Officer took only three grounds, namely :

"(1) For that on the .facts and in the citcumstau" ces of the case the learned Appellate Assistant Commissioner of Income-tax should have held that the shares transferred by the assessee company to its subsidiary during the year of account should be valued, for the purposes of assessment under the Indian Incometax Act, at their market price.

(2) For that the learned Appellate Assistant Commissioner of Incometax misappreciated the facts of the present case and wrongly applied the decision of the

Madras High Court .in 28 I.T.R. 952.

(3) For that the learned Appellate Assistant Commissioner ignored the principle that the cases of the pre- &ent type the sum to be taken for the disposal of the stock-in trade of the assessee is not what the assessee

'.E

C.I, T. V, CALCUTTA DISCOUNT CO. (Hegde, /,) 955

~ has chosen to treat as his receipt but what he would normally have received for it in the due course of trade.''

He did not plead that the order of the Appellate Assistant Commissioner was incorrect in law and therefore, should be set aside.

It appears thao at the hearing the counsel for the assessee took the plea .that as the Income Tax Officer had not taken the ground that the order of the Appellate Assistant Commissioner was not in accordance with law, consequently it should be se~ ttside, the Tribunal could not gra.Qt the relief asked for by the Income Tax Officer.

At that stage, as seen from the records, the Income Tax Officer applied for amending his appeal memo but that prayer was rejected by the Income Tax Appellate Tribunal.

Ultimately the Tribunal dismissed the appeal of the Income Tax Officer summarily on the ground that necessary pleas have not been taken. Thereafter, at the instance of the Revenue the questions set out earlier were referred to the High Court.

The procedure adopted by the Tribunal appears to us to be somewhat strange.

The Tribunal instead of dealing with the substance of the matter appears to have been unduly influenced by procedural technicalities.

We are also not impressed with the conclusion of the Tribunal that the appeal memo was not in accordance with law.

No specific formula is necessary for seeking relief at the hands of any court or Tribunal if the necessary grounds are taken in the appeal memo.

Had we come to the conclusion that the decision of the Income Tax Appellate Commissioner was wrong in law we would have had no hesitation in answering the three questions formulated above in favour of the Revenue and directing the Tribunal to reconsider the matter. But, in the view that we are taking the answers to those questions would become purdy academic. ·

The Appellate Assistant Commissioner came to the conclusion that the assessee and its subsidiary were two different legal entities. This conclusion was not and could not be challenged.

All the authorities under the Act have come to the conclusion that the transaction between the assessee and its subsidiary company was a bona fide transaction and the assessee had not made any secret profits out of the transaction in question. It may be that the assessee had transferred its valuable shares at cost price to its subsidiary in order to so arrange its affairs as to reduce

its tax burden. The question whether such an arrangement is permissible or not, we shall presently examine.

SUPREME COURT REPORTS [1973] 3 s.c.R.

As seen earlir the Appellate Assistant Commissioner came to the conclusion that unless the Income Tax Officer on the basis of material before him is able to come to the conclusion that the assessee had really made profits in the transaction. it is not permissible for him to add back to the assessee's return any fictional income. In our opinion that conclusion is fully in accordance with law.

The question hat when an assessee transfers some of h!~

stockin trade to another person at a price less than the market price, whether that assessee can be considered to have made any profit merely because he has transferred some of his stock-in

trade not at the market price but at a lesser price, came up for consideration blefore the High Court of Madras in Sri Ramalinga Choodambikai Mills Ltd. v Commissioner of lncometax, MadrasC).

The facts of that case as set out in the head-note are : a .limited company sold certain goods shu, v:::d in its stock-in t-rade to its managing agency firm and to another firm in which one of its directors was interested.

The sales in question were held to be bona fide sales.

At the same time it was held that the goods were sold at a concessional rate.

The Income Tax Officer sought to tax. the assessee erein after computing the profits earned by that finn on the basis of the market price of the goods sold and not the actual price at which those goods were sold. The assessee challenged the said basis. The Tribunal uphe!J the contention of he assessee.

It came to the conclusion that the assessee had, in reality, made no profits at all.

The High C( urt agreed with the conclusion reached by the Tribunal.

It opin::d tlut in the absence of any evidence to show either that the sales were sham transactions or that the market prices were in fact ptiJ by the purchasers, the mere fact that the goods were sold at a ccucessional rate to benefit the purchasers at the expense of the company would not entitle the Income-tax department L~

assess the difference between the mark'et price and the price paid by the purchasers, as profits of the companj'.

A somewhat similar question came up for consideration before this Court in Commissioner of Income Tax, Gujarat v.

A. Rcmwn a11d Co. e) It js unnecessary of set out the facts of that case and it is sufficient to refer to the relevant observations in the judgment.

Shah, J. (as he then ws), speaking for the Court stated the law at page 17 of the Report thu:; :-·

"1lte plea raised by the Income-4ax Officer is that income which could haYc be:::n earned by the a3sessees v.Js not earned, and a part of that income was earned by the Hindu undivided families. That according to th~

Income-tax Officer was brought about by 'a subterfuge

(I) 281. T. R. 952.

(2J 671. T. R. II.

~ C.l.T. V. CALCUTTA DISCOUNT CO. (Hegde, J.) 957

or contrivance. Counsel for the . Commissioner COll tended that if by resorting to a "device or contrivance" income which would normally have been earned by the assessee is divided between the assessee and another person, the Income-tax Pfficer would be entitled to bring the entire income to tax as if it had been earned by him.

But the law does not oblige a trader to make the maximum profit that he can out of his tradin~ transactions.

Income which accrues to a trader 1s taxable in his. hands : income which he could have, but has not earn~. )s not made taxable as income accrued to him. By adopting a advice~ if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of lhe ass.essee, and if the income has escaped tax in a previous assesment a case for commencing a proceeding for reassessment under section 147(b) may be made out.

Avoidance of tax liability by so arranging commercial

affairs that charge of tax is distributed is not prohibited.. A tax payer may resort to a device to divert the income before it accrueS! or arises to him. Effectiveness of the device depends not upon considerations of mora1ity, but on the operation of the Income-tax Act.

Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented.' It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the asse!>See in this case has arranged his affairs in such a manner as to reduce his uix liability by staring a subsidiary company and transferring its shares to that subsidiary company and thus foregoing part of its own profits and at the same time enabling its subsidiary to earn some profits; such a course is not impermissible under law.

Mr. Manchanda contended that a person should not be allowed to adopt a device by which he gives up something through the right hand and receives the same through the left hand.

Acording to him there is no difference between the assessee and its subsidiary and, therefore, when the assessee tries to make profits through its subsidiary,' we must presume that the profits were made by the assessee itself. In support of that contention he sought to place reliance on the decision of the House of Lon!s in Sharkey (Inspector of Taxes) v. Wernher( 1).

Therein, the assessee was a breeder of hors.es.

She also had racing stables.

She transferred some horses from her sud to

(1) [1956] Appeal Cases 58.

SUPRBMB COURT REPORTS [1973] 3 s.c.R.

the stables. In so doing she debited in her accounts only the cost of breeding the ho!ses and not their market price. The question arose, whether in computing her income the market price of those horses or merely 'the cost of breeding them should be taken into consideration. The House of Lords upheld the contention of the Revenue by majority that in computing the profits of the assessee the market price of those horses should be taken jnto consideration.

The ratio of this decision is similar to the ratio of the decision of this Court in Dooar's Tea Co. Ltd. v.

Cof!!.missioner of Agricu]!ural lncome.tax, West Bengal(l).

Therein, a tea garden owner raised in his own garden bamboo, thatch and som, e other agriculural produce.

He utilised those products for the purpose of its tea business. The question arose whether while assessing the tea garden 0wr1er under the Bengal Agricultural Income-tax_ Act the cost of £:\ising bamboo, thatch,

etc., should be taken into consideration or their market price should be taken into consideration. This Court upheld the contention of the Revenue that the market price of those produc_ts should be taken into consideration in computing the agricultural income of the assessee.

The ratio of the decision in W arnher' s D as well as in Dooar's Tea Co.'s case does not bear upon the question of law arising for decision in this case. Therein what the courts had to consider was where a person carrying on a trade disposes of a part of his goods not by way of sale in the course of trade bu~ for his own use, whether the production cost of such goods or the market price of those goods should be taken into consideration. But, in the present case we are called upon to consider the question whether when one trader transfers his goods to another trader at a price less than the market price, the taxing authority can take in!o consideration the market price of those goods, ignoring the real price fetched. As mentioned earlier the latter question is no more res integra.

It is concluded by the decision of this Court in A Raman and Co.'s Case (supra).

For the reasons mentioned above we are of the opinion that the conclusion reached by the Appellate Assistant Commissioner is in accordance withlaw and it would be an exrcise in futility to answer the third question set out above in favour of the Revenue and remit the case back to the Tribunal.

In this view of the rna tter we do not propose to answer that question.

In the result this appeal fails and the same is dismissed with no order as to costs.

P.v.s.

Appeal dismissed.

(I) 44 I .T. R. 6.

COMMISSIONER OF INCOME-TAX, WEST BENGAL CALCUTTA

CALCUITA DISCOUNT CO., LTD

K. S. HEGDE

H. R. KHANNA, JJ.

S. C. Manchanda

S. P. Nayar

R. N. Sachthey

Sachin Chaudhuri

M. C. Chagla

T. A. Ramachandran'and

D. N. Gupta

HEGDE

Calcutta High Court

S. 66(1)

Indian Income-tax Act, 1922

Section 66(1)

Indian Income Tax Act, 1922

Manchanda

R.

ing) Co., Ltd.

Madras High Court

Income Tax Appellate Tribunal

Assistant Commissioner

SUPREME COURT REPORTS [1973] 3 s.c.

High Court of Madras

Shah

T. V. CALCUTTA

Hegde

section 147(b)

Income-tax Act

Dooar's Tea Co.

A Raman and Co.


SRI RAMAMOHAN MOTOR SERVICE

COMMISSIONER OF INCOME-TAX, HYDERABAD April 11, 1973

[K. S. JIEGDE AND H. R. KHANNA, JJ.]

Income-tax Act 1922, s. 26A-Registration of firm-Minor sholWl ps partner in pcirtnership deed-Not shown as having been admitted only to bene{itl of partnership-Applications for registration and ronewal of regi&tmtion ·f firm not mentionjng letter 'P' in colrunn 6--Partnership is void under s, 30 of Partners/tip Act 1932-Application under S. 26A not complying Income-tax Rules-Registration rightly re/used.

The appellant firm according to j!s partnership deed was constituted of fh"e partners one of whom was a minor represented by his father. One of the terms in the partnership deed was that the profit and loss of the business would be divided and bor:ne between the partners in equal shares.

The appellant firm made an application under s.26A of the Income-tax Act 1922 for the registration of the firm for the year 1956-57 on 30..6-1955. the last day for making the application. Along with the application as required by the rules, a copy of the partnership deed was submitted. On October 8, 1955 an application was made to the Registrar of firms for registration of the firm under the Partnership Act. The Registrar raised an objection to the effect that the partnership was invalid uncler ~.30 of the Partnership Act as one of the partners was a minor.

On December 18, 1955 the four adult partners informed the Registrar by letter that the minor was admitted to the tteJ>Cfils of the partnership and was not liable to share losses.

The Registrar thereafter registered the firm.

The Incometax Officer registered the firm for the assessment year 195 6-57 and renewed its registration for subsequent years up to 1961-62. But the Commissioner of Income-tax i; n exercise of his power under S. 33B of the act set aside the orders made by the Incme-tax Officer. The Tribunal and the High Court decided in favour of the Revenue.

In appeal to this Court by special leave.

HELD : (i) . The assessee firm was not registered under the Indian Partnership Act before the application uncler s.26A of the Act was made, nor was the partnership deed registered under the Indian Registration Ac1.

The partnership deed submitted along with the application for registration disclosed that the partnership constituted under that deed was void in view of s. 30 of the Partnership Act as o, ne of the five partnership was a minor.

Hence the application made for registration was an invalid-application. The subsequent alteration of one of the terms of the partition deed, even if validily made, could not validate the application made because the alteration in q_ueson was Il!ade long after the ti':"e prescribed for making the appllcation had exp1re<l and there was nothmg to show that the Income-tax Officer had condoned the delay in exercise of his power under the proviso to Rule 2. If the original order of registration was unauthorised, the subsequent renewals of the registration must also be held to be unauthorised.

[963 FJ

(ii) It was found by the Tribunal that both in the application made for registration of the firm as well as in the applications made for renewal of registration ln column 6 of the formletter 'P' was not mentioned. On the other hand the 111inor's share was shown as I/5th which means his share both in the profits as well as in the loss. The record did not show whether 959 .

tho Income-tax Officer was informed 9f the letter written to the Registrar of Firms on 18-12-1955 and if so on what date he was informed about it.

From the above facts it was clear that the applications made by the partners of the firm did not comply with the requi_rements of the rules. H<ll!Ce

those applications muld not be considered as valid applications. [9()4 Fl

(iil) Since the applications for registration and renewal/ didl not conform to the requirements of the Jaw the! registration and the renewals could not have been aranted.

(iv) Seclion 185(2) of the 1961 Act is not retrospective in opeation oor were the requirements of that section complied with, The plea that substantial compliance with the rules is sufficient stands negatived by the decisions of this Court, [9650] Rao Baliad11r Ray11/11 S11bba Rao and Ors, v. Commlssiontr of Incomerax, Madras, 30 J.T.R. 163 at 172, N. T. Patel & Co. v. Commisslontr of lncomt•tax, Madras, 42 J.T.R. 224 and Khan}an Lal Sewak Ram y, Commissioner of Inco111e-Tax,.U.P .. 83 l.T.R. 175, referred to.

CML APPELLATE JURISDICTION : Civil Appeals Nos. 4 71 to 476 of 1970.

Appeals by special leave from the judgment and order dated July 29, 1969 of the Andhra Pradesh High Court in Referred Case No. 34 of 1965.

M. C. Chagla, K. Mangachary,, A. K. Verma, J, B. Dada chanji 0. C. Mafhur and Ravinder Narain, for the appellant.

B. B. Ahuja, S. P. Nayar and R. N. Sachthey, for the respondent. " The Judgment of the Court was delivered by

HEGDE J. These are connected appeals. A common quesl!ion of law arises in these appeals. That question is :

"Whether on the facts and in the circumstances of the case, the assessee firm is entitled to registration under s. 2GA of the Act."

Application under s. 26A of the Indian Income-tax Act, 1922 (to be hereinafter referred to as the Act) relating to assessment years 1956-57 to 1961-62, relevant accounting years being calendar years 1955, 1956, 1957, 1958, 1959 and 1960 were made b!y the appellant to the Income-tax Officer.

The Incometax Officer accepted '!he application relating to the assessment year 1956-57 and granted the registration asked for, by his order dated 30-6-1960. At the same time he granted renewals oi. the registration in respect of other assessment years.

But the Commissioner of Income-tax in exercise of his powers under s. 33-B of the A_ct called for and examined the papers of the case and after hearing the assessee set aside the orders made by the Income-tax Officer.

The assessee took up the matter in appeal to the Income-tax Appellate Tribunal.

The Tribunal rejected its appeal.

Thereafter the question of law set out earlier was

referred to the High Court under s. 66 ( 1) at the instance of the assessee. The High Court answered that question in the negative, and in favour of the Revenue.

Hence these appeals by special leave.

The assessee finn was constituted under a deed of partnership dated 5-2-1955; but the deed shows that the finn came into existence on January l, 1955. The firm consisted of five partners namely

(1) B. Satyanarayanamurti;

(2) B. Bapaiah Pantulu;

(3) B. Seetaramaiah; ( 4) B. Subrahmanyam and (5) B. Rammonanrao. The last one was a minor. The partnership deed shows that he was a party to the same, being represented by his father, B. Satyanarayanamurty. One of the terms of the partn\)rship deed is that the profit and loss of a business should be divided and borne between the partners in equal shares.

The application under s. 26A tor the assessment year 1956-57 was made on 30-6-1955, the last date for making the application.

Alogwith that application, as required by the rules, a copy of the partnership deed was also sent to the Income-tax Officer,

On October 18, 1955, an application was made by the partners of the firm to the Registrar of Firms to register the finn.

The Registrar, by his letter dated December 13, 195_5, objected to the registration of the firm on the ground that the partnership was invalid under s. 30 of the Partnership Act, as one of the partners was a minor.

After the receipt of tha!t letter, the four adult partners by their letter dated December 18, 1955 informed the Registrar that "'the minor is admitted to the benefits of the partnership with the consent of all the partners.

He has nothing to do with the loss of the firm.

We therefore agree to record our consent and amend the application accordingly and send the same to the Registrar of Finns as directed." After the receipt of that letter, the Registrar of Firms registered the assessee finn, on January 10, 1956. It is not known whether a copy of that letter had been sent to the Income-tax Officer and if so when it was sent.

As mentioned earlier, the Commissioner of Income-tax, set aside the registration granted by the Income-tax Officer. He came to the conclusion that the partnership in question was ab initio void. He rejected the contention '!hat the letter sent to the Registrar of Firms validated the partnership deed.

He further opined that several of the tenns in the pavtnership deed adversely affected the minor and therefore the partnership cannot be held to be valid.

On appeal, the Tribunal upheld the conclusions reached by the Commissioner.

In addition, it held that the applications for registration as well as for renewal did not confonn to the requirements oi the law and consequently they were invalid applications.

The High Court in an elaborate judgment affirmed the decision of the Tribunal that the partnership was not valid in law.

It did not adss !tself to the question wher the aPPlications made for registration and renewal were otherwise invalid. We are of opinion that the applications for registration and renewal did not conform to the requirements of the law and consequently the registration or the renewals as the cP$e may be could not have been granted. In that view we have not thought it necessary to go into the question whether the partnership was validated as a result of the letter written by he adult partners to the Registrar of Firms on 18-12-1955. ·

Section 26A prescribes : "(1) Application may be made to the Income-tax Officer on beha1f of any firm; constituted under an instrument of partnership specifying the individual shares of the partners for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. ( 2) The application shall be made by such person or persons, and at such times and shall contain such

particulars and shall be in such form, and be verified m such manner, as may be prescribed; and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed."

Sub-s. (5) of s. 59 prescribes that: "Rules made under this section shall b~ published in the Official Gazette and shall 1hereupon have effect as if enacted in this Act."

Rule 2 framed under the Act says that : "Any firm constituted under an Instrument of partnership specifying the individual shares of the partners may, under th~ provisions of section 26-A of the Indian Income-tax Act, 1922 (hereinafter in these rules referred to as. the Act), register with the Incometax Officer, the particulars contained in the said Instrument on application made in this behalf.

Such application shall be signed by all the partners (not being minors) personally, or in the case of a dissolved firm by all persons (not being minors) who were partners in the firm immediately bfore dissolution and by the legal representative of any such partner who is deceased, and shall, for any year of assessment up to and including the assessment for the year ending on the 31st day of March, 1953, be made before the 28th

February, 1953, and for any year of assessment subse quent therto, be made :-

(a) where the firm is not registered under the Indian Partnership Act, 1932 (IX of 1932), or where the deed of partnership is not reistcred under the Indian Registration Act, 1908 (XVI of 1908), and the application for registration is being made for the first time under the Act.- ( i) within a period of six months of the constitution of the firm or before the end of the 'previous year' of the firm whichever is earlier, if ihe firm was constituted in that previous year,

(ii) before the end of the previous year in any other case;

(b) where the firm is registered under the Indian Partnership Act, 1932 (IX of 1932), or where the deed of partnership is registered under ithe Indian Registration Act, 1908 (XVI of 1908), before the end of the previous year of the firin; and

(c) where the application is or renewal of registration under Rule 6 for any year, before the 30th day <>f June of that year :

Provided that the Incometax Officer may entertain an application made after the expiry of the time-limit specified in this rule, if he is satisfied that the firm was prevented by sufficient cause from making the application within the specified time."

The a'sessee firm was not registered under the Indian Partnership Act before the application under s. 26A of the Act was lllllde nor was the partnership deed registered under the Indian Registration Act.

The Partnership deed submitted along with the application for registration disclosed that the partnership constituted under that deed was void in view of s. 30 of the Partnership Act as one of the five partners was a minor. Hence the application made for registration was an invalid applicatioo.

The subsequent alteration of one o~ the terms of the partition deed, even if validly made, cannot validate the application made because the alteration in question was made long after the time prescribed for making the application had expired and there is nothing on record to show that the Income-tax officer had condoned the delay in exercise of his power under the proviso to Rule

2. If the original order of registration was unauthorised, the subsequent renewals of that registration must also be held to be unauthorised.

Rule 3 requires the assessee to make application under that rnle in the form annexed to that rule.

Column 6 of the fom1

requir~ the applicants to mention the "Share in the balance of profits (or loss) ( annas and pies in the rupee)''.

Note 2 in that form lays down that "If any partner is entitled to share in profits but is not liable to bear a similar proportion of any losses this fact should be indicated by putting against his s.hare in column :6 the letter "P".

Rule 4( 1) prescribes the conditions and the manner in which 1he Income-tax Officer can grant the certificate asked for.

Sub~ -rule (2) of that rule says that ii the conditions mentioned in sub-

rule ( l) are not satisfied, the Income-tax Officer "shall pass an order in writing refusing to recognise the instrument of partnership, or the certified copy thereof, and furnish a copy of such order to the applicants".

Rule 6 lays down the form in which re, newal applications were required to be made.

Column 6 of that form is similar to Column 6 of the form under rule 3. Note 2 under that fom1 is similarly worded as note 2 in the form under rule 3. It was found by the Tribunal that both in the application made for registration of the firm as well as in tile applications made for renewal of registration, in column 6 of the form Jetter "P'' was

not mentioned. On the other hand tile minor's share was shown JS 1/5tll which means his share both in the profits as well as in •the loss.

As mentioned earlier, the record before us does not show whether the Income-tax Officer was inforinect of the letter written to the Registrar of Finns on 18-10-1955. and if so on what date he was informed about it.

From the facts set out apove, it is clear that the applications made by the partners of the firm did not comply with the requirements of the rules.

Hence those applications cannot be considered as valid applications.

Tn Rao Balwdur Ravulu Subba Rao and ors. v. Commissioner of Income-tax, Madras('), Venkatarama Ayyar J. speaking for the Court observed: ''Thus, if a firm is registered, it ceases to be ll; unit for purposes of taxation and the profits earned by 1t are taken, in accordance witll the general law of partnership, to have been earned by the individual partners according to their shares and they are taxed on their individual income including tlleir shares of profits. The advantages of this provision are obvous. The rate. of tax chargeable will not be on the higher scale provided for

(I) I .T. R. 163 at 172;

l\AMAMOHAN MOTOR SERVICE V. C.!.T. (Hegd"_, /,) 965

incomes on the higher levels bJ.it on the lower one at which the income of the individual partner is chargeable.

Thus, registfation confrs on the partners a benefit to, which they would not have been entitled but for sectioll 26A, and such a right being a creature of the statute, can

b~ claimed only in accordance with the statute, which confers it, and a person who seeks relief under section 26A must bring himself strictly within its terms before he can claim the benefit of it.

In other words, the right is regulated solely by the terms of the statute and it would be repugnant to the character of such a right to add to those tenns by reference to other laws.

The statute must l:je construed as exhaustive in regard to the conditions under which it can be claimed."

This decision lays down that before a person can claim the benefit of s. 26A, he must strictly comply with the requirements of that section. In view of sub-s. (2) ol' that section, he is alsorequird to comply with the requirements o~ the relevant rules.

Fc:ilure to comply either with the requirements of sub-s. ( 1) or

>Ubs. (2) of s. 26A, disentitles the applicant to the benefit of that section. The same view was taken by this Court in N.T. Patel & Co. v. Commissioner of Income-tax, Madras(''). The decision of this Court in Khanjan Lal Sewak Ram v. Commissioner of Income-Tax, U.P.( 2) lends support to that conclusion.

It was contended by Mr. Chagla, learned Counsel for the appeflant that we should not allow technicalities to come in the

WJ.Y of our doing substantial justice to the parties. According to him substantial compliance with the rules set out above is sufficient D meet the c:; ds of justice. In support of his plea he placed reliance on s. 185(2) of the Income-tax Act, 1961. We are unable to accede to that cc:, tention? Section 185(2) of the 1961 Act is not retrospective in operation nor were the requirements of that provision complied \I ih. The plea t!Jat sublstantial compliance with the rules is sufficient stands negatived by the

decisions referred to earlier.

Yet another contention taken by Mr. Chagla was that the High Court did not base its decision on the grounds mention--

(I) 4! LT. R. 224.

(2) 83 LT. R. 175.

.cd above; but it decided against the appellants on the ground that the partnership is ab initio void.

Hence we should not take up those grounds afresh. This contention is irrelevant. As mentioned .earlier, one of the grounds on which the Tribunal' upheld the order of the Commissioner was that the applications made did not conform to the requirements of' the law.

We agree with that conclusion.

In the resu)t these appeals fail and they are dismissed. Taking into consideration the facts and circumstances of the case, we direct the parties to bear their own costs in this. Court.

Appeal$ dismissed.

SRI RAMAMOHAN MOTOR SERVICE

COMMISSIONER OF INCOME-TAX, HYDERABAD

April 11, 1973

H. R. KHANNA, JJ.

Income-tax Act 1922

s. 26A

S. 26A

Income-tax Act 1922

October 8, 1955

December 18, 1955

S. 33B

Indian Partnership Act

s. 30

Khan}an Lal Sewak Ram y

M. C. Chagla

K. Mangachary

A. K. Verma

B. Dada

C. Mafhur

Ravinder Narain

B. B. Ahuja

S. P. Nayar

R. N. Sachthey

HEGDE

s. 2G

s. 26A

Indian Income-tax Act, 1922

s. 33

Income-tax Appellate Tribunal

s. 66

B. Satyanarayanamurti

B. Bapaiah Pantulu

B. Seetaramaiah

B. Subrahmanyam

B. Rammonanrao

B. Satyanarayanamurty

s. 26A

October 18, 1955

December 13, 195_5

s. 30

January 10, 1956

Section 26A

s. 59

section 26

Indian Income-tax Act, 1922

31st day of March, 1953

28th

February, 1953

Indian Partnership Act, 1932

Indian Registration Act, 1908

Indian Partnership Act, 1932

Indian Registration Act, 1908

Indian Partnership Act

s. 26A

Registration Act

s. 30

Venkatarama Ayyar

section 26A

s. 26A

s. 26A

Chagla

s. 185(2)

Income-tax Act, 1961

Section 185(2)


SARASPUR MILLS CO. LTD. v.

RAMANLAL CHIMANLAL & ORS.

April 12, 1973

[A. N. GROVER AND C. A. VAIDIALINGAM, JJ.)

Bombay Industrial Disputes Act, Gujarat A1nend111ent 1962--Clauses 13 and 14 of Section 3-Enrustnzent of work which in ordinarily a part of the undertaking-Legal obligation of a factory to run a canteen under

Section 46 of Factories Act-Entrust1nent of running the canteen to a Cooperative Society-Factories Act 1948, Section 2(1) work incidental to the manufacturirlg process-Running of a canteen by a textile 1nill.

The appellant Textile Mill had a statutory obligation, as a factory, under the provisions of Section 46 of Factories Act and the Rules made thereunder for maintaining a canteen for its workers.

The appellant entrusted the management of the canteen to a cooperative society. The workers of the canteen demanded additional wages and dearness allowance,

in terms of certain awards claiming that they were the employee of the appellant within the meaning of Clauses (13) and (14) of Sec. 3 of the Bombay Industrial Disputes Act, 1938 as amended by Gujarat Legislature in 1962. The workers contended. that the running of the canteen was an ordinary part of the undertaking of appellants, since it was a statutocy obligation for the appellant to do so. The appellant on the other hand contended that the cooperative society was neither the agent nor the contractor of appellant.

Rejecting the appea1,

HELD : Under the Factories Act, it was the duty of the appellant to run and maintain canteen for the use of its employees. Under c1all3es ( 13) and ( 14) of Section 3 as amended in 1962, the definition of an employee is extended by a fiction (if law and certain employees are recognised 1l9 statutory employees. The workers in question fall under the said definition. [972B]

Ahmedabad Mfg. & Calico Printing Co. Ltd. and Ors. v. Their Workmen. [1964] 2 S.C.R. 838, relied upon.

Basti Sugar Mills Ltd. v. Ram Ujagar and Ors. [1953] II L.L.J. 647, followed,

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1957

G of 1968. '

Appeal by special leave from the Award dated March 26, 1968 of the Industrial Court Gujarat Ahmedabad in Appeal ( fC) No. 58 of 1966. .

S. V. Gupte, P. C. Bhartari, and l. B. Dadachanji & Co., for If th; appellant.

V. M. Tarkunde, and S. S. Shukla, for respondents 1 (a) to l(hj.

9f1

1he Judgment of the Court was delivered by

GROVER, J : This is an Appeal by special leave from an Order of the Industrial Court,, Gujarat which reversed an order made by the 2nd Labour Court, Alunedabad.

Ramanlal Chimanlal and others are the workers of a canteen which is run by the Saraspur Mills Canteen Co-operative Society Limited, Ahmedabad (hereinafter called the co-operative society).

The appellant company is responsible for maintaining the canteen under the provisions of S. 46 of the Factories Act and the rules made thereunder.

The appellant handed over to the co-operative society the task cf running the canteen. Theworkers mentioned above filed an application before the 2nd Labour Court at Ahmedabad under S. 79 of the Bombay Industrial Relations Act, 1946 (hereinafter called the Act), complaining that the appellant was not paying them the wages and deamess allowances

as per the directions contained in the Award of the Bombay Industrial Court made in Reference No. 18 of 194 7 and supplementary Award given in certain miscellaneous applications of 1956 and 1962 respectively relating to additional wages sanctioned by the said Award. It was alleged by the applicants in support of their claim that by virtue of certain amendments made in the Act in the definition cf the word "employer" they became workers of the appellant, which was bound to pay wages and dearness allowances settled by the aforesaid Award and !he supplementary Awards referred to.

The case of the workmen was that the appellant was running the canteen only because it was under an obligation to do so under the Factories Act and the rules made thereunder.

Thus the running of the canteen was ain ordinary part of the undertaking of the appellant. It was admitted that the appellant did not run the canteen itself but halllded over the premises to the co-operative society to run the canteen for the use and welfare of. the mill's employees and discharge its legal obligations.

The appellant denied the allegations of the workmen that they were its employees.

It was claimed that the aforesaid workers had never been employed either by the appellant or by its agent

or contractor.

The workers in fact were stated to have been G employed by the licences of the appellant and, therefore, there was no question of the wage settlements or Awards being binding on the appellant. The 2nd Labour Court by its Order dated 14th April, 1966 dismissed the claim of the workmen, who filed an appeal before the Industrial Court, which was allowed by it' order dated 26th March, 1968. The Industrial Coult held that H the employees of the co-operative society, who were working in the canteen, were employees of the appellant and, their wages

and dearness allowance etc. were payable in accordance with

A the Awards mentioned before. The direction was made that the appellant should pay the difference in wages and dearness allowance in accordance with those Awards.

The only question which requires determination is whether the canteen workers employed by the co-operative society could be treated as employees of the appellant within the meaning of the relevant provisions of the Act for the 1'UI'POSC of payment of their wages in spite of the fact that they are employees of the co operative society and were hieing paid wages by that society.

Prior to the Act, Bombay. Industrial Disputes Act 1938 was in force in the erstwhile province of Bombay. Under that Act no statutory employees were created but only ithose persons who were directly employed by the employer were treated as employees.

The Act replealed the 1938 Act. Section 3(13) of the Act contained the definition of the term "employee". Before its amen:!- ment this provision was as follows :

"(13) .. ·.. .. .. and includes :

(a) a person employed by a contractor to do any work for him in the execution of a contract with an employer within the meaning of sub-clause ( e) of clause 14 ..... ..

Sub-clause (e) of clause 14 is as follows : ( 14) "employer" includes . . . . . . . . ( e) where the owner of any undertaking in the course of or for the purpose of conducting the undertaking contracts with any person for the execution by or under the contractor of the whole or any part of any work which is ordinarily part of the undertaking, 'the . . . . . . owner of the undertaking.

The Factories Act, 1948 came into force on April l, 1949.

Section 2 ( 1 ) of that Act is as follows:

"(I ) 'worker' means a person employed ' directly or through any agency, whether for wages or not, in any manufacturing process, or in cleaning any part of G the machinery or permises used for manufacturing process, or in any other kind of work incidental to, or com1ected with, the manufacturing process, or the sub-

11, ject of manufacturing process"

The expression 'occupier' was also defined by section 2(n) to mean the person .who has .ultimate control over the affairs of H the factory, and where the said affairs were entrusted to a managing !!gent such aent shall be deemed to be the occupier of the factory.

The BomblaY. High Court had held in certain matters which were brought before it that in spite of the fact that the

14-L7~7Sup Cl/73

co-opetative society wa-s mentioned in the Bombay Factories A Rules, 1950, the employee employed by the co-operative society could not bje treated as employees under the Act. The Gujarat . Legislature passed an Act in 1962 amending clause ( 13) and ( 14) of Section 3 of the Act. After the amendment these clauses run as follows: "( 13) 'employee' means. any person (including an apprentice) employed in any industry to any skilled or unskilled manual, supervisory, technical or cleric.al work for hire or reward, whether the teons cl employment be express or implied and includes-( a) a person employed in the execution of' any work in respect of which the owner of an undertaking is an employer within the meaning of sub-clause ( e) of clause (14) .

" • • • •

(14) 'employer' includes-

• • • • ( e) Where the owner of any undertaking in the course pf or for the purpose of conducting the undertaking entrusts the execution of the whole or any part of any work which is ordinarily a part of the undertaking to any person otherwise than as the servant or agent of the owner, the owner of the undertaking." ........... .

The Industrial Court was of the view that the term "employee" under the Act had been given an extended meaning. An employee was not only a person who was employed by the employer or over whom the employer had con\rol, but also certain types of persons had been constituted statutory employees under the Act.· - Before such a person could become the employee of the owner of the undertaking, the conditions that must bje fulfilled were: (1) the owner of the undettaking must entrust to any person the execution of the whole or any part of any work; (2) such entrustment rn ust be in the course of or t'or the purpose of conducting the under

taking; (3) such entrustment must be otherwise than_ as the ser

vant or agent of the owner and ( 4) such work must be any work which is ordinarily a part of the undertaking:

The Industrial Court referred to the earlier decisions including that of the Labour Appellate Tribunal and of the Bambay High Court and examined the circumstances in which the relevant provisions of the Act came to be amended. It wa~ pointed out that in the statment of ob.iects and reasons appearing in the Bill to the Amendiitg Act, it was stated that the definition of an employee was being amended so as to cover persons employed by a contractor or any other person to whom the owner of an undertaking had entrusted the execution of arry work which was ordinarily part

of the undertaking. The definition of 'employer' was also amend• ed correspondingly. According .to the dustrial Court there was a statutory obligation on the part of the mils to provide a canteen and this obligation had been discharged biY the mills by entrusting that task to the co-operative society, even if there was no positive evidence of such entrustment of work. It was pointed out that B the activities of running the canteen could hardly have been undertaken by !he co-operative society unless it was entrusted to it by the mills. lt was finally held that although the c<r<>perative society which was the real employer and not the present appellant, but by virutue of the fiction created by the amendment introduced

in the Act, the employees of the Society became tile employees of the appellant. They were, therefore, entitled to the benefits of the Awards.

The sole point which has been strenuously urged on behalf of !the appellant is that on a proper constmction of the amended clauses ( 13) and ( 14) of Section 3 of the Act, the workers employed in the canteen whtch was being run biY the co-operative society, cquld not have been held to be employees of the appellant. It is coDtended that the appellant was under a statutory obligation because of section 46 of the Factories Act and the relevant rules made thereunder to maintain the Canteen for the w<irkers, but the canteen was being actiially run by the co-operative Slleiety and the appellant had nothing to do with it nor did it pay any E wages to the employees of. the society who were working in the canteen.

The matter seems to be concluded by the judgment of. this Court in Civil Appeal No. 1044 of 1968 decided on April 14, 1972, in which an identical argument had been addressed that certain gardeners who had been employed by a contractor for working in the gardens of the textile mills, could not be said to fall within the definition of the word "employed" as contained iii Section 3 (13) of the Act. In that case reference was made to the decision in Bast/ Sugar Mills Ltd. v. Ram Ujagar.and Ors.(') It had been held that the workmen fell wtthin the definition of that word as given lib' S. 2 (z) of. the U.P. Industrial Disputes Act 1947 as they were persons employed in the industry to do manual work for G reward. The workmen had been employed by a contractor with whom the mills had contracted in the course of conducting the industry for execution by the said contractor of the work of removal of press mud which is ordinarily a part of the industry.

The above case was treated as an authority for the proposi!tion that an employee engaged in a work or operation which was inci- H dentally connected with the main industry was a workman if other requirements of the statute were satisfied and that the Malis in tha'!

(I) [1964] (2) S. C. R. 838.

(2) (1953] 11. L. L. J. 647.

case were workers.

It was pointed out that the bungalows and gardens on which the Malis in that case worked were a kind of amenity supplied by the mills to its officers and on this reasoning the Malis were held to be engaged in operation incidentally connected with the main industry carried out by the employer. The High Court in Ahmedabad Mfg. & Calico Printing Co. Ltd, & Ors

v. Their Workmen(') had relied on the above ratio and came to the conclusion that the workers in order to come within the definition of an "employee" need not necessarily be directly connected with the manufacture of textile fabrics. The decision in Basti Sugar Mills' case was treated as nding in the former case.

Since, under the Factories Act it was the duty of the appellant to run and maintain the canteen tor the use of its employees, it appears to us that the ratio of the decision in Ahmedabad Manufacturing & Calico Printing Co. Ltd. v. Their Workmen would, be fully applicable in which the same provisions of the Acf were considered. ·

The appeal, therefore, must fail and it is dismissed with costs.

S.B.W.

Appeal dismissed.

SARASPUR MILLS CO. LTD

RAMANLAL CHIMANLAL & ORS

April 12, 1973

A. N. GROVER

Bombay Industrial Disputes Act

Section 3

Section 46

Factories Act

Cooperative Society-Factories Act 1948

Section 2(1)

Section 46

Factories Act

Sec. 3

Bombay Industrial Disputes Act, 1938

Factories Act

Section 3

[1964] 2 S.C.R. 838

S. V. Gupte

P. C. Bhartari

l. B. Dadachanji & Co.

V. M. Tarkunde

S. S. Shukla

GROVER

2nd Labour Court, Alunedabad

Ramanlal Chimanlal

S. 46

Factories Act

2nd Labour Court at Ahmedabad

S. 79

Bombay Industrial Relations Act, 1946

Factories Act

26th March, 1968

Industrial Disputes Act 1938

Bombay

Section 3(13)

clause 14

clause 14

Factories Act, 1948

April l, 1949

Section 2

section 2(n)

Bombay Factories A Rules, 1950

Gujarat . Legislature

Section 3

Bambay High Court

Section 3

section 46

Factories Act

April 14, 1972

Section 3

S. 2

Industrial Disputes Act 1947

Basti Sugar Mills

Factories Act

Ahmedabad


LAKSHMI KANT IHA

COMMISSIONER OF WEALTII TAX BIHAR AND ORISSA

April 16, 1973

[K. S. HEGDB AND H. R. KHANNA, JJ.]

We<1/tlr Tax Act 1951, s. 5(1) VIII and 5(l)XV-ls jewellery for personal use exempted-Whefher brokerage charges to be excluded and right to compensation included in the net wealth of the assessee.

The assessee, former Maharaja of Darbhanga filed a return for the assessment year 1957-58 declaring his net wealth of more than two and half crores. A revised return was filed subsequently showing a lesser amount. The wealth-tax officer determined the net wealth of the assessee to be more than four and half crores.

The assessee held shares and stocks in various companies. The assessee gave correct valuation of those shares but claimed a deduction of more than 2 lakhs by way of brokerage which he would have to pay lf those shar .. were sold in the open market. Further, the assessee claimed deduction from the net wealth of the value of jewellery intended for personal use.

Thirdly, the assessee claimed deduction of more than 36 Iakhs. payable to him as compensation by the Government for acquiring his Zamindari l'State, on the ground that it was not known as to when and in what manner the amount would be paid. -

The wealth-tax officer rejected all his claims and after estimating the value of compensation to be 75 per cent of its face value, Rs. 27,65,564 was added to the total wealth of the assessee. ·

On appeal, the Appellate Assistant Commissioner affirmed the decision of the wealth-tax. officer.

The Tribunal also rejected the claims of the assessee so far as the brokerage commission and the jewellery was concerned. It further held that the valuation of the bonds should be deter mined to be-65 per cent of the face value. On a reference to the High Court, alt three questions were answered against the assessee. On appeal before this C-0urt. all those three points were raised.

Partly allowing the appeal,

HELD: (i) As regards the question relating to the jewellery, it was decided in Commissioner of"Wealth Tax, Gujarat v. Arundhati Balkrishna, [1970) 77, J.T.R. 505, that section 5(1)(XV) dealt with jewellery in general whether intended for personal us0 of the assessee or not while jewellery intended for personal use of the assessee came within the scope of section 6(l)(viii) of the Act. It was accordingly held that the value of jewellery of the assessee intended for rsonal use of the assessee would stand excluded under section 5(1)(vili) of the Act in computation df the net wealth of the assessee. In the present case, in absence of any plea that the jewellery was not intended for the assessee's personal use and in absence of any retrospective operation of the F"mance Act of 197i excluding jewellery from the purview of cl. VIII of Sec. 5 (I) of the Act, the value of the jewellery for his personal use will not be included in the net wealth of the assessee. [9770)

(ii) Regarding brokeragerosion section 7(1) df the Act provides that subject to any rule made in this behalf, the value of any asset shall be 973

estimated to be the price which in the opinion of the wealth-tax officer would fetch if sold in the open market.

There is nothing in the language of Sec. 7(1) of the Act which permits any deduction on account of the expenses of sale which may be borne by the assessee. The vale aecording to Sec. 7 (I) has to be the price which the asset would fetch 1f soldin the open market.

Therefore, so far as the construction of Sec. 7(1) of the Act is concerned, in view of its plain language, there is no scope of excluding the expenses of sale of the asset from the price which the asset would fetch if sold in the open market. (980C, DJ

Duke of Buccleuc/1 v. Indian Revenue Commissioner, H967] A.C. 506, referred to.

(iii) As regards inclusion of the compensation receivable by the assessee from the Government, sec. 32(2) of the Bihar Land Reforms Act, 1950 provides that the amount of compensation payable in terms of a Compensation Assessment-roll shall be paid in cash or in bonds or partly in cash and partly in bonds. Therefore, as soon as the estate vests in the State, the proprietor or a tenure-holder has the right to get com pensation and this right to get compensation comes under the definition

"assets" as given in sect\on 2(e) of the Wealth Tax Act.

[982D-E,

983 DJ

Maharajkumar Kamal Sin'gh v. Commissioner of Wealth Tax, [1967] 65 J.T.R. 460, referred to.

(iv) As would appear from the order of tl!e Tribunal, the value or compensation payable under the Bihar Land Reforms Act has been estimated for the purpose of wealth-tax to be 65 per cent of the amount of compensation determined.. There is no .cogent ground to interfere in this regard.

[986A] ·

Commissioner of Wealth Tax v. U. C. Mahatab," H970] 78 J .. T.R. 214, discussed and distinillished.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 296 of 1970.

Appeal by certificate from the judgment and order dated February 28, 1968 of the Patna High Court in Tax Case No. 8 of 1966. .....

R. J. Ko/ah and I. N. Shroff, for the appellant.

F. S. Nariman, Addl. Solicitor-General of India, T. A. Ramachandran, S. P. Nayar and R. N. Sachthey, for the respondents.

The Judgment of the Court was delivered by

KHANNA, J. This appeal on certificate is directed against the judgment of Patna High Coun whereby that court answered the following three questions referred to it under section 27 of the Wealth Tax Act, 1957 (Act No. 27 of 1957) (hereinafter referred to as the Act) against tithe assessee :

"(1 ) Whether in comuting the market value of the shares the assessee is entitled to the deduction of a sum of Rs. 2,30,546 by way of brokerage commission;

( 2) Whether on a true. construction of section :S(l)(viii) and S(l)(xv) of the Wealth Tax Act, the assessee is entitled to the exclusion of the value of jewellery arnoilnting to Rs. 27,27,330 from the computation ot his total wealth? ( 3) Whether any part of. the amount of Rs. 36,87,419 fixed as compensation payable to the assessee under the Bihar Land Refonns Act is liable for inclusidn in the total wealth of the assessee?"

The assesse was former Maharajadhiraja of Darbhanga. The matter relates to the assessment year 1957-58, the relevant valua

tion date for which was March 31, 1957. The assessee filed a return on April.22, 1958 declaring a net wealth of Rs. 2,77,46,489.

A revised return was filed subsequently showing !he total weal!h to be Rs. 2,69,58,130. The Wealth Tax Officer determined the net wealth of the assessee to be Rs. 4,57,85,996.

The as5esseeileld shares and stocks in various limited D companies. In tbe return filed by him the assessee gave correct valuation of those shares and stocks as given in the stock exchange quotations and. the quotations furnished by well-known brokers, but he claimed a deduCl!ion of a sUlll of Rs. 2,30,546 by way of brokerage. It was contended on behalf o~ the assessee that in effecting the sales of the shares and stocks, bl'okerage would have E to be paid. The Wealth Tax Officer disallowed the claim in this

respect on the ground that there was no provision for deducting the broker&, Ke cotnmisslon.

In Part IV of the return filed by the assessee, he mentioned 'the value of. jewellery intended for personal use to be Rs. 27,27,330.

It was claimed that as the said jewellery was intended for personal r uso, it should not be taken into account for com.puting the total wealth of. the assessee. The assessee sought to bring his case under section 5(1)(viii) of the Act. The Wealth Tax Officer rejected this claim of the assessee on the ground that the aforesaid clause did not cover jewellery.

The assessee had held zamindari estate which was acquired G by the Government under the Bihar Land Refonns Act.

The as5essee was to receive a sum of Rs. 36,87,419 from tbe Government of. Bihar as compensation in that connection. The assessee claimed that the compensation payable to him could not be include~ irt his total wealth because it was not known as to when and in what manner the amount would be paid. The Wealth Tax

'II Officer held that the right to receive compensation represented a valuable asset which had to be included in the total wealth of the assessee.

As the whole of the compensation had not yet been paid up to the date of the valuation, the .Wealth Tax Officer esti- , - .

. mated the value of the compensation to be 75 per cent of its face value. Rs. 27,65,564 were accordingly included on that account in the total wealth of the assessee.

On appeal the Appellate Assistant Commissioner affirmed the decision of the Wealth Tax Officer on the three questions mentioned above. The Appellate Assistant Commissioner also held that the items of jewellery could be considered only under section 5 ( 1 )(xv) oi the Act and not under any other provision.

On further appeal to the Income Tax Appellate Tribunal, the Tribunal rejected the claim of the assessee for deduction on account of brokerage commission.

So far as the jewellery was concerned, the Tribunal dealt with the submission made on behalf of the assessee that clause (xv) of section 5 ( 1 ) of the Act had been deleted by the Finance Act of 1963 and orved that as long as that clause was in the statute book, that clause governed the exemptions granted by section 5 in preference to clause (viii).

The Tribunal consequently rejected the claim of the assessee in respect of the jewellery.

As regards the compensa1tion payable under the Bihar Land Reforms Act to the assessee, contention was raised on behalf of the assessee that the market value of the compensation bonds was about 50 per cent of its face value. The Tribunal observed in this connection that the value was generally estimated at 65 per cent oi the amount of compensation determined by the Compensation Officer. It was accordingly held that the valuation of the bonds should be determined to be 65 per cent of the face value.

The questions reproduced above were thereafter referred to the High Court at the instance of the assessee.

The High Court while dealing with the first qeustion, observed that in estimating the value of an asset regards must be had to the value it would fetch. The word "fetch", in the opinion of the High Court, must mean the quoted price only and brokerage and other inevitable expenses would have to be ignored. On question No. (2), the High Court expressed the opinion that the jewellery was outside the scope of clause (viii) of section 5(1) of the Act and could be dealt with only under clause (xv).

As regards question No. (3), the High Court relied upon its earlier decision in the case of Maharajkumar Kamal Singh v. Commissioner of Wealth Tax.(') It was observed that merely because the amount

of compensation payable to the assessee had not yet been paid and there was likely to be much delay in paying the same, the said amount could not be deducted from the assets for the purpose of the Act. Questions ( 1 ) and ( 2) were accordingly answered in the ll

negathe while question No. (3) was answered iii the affinuative.

(1) (1967] 65 I. T. R. 460.

In appeal before us Mr. Kolah on behalf of tl; te appellant has assailed the correctness of the answers given by the High Court on all the three questions. As against that, the learned Additional Solicitor General has canvassed for the correctness of the judgment of the High Court so far as the answers to questions ( 1 ) and ( 3} are concerned.

As regards question No. (2), the Additional Solicitor General has made certain submissions to which reference would be made hereafter.

We may at the .outset deal with question No. (2) relating to the jewellery. As mentioned earlier, the High Court took the view that as jewellery was dealt with specLfically under clause (xv) of section 5 (I) of the Act, the jewellery would be outside the scope of clause (viii) altogether. This view of the High Court cannot be sustained because of the decision of this Court in the

case of Commissioner of Wealth Tax, Gujarat v. Arundhati Ba/- Krishna.(') It was observed in that case by this Court that section 5 (I )(xv) dealt with jewellery in general whether intended for personal use of the assessee or not, while jewellary intended for personal use of the assessee came within the scope of section 5 (1 )(viii) of the Act. It was accordingly held that the value of jewellery of the assessee intended for personal use of the assessee would stand excluded under section 5 (1) (viii) of the Act in the computation of the net wealth.

The learned Additional Solicitor General has frankly conceded that in view of the aforesaid deciion of this Court, he cannot support the view taken by the High Court in the respect. It has, however, been sutlmitted by him that we should remand the case with a view to ascertain as to how much ' of the jewellery in question was intended for the personal use of the assessee.

We find it difficult to accede to tltls contention.

The matter is rather old as it relates to the assessment year 1957-58. The case of the assessee before the Wealth T-ax Officer was that the entire jewellery worth Rs. 27,27,330 was intended for his personal use and should not be included in the total wealth.

The Wealth Tax Officer disallowed the claim of the assessee irr this respect on the ground that the items of jewellery were covered by caluse (xv) and not by clause (viii) of section 5(1) of the Act. The claim of the assessee that the jewellery in question was intended for the personal use of the assessee was not rejected. No plea was also raised in appeal before the Appellate Assistant Commissioner or the Tribunal that the jewellery was not intended for the personal use of the assessee. It, therefore, cannot be said on the 11eord that the claim of the assessee that the jewellery in question was intended for his personal use has been controverted.

In the circumstances, we must proceed on the assumption for the

purpose of the assessment during therelevant year. that the jewellery was intende.~. for the personal use of the assessee.

(!) [19701 77 I. T. R. 505.

It may be mentioned that jewellery has been excluded by section 32 ol the Finance (No. 2)Act of 1971 (Act 32 of 1971) from the purview of clause (viii) of section 5(1) of the Act with effect from April 1, 1963. This amendment made in clause (viii) would not make any material difference because the said amendment is to operate with effect from April 1, 1963, while. we are dealing with the assessment year 1957-58. As such, the said amendment .can oblviously not apply to the assessment in question.

Question No. (1), as would appear from the above, relates to 1he claim of the assessee for deduction on account of brokerage .commission from the value of shares and stocks held by hini. The stand which has been taken on behalf of the assessee is that as :and when he sells the shares and stocks in question, he would have 'to pay brokerage commission.

As such, it is urged that in , computing the value of this asset, the price which it would fetch 1n the market should be reduced by the brokerage which would 'have to be paid on account of the transaction of the sale. We find

jt diffioult to accede to this contention. Section 7 ( 1) of the Act I.eads as under :

H$ubject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall ble estimated to be the price which in the opinion of the Wealth-tax Qfficer it would fetch if sold in the open market on the valuation date."

'Bare readinR of the section makes it plain that subject to any rules which may be made in this behalf, the value ol the assets, other than cash, has to be the price which the assets, in the :opinion ol the Wealthtax Officer, woqld fetch in the open market .on the valuation date. It would, therefore. follow that in the absence of any rule prescribing a different criterion, the value of an asset, other than cash, should be taken to be the price which it would fetch if sold in the open market on the valuation date.

No rules prescribing a different criterion in respect of the value of quoted stocks and shares have been brought to our notice.

Rule 1-C of the Wealth-tax Rules relates 'to the market value of unquoted preference Shares, while rule 1-D of the said rules -relates to market value of unquoted equity shares of companies

-other than investment companies and managing agency• companies.

The value of the stocks and shares in question, in the cireum. stances, would have to be estimated to be the price which they would fetch if sold in the open market on the valuation .date. The authorities concerned under the Aot for this purpose

accepted the valuation as given in stock exchange quotations and the quotations furnished by "1\'ell-known brokers. No objection. can be taken to this mode of valuation. Indeed, this was the mode

A which had been adopted by the assessee himself in the retut11 filed by him.

There is nothing in the language of section 7 ( 1) of the Ac\ which permits any deduction on account of the exp11nses of sale

8 which may be borne by the assessee if he were to sell the asset in question in l)ie open market. The value according to section 7 ( 1 ) has to be the price which the asset would fetch ii sold in the open market. In a good many cases, the amount which the vendor would receive would be less than the price fetched by the asset. The vendor may, for example, have to pay for the brokerage commission or may have to incur other expenses for

. C effectuating the sale. It is not, however, the amount which the vendor would receive after deduction of those expenses but the price which the asset would fetch when sold in the open market as would constitute the value of the asset for the purpose of section 7 (1 ) of the Act. To accede to the contention advanced on behalf of the appellant would be reading in section D 7 (1 ) the words "to the asses see' after the words "it would fetch",

although the legislature has not inserted those words in the statute.

Sm:h a course would not be permissible unless there is anything in

the relevant provisions which may show that the intention of the legislature was that the value of an asset would be the price fetched after ded11cting the sale expenses.

It, no doubt, appears to be somewhat harsh that in computing the value of an asset only the price it. would fetch if sold m the open market bas to be taken into account and the expenses which would have to be l:llOrne in making the ale have to be excluded from consideration, This, however, is a matter essentially for the legislature. No resort can be made to an equitable principle for there is no equity about a tax.

So far as the construction of section 7 ( 1) of the Act is concerned, in view of its plain language, there i~ no escape from the conclusion that the expenses in effecting the sale of the asset in the open market cannot be deducted.

The material part of the language of section 7 ( 1) of the Wealth-tax Act, 1957 is similar to that of sub-section (1) of section 3 6 of the Estate Duty Act which was J:>rougbt on the

statute book elidier in 1953. Sub-section. (1) of section 36 of the Estate Duty Act reads !IS under :

" ( 1) Tl1e principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open inarket at the time of the deceased's death."

Section 48 of the Estate Duty Act was as under :

"Where the Controller is satisfied, that any additional expese in administering or in realising property

has. been incurred by reason of the property Ueing situate out of India, he may make an allowance from the value of the property on account of such expense not exceeding in any case five per cent on the value of the property."

On account of the similarly in language of the material parts of section 7 (1) of the Wealth Tax Act and section 36( 1) of the Estate Duty Act, the value cf on asset, other than cash, for the purpose of. section 7 (1) of the Wealth Tax Act should tie the same as its value for the purpose of section 36(1). of the Estate Duty Act. Section 48 of the Estate Duty Act reproduced above allows a deduction up to 5 per cent on account of expenses for administring or realising property situated out of India in computing the value of that property. It would follow from the above that where the legislature intended that allowance or deduction should be made from the value of property, it made an express provision to that effect.

The fact that no provision was made in respect of expenses which may have to be borne by the assessee in effecting the sale of an asset shows that in computing the value of an asset, such expenses cannot be deducted from the price which the asset would fetch if. sold in the open market.

Section 36 ( 1) of the Estate Duty Act was based upon section 7 ( 5) of the U.K. Finance Act, 1894 and section 60(2) of the U.K. Finance Act, 1910, while section 48 of the Estate Duty Act was based upon section 7(3) of the U.K. Finance Act, 1894.

According to section 7(5) of the U.K. Finance Act, 1894, "the principal value of any property shall be estimated to be the price which, in the opinion of the commissioners, such property would fetch if sold in the open market at .the time of the death of the deceased". Section 60(2) of the U.K. Finance Act, J910 provides that "in estimating the principal value of any property under section 7 ( 5) of the principal Act. . . -the commissioners shall fix the price of the property according to the market price at the time of the death of the deceased, and shall not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to placed on the market at one and the san1e time". In the context of the above provisions, it has been observed on page 393 of Green's Death Duties, Sixth Edition :

"The price which property 'fetches' is the gross price paid by the purchaser, without deduction for the vendor"s costs and expenses. This is so, even where the property is subject to a trust for sale. But if the property to be

valued is merely a share in an unadministered estate, or in the proceeds of sale of trust property which must be

realised for the purpose of distribution, the expenses of the executors or trustees under the old title should be taken into account."

98 I

The matter has been dealt with in Dymond's Death Duties, Forteenth Edition, page 569 in the following words :

"The price which the property fetches js the gross sale price, without deduction for the costs of sale, except that, if the property is part of an unadministered estate or a share of property subject to a trust already in operation which involve~ conversion, or if the property consists of certified chattels of national, etc., interest (see P. 868), allowance for costs may be made."

The House of Lords had to deal with this aspect of the matter in the case of Duke of Buca/euch v. Inland Revenue Commissioners.(') After referring to section 7(5) of the U.K. Finance Act, 1894 Lord Reid observed:

"I am confirmed in' my opinion by the fact that the Act permits no deduction from the price fetched of the expenses involved in the sale (except in the case of property abroad under sub-section (3))."

E Lord Morris in this context observed:

"The value of a property is to be estimated to be the price which it would 'fetch' if sold in the open market at , the time of the death of the deceased. This points to the price which a purchaser would pay. The net amount that a vendor would receive would be less. There would be F costs of and incidental to a sale. It would seem to be harsh or even unjust that allowances cannot made in respect of them. But the words of the statute must be followed."

Similar observations were made by Lord Hodson and Lord Guest.

G We are, therefore, of the view that the High Court rightly answered question No. (I) relating to the claim for deduction on account of brokerage commission against the assessee.

Question No. (3) pertains to the compensation payable to the assessee under the Bihar Land Reforms Act.

Two contentions have been advanced on hehalf of the appellant in this Court wfth H regard to the above question. fo is argued in the first instance that compensation payable to the assessee under the Bihar Land

(I) [1967] A. C. 506,

Reforms At does not constitute an asset as can be taken into account in computing the total wealth cl the assessee.. In the alternative, it is urged that in computing the value of compensation the Tribunal should have taken the value to be 5 0 per cent and and not 65 per cent of the amount of compensation.

None of these contentions, in our opinion, is well founded.

The Bihar Land Refonns Act, 1950, (Bihar Act 3 of 1950) provides for the transference to the State of the interests ol proprietors and tenure. holders in Ian.ct and of other interests in land. According to section 3(1) of the Act, the State Government may, from time to time, by notification declare that the estates or tenures of a proprietor or tenure holder, specified in the notification, have passed to and become vested in the State. Section 4 enumerates the consequences of the vesting of an estate or tenure in the State. One of those consequences is that the estate or tenure, including the interest of the proprietor or tenure-holder in such an estate or tenure shall, with effect from the date of vesting, vest absolutely in the State free from all incumbrences and such proprietor or tenure-holder shall cease to have any interests in such estate or tenure, other than the interests expressly saved by or under the provisions of the Act. Section 19 makes provision for the appointment of Compensation Officer who shall in the case of an estate or tenure which has vested in the State, prepare in tl!e prescribed form and manner a Compensation Assessment-roll containing the gr08S asset and the net income of each proprietor and tenure-holder of estates and tenure~ and the compensation to be paid in accordance with the provisions of the Act to such proprietor or tenureholder and all other persons whose interests are transferred to the State. Section 23 prescribed the mode of computation of net income, while section 24 gives the rate of compensation and the mode of its determination. According to section 26 there should be a preliminary publication of Compensation Assessment-roll.

Section 27 gives a right of appeal from an order passed by a Compensation Officer to a Judge of the High Court.· After all objections and appeals have been disposed of, there has to be a final publication of the Compensation Assessment-roll in accordance with section 28 of the Act. Section 32 provides for the manner of pay, me111 of compensation. Sub-section (2) of that section reads.

"The amount of compensation so payab\e in terms of a Compensation Assessment-roll as finally published shall be paid in cash or in bonds or partly in cash and partly in bonds.

The bonds shall. be either negotiable or non-negotiable and non-transferable and be H payable in forty equal instalments to the person named therein and shall carry interest at two and a hall' per centum per annum ,..ith effect from the date of issue."

. Section 33 makes provisio~ for ad interim paymept to the propnetors after the date of vesting and before the day of payment of compensation under susection (2) of section 32 of the Act, Perusal of the different provisions of Bihar Land Refonns Act shows that as soon as the estate or tenure of a proprietor or a

tenholder vests in the State, he becomes entitled to receive compensation. The fact that the payment of compensation in tenns of the provisions of the Act may be deferred and be spread over a number of years does ilot affect the right of th~ proprietor oi

tenure-holder to the compensation.

The assessee, in our opinion, was vested with a right to get compensation immediately his land was vested in the State. Section 2 ( e) of the Act defines "assets" C to include property of every description, movable or immovable, but does not include certain catgories of property with which we are not concerned.

The word "property", as mentioned tiy this Court in the case. of Ahemed G. H. Arifj and Others v. Commissioner' of JV ca/th tax(') is a term of the widest import and subject to any limitation which the context may require, it signifies every-possible interest which a person can clearly hold and enjoy.

The definition of the "assets" as given in section 2(e) of the Act, D

though not exhaustive shows its wide anlplitude and we see no reason as to why the right to receive compensation cannot be included amongst the assets of an assesee,

According to Mr. Kolah, the amount of compensation had not been determined by the valuation date and as such it could not be included in the assets o~ the assessee. There is, however, no material on the record to -show that the amount of compensation had not been detennined by the valuation date.

The fact that the assessee had originally shown the amount. of compensation payable to be Rs. 92,27,422 in his return and it was only in the revised return . that he stated that t]).e amount of compensation payable to him had been determined by the Compensation Officer to be Rs. 36, 87, 419 would not necessarily show that the amount of compensation had not been determined tw the valuation date.

According to the order of the Wealth Tax Officer the contention which was raised on behalf of tho assessee was that the compensation money should not be included in the total wealth because it was not known as to when and in what manner the amount would be received. The Appellate Income Tax Tribunal in this; context observed :

"The value of the zamindary compensation payable to the assessee had been determined by the Componsa- - tion Officer at Rs. '3.6,87,419.

For the purpose of assessment the Wealth Tax Officer had determined the

(I) [1970] 76 I. T. K: 471.

value at 7 5 % of the compensation determined.

This has been sustained on appeal by the App. Asst. Com, missioner who has found that a part of the compensatio1f had been adjusted against Government dues outstanding from the assessee. So, the assessee is deemed to have received full value for that part of the compensation.

It is subbnitlted on behalf of the assessee that the market value of the Bihar Zamindary Compensation bonds is about 50% of the amount of the bonds.

The Tribunal has taken all these facts into consideration in determin ing the value of compensation payable under the Bihar Land Reforms Act in the case of several-assessees and

the Tribunal has generally estimated such 'l?lllue for Wealth Tax purposes at 65% of the amount of the compensation determined. In this case also we would direct that the valuation be taken at 65% of the amount compensation determined by the Compensation Officer."

The above observations as well as the form of question No. (3) show that no controversy was raised by the assessee on the D score that the amount of compensation had not been determined. by the valuation date.

Assuming for the sake of argument that the amount of .compensation paya[lle to the assessee had not been determined by the Compensation Officer by the valuation date, tllat fact would not justify the exclusion Of the compensation payable E from the assets of the assessee.

The right to receive compensatioJ! because vested in the assessee the moment he was divested of his estate and the same got vested in the State in pursuance of the provision of Bihar Reforms Act. As the estate of the assessee . which vested in the State was known and as the formula fixing the amount of compensation was prescribed by the statute, the F amount of compensation was to all intents and purposes a matter of calculation.

The fact that the necessary calculation had. not been made and the amount of. compensation had consequently not Wen quantified by the valuation date would not take com• pensation payable to the assessee out of the definition of assets or make it cease to be property.

The right to receive G compensation from the State is a valuable right. more so when it is based upon statute and the liability to pay is not denied by the State. It is no doubt true that the compensation is not payable immediately and its payment might be spread over a µeriod of 40 years. but that £act would be relevant only for the µurpose of evaluating the right to compensation.

It would not detract from the proposition that the right to. receive compensation, H even though the date of payment is deferred is propertv and .constitutes asset for the purpose of Wealth Tax Act. 11 •

The Patna High Court in the case of Maharajkumar Kamal Singh v. Commissioner of Wealth Tax (supra) held that the right to receive compensation under the Bihar Land Reforms Act constituted "asset" for the purpose of Wealth Tax Act. The view taken in that case was approved by a Full Bench of Patna High Court in the case of Maharaj Kumar Kamal Singh v. Commissioner of Wealth Tax( 1).

We see no cogent ground to take a different view.

It may also be observed that the Andhra Pradesh Hig11 Court in five cases, namely, Mir lmdad Ali Khan v. Commissioner of Wealth Tax('), Rani Bhagya Laxmamma v. Commissioner of Wealth Tax("), V. Chandramani Pattamaba Devi v. Commissioner of Wealth Tax('), Vandrevu Venkappa Rao v. Commissioner of Wealth Tax(') and P. V. G. Raju v. Commissioner of Wealth

Ta.~(') has held that the compensation payable on the abolition of estates can be taken into account for the purpose of Wealth Tax Act. Similar view has been taken biy the Madhya Pradesh High Court in Sardar C. S. Angre v. Commissioner of Wealth

Tax(') and Allahabad High Court in Maharaja Pateshwari Pd. Singh v. Commissioner of Wealth Tax(').

Mr. Kolah has invited our attention to a decision of the Calcutta High Court in the case of Commissioner o~ Wealth Tax

v. U. C. Mahatab (') wherein that court held that till the final publication of the Compensation Assessment-roll under the West Bengal Estates Acquisition Act, the assessee had no legal right to compensation and the same could not be included in the definition of "assets" in the Wealth Tax Act. It is, in our opinion. not necessary to express any view with regard to •the correctness of that decision. Suffice it to say that the decision in that case proceeded upon the assumption that the provisions of the West Bengal Estates Acquisition Act, 1953 were materially different from those of the Bihar Land Reforms Act.

It was, in fact. on that ground that the learned Judges of the Calcutta High Court distinguished the case of Maharaj Kumar Kamal Singh v. Co111missioner of Wealth Tax (supra) as well as the decision of the Patna High Court which is now the subject matter of the present appeal.

We are also nO'I: impressed by the contention advanced on behalf of the appellant that the value of the compensation should have been determined for the purpose of Wealth Tax Act to be

50 , per cent of the amount o.f compensation and not 65 per cent.

!1) [1972) 84 I. T. R. 240. ff 131 [1966] 62 l. T. R. 60

(2) [1961) 50 I. T. R. 2t6.

(4) [1967) 64 I. T. R. 147.

(6) [1970] 78 !. T. R. 60

(5) [1968] 69 l. T. R. 552.

(7) [t968] 69 I. T. R. 336.

(9) [t970] 78 I. T. R. 2t4. 15-797Sup. Cl/73

(8) [1970) 78 I. T. R. 581

As would appear from the order of the Tribunal, the value of A compensation payable under the Bihar Land Reforms Act has been generally estimated for the purposo of Wealth Tax Act to be 6S per cent of the amount of compensation deterinined. We see no cogent ground to interfere in this respect.

As a result of the above, we .uphold the answers given by the Hiib Court in respect of the first and third questions. So far as question No. (2) is concerned, we vacate the answer given by the Hiib Court and answer that question in the affirmative in favour of the assessee.

The appeal is disposed of accordingly, In the circumstances, the parties are left to bear their own costs of this Court as well as in the High Court.

s. c.

COMMISSIONER OF WEALTH TAX BIHAR AND ORISSA

April 16, 1973

H. R. KHANNA, JJ.

Tax Act 1951

s. 5(1)

section 5(1)(XV)

section 6(l)(viii)

section 5(1)(vili)

Sec. 5

section 7(1)

Sec. 7(1)

Sec. 7

Sec. 7(1)

sec. 32(2)

Bihar Land Reforms Act, 1950

R. J. Ko

I. N. Shroff

F. S. Nariman

T. A. Ramachandran

S. P. Nayar

R. N. Sachthey

KHANNA

Patna High Coun

section 27

Wealth Tax Act, 1957

Darbhanga

section 5(1)(viii)

section 5

Income Tax Appellate Tribunal

section 5

section 5

section 5(1)

Kolah

section 5

section 5

section 5

section 5

section 5(1)

section 32

section 5(1)

Section 7

section 7

section 7

section 7

section 7

section 7

Wealth-tax Act, 1957

section 3

section 36

Section 48

India

section 7

section 36( 1)

section 7

section 36(1)

Section 48

Section 36

section 7

Finance Act, 1894

section 60(2)

Finance Act, 1910

section 48

section 7(3)

Finance Act, 1894

section 7(5)

Finance Act, 1894

Section 60(2)

section 7

Dymond

section 7(5)

Finance Act, 1894

Reid

Morris

Hodson

Bihar Land Refonns Act, 1950

section 3(1)

Section 4

Section 19

Section 23

section 24

section 26

Section 27

section 28

Section 32

Section 33

section 32

Section 2

section 2(e)

Wealth Tax Act

Patna High Court

Wealth Tax Act

Andhra Pradesh Hig11 Court

Wealth Tax Act

Madhya Pradesh High Court

Allahabad High Court

Calcutta High Court

Wealth Tax Act