ivil Appeal Nos 1238 to 1240 of 1973 636 From the Judgment and order dated the 17th September 1971 of the Patna High Court in Tax Cases Nos 2 of 1965 and 19 and 20 of 1966
BB Ahuja  Ms A Subhashihi for the Appellant
YS Chitale and UP Singh for Respondent The judgment of the Court was delivered by SABYASACHI MUKHARJI J
These appeals by certificates arise against a decision of the Full Bench of the Patna High Court
Several questions were referred to the High Court of Patna under Section 27 1 of the Wealth Tax Act 1957 hereinafter referred to as the Act
Two of these questions have been answered against the assessee one was held to be not entertainable and one misconceived
The question answered against the revenue in that reference before the High Court was question No iii mentioned
in the judgment of BD Singh
J and the question is as follows Whether on the facts and circumstances of the case the Tribunal was right in including in the assessees net wealth a positive figure on account of zamindary compensation without taking into consideration the arrears of agricultural in come tax instead of taking the figure of compensation receivable from Government of Bihar at nil In order to appreciate the question it may be necessary to refer to some facts
The question involved before the Full Bench was for the assessment years 1959 60 1960 61 and 1961 62 corresponding valuation dates of which were the 31st October 1950 3rd October 1959 and 31st October 1960
The assessee is an individual
His estate vested in the State of Bihar under the Bihar Land Reforms Act 1950 on and from 1st July 1952 and he is entitled to receive compensation under the Act from the government Under section 3 of the Act the question arose about the inclusion in the assessee s net wealth the value of the estimated amount of compensation receivable by him 637 from the Bihar Government under the Bihar Land Reforms Act 1950
In the assessment year 1959 60 the Wealth tax officer estimated the value at Rs 1025123 and included it in the net wealth or the assessee
For the assessment years 1960 61 and 1961 62 the assessee produced a letter from the District Collector Arrah to show that the assessee is entitled to compensation of Rs 439713 only
The Wealth tax officer estimated 75 thereof as the market value of the right of the assessee to receive the compensation
Accordingly he included in the assessees net wealth Rs 329784
On appeal the Appellate Assistant Commissioner reduced the valuation for the 1st year to Rs 329784
For the next two years namely 1960 61 and 1961 62
the Appellate Assistant Commissioner held that it would be reasonable to estimate the market value of the compensation to be received by the assessee at 65 of the face value
The assessee preferred appeals before the Appellate Tribunal regarding assessments for the aforesaid three years and reiterated his contention that the right to receive compensation under the Lands Reforms Act was not an asset within the meaning of Section 2m of the Act and could not be included in the assessees net wealth
The Tribunal held that the estimated amount of zamindari compensation payable to the assessee s was an asset and had to be included in the assessees net wealth
However it directed the Wealth tax officer to estimate the value and compensation to be received by the assessee at 65 even for the 1st year ie 1959 60 as was done by the Appellate Assistant Commissioner with regard to the second and third years ie 1960 61 and 1961 62
The contention of the asessee further was that the unpaid agricultural income tax as a debt was deductible while computing his net wealth
His claim was that this debt was Rs 510831 in the first year Rs 47646100 in the second year and Rs 475706 in the third year
A sum of Rs 24430 being agricultural income tax demand for 1363 fasli was allowed to be deducted by the Wealth tax Officer for the second and third year s arrears of agricultural income tax the assessee had produced Government letter to show that the amount of compensation receivable by the assessee would be nil
According to the enquiries from the revenue department it also appeared that the final compensation money payable in respect of the assesse s zamindari was less than the agricultural income tax dues outstanding against him and so it was not possible to effect realisation of the dues 638 of agricultural income tax only by adjustment from the final compensation money
The Tribunal therefore held that except Rs 24430 which was agricultural income tax demand for 1363 fasli and which was allowed to be deducted by the Wealth tax Officer the other amounts as claimed by the assessee were not deductible as the arrears were outstanding for more than 12 months in view of the provisions contained u n der Section 2m of the Act and the Government letter was not at all helpful to the assessee
Then reference was made to the High Court under Section 271 of the Act raising five questions out of which question Noiii as set out hereinbefore is before us
The question before the High Court including the question which is before us were referred to a Full Bench of the Court and the reference was disposed of by the Full Bench of Patna High Court on 17th September 1971 and the decision is reported in 84 ITR p 240
The Full Bench decided the question in issue before us against the revenue and in favour of the assessee holding thereby that in the facts and circumstance of the case as nothing was receivable by the assessee in view of the arrears of agricultural income tax the value of the asset to the assessee was nil
Though at one point of time there was certain controversy a to whether the right to receive compensation on the vesting of the estate of the appellant in the Government was an asset and as such its value had to be taken in computing the net value of assets or not There is no doubt that it is and it was not urged before us that it is not an assets
The only question is how should it be valued
It was contended before us that the Act prohibits setting off of deductions of debts which are outstanding for more than 12 months on account of the arrears of tax on income agricultural or otherwise
Therefore it was urged that if the arrears of agricultural income tax due as in this case arc taken into account against the value of the compensation receivable by the assessee then it would not be in accordance with the scheme of the Act and it would permit defeating the intention the legislature namely permitting deduction of arrears of agricultural income tax outstanding for more than 12 months by indirect method which is prohibited directly in terms of Section 2 m iii cf the Ac This is tile question for our consideration in these appeals
639 We may at a glance examine the provisions of the Bihar Land A Reforms Act under which compensation was payable to the assessee and the value of which was under consideration in this case
Before we do that it is necessary to note the relevant provisions of the Wealth Tax Act and to find out the scheme under the Wealth Tax Act as to how the assets have to be valued
Section 3 of the said Act is the charging section which imposes a tax for every assessment year in respect of the net wealth on the corresponding valuation date
Section 4 makes some deeming inclusion of certain assets as assets of the assessee
It is not necessary to deal with these in detail but it may be mentioned that certain assets which are not standing in the name of the assessee are included in the net wealth for example assets transferred to spouse or minor child or partner of a firm etc
These deal with the assets which are not in the name or standing in the name of assessee but which really belong to the assessee according to the scheme of the legislation
We may note here as it was convassed before us that under sub section 3 of Section 4 of the Act which provides that where the value of any asset is to be included in the net wealth of an assessee in accordance with clause a of sub section I or sub section 1A
there shall be deduced from such value any debts owing on the valuation date by the transferee mentioned in that clause in so far as such debts are referable to such assets and the provisions of Section 5 shall apply in relation to such assets as if such assets were assets belonging to the assessee
Section S deals with the exemption of certain assets
Section 6 excludes certain assets and debts outside India  Section 7 is important which provides the method how the is to be assessed
It provides that it shall be estimated to be the price which in the opinion of the Wealth tax officer it would fetch if sold in the open market on the valuation date
Section 2 m deals with net wealth upon which tax is levied and reads as follows 2 m net wealth means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets wherever located belonging to the assessee on the valuation date including assets required to be included in his net wealth as on that date under this Act is in G excess of the aggregate value of all the debts owed by the assessee on the valuation date other than i debts which under section 6 are not to be taken into account 640 ii debts which are secured on or which have been incurred in relation to any property in respect of which wealth tax is not chargeable under this Act and iii the amount of the tax penalty or interest apayable inconsequence of any order passed under or in pursuance or this Act or any law relating to taxation of income or profits or the estate Duty Act 1953 34 of 1953 the Expenditure Tax Act 1957 29 of 1957 or the 18 of 1958 a which is outstanding on the valuation date and is claimed by the assessee in appeal revision or other proceeding as not being payable by him or
b which although not claimed by the assessee as not being payable by him is nevertheless outstanding for a period of more than twelve months on the  valuation date The main contention of the revenue is that the amount of tax penalty or interest payable ill consequence of any order passed under or in pursuance of the Act or any law relating to taxation of income or profits or the Estate Duty Act which is outstanding on the valuation date and is claimed by the assessee in appeal revision or other proceedings as not being payable by him and which although not claimed by the assessee as not being payable by him is nevertheless outstanding for more thantwelve months on the valuation date should not be considered to bye debt entitled to be deducted from net wealth
Net wealth  as we have noticed means the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets wherever located belonging to the assessee is in excess of the aggregate value of all debts excluding the debts mentioned in section 2 m of the Act
Therefore the scheme of imposition of wealth tax in case of an assessee which is not a company and the present assessee is not a company and the computation of the wealth tax of an assessee which is a company might be done under sub section 2 of Section 7 of the Act must be done by first estimating the value of the assets in accordance with the provisions of the Act
That is the first step
Therefore the estimating of the value of the assets is first necessary 641 in accordance with the provisions of the Act
The material provision of the Act for this purpose in the said Act would be Section 7 1 which  enjoins the Wealth tax Officer in case of an asset other than cash to estimate the price which in his opinion it would fetch if sold in the open market on the valuation date
Therefore the first step in the facts and circumstances of this case was that the wealth tax Officer to estimate the price which in his opinion the right to compensation of the assessee would fetch if sold in the open market and after determining the value in the manner aforesaid to deduct therefrom debts owed by the assessee excluding however the debts which are mentioned in clause i ii and iii of Section 2 m of the Act
Keeping this scheme of the Act in mind we have to examine the nature of compensation under Bihar Land Reforms Act 1950
Section 3 provides for the notification vesting an estate or tenure in the State and from the date specified in the notification the estates or tenures of a proprietor or tenure holder specified in the notification will pass on to and become vested in the State
It is not disputed that in this case this has happened in respect of the property in question
Section 4 deals with the consequences of the vesting of an estate or tenure in the State and stipulates different consequences
We are not really concerned with all the various consequences
We may however mention clause c of Section 4 which is important for our present purpose
It provides as it indicates that the arrears of revenue and oesses remaining lawfully due in respect of the estate or tenure shall continue to be recoverable from him in spite of the vesting of the estate and shall without prejudice to any other mode of recovery be recoverable emphasis supplied when so ordered by the Collector by the deduction thereof from the amount payable to such intermediary under Section 32 Section 32A or Section 33
Reference was made to Section 14 which deals with provisions relating to certain debts of proprietors and tenure holders
sections 19 23 and 24 were also referred to which were we do not think are material for our present purpose
Section 26 onwards deal with the publication of Compensation Assessment roll
Section 32 provides for the manner of payment of compensation
Section 32A provides as follows 32A Where the Compensation Officer considers that delay is likely to occur in payment of compensation under section 32 he may subject to the provisions of section 32B pay in the manner so far as may be applicable provided in section 32 642 to the person entitled thereto under this Act a sum not exceeding fifty per centum of the approximate amount of compensation payable in him under section 32 calculated in the manner prescribed in this behalf
Provided that if subsequently it is found by the Compensation Officer or the Collector that any amount has been paid to any person in excess of the amount payable to him under section 32 or that the person to whom the amount has been paid was not entitled to it under this Act
the amount so paid shall after giving the person concerned a reasonable opportunity of being heard be recoverable from him together with interest at 612 per cent annum as if it were a public demand
 Section 40 is also important and is as follows 40 1 The Collector the Claims Officer or the Compensation Officer may at any time either before or after the date of vesting by a written order served in the prescribed manner require any intermediary or any other person in possession of an estate
or tenure or any part thereof or any agents or employees of such intermediary or other person as the case may be to produce at a time and place specified in the order such documents or to furnish an affidavit otherwise such information relating to any estate or tenure of such intermediary as the Collector Claims Officer or the Compensation Officer may from time to time require for any of the purposes of this Act or for giving effect to any provision thereof
2 Where any intermediary or other person referred to in sub section 1 if so required by a written order of the Collector fails without sufficient cause to produce such documents or to furnish such information at such time and place as may be specified in the order such intermediary or other person as the case may be shall be liable to a penalty which may extend to fifty rupees for every day after the expiration of such time until such documents have been produced or such information has been furnished and such penalty shall be realised as a public demand 643 Provided that where the sum of such penalty exceeds five hundred rupees the Collector shall refer the matter to the Commissioner whose orders thereon shall be final Provided further that the Commissioner may at any time of his own motion or on the application of any intermediary revise any order of the Collector imposing any penalty and the order of the Commissioner on revision shall be final
Section 33 which provides for making ad interim payments to proprietors sub section 2 of which contains the following proviso Provided that the Collector shall have the power to refuse suspend or stop any such ad interim payment in the case of any proprietor or tenure holder who in his opinion has failed or neglected to comply with any order under section 40
The Patna High Court was of the opinion that in view of the facts and specially the letter given by the Collector the market value of the right of the assessee to receive ad
interim compensation should be determined in view of the provision of Section 4c of Bihar Land Reforms Act 1950 and keeping in view the correspondence passing between the collector and the assessee
It is true that the taxing authority has adopted 65 of the face value of the amount discounting the rest on account of delayed payment
It may be mentioned that these compensations were payable in 40 years
That is a factor which has to be taken into account and discounted but the other vital factor affecting the value of the asset namely the liability and the obligation to have the amount deducted under Section 4 c of the Bihar Land Reforms Act has not been taken into account at all
In case where bonds have been issued after taking into consideration the liability under Section 4 c of the Bihar Land Reforms Act or where liability under Section 4 c has been determined and deducted from the compensation in such a case no question of deduction on account of the arrears of agricultural income tax mentioned in Section 4 c of the Bihar Land Reforms Act would arise but in all other cases this is a liability a hazard a factor a clog or a jeopardy which detracts from the value of the asset and in estimating the value which one has to do on the basis which a willing purchaser 644 would pay for buying the said asset in open market the Wealth tax Officer must take that factor into account otherwise it would be an unreal estimate
This chance and hazard must influence all buyers
There are two different stages
One is estimation of the value of the assets and the other deduction therefrom the debts owed by the assessee
In last mentioned stage surely in view of the provisions of Section 2 m the debt in respect of income tax which is outstanding for more than 12 months cannot be deducted
But in estimating the value of the assets this possibility which is indeed in the nature of an obligation of the Compensation officer is a hazard a clog or a hindrance which If a proper estimate is made under Section 71 by the Wealth tax Officer he has to take into consideration
It is not a question of deducting the debt but a question of estimation of the value of the asset in question
Learned counsel for the assessee drew our attention to the decision of this Court in the case of Standard Mills Co Ltd vs Commissioner of Wealth tax Bombay1 and to Bench decision of the Bombay High Court in the case of Commissioner of Wealth tax Bombay City II vs Purshottam N Amersey and Another2
These decisions in our opinion are not relevant at all
Reliance was also placed on a decision of this Court in the case of Pandit Lakshmi Kant Jha vs Commissioner of Wealth tax Bihar and Orissa3
This question was not in issue but it was reiterated that under the Bihar Land Reforms Act 1950 as soon as the estate or a tenure of a proprietor or tenure holder vested in the State he became entitled to receive compensation
The right to receive compensation from the State was a valuable right
The fact that compensation was not payable immediately and its payment might be spread over a period of 40 years would be relevant only for the purpose of evaluating his right of compensation
The right to receive compensation even though the date of payment is deferred is property and constituted an asset for the purpose of Wealth Tax Act
We are clearly of the opinion that the possibility of deduction of the dues of the assessee for agricultural income tax under Section 645 4 c of the Bihar Land Reforms Act from the compensation money is a factor that affects price or value of the compensation money receivable by the assessee under the Bihar Land Reforms Act and until it has been finally determined that no arrears of agricultural income tax is payable at all will remain a hindrance and the value of which must be quantified and deducted before a proper estimate of the value of the asset money receivable by the assessee is prepared
Except in cases where the question of arrears of agricultural income tax is settled this is a factor which goes to the diminution of the value of the asset
To what extent that would affect the value of the asset is a matter of quantification
We are not concerned with that question of actual quantification
We are concerned with the question whether that factor is a matter which has to be taken into consideration in estimating the value of the asset in question
We are of the opinion that it is a factor certainly to be taken into consideration in estimating what it would fetch in the open market
It is not a case as was contended on behalf of the revenue that this was permitting indirectly deduction of debt which was prohibited by the legislation
Section 7 and 2 m of the Act though must be read harmoniously apply to two different stages
Section 7 is the estimation of the market value of the asset section 2 m enjoins that from the same the debt owed by the assessee to be deducted
Such debt owed would be computed in accordance with Section 2 m but the estimation of the value of asset is on the basis which such asset would fetch in the open market taking into consideration the view point of a willing purchaser
We must mention that our attention was drawn to certain other provisions of the Income tax Act and also Wealth Tax Act and it was contended that any debt which is excluded under the provisions of Wealth Tax Act cannot be deducted and on the same principle a debt which is not deductible because of provision of Section 2 m should not be taken into consideration in estimating the value of an asset
We are unable to accept this position in the facts and circumstances of this case
Our attention was drawn to certain other rules namely Rule 34 of the Bihar Land Reforms Rules 1951
We do not think it is material to discuss these rules any further
In the view we have taken we are of the opinion that the Full Bench of the Patna High Court was right in its conclusion
The appeals therefore fail and are accordingly dismissed with costs
HSK Appeal dismissed


Summary:
While computing the net wealth of the respondent assessee for purposes of wealth tax assessment under the Wealth Tax Act 1957 the wealth tax officer included certain amount as the value of the assessee s right to compensation which had accrue to him on vesting of his estate in the State of Bihar under the Bihar Land Reforming Act 1950 on the basis of market value on the valuation date
This was contested by the assessee on the ground that after adjusting his outstanding agricultural income tax liability the compensation payable to him was nil
The assessee also produced Collector s letter to show that the amount of compensation receivable by the assessee would be nil
The Appellate Assistant Commissioner agreed with the view of the Wealth Tax officer
In appeal before the Tribunal the assessee contended that the unpaid agricultural income tax as a debt WAS deductible while computing his net wealth
The Tribunal accepting the Revenue s contention held that the amounts claimed by the assessee were not deductible as a debt under s2m as the arrears of agricultural income tax were outstanding for more than twelve months
On a reference being made a Full Bench of the High Court was of the opinion that the market value of the right of the assessee to receive ad interim compensation should be determined in view of the provisions of s4c of the Bihar Land Reforms Act 1950 and held that in the facts and circumstances of the case as nothing was receivable by the assessee from the State of Bihar in view of the arrears of agricultural income tax the value of the asset to the assessee was nil
635 Hence this appeal
Dismissing the appeal  HELD For computing net wealth under s2m of the Wealth Tax Act 1957 there are two different steps
The first and essential step would be to estimate the value of the assets in accordance with the provisions of the Act and the second step would be to deduct therefrom the debts owed by the assessee except the debts excluded by that section
For estimating the value of the assets the material provision would be 71 of the Act which enjoins the Wealth Tax officer to estimate the price which in his opinion an asset other than cash would fetch if sold in the open market on the valuation date
The Wealth Tax officer must take into account any factor which detracts from the value of an asset which a willing purchaser would Pay for buying that asset in open market
643 B C C Section 4 of the Bihar Land Reforms Act 1950 deals with the consequences of the vesting of all estate or tenure in the State and stipulates different consequence Clause c of s4 provides that the arrears of revenue and cesses remaining lawfully due in respect of the estate or tenure shall continue to be recoverable in spite of the vesting of the estate and shall without prejudice to any other mode of recovery be recoverable when so ordered by the Collector by the deduction thereof from the amount payable
643 G H In the instant case  the possibility of deduction of the dues of the assessee for agricultural income tax under s4c of the Bihar Land Reforms Act from the compensation money is a factor that affects price or value of the compensation money receivable by the assessee under the Bihar Land Reforms Act and until it has been finally determined that no arrears Of agricultural income tax is payable at all will remain a hindrance and the value of which must be qualified and deducted before a proper estimate of the value of the asset money receivable by the assesses is prepared
Except in cases where the question of arrears of agricultural income tax is settled this is a factor which goes to the domination of the value of the asset
To what extent that would affect the value of the asset is a matter of quantification
The court is not concerned with the question of actual qualification
The Court is concerned with the question whether that factor is a matter which has to be taken into consideration in estimating the value of the asset is a matter of qualification
The court b Of the opinion that it is a factor certainly to be taken into consideration in estimating what it would fetch in the open market
644 H 645 A C The contention that a debt which is not deductible because of provisions  of s2m should not be taken into consideration in estimating the value of an asset is not acceptable in the facts and circumstances of this case
645 F