HON'BLE SRI JUSTICE G.CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM REFERRED CASE No.80 OF 1997 ORDER: (per Hon’ble Sri Justice Challa Kodanda Ram) This reference is made under Section 256(2) of the Income Tax Act, 1961, and the questions referred are as follows: 01. Whether on the facts and in the circumstances of the case, the ITAT was right in holding that the CWT (A) was justified in directing the WTO to exclude the amount of Rs.1,13,575.00 from the assessments for each of the years 1977-78 and 1978-79 relating to the life interest of the assessee in “Mount Pleasant” property? 02. Whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that the right to reside in a residential property known as “Mount Pleasant” free of rent during his life cannot be equated to life interest assessable in the assessee-beneficiary’s hands u/s.21(1) of the W.T.Act, 1957, for the assessment years 1977-78 & 1978- 79? 03. whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that the right to wear jewellery on ceremonial occasions is not an “asset” within the meaning of section 2(c) of the W.T. Act, 1957, and consequently the value of the right is not includible in the hands of the assessee even after the amendment of Sec.5(1)(vii) of the W.T.Act, 1957, by Finance (No.2) Act, 1971? 04. Whether on the facts and circumstances of the case the Appellate Tribunal is justified in holding that the actual income realized by the assessee for a broken period should be treated as gross annual income for the purpose of valuation under Rule 1B of the Wealth Tax Rules? 05. For the purpose of valuation of life interest under Rule 1B of the Wealth Tax Rules, whether the actual income should necessarily be taken as the basis irrespective of whether actual income is fetched or not?” 02. Heard both sides. 03. It is submitted by both the learned counsel that the question Nos.1 and 2 are to be answered in favour of the Revenue and against the assessee in view of the judgment of the Hon’ble Supreme Court reported in Commissioner of Wealth Tax – Appellants Vs. Prince Muffkham Jah Bahadur – Respondent [1]. 04. In the light of the above said submission, question Nos.1 and 2 are answered in favour of the Revenue and against the assessee. 05. In so far as the question No.3 is concerned, both the learned counsel submitted that it is to be answered against the Revenue in view of the Full Bench judgment of this Court reported in Commissioner of Wealth Tax Vs. Trustees of Sahebzadi Anwar Begum[2]. 06. Accordingly, the question No.3 is answered against the revenue and in favour of the assessee. 07. In so far as the question No.4 is concerned, it is submitted by the learned counsel for the Revenue that during the assessment year, the assets (jewellery) were sold and proceeds were deposited in the bank, which fetched an amount of Rs.8,277/- alone, cannot be the basis for the purpose of assessment of wealth tax. The period in which the jewellery was available, before the same is put to sale, is also required to be computed for the purpose of assessing wealth tax and in that view of the matter, the law laid down by the Hon’ble Supreme Court in the judgment reported in Commissioner of Wealth Tax – Appellants Vs. Prince Muffkham Jah Bahadur – Respondent (1 supra) is squarely applicable. Particularly, the learned counsel for the Applicant relied on para 15 of the said judgment which reads as under: “…. It was agreed by learned counsel appearing on behalf of both the counsel appearing on behalf of the both the assessee and the revenue before the High Court that Rule 1B was not workable in the circumstances of the present case, which is clearly correct for it is applicable only to an income yielding life interest. It is, therefore, difficult to see how it can now be argued on behalf of the assessee that Rule 1B was correctly applied. In any event, we are in agreement with the High Court, and indeed, with the Tribunal before it, that even if Rule 1B did not apply, the said life interest, if an asset, had still to be valued and be included in the wealth of the assessee, which is what Section 7 required. In the absence of a rule which can apply to the valuation of a particular asset, that asset must be valued in the ordinary way, by determining what it would fetch if it were sold in an assumed market; the value being what an assumed willing purchaser would pay for it. This is how the said life interest must be assessed, upon the assumption that the assessee’s personal right to reside in the property during his life time is saleable.” 08. In view of the above, the learned counsel for both parties would submit that asset is liable to be valued for the fraction of the period before the asset is sold. 09. On the other hand, the learned counsel appearing for the assessee would submit that in view of the language of the Rule 1B of Wealth Tax Rules, it is not permissible by the department to adopt contrary and hypothetical method as indicated by the Hon’ble Supreme Court while dealing with different classes of asset. In any view of the matter, when the actual average annual income is available during the year, it is impermissible for the department to adopt the different method, assuming the same is permissible by ignoring statutorily prescribed rule. 10. We have considered rival submissions of the respective counsel on both sides. 11. Rule 1B of the Wealth Tax Rules reads as under: “for the purpose of sub-Section (1) of Section 7, the market value of the life interest of an assessee shall be arrived at by multiplying the average annual income that accrued to the assessee from the life interest by 1/p+d-1 where “p” represents the annual premium for a whole-life insurance without profits on the life of the life tenant for unit sum assured as specified in the Appendix to these rules, and ‘d’ is equal to i/1+i, ‘i’ being the rate of interest” 12. A close reading of Rule 1B of the Wealth Tax Rules, would reveal that one of the competent, which needs to be taken into consideration in arriving at the market value of the life interest of the assessee, is average annual income which itself has been defined as actual gross income derived by the assessee from the life interest. 13. In the light of the clear language employed in the Rule 1B of the Wealth Tax Rules, we are unable to agree with the argument of the learned counsel for the Department that a hypothetical method as indicated by the Supreme Court, in para 15 of the judgment reported in Commissioner of Wealth Tax – Appellants Vs. Prince Muffkham Jah Bahadur – Respondent (1 supra), is to be adopted. On this point, we may also point out that the question which was taken for consideration before the Hon’ble Supreme Court was only with regard to whether the life interest in asset is taxable or not. While dealing with the said question, the issue was raised that Rule 1B of the Wealth Tax Rules is not applicable for assessing the assets in that case and the Hon’ble Supreme Court had indicated a different method of arriving at the value of the asset. The method indicated by the Hon’ble Supreme Court in the above referred judgment need not be applied in the present case, inasmuch as during the relevant year. As a matter of fact, the assessee had income which could be the basis for making the assessment for the purpose of wealth tax. In view of the same, the question No.4 needs to be answered in favour of the assessee and against the Revenue. 14. So far as the question No.5 is concerned, as per Rule 1B of the Wealth Tax Rules, the actual income alone can be the basis for making assessment. 15. Accordingly, question No.5 is also answered in favour of the assessee and against the Revenue. 16. With the above observations, the Referred Case is disposed of. There shall be no order as to costs. 17. Consequently, Miscellaneous Petitions pending, if any, shall stand disposed of. ___________________________ JUSTICE G.CHANDRAIAH _________________________________ JUSTICE CHALLA KODANDA RAM 05.11.2013 bv [1] (2001) 165 SCTR (SC) 6 [2] 234 ITR page 282 (A.P.)