THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE Nos.285 and 368 of 1991; 42 of 1992; and 45 of 1996. Dated:27.12.2011 Between: Commissioner of Wealth Tax, Andhra Pradesh-I, Hyderabad. …Applicant and Nb.Sadat Jah Bahadur, And others. …Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE Nos.285 and 368 of 1991; 42 of 1992; and 45 of 1996. COMMON ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) In R.C.Nos.285 and 368 of 1991 and 42 of 1992, the Commissioner of Wealth Tax got the following two questions referred for the opinion of this Court under Section 27(1) of the Wealth Tax Act, 1957 (the Act). 1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing the exemption u/s.5(1)(xii) of the Wealth Tax Act in respect of 7 items of jewellery claimed to represent art treasures? 2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the notional Estate Duty liability likely to arise on the demise of the life tenant was allowable as a deduction while valuing the remaindermen’s interest? In R.C.No.45 of 1996 the Commissioner of Wealth Tax got the following two questions referred for the opinion of this Court under Section 27(1) of the Act. 1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing the exemption u/s.5(1)(xii) of the Wealth Tax Act in respect of 7 items of jewellery claimed to represent art treasures? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in confirming the decision of the C.W.T. (Appeals) directing the assessing officer to exclude the fictional estate duty liabilities for the asst.years 83-84 and 84-85 while computing the value of the remaindermen’s interest of the assessee? (Question No.2 does not arise for asst.years 85-86 and 86-87). As common questions are involved in all these matters, the matters are heard and being disposed of together. The issue also is similar in all the cases, and therefore, the brief fact of the matter in R.C.No.285 of 1991 is taken for appreciation of the points. The trustees of the Nizam Jewellery Trust filed their return of wealth for the assessment year 1981- 1982 valued at Rs.78,72,600/- after claiming exemption under Section 5 of the Act. The return was based on actual value. The Wealth Tax Officer (WTO) completed assessment under Section 21(1) as well as 21(1A) of the Act on the residue. The assessment was disputed on the ground that the WTO ignored the deductions. It was also contended that seven items of jewellery were already declared as “art treasures” and are exempted from Wealth Tax Act under Section 5(1)(xii) of the Act. This was negatived. But, the Income Tax Appellate Tribunal accepted the plea. On a request made by the Revenue, the two questions were referred to this Court. During the course of the submissions, the Counsel brought to our notice the decision of this Court in Commissioner of Wealth Tax v SB.Zainab Noorul Sayeeda[1]. Therein this Court was concerned with the exemption of seven items of jewellery declared as “art treasures”. After elaborate discussion, similar question was answered in favour of the assessee and against the Revenue observing as under. …The possession of these articles was taken away under the orders of the Supreme Court directing the Union Finance Secretary to take custody of the items of jewellery including the seven items. The trust lost the possession of these seven items and they were always in the custody of the Union Finance Secretary throughout the assessment years 1980-81 to 1986-87. The earlier attempts, if any, made by the assessees to sell the articles in question are of no consequence. For the assessment years, with which we are concerned in this batch of cases, the trust never had the control and custody of these articles and there were no attempts as such expressing any intention to sell ever since September, 1979. In view of the lawful directions preventing the sale of the articles, mere intention, if any, on the part of the assessees at an earlier point of time becomes irrelevant. The assessees could not have transgressed or violated the prohibition on alienating the articles and sold the same. The mere feeling, if any, entertained at the initial stages and the attempts made to sell cannot be a ground for denying the exemption under Section 5(1)(xii) of the Wealth Tax Act. Therefore, these seven items qualify the twin requirement for claiming exemption under the provisions of Section 5(1)(xii) of the Wealth T222ax Act, viz., those articles are of “works of art” and not intended for sale. Counsel for the assessees also relied on the decision of a Constitution Bench of the Supreme Court in Commissioner of Wealth Tax v Trustees of H.E.H.The Nizam’s Jewellery Trust[2] which covers the second question referred to this Court. In that case, the Appellate Tribunal referred the question: “Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is correct in law in holding that the probable estate duty payable on the death of the life tenant has to be taken into account and the value of the property will be diminished by that for charge of wealth tax in the hands of the remaindermen?” This Court answered the question in the affirmative in favour of the assessee and against the Revenue relying on the decision of the Supreme Court in Commissioner of Wealth Tax v Trustees of H.E.H.Nizam’s Family (Remainder Wealth) Trust[3]. An application was then moved under Section 261 of the Income Tax Act, when two questions were referred to the Supreme Court. The Supreme Court affirmed the view of the High Court observing as under. …On the other hand, the estate duty payable by the trustees on the termination of the life interest would be a relevant factor for determination of the price which a willing and informed buyer would offer for purchase of the remainder interest. The remainder interest is merely the right of the remainderman to receive an amount form the trustees on the termination of the life interest of the life tenant, the purchaser, therefore, would take into consideration any factor which would potentially reduce the amount that he would ultimately receive from the trustees towards his remainder interest. The risk or hazard of estate duty liability will have direct impact on the purchaser of the remainder interest and, thus, will be a relevant factor for the purpose of determination of valuation of the interest to be held by the remainderman. In view of the above, both the questions are answered in the affirmative in favour of the assessee and against the Revenue. The Referred Cases shall stand disposed of accordingly without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 27.12.2011 vs [1] (2003) 262 ITR 306 (AP) [2] (2003) 261 ITR 690 (SC) [3] (1977) 108 ITR 555 : (1977) 3 SCC 362