Case: Commissioner of Wealth Tax, Bihar, Patna Vs. Maharaja Kumar Kamal Singh

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 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 7(1) 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.10. Learned counsel for the assessee drew our attention to the decision of this Court in the case of Standard Mills Co. Ltd. v. Commissioner of Wealth-tax, Bombay(1) and to Bench decision of the Bombay High Court in the case of Commissioner of Wealth-tax Bombay City II v. Purshottam N. Amersey and Another(2). 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 v. Commissioner of Wealth-tax, Bihar and Orissa(3). 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 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.11. 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.12. 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. Th

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 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 thisattention 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.Learned counsel for the assessee drew our attention to the decision of this Court in the case of Standard Mills Co. Ltd. v. Commissioner ofBombay(1) and to Bench decision of the Bombay High Court in the case of Commissioner ofBombay City II v. Purshottam N. Amersey and Another(2). 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 v. Commissioner ofBihar and Orissa(3). 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 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 theAct 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