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

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, 1 952, 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 assessees "net wealth" the value of the estimated amount of compensation receivable by him 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. 10, 25, 123 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. 4, 39, 713 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. 3, 29, 78.4. On appeal, the Appellate Assistant Commissioner reduced the valuation for the 1st year to Rs. 3, 29, 784. 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 2(m) 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 assessees 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, i.e. 1959-60, as was done by the Appellate Assistant Commissioner with regard to the second and third years i.e. 1960-61 andcontention 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. 5, 10, 831 in the first year, Rs. 4, 76, 461.00 in the second year and Rs. 4, 75, 706 in the third year . A sum of Rs. 24, 430 being agricultural income-tax demand for 1363 fasli was allowed to be deducted by the Wealth-tax Officer for the second and third years arrears of agricultural income-tax, the assessee had produced Government letter to show that t he 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 assesses zamindari was less than the agricultural income-tax dues outstanding against him, and so it was not possible to effect realisation of the dues of agricultural income-tax only by adjustment from the final compensation money. The Tribunal, therefore, held that except Rs. 24, 43 0 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 under Section 2(m) 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 27(1) of the Act raising five questions out of which quest ion No.(iii) as set out hereinbefore is before us.

Court's reasoning:
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