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COMMISSIONER OF WEALTH TAX, PATNA

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RAGHUBIR NARAIN SINGH

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Pebruary 20, 1984

_.,.....~. - [ V.D .• TULZAPURKAR AND SABYASACHI MUKHARi1, JJ. J

"'Net wealth"-~·-"V, aluation of''n~; wealth.": unde~ section 7 _re'ad with ser_tiqn 2(m) Of the Wealth Tax A.ct,...J.951-Treatnu!llf of (a) co1npensation an10u11t'receiv'ah!e under. the Bihar Lands. Refor1~~-Act'; (b) the eh~ i~ ihe nati1re of Agriculture Inconie Tax due to Government, and,.ded_uctible ffo1n the receivable con1pensatio11; (c) the a1nou1lt of money -decree'sfully attached 'by Garnishee orders of competent court and (d) claims ttder aecrees not yet e.xeruted, expldned.

"y The ssesee is an individual and hi~ estate stood csted in the State of-Bikar U_nder the Bihar Land Reforms Act, 1950'as and lrom 1st or' July.1952, ad he -is

.~--._, I entitled to receiVC cOmPens'atio~ under the Acf rron1 , the Govern

1 ment .. 'The; assessr, e . ""-., during the relevant asessment year5 had obtained twdiim<?netary . decrees' from his debtors, but the amolinfa receivable by the-'"assessee were attached by two~7 gatnish"e.e ... orders iss'uCd bythe Cak!u"tta High Court on \3th January-1960 and 21st Jn:e ," 1961.

The asseisee also

0had some claim. decrees but as th_eY were -not yet exeCuted: they were sho\Vll in -:'his book of accounts as Still Outstanding. The assesseci had to pay.

Agricultural Incofile Tax to the Government and thi$ deb? has.to-be deducted _from

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"'' . the conipenSation receivable by th~ assessc~: Jn these five appeais oY certificrite of fitneSs, question arose as to whether thC answers of the Hjgh <;:::ourt of. atna Given .. in the Tax reference!': on the questi9n of correctness of valuation of the "net wealth"

under soction 7 Or the weilth Tax Act, :1957 are correct. ·• . '

The Revenue Urged be followirl& five propositions:1 -

' (I) For t?c urposes_ Qf compUtation of neiwealth of an_ a".!ssoc: each assCt

, belonging to ; irn-and (lach de'bt owed by.him haS to -be valutd separatcIY.

(2)· The differencetbetwCell the ggre.!iat~ value of the assets and the awe~

gate value of the.-debts represCts his ctwealth.

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(3) I? ~!ermining th~ mar~t vlue,.of an. asst (or_ the resi9ue of the aSset

.?1n1shd by a~ over-nd1ng title on the asset itself),' any liability or debt 1ncurre_d in relation to it has _to e ignored as the debt or liability hits to be separately evaluated: ·

(4) What i~· the ~rke.t value of a ce1iain asset or the reside asset s referred to above, iSa quetion of fact, to be detcrnlined finally by the Inco1ne-tax Appellate Tri_bunal t.; iking into acCollnt he relevant evidence a1-icl consld~

ratios put. forward by both the sides and the High Court Cannot interfere with such a finding of fact unlt:ss it is found to be based on irrelevant consideration or is arrived at by ignorir:g"relevr.nt eVidcnce. ~·

• • (5) ./

When the debt is represented as an asset, its ma1:ket value has to be determiii.Cd )n the san1e Iha.oner as ttie market value of any other ass"et irres- Pec:tive of the fac.t whether such an asset-det is encubercd J;:iy another debt-0wed fro111 the asses~, .becallse __ the later-tmlntioned debt can qualify

fo~ deduction at its rriarket V<i.lue indcI?ndcntly. ·

Dismissing_ the appeals.the Coµrt, . -\· , •

HP, LD:· 1.l. Sect_ion 7 and 2(M) of the Wealth Tax Act, 1957, though ust be rea4 harmoniously, apply at two different stiges.' Section 7 deals with theestimation of the market value of the asset, while section 2(M) enjoins that froii1 the same, the .debt owned by the assessee to be dedi1cted. The debts may. be deducted ., from the value of assets bUt the valution ~Of all asse~ hfls to be done in lerms of~ Section 7(1) taking into considerationS all the hazards incluctmg tbe possibility of . an an1ount orl account of debt being deduct.ed fron1 t~1e .value of the asset is a factor.

 \Vhicb:_, vill _influence a ;>respective buYer in the ope1t market, depending upon-the facts and drucumstances of each q:ise.

[633-EF] • 'f

J 1.2. ,.:Agricultural income tax dties from the assessee which are deductible fro1n the compensation under Section 4(c) of the 'Bihar Land Refonns Act, .1950, if the "s3.me bas not been dectuCted before the issue of the cornpensation bond,' then the possibility and the hazard of its being duducted fron1 the, compcnsniion involv<."d~ is a faCtor which has to b~ taken into acCount in estimating the value of the right. of comp6ns:i.tion for the purpose of eS:timating the net \Vealth of the as~; essee on the valuation date" under the Wealth Tax Act. TI1e arrears of agricult"ural incon1c-tax is .not to. be' deducted from the nt wealth as such but is a factor which willing Pui--

0 _...., chaser will take into consideration in estimating the value of thCse assCls and that is afactO'r which should be taken into consideration .. The Tribunal will estimate' the alue -taking iilto consideration the ptis.sibility of dcduc; ti"on on account of the liability of the assessecon ::i.ccount of 3.gricultural iii.Come-tiix if it had not been already dedUcted in accordilnce With the prov1sioris of the At and determine the net valueof the assets of the aSsossee, 3.ccOrdingly. [629A-D] ' .

c. v. T. w. RAGHUBIR NARAIN. 627

. Commi'ssion'er Of Wen/th Tax,'B(har, Patna'Vs. M'1haraja Kuffiar Kamal~Singh '-A (Civil Appeal Nos. 1238 to 1240 (NT)/J,973 decided On 20-2-84 relied on'. ·

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2.'1. Ir .here is. an asscf which is. ~bject. to certain hazards ihcludng the liability or"certain debt to be deducted from the said asset, then th:it factor would -be a relevant factor dimini~}liug the -marhe~ va!Ue o.f the asset in Open market and has to. be estimated> taking into consideration tat factor. [633D]_, '

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Merely becalise the asscssee had shown the fu11 dccretal amo_unts in his hooks as stillduc,_ would. nt rpso /aero lead to the conclusiOn tha(ihey -should , be. . _ Valued at thOse suhls whhoUt taking into consideratioll the hazards of realisation . -·.of te ctecre.es.

These ctccrei:-.s had o-t ri executed and in the process of execlition- . there may be hazards ai1d the \Vea.Ith Tax , Officer n1ust .estlate the priceof the decree by anticipat'ing what a willing prirchaser wouidhavC paid for those decrees taking the haz<1rds'-into consideration in open inarket on the valuation ct'a.tc-arid

hould .estimate the price of the asset ill.questirt accordingly: .: .[631C-D]

::'..3.

When assessee .had c: .daim , decfce ::i.gainst hs debtor, thC Wcalih. Tax Officer should ascertain the - price that a rcasOriablc. person would have paid fo11 it on the relnt _date, and ".alc , jn oPen m3.rket cnsidering .that this~ claim decree Can only bO satified, wholly opartly fr6m the compensation which the .debtor would receive under. the Bihar J--aqd Reforms At, 1950.'\The clailn decree iS hn asset, but-it shf?uld bevaI_ucd by estimating What it would fetch in tho open market on the'valuatiOn date taking int~ .coasideration all the hzards_. [631H, 632A] ·

. I , 3.1. For the pUfp6ses Or con-iputR_tion of net-wealth o~ n aSi; e1See each. agset ·--4.._;'-belonging to him and each dfbt owed 1?Y , him haS tO br valued scpaiatd)r. [632E] ..

3,2. The difference between the aggregate value of the assets alld the atgri

:'F gate value of. the debts represet~ his net-wealth. [632F] -,. . ·

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. C;'Y!L APPBLLATH JUKIIDICTION•: Civil Appeal Nos. 1233-1237of1'973.

Appeals from t!; e Judgment and Order dated the .5th May, 1972 efthe Patna High'\ourt in Tax Cases Nos. 64 to 68 of'l967. . ! '.

G.C Sharma~ JJ. B, . A.hufa & Miss A. Subhashini fo; the

Appellant.,~

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. SUPR!ME COURT REPORTS

(1984} 2 S.C.R • , .

A P.X. Chatterjee and Rathin Dass for the Respondent. .

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The Judgment of the Court was delivered by

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SABYASACHI .MmrnARJJ, J., These appe.als from the judgment of the High Court of Patna have come to this Court by certificates l!lranted under Section 29 of the Wealth Tax Act, .1957. The questions upon which the. certificates. of fitness of appeal to this Court have licen granted are question Nos. (2), (3) and (4) in Tax Cases Nos. 64 to 68 of 1967. The questions are as follows: <, •

" "Qu.stion No. 2. Whether, in the fact• and circumstances of the case, the decrees obtained by the assessee against Shri A.H.

I, al arid Shri D'.D. Tulsi for Rs:. 1,11.747 and Rs. 51,525 respectively, have been valued under the Wealth Tax Act, 1957, by. correctly applying the provisions of section 9 of the Act for the ' purpose of including their values fa th~ net walth of. the ustssee?

' Question J'{o. 3~Whether, , the sum of Rs. 32,266, the amount of Agricultural income-tax due from. thb asessee, falls • for deduction in hands of the assessee in arriving at his total

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. wealth for the years 1957-58, 1958-59, 1959-60 and 1960:61? .. ,.).,·

011.stion No .. 4-Whether, the sum• of Rs. 597909 due from Tikait Girja .Prasad Singh,+.Rs. 40001 due (rom Sri

Gangeshwar Prasad Singh, Rs. 64000 due from Mahanth Mahabir Das, Rs .. 37773 due from Sri Lakshmi Narain Singh, Rs. 2600 due from Sri Jamuna Prasad Missir, Rs. 1250 due from Sri. Sarjg Kumar, Rs. 15344 due from Sri .NandJoshore Singh, and Rs. 388760 due from Raja Prithivichand Lal Chaughiiry under claim decrees obtained against them by. •ne .assessee under the Bihar Land Reforms Act are. assets of tno as.essee within . the meaning of Wealth Tax Act, 1957, and have been valued under the. 'said Act by correctly applyin~ , he orovisions of section 7 of the Act for the purpose of incl.ud.ing their values in 'the net wealth of the assessee"? j.

' \ c.w.T: v. RAGHUllIR N.ARAIN (Mukharji, 1.). 629 •

Regarding Question Na.· 3 which is the question whether!the f

. • amount of agricultural income-tax dues from the assessee is a factor which has to be taken into account for 'valuing the compensatfol} pay-· able to the assessee, wehave held that agricultural.income-tax ~.ues from the asscssee which are deductible from the. compensation under . Section 4 (c) of the -Bihat Land RefotmsAct, .1950, if the sal]le has not • been deducted .before the issue <if the compensation bond, then the · .. 'possibility a11d the hazafd of its being ~.eduded fro, m th~ compensation involved is a factor which has.to be taken into account in esti- "· mating the value of the right of compensation for the purpose of esti- 'ffiating -'tI1e net wealth cif the assessee on the valuation dte under the :• ·. Wealth Tax Act. The ·dears, of a_gricultural incofTle-tax is not io be deducted frcim the net wealth as such but is a factor which a willing purcha.ser will take into consideration in estimating the .value of these assests and .that isa factor which should be taken into consideration.

The point h&s been discussed by this Court in the case f Comissioner '.\ of Wealth. Tax,'Bihar, J!atna v. Maharaja Kumar Kamal Singh (Civil

Appeal Nos. 1238 to 1240 (NT) of 1973)~ , The qµestion, is, therefore aµswered as•the ans>yere~ given in the said appeals and the Tribunal will estinwte the Value by taking into C'<nsideration the possibility for deduction on account. of the liability of the assessee on account. of agricultural income-tax if it had not be2n already deducted in' accor-. dance wi_th the" provisions of the Act a:nel determine the net value of . the assets of the assessee, accordingly. , . ,

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These. questions are for the wealth ta-x assessments of. the asses- ., ' ' ' ..... sec for the assessment years 1957-58, 1958-59, 1959-60, 1960-61 and

1961-62. J'he assessments involved were for those years in which the relevant valuation dates we're 20th September, 1956,.2lst March, 1958;

21st March, 1959, 21st.March 1%0 and 20th March 1'96hespectively.

In the firs\)'ear the'assessee had filed return of wealth for Rs. 447065.

The Wealth Tax Officer, however, determined the total wealth of the .assessee at 'Rs: 1608863.

The Wealth Tax Officer included in the net wealth of the assessec, vrious amounts of money due under. the

I ' decrees which the assessee hal, l obtained against certain debtQrs, as•,

well as t.he compensation payable to him under the Bihar 'Land Reforms A.Gt after valuing the bonds.· It may be mentioned that the asses see had appealed to the Appellate Asistant Commissioner arid thereafter he . had carried appeals , to the Tribunal also and had obtained. snme srelief in _the processc For the subsequent assessment years of 1958-59. 1959-.60, 1960-61 and 1961-6.2, 'similar considerations had come \IP before the Wealth Tax Officer, o~ the assessee filing separate returns and similar results were followed. In each year

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the asessee had claimed ertain deductions: including an amount of . n . .

R•. 32266 due as agricultural income tax. The later sum hns . been consi5tently disallowed. This point we have 'd, isposed of in terms of tlo.o deeisioa of this Court in Civil Appeal Nos. 1238 to 1240 (NT) of 1973. . . . .

So far as Question No. 2; is concerned, while' computing the net wealth, the Wealth Tax Ofi\oer had incluc:e<l the sums of Rs. 8000 and

s.'130.11 for the ; iear 1957-58, due from S; i A.K.Hazr~ and Sri N.

 Sabay respectively, on the bsis o( l)sufructuary mortgatge in favour of the assesee as his assests. On th~ last point the assessee has obtained ~- . relief from the Appellate Tribunai for the year 1957-58 and for .that reafon thes~ two sums were excluded from .the net wealth of the asses- see for the subsequent assessment years and that point had given rise -' to the reference in Tax Cases Nos. 23 to 27 of 1966. On the other

questions raised by the assessee, reference in Tax. Cases No~: 64. to ' 68 of 1967 had arisen.

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No,,; the facts thaterial for Questin No. 2 are.as follows: . . ' ' The assessee had obtained civ]J court decrees for Rs. 11 i747. and Rs. 51525 against Sri A.H. Lai and Shri D.D. Tulsi. The decrees are sti.li pending eecution. In the books of the assessee'lfthese two decretal aniounts were showff as tstill outstanding. So far as the decree

obtained against Shri D.D. Tulsi, th~ position seems to be that .Tulsi

owed a decree to the assessee and the assessee owed money to the bank.

In .c; onnection with the decre obtained against D.D. Tulsi, it liad

l>een contended before ihe Tribunal that at the instance ofo the Official Liqwdator, the Calcutta High Court had issuef.1 a Garnishj order on 13th January, 1960 for setting off the assessee's liability to the Pacific Bank and, therefore, the decree-.did not represent wealth wh.ich could . be valued under the Act. It was recorded by the Tribunal that the order .of the Caltuita High ¢ourt had been passed after the relevant dates

of the first three assessment years and it held that even for the assess~ m.ent years 1960,61 and 1961-62, tlie 'order of attachment could not indicate that the value of the decree was 'nil', as was the assessee's

se. Hence, the decree against. Sri tulsi was valued by the Wealth Tax Officer at Rs. 51525.

As regards the decree against Sri A.H.

Lal, tlie attachment order passed by the Calcutta High- Court was on :m1t 1'!11e, 1961, hat, is to say,. even aftet the valuation date for the ..

c.w.T. v .. RAGHUll!R NA~AiN' (Mukharji, J.) 631

assessment year 1961-62. Tl; ede'cree.was therefore valued by the Wealth Tax Officer at the figure of Rs.· JI 1747. It wasdie contention. of the assessee. that the hvo decrees had been erroneously valued and 'the . . . principles for valuation unde'r Setion 7 (I~ had hot been followed:

On the other hand it was cbntended 'on. behalf of the revenue !bat . decrees had been correctly valued unde~ Section 7 (2) (a) of the .AC't.

'The High Court held and in our opinion rightlythat .two d.ecrees had :not been.valued under. Section .7 (2) of the Act at all and. had been valued under Section 7 (I) of the Act., We are in agreement with the . High Cour~ that merely becausetJ; e assessee had shown the_ full dec; etal amounts in his books as still due, would notdpsofacto lead to the conclusion that they would be valued at those sums without taking.into .. cosideration tlie haz_ards of realisa6on pf the decrees. These decrees

had not been executed and in the process of execution, there may be hazards and the Welath'Tax Officer n!ust, sJimate the price of the decree by anticipating what a willing purchaser won.Id have paid for those ..

deerees taking the hazards Into consideration ·-in open market on• the . val_uation date and should estimate the price of thi; asset in question accordingly. The High Court. answered this question in the negative ..

We are of the opinion that in view of the well-settled principles which we have discussed In the case of Cimimisioner of Wealth Tax, Bihar, Patna v. Maharaja Kumar Kaina/ Singh '(Civil A, ppeal Nos~ 1238 to:· 1240 (NT) of 1973, the.High Court was right in its decision' ·

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sf r ar as the~ Question. No. 3 is concerned,. the same question

~-.; would. have to be answered in the manner indicated above and the . High Court has done the same and we affirm the said decision in view of the decision of this Court in Civil Appeal Nos.· 1238 tci J240 (NT) . of 1973. The facts regarding question. No .. 4 after taking into coside~

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ration statement of this. case as also the suppiementary statement 6f . . the .case sent to the High Court pursuant to its. dirc.tions are as . follows : . /

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- In respect of sums due from. Tikait Girja Prasad Singh; . the . High Court-hs liserved that assessee was entitled in respect; of the

G ·. , zamindari compesation of Tikait Girja Prasad Singh which had. vested in the G, overnn1ent and the. valne of.the compensation 11ad Men". estimated 'at 75 per cent . of' certain, figure.

The High Court directed that . when assessee had a claim. decree against . its debtor, the Wealth Tax.Officer should_ ascertain the price that areason- H al:lle. person would have paid for. ii on the relevant -date, . valuation ...

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' . . in opn market Considering that this claim decree Cal) only be Satisfied

wholly or partly from the compensation which the. 'debtor would receive under the Bihar Land Reforms Act. 1950.~ The claim decree was an aset, the High Court held, but -it was wrongly valued by the authorities and directM to be valued by estimating what it would fetch in the open market on the valuation date taking into considc- ration all the hazarils.

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on the same principle, the other decrees mentfoned in the. qestidns . .-

hae been disposed of by the High Court. We are of' the opinion th'at ·

i~ view of the principles :discussed by this Court in the case of Commis- ~·" . s10ner of JV, a/th Tax, B1har, Patna 'v. Maharaja Kuma.r Kaflutl Singh ,,,_

the High Co, urt was right in its conclusion. Indeed this question was hot seriously pressed before us sewrately ...

• We. may. reiterat<; that learned. counsel before U& certain propositions, namely: ,,

for the revenue urged ·

(1) For the purposes of computation of. net-wealth of an assessee ech asset belongini: to him and each debt owed by hill} has to be valued s.cparately, · • '

(2) , The difference between the ai:i:reagate value 0f .:r the 'assets and the agrcgate value of the debts , represents his - . net-wealth. ·

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(3) In determining the market value of an asset( or the_ residue "I of the asset diminishCd by an over-tiding title. on the asset itself), any liability or debt incu\red in relation to it hs. to be ii:nored as the debt or liability has tci be separately evaluated. '

(4) What is the market value of a certain asset P• he residue asset as referred to 'above: i; a question of fact, to be deter~ i~ mined finally by the Income-tax Appellate ·.Tribunal taking .' ir1Jo account 111e relevant evidence and: consid" utions put

fore ward by both the sides and the High Cow cannot in"·, ..

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C.W.T.)'. RAGIIUBIR NARAIN (Mukhar}i.-J.)

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,# terfere with such a finding of fact nless it isJoud t~. be

basect n irrelevant consideration or is arrived at by' ignoring 'relevant' evidence.

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(5) When the debt is representedasm) asset, its market. value has. to be determined in the same manner as the. market" . value of any other asset irrespective of the fact whether such an asset-debt"is encumbered by another debt owed from the assessee, because the later-mentioned debt can qualify for deduction at its markt value independently: ·

I About proposition No. (l) and (2) above, there cannot be' any dispute.' But as regards Proposition No. (3), as this Court has discussed in Commissioner of Wealth Tax, Pihar Patnq v. Mahdraja Kumar . Kamal Singh, if there is an' asset, whicli_.is -subject 'to certain hazards including the liability. of certain debts to be deducted from the .said ttsset, then that factor ould be relevant factor diminishing the market .

value of the asset in open market and has to be estimated taking into consideration that fct9r. Regarding Proposition No. ( 4), it may be stated that while it is a question of fact but if the Tribunal has arrived at the conclusion by takit1g wrong principles into consideration, then

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 such a findi'ng )VOU!d not bind the High Court. Regarding Propositon No. (5), it 'may be stated that (de bis may be deducted from' the value

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. ..;;. i of a$, sets but the valuation of an asset has to be \!one in terms of Section / 7 (I) taking into considerations a!I the hazard$ including the po.sibility "---. of au amount on account, of. debt being deducted fron\ the value of the

asset is a factor which will. influence a prospective buyer in the open market, depending upon the facts and circumstances of each case .. . ' . . . ' ·~

In the aforesaid view of the matter, we affirm the decision of the

.· High Couri in all these points and dism.iss thee appeals with costs:

S.R.

.&pplifals dismissed. ·

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