Commissioner of Income Tax vs V. Namby

N.V. Balasubramanian, J.—In pursuance of the directions of this court u/s 27(5) of the Wealth-tax Act, 1957 (hereinafter to be referred to

as ""the Act""), the following question of law has been referred to us for our consideration :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of Sections 5(3} and 5(1A) of the Wealth tax Act,

1957, and Section 32(1)(ba) of the Unit Trust of India Act, 1963, the Appellate Tribunal was right in allowing exemption on Rs. 23,955 being the

value of the units in the Unit Trust of India even though they were not held by the assessee for the period of six months as on the valuation date for

the assessment year 1977-78 ?

Though Mr. C. V. Rajan, learned counsel for the Revenue, fairly stated that the assessee is no more and time should be granted to take steps to

bring the legal representatives on record, yet, in our opinion, this tax case is of the year 1984 and, therefore, it is not necessary for us to wait for

the Revenue to take steps and, therefore, we dispose of the tax case reference.

V. Namby, the assessee herein, was assessed to wealth-tax for the assessment year 1977-78. He was a holder of units in the Unit Trust of India

and claimed exemption u/s 5(1A) of the Act on the value of the units held by him. The Wealth-tax Officer rejected the claim of the assessee on the

ground that the assessee was holding the units for a period of less than six months ending with the valuation date and in view of the provisions of

Section 5(3) of the Act, the assessee was not entitled to exemption of the sum of Rs. 23,955 claimed by the assessee.

The Appellate Assistant Commissioner, on appeal, upheld the view of the Wealth-tax Officer. On the assessee''s appeal before the Income Tax

Appellate Tribunal, the Tribunal held that under the provisions of Section 32 of the Unit Trust of India Act, 1963, the exemption was available to

the assessee, notwithstanding anything contained in the tax laws and, therefore, the assessee would be entitled to exemption u/s 5(1A) of the Act.

On the basis of the directions of this court, the question of law set out above has been referred to us by the Appellate Tribunal.

Mr. C. V. Rajan, learned counsel for the Revenue, submitted that under the provisions of Section 5(3) of the Act, exemption is available to the

assessee only if the assessee held the units at least for a period of six months ending with the relevant valuation date and since the assessee was not

holding the units for a period of six months ending with the valuation date, the assessee was not entitled to exemption u/s 5(1A) of the Act. He

submitted that the Wealth-tax Act is a special enactment and the assessee can claim exemption only if the assessee is able to satisfy the conditions

prescribed under the Act and since the assessee has not complied with the conditions for claiming exemption u/s 5(3)~WEALTH-TAX ACT,

1957~^ of the Act, the Tribunal was not correct in holding that the assessee would be entitled to exemption u/s 5(3) the Act.

We have carefully considered the submissions of learned counsel for the Revenue. There is no dispute on the proposition of law put forth by

learned counsel for the Revenue that to claim exemption under the provisions of the Wealth-tax Act, the assessee must satisfy the conditions laid

down or prescribed in Section 5(3) the Act. One such condition for claiming exemption is that in the case of assets like units or other assets as

contemplated u/s 5(3)(b) the Wealth-tax Act, the assessee must hold the assets on which the assessee claims exemption at least for a period of six

months ending with the relevant valuation date. There is no dispute about the fact that the assessee was not holding the units at least for a period of

six months ending with the relevant valuation date. But, in our opinion, the question for grant of exemption has to be considered not only with

reference to the relevant provisions of the Wealth-tax Act, but also with reference to the provisions of the Unit Trust of India Act. Section 32 of

the Unit Trust of India Act provides that notwithstanding anything contained in the Wealth-tax Act, 1957, the Income Tax Act, 1961, the Super

Profits tax Act, 1963, the Companies (Profits) Surtax Act, 1964 (VII of 1964), or in any other enactment, for the time being in force relating to

Income Tax, super-tax, super profits tax, surtax or any other tax on income, the assessee would be entitled to exemption under the provisions of

the Wealth-tax Act in the case of the assessee being an individual or a Hindu undivided family, subject to the condition that the value of the assets

to be excluded shall not exceed Rs. 25,000. The relevant provision reads as under:

Income Tax and other taxes.--(1) Notwithstanding anything contained in the Wealth-tax Act, 1957, the Income Tax Act, 1961, the Super

Profits Tax Act, 1965, the Companies (Profits) Surtax Act, 1964 (VII of 1964), or in any other enactment, for the time being in force relating to

Income Tax, super-tax or super profits tax, surtax or any other tax on income, profits or gains.--. . .

(ba) in the case of an assessee, being an individual or a Hindu undivided family, wealth-tax shall not be payable by the assessee in respect of, and

there shall not be included in, the net wealth of the assessee computed under the Wealth-tax Act, 1957, so much of the assets in the form of units

not being assets referred to in Clause (bb) as have not been excluded from the net wealth of the assessee u/s 5 that Act ; so, however, that the

value of the assets excluded under this Clause shall not exceed twenty-five thousand rupees.

Admittedly, the value of the units held by the assessee was only Rs. 24,965 and the provisions of Section 32 of the Unit Trust of India Act have

an overriding effect over the provisions of the Wealth-tax Act to the extent covered by the Unit Trust of India Act. Therefore, notwithstanding the

fact that the assessee has not complied with the conditions prescribed u/s 5(3) the Act, since Section 32 of the Unit Trust of India Act overrides

Section 5(3) the Wealth-tax Act, we are of the opinion, the assessee would be entitled to the exemption contemplated u/s 5(3) the Wealth-tax Act

read with Section 32(l)(ba) of the Unit Trust of India Act. If we hold otherwise, we will not be giving due effect to the intention of Parliament as

Parliament by the enactment has specifically granted an exemption in respect of the units, the value of which did not exceed Rs. 25,000. It is

relevant to notice that when Section 32 of the Unit Trust of India Act was amended by the Trust Laws (Amendment) Act, 1975, with effect from

April 1, 1975, the provision of Section 5(3) the Wealth-tax Act was already in the statute book and Parliament was aware of the provision

contained in Section 5(3) the Wealth-tax Act and when Parliament has granted exemption in respect of the units held by the assessee not

exceeding Rs. 25,000, the exemption granted u/s 32(1)(ba) of the Unit Trust of India Act has to be given effect to. We have already held that

Section 32 of the Unit Trust of India Act has an overriding effect and since Section 32 of the Unit Trust of India Act overrides the provisions of

Section 5(3) the Wealth-tax Act, the assessee is entitled to exemption in respect of the units held by the assessee to the extent of Rs. 25,000,

notwithstanding anything contrary contained in the Wealth-tax Act and notwithstanding the fact that the assessee was holding the units for a period

of less than six months prior to the relevant valuation date. We are of the opinion that the Tribunal was correct in its conclusion in holding that the

assessee was entitled to exemption under the provisions of Section 32 of the Unit Trust of India Act and there is no infirmity in the order of the

Appellate Tribunal.

Accordingly, we answer the question of law referred to us in the affirmative and against the Revenue. There will be no order as to costs.