Commissioner of Wealth Tax vs N.B. Ataulla Khan

Syed Shah Mohammed Quadri, J.—This R. C. arises under the WT Act, 1957. Under s. 27(1) of the WT Act, the following questions are referred to us by the Tribunal at the instance of the Revenue :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in allowing the assessee''s claim of deduction under s. 5(1A) of the WT Act in the hands of the beneficiary who is having only life interest in various trusts ?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the appeal lies under s. 23(1) against an order passed under s. 16(1) of the WT Act, 1957 ?"

These questions arise in the following circumstances :

The assessee had a remainder interest in some of the trusts created by the Nizam of the erstwhile Hyderabad State. The assessments for the years 1978-79 and 1979-80 are in question. While submitting the returns, the assessee did not claim exemptions under s. 5(1A) of the WT Act. Accordingly, the WTO made the assessments under s. 16(1) of the WT Act. However, he filed an appeal against the orders of assessment claiming exemptions under the said provision. Having found that the claim is sustainable, the AAC granted the exemptions and allowed the appeals. Against the said order of the AAC, the Revenue went in appeal before the Tribunal. By its order dt. 31st March, 1984, the Tribunal rejected the appeals holding that the AAC was right in his conclusion that the appeals against the order passed under s. 16 of the Act, were maintainable under s. 23 of the Act. It is from that part of the order of the Tribunal the second question arises.

We have not referred to the facts relating to the first question inasmuch as the first question is covered by a judgment of this Court in R. C. No. 179 of 1984 dt. 19th Feb., 1988, against the Revenue. Therefore, that question we answer in the affirmative, that is, in favour of the assessee and against the Revenue.

Now, reverting to the second question, from the facts narrated above, it is clear that the assessee filed appeals against the orders of the assessment passed by the WTO under s. 16 of the Act for not having granted exemption to which he was entitled. We may make it clear at the outset that there is no dispute on the question of entitlement of the assessee to the exemption which was granted by the appellate authority. The only point which is urged before us is that the AAC ought not to have entertained the appeal, under s. 23 of the Act, against the order of assessment passed by the WTO under s. 16 of the Act when the assessee himself did not claim exemptions in the return and the first appellate authority ought not to have granted the exemption.

It would be appropriate to notice here that the charging section in the WT Act is s. 3 which provides that there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax on the net wealth of the assessee on the corresponding valuation date. This charge is subject to the other provisions of the Act. The expression "net wealth" has been defined in s. 2(m) of the Act as follows :

"''net wealth'' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than -

(i) debts which under s. 6 are not to be taken into account;

(ii) debts which are secured on, or which have been incurred in relation to any property in respect of which wealth-tax is not chargeable under this Act; and

(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the ED Act, 1953 (34 of 1953), the Expenditure-tax Act, 1957 (29 of 1957), or the GT Act, 1958 (18 of 1958), -

(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceedings as not being payable by him; or

(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date :

Explanation 1. - A building or part thereof referred to in clause (iii), clause (iiia) or clause (iiib) of s. 27 of the IT Act shall be includible in the net wealth of the person who is deemed under the said clause to be the owner of that building or part thereof.

Explanation 2. - Where a debt falling under sub-clause (ii) is secured on, or has been incurred in relation to, any asset which is not to be included wholly or partly in the net wealth by virtue of the provisions of sub-s. (1A) of s. 5, the amount of such debt shall, for the purposes of the said sub-clause, be limited to the value of the said asset which is not includible in the net wealth under sub-s. (1A) of s. 5."

The expression "net wealth" has been defined to mean the amount by which the aggregate value, computed in accordance with the provisions of the WT Act, of all the assets, wherever located belonging to the assessee on the valuation date, which include the assets required to be included in the net wealth as on that date, exceeds the aggregate of all the debts owed by the assessee which have been incurred in relation to the said assets. Section 5 of the Act provides exemption with respect to certain assets. It mandates that wealth-tax shall not be payable by an assessee in respect of the assets enumerated therein. Therefore, to arrive at the correct net wealth, it is necessary to take into consideration not only the assets and liabilities but also the exemption to which an assessee is entitled to. Just as in a case where the assets are not properly mentioned or where the assets which have to be included by virtue of the provisions of the Act, are not included, have to be taken into consideration by the WTO for arriving at the correct net wealth, so also it is obligatory on the part of the WTO to take into consideration the exemptions granted by the Act whether such exemptions are claimed or not by the assessee because the WTO is duty bound to levy tax on the net wealth arrived at in accordance with the provisions of the Act, which alone is chargeable to tax under the Act. If that be the position, which we believe to be, the action of the assessee in not referring to the exemption in the return would not preclude the assessee from claiming the same at the appellate stage; equally that would not preclude the appellate authority to entertain the appeal and grant the exemptions if the assessee is entitled to them under the Act.

For the above reasons, we do not find any illegality in the approach or in the order of the Tribunal. In the result, we answer the second question in the affirmative, that is, in favour of the assessee and against the Revenue.

The R. C. is accordingly answered. No costs.