COMMISSIONER OF WEALTH-TAX vs H. H. MAHARANI SHARIMISTHADEVI HOLKAR.

INDORE BENCH

The judgment of the court was deliverd by

P. D. MULYE J. - The Commissioner of Wealth-tax, Bhopal, has filed this application u/s 27(3) of the Wealth-tax Act, 1957, with a prayer that the Income Tax Appellate Tribunal be directed to refer the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in deleting from the taxable wealth of the assessee, the sum of Rs. 55,300 which represents the life interest of the assessee in the Lal Bagh Palace by holding that personal right of residence did not constitute either an asset u/s 2(e) of the Act or net wealth u/s 2(m) of the Wealth-tax Act, 1957 ?"

The statement of facts as received may be stated in brief as under : The assessee is the widow of late His Highness Maharaja Tukojirao Holkar. The assessee obtained a right of residence along with her husband in the Lal Bagh Palace, Indore, by letter dated January 6, 1953, issued by the Ministry of States, New Delhi. This facility was enjoyed by the assessee till the death of His Highness Maharaja Tukojirao Holkar on May 21, 1978. The value represented by this right of residence was being shown by the assessee in the taxable wealth and was so assessed up to the assessment year 1975-76.

While computing the net wealth of the assessee for the assessment year 1977-78, the Wealth-tax Officer included in the net wealth of the assessee a sum of Rs. 55,300 by holding that the assessee had life-interest in the Lal Bagh Palace, Indore.

The assessee went in appeal before the Commissioner of Wealth-tax (Appeals). He found that the assessee had only a personal right of residence in the said palace and as such the right was neither a leasehold right nor even a licence. According to the Commissioner of Wealth-tax (Appeals), such a personal right of residence did not constitute either an asset u/s 2(e) of the Act or net wealth u/s 2(m) of the Wealth-tax Act, 1957.

The Department went in appeal before the Income Tax Appellate Tribunal, which concurred with the view of the Commissioner of Wealth-tax (Appeals). The Tribunal held that the assessee had got no interest in the property excepting her personal right to reside in the palace during her lifetime. Such a right of personal residence could not and did not constitute an asset as it was not any property right. Thus, the Tribunal dismissed the appeal of the Department.

Being aggrieved, the Department has filed this application after the Tribunal dismissed the application of the Department for making a reference to this court on the question of law proposed by the Department as referred to above.

Learned counsel for the Department, relying on the provisions of section 7 and rule 1B framed under the said Act, submitted that the right of residence is also an asset within the meaning of section 2(e) and net wealth within the meaning of section 2(m) and that the valuation of such right can be made as per the provisions of the said Act, the right of residence being all actionable claim and that properties or things which are realisable by action in a court of law come under the term "chose-in-action".

Therefore, such property, being a valuable right, is an actionable claim. Therefore, when an actionable claim is an asset, it is taxable under the Wealth-tax Act.

Learned counsel further submitted that the words "if sold in the open market" in section 7 of the Wealth-tax Act have been considered by various High Courts including the Supreme Court and in support of this submission, learned counsel placed reliance on the decisions reported in Ahmed G.H. Ariff and Others Vs. Commissioner of Wealth Tax, Calcutta, and Purshottam N. Amarsay and Another Vs. The Commissioner of Wealth Tax, Bombay, and Rustom Cavasjee Cooper Vs. Union of India (UOI), . Relying on these decisions, learned counsel for the Department submitted that in the present case, the right of residence given to the assessee to stay in the Lal Bagh Palace during her lifetime is an asset, the same being an actionable claim for which she could go to a court of law in case her right of residence was in any way affected or challenged.

However, after hearing learned counsel for the Department as also learned counsel for the assessee and after considering the case law cited, we are of the opinion that the authorities cited by learned counsel for the Department, being distinguishable, do not apply to the facts of the present case.

In the decision in Ahmed G.H. Ariff and Others Vs. Commissioner of Wealth Tax, Calcutta, the question referred was "whether the right of the assessee to receive a specified share of the net income from an estate, in respect of which Wakf Alal Aulad has been created, is an asset assessable to income tax". Similarly, in the other decision of the Supreme Court in Purshottam N. Amarsay and Another Vs. The Commissioner of Wealth Tax, Bombay, , the question referred arose in relation to the interest of an assessee created under a trust.

It is no doubt true that "property" is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy. But, in the present case, it cannot be said that the right of personal residence which was given to the assessee during her lifetime is covered by the definition of "actionable claim" and consequently an asset in the hands of the assessee on the basis of which it could be said that it could fetch any price if sold in the open market as mentioned in section 7(1) of the said Act or that she could legally part with her personal right of residence for any consideration to a third person. By the Finance (No. 2) Act of 1980, which came into force on April 1, 1980, an Explanation has been added to section 7(1) of the said Act, which is as follows :

"Explanation. - For the removal of doubts, it is hereby declared that the price or other consideration for which any property may be acquired by or transferred to any person under the terms of a deed of trust or through or under any restrictive covenant in any instrument of transfer shall be ignored for the purpose of determining the price such property would fetch if sold in the open market on the valuation date."

However, learned counsel for the Department further submitted that though the assessee has no right to sell but only a right of residence, still a valuation of the right of residence could be made because what has to be seen is what price a purchaser would pay for the property, remembering that it would be valuable in his hands even though he would be subject to the restrictions if he wishes to dispose of it. According to learned counsel, the words "in the open market" also envisage a hypothetical sale and not in a restricted market. But, in the present case, learned counsel for the Department was unable to convince us that the assessee, in the facts and circumstances of the case, could part with such a right of personal residence during her lifetime and there could be any such independent buyer to purchase that personal right of residence for any consideration or otherwise.

Therefore, in our opinion, the view taken by the learned Tribunal, which does not suffer from any legal infirmity, is that in the present case, no such question of law arises which requires to be referred to this court for its opinion as proposed by the Department.

In the result, we decline to call upon the Tribunal to refer the proposed question of law to this court for its opinion. Consequently, the application is dismissed with no order as to costs.