Commissioner of Wealth Tax vs Mrs. Lucy Kochuvareed

K.S. Paripoornan, J.—In this batch of 18 referred cases - 9 at the instance of the revenue and 9 at the instance of an assessee under the Wealth-tax Act, 1957 (''the Act'') - the Tribunal has referred the following two common questions of law for the decision of this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in determining the assessee''s interest in the estate for the assessment year 1970-71 at the value fixed by the Land Acquisition Officer together with 50 per cent of the additional compensation awarded by the sub-judge, for the assessment years 1971-72 to 1973-74 at the value fixed by the Land Acquisition Officer together with 20 per cent of the additional compensation awarded by the sub-Judge, for the assessment years 1974-75 to 1976-77 at the value fixed by the Land Acquisition Officer together with 27.5 per cent of the additional compensation awarded by the sub-Judge and for the assessment years 1977-78 and 1978-79 at the value fixed by the Land Acquisition Officer together with 30 per cent of the additional compensation awarded by the sub-Judge?

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in applying the circular of the Central Board of Direct Taxes No. 2-D(WT) dated 15-5-1964?

The matter arises under the Act. The proceedings relate to the assessment years 1970-71 to 1978-79. The assessee was the owner of a rubber estate at Thrissur known as Vellanlkara Estate. It was demised to a firm, Varkey Jacob & Co. The estate was acquired for the purpose of the Kerala Agricultural University. The short question that arises for consideration in these cases is the valuation of the property covered by the estate on the respective valuation dates from 31-3-1970 to 31-3-1978. The following details are relevant in order to decide the controversy involved in this case:

Notifications u/s 3(1) of the Land Acquisition Act - 1-9-1970, 8-9-1970 and 10-11-1970:

Possession of the property taken over by the Government

1-5-1973

Award passed by the Land Acquisition Officer

15-3-1974

Judgment of the sub-court dismissing the prayer for enhanced compensation

17-3-1977

First judgment of the High Court reversing the judgment of the subordinate judge and remitting the matter to the sub-judge for fresh disposal in L.A.A. No. 324 of 1977

5-7-1979

Assessments completed by the WTO for all the assessment years

22-11-1978

Second judgment of the High Court in L.A.A. No. 247 of 1980

28-1-1987

Prior to the notification for acquisition of the property, the Government appointed the Justice Issac Commission to determine the market value of the property as on 1970. It was determined at Rs. 29 lakhs. From the assessment year 1970-71 onwards, the assessee filed returns under the Act adopting the value of the property as determined by Justice Issac Commission. The returns were so filed for the assessment years 1971-72 to 1973-74. For the assessment years subsequent to 1974-75, the assessee adopted the compensation awarded by the Government as the basis for the valuation. After the remit by the High Court the sub-Judge determined the additional compensation, awarding two out of three shares to the assessee, in the sum of Rs. 18,80,148. The appeal filed by the State and the cross-objection filed by the assessee from the aforesaid judgment of the sub-judge were pending in the High Court as L.A.A. No. 247 of 1980 and cross-objection, when the WTO adopting the enhanced compensation claimed by the assessee completed the assessments for all the years on 22-11-1978. The assessments were set aside in appeals and remit was ordered by the Commissioner (Appeals). Again, the WTO completed the assessments afresh taking into consideration the additional compensation awarded by the sub-Judge as also the claim made by the assessee in the cross-objection. The net wealth was determined on the above basis for all the years from 1970-71 to 1978-79. The assessee filed appeals from the above-said assessment orders. The Commissioner (Appeals) held that the value of the property should be fixed in two tiers:-- (i) For the assessment years 1970-71 to 1973-74 as a block at Rs. 50 lakhs and the assessee''s share at two-thirds thereof at Rs. 33,33,000, (2) In respect of the assessment years 1974-75 to 1978-79, the Commissioner (Appeals) fixed the value of the enhanced compensation at 50 per cent of the additional compensation fixed by the sub-judge. This was in addition to the original compensation fixed by the LAO. The assessee filed appeals against the orders passed by the Commissioner (Appeals). The Tribunal disposed of all the nine appeals by a common order dated 31-10-1985. It was held that the assessment year 1970-71 is distinct and different and the value fixed by the LAO together with 50 per cent of the additional compensation of Rs. 18,80,148 awarded by the sub-judge will be determined as the net value of the assets. For the assessment years 1971-72 to 1973-74, the Tribunal determined the value as determined by the LAO at Rs. 19,16,385 together with 20 per cent of the additional compensation awarded by the sub-judge. The Tribunal determined the value for the assessment years 1974-75 to 1976-77 at the value determined by the LAO together with 27.5 per cent of the additional compensation awarded by the sub-judge. For the assessment years 1977-78 and 1978-79, the value as determined by the LAO together with 30 per cent of the additional compensation awarded by the sub-judge was adopted. The above amounts were determined as representing the value of the assets (property acquired under the Land Acquisition Act) on the basis of a decision of the Tribunal, Hyderabad Bench in WTO v. P. Sriramulu Naidu and also the Board''s Circular No. 2D(WT) dated 15-5-1964. It is thereafter at the instance of the revenue as well as the assessee that the two questions of law formulated hereinabove have been referred for the decision of this Court.

We heard the counsel for the revenue, Mr. P.K.R. Menon, as also the counsel for the assessee, Mr. N. Srinivasan and Mr. B. Krishnamoni. It is common ground that the Board''s Circular No. 2D(WT) dated 15-5-1964, Annexure-D to the statement of the case, has no application to the instant case. It is also admitted that the decision of the Tribunal, Hyderabad Bench in P. Sriramulu Naidu''s case (supra) largely influenced the Tribunal to fix the value of the assets on the different valuation dates by adopting the principle laid down by the Hyderabad Bench of the Tribunal. But, the said decision of the Tribunal has not been forwarded as an annexure to the statement of the case. A copy of the said order was also not placed before us by the parties to the references. In this state of affairs, it is not possible for this Court to satisfactorily and effectively deal with the questions posed before us for consideration, much less to answer the questions referred to this Court by the Tribunal. On this short ground, we decline to answer the questions referred to this Court.

The very basis for the common order passed by the Tribunal dated 31-10-1985 is the decision of the Tribunal. Hyderabad Bench in P. Sriramulu Naidu''s case (supra). The said decision was not made available to us. It is stated that, in the said decision, the Board''s Circular No. 2D(WT), dated 15-5-1964, was relied on and followed. It is common ground that the said circular is inapplicable to the present case.

The above two aspects are sufficient to decline to answer the questions of law referred to this Court by the Tribunal. We decline to answer the questions referred to this Court.

At the time when the Tribunal rendered the common order for all the nine assessment years on 31-10-1985, the appeal filed by the State as well as the cross-objection filed by the assessee in the land acquisition matter were pending in this Court as L.A.A. No. 247 of 1980 and cross-objection. Judgment in the above case was rendered by a Bench of this Court on 28-1-1987, long after the Tribunal rendered the common order dated 31-10-1985. This Court, in its judgment dated 28-1-1987, has modified the award of the Land Acquisition Court in a substantial manner. It has got relevance in fixing the value of the assets on the respective valuation dates. The general principles regarding valuation of the property for the purpose of the Act have been laid down in innumerable decisions. A few of them have been adverted to by a Bench of this Court in COMMISSIONER OF Income Tax Vs. P. I. GEORGE AND OTHERS., . The above decision was affirmed later in Commissioner of Wealth-tax Vs. Mrs. Sara Varghese, Suffice it to say that there is a difference in principle between the valuation for fiscal statutes and for sale or compulsory acquisition. The qualitative and quantitative difference that will loom large in evaluating the matter with reference to the particular statute has been highlighted by Dixon, J. in Commissioner of Succession Duties v. Executor Trustee & Agency Co. of South Australia Ltd. 74 CLR 358. In this case, we are concerned with the wealth-tax assessments for the years 1970-71 to 1978-79. The valuation dates begin from 31-3-1970 and end with 31-3-1978. For the year 1970-71, it is the value of the property that will loom large. At that time, the land acquisition proceedings had not been initiated. The notification under the Land Acquisition Act first appeared on 1-9-1970, followed by notifications on 8-9-1970 and 10-11-1970. Thereafter, possession was taken, the award was passed and the sub-court initially dismissed the prayer for enhanced compensation. The WTO initially made the assessments on 22-11-1978. The orders were set aside in appeals by the Commissioner (Appeals). After the remit, the WTO again made the assessments on 21-3-1981, and took into consideration the additional compensation awarded by the sub-judge and also the claim made by the assessee in the cross-objection filed in the High Court.

The net wealth was determined on the above basis for all the years. In the revised appeals filed by the assessee. the Commissioner (Appeals) approached the matter in two tiers, the first block, 1970-71 to 1973-74 and the second block, 1974-75 to 1978-79, and fixed the assessee''s share at two-thirds of the value as determined by him. It is this decision which was modified by the Tribunal in its common order dated 31-10-1985, which was long before the High Court rendered the final judgment in L.A.A. No. 247 of 1980 dated 28-1-1987. The subsequent event, the judgment of the High Court dated 28-1-1987, has completely altered the picture. We were informed at the Bar that the judgment of the High Court has become final. If so, the decree passed by the High Court fixing the value of the property and awarding various amounts has great relevance in the matter of fixing the valuation of the assets on the respective valuation dates. It should be remembered that though, for the year 1970-71, it is the value of the land or property that should be arrived at, for all the other subsequent years, it is the right of the assessee to receive the compensation at the market rate (with reference to the date of the relevant notification) on the valuation date under the Act that will govern the issue. For the years other than 1970-71, the material factor to be borne in mind is that the property to be valued is the right to receive compensation. It is for this right to receive compensation, which is property, where the Collector''s award has been made but has not been accepted or has been accepted under protest and a reference is sought or is pending in a civil court on the relevant valuation dates, the fixation of the estimated value is called for. It can never be below the figure quantified by the Collector LAO, since the civil court cannot award any amount below that awarded by the LAO. The estimated value can be equal to the Collector''s award or more but can never be equal to the tall claim made by the claimant in the reference nor equal to the claim actually awarded by the civil court inasmuch as the risk or hazards of litigation would be a detracting factor while arriving at a reasonable and proper value of the property as on the respective valuation dates. The principle to be borne in mind in this regard has been stated in innumerable decisions of the Supreme Court - Mrs. Khorshed Shapoor Chenai and Others Vs. Assistant Controller of Estate Duty, Andhra Pradesh and Others, ; Lakshmi Kant Jha Vs. Commissioner of Wealth Tax, Bihar and Orissa, ; Joginder Singh and Others Vs. State of Punjab and Another, and Commissioner of Wealth-tax, Kolkata Vs. Smt. Anjamli Khan, . The question is what is the value of the right possessed by the assessee, on the respective valuation dates, to receive compensation for the acquisition of his lands which is an asset which has to be evaluated and included in his net wealth as on the relevant valuation dates. The fact that the quantification of compensation or its payment is deferred will not detract from the fact that the assessee has a right to receive compensation on the respective valuation dates and which is an asset includible for the purpose of wealth-tax. The value of the assessee''s right to receive the compensation at a future date should be evaluated or fixed at the present value, i.e., the value as on the valuation date that may be determined and paid as compensation in future. In other words, the present value of the future compensation will have to be determined on a consideration of all relevant facts and circumstances.

The Tribunal has not looked into the matter in this perspective. The Tribunal had not the opportunity to peruse the judgment of this Court in L.A.A. No. 247 of 1980. which was delivered only later on 28-1-1987. These and other aspects should be borne in mind in fixing the value of the assets of the assessee on the respective valuation dates. We direct the Tribunal to restore the appeals to file and consider the matter afresh in the light of the various aspects highlighted by us hereinabove.

The counsel for the revenue brought to our notice the decision rendered by this Court in P.V. Jacob Vs. Commissioner of Wealth-tax, and stated that, in the matter of determining the value of the identical assets, in the case of the lessee (of the property in the instant case), for the years 1974-75 and 1975-76, this Court declined to answer the question referred to this Court, but directed the income tax authorities to decide the matter afresh in the light of the judgment of this Court in L.A.A. No. 247 of 1980. dated 28-1-1987. Appropriate directions were given to the WTO to amend the assessments in the light of the subsequent judgment of this Court and which was in conformity with the direction given by the AAC and the Tribunal in that case. However, the counsel for the revenue adverted in paragraph 3 (at p. 197) and submitted that the view expressed by this Court regarding the accrual of the right to receive enhanced compensation vis-a-vis the value to be adopted for purposes of the Act on the respective valuation dates has been very widely stated and the matter requires clarification. This appears to be so. For fixing the valuation of an asset, which is the subject-matter of land acquisition proceedings on the respective valuation dates, what is valued is not the enhanced compensation as such, but ''the right to receive the compensation''. The said right is an ''asset'' for the purpose of the Act and that should be valued, in the light of the decisions of the Supreme Court in Khorshed Shapoor Chenai''s case (supra) and Smt Anjamli Khan''s case (supra). That proposition cannot admit of any doubt. To the extent the view expressed in P.V. Jacob''s case (supra) paragraph 3, at p. 197 militates against the above proposition, it requires reconsideration and clarification. It may be that the enhanced compensation awarded by the Court as such accrues or arises only when the Court accepts the claim and, till the enhanced compensation is judicially determined, the matter is in a state of flux. Till such date, the compensation awarded (later) as such cannot be fixed as the value of the asset since, as on the valuation date, what is available is only the ''right to receive the compensation''. On the respective valuation dates, it is only the value of the assessee''s right to receive the compensation that should be quantified. It is the present value, i.e., the value as on the valuation date, of the amount that may be determined and paid as compensation in future. It is the present value of the future compensation that should be determined. The observations contained in P.V. Jacob''s case (supra) paragraph 3, at p. 197 are clarified accordingly.

We decline to answer the questions referred to this Court in this batch of 18 cases. We direct the Tribunal to restore the appeals to file and dispose of the matter afresh in the light of the observations contained hereinabove. The references are disposed of as above.