V. Vaidyasubramaniam vs Commissioner of Wealth-tax

Ismail, J.—The assessee''s wife acquired a plot of land in 1955 out of the amounts given by the assessee and on the said land, a house was

constructed by utilising a sum of Rs. 90,000 gifted by the assessee to her after 1956. The construction of the house was completed in 1957. The

assessee and his wife have been residing in the said house ever since. For the assessment years in reference, namely, 1965-66 to 1968-69, the

Wealth-tax Officer included Rs. 1,60,000 on account of this property presumably u/s 4(1)(a)(i) of the Wealth-tax Act, 1957. The assessee

contested this inclusion in appeal. Before the Appellate Assistant Commissioner, the assessee contended that the Wealth-tax Officer ought to have

included u/s 4(1)(a)(i) only the value of the asset transferred after April 1, 1956, that is, Rs. 90,000, and not the entire value of the house to the

extent of Rs. 1,60,000 and the Wealth-tax Officer erred in not allowing exemption for this asset u/s 5(1)(iv) of the Act. The Appellate Assistant

Commissioner held that the asset that had to be included was that which on the valuation date was held by the wife of the assessee to whom it had

been transferred by the assessee otherwise than for adequate consideration or in connection with an agreement to live apart, whether the asset

referred to was held in the form in which it was transferred or otherwise. He, therefore, confirmed the Wealth-tax Officer''s action in taking the

value of the asset transferred u/s 4(1)(a)(i) at Rs. 1,60,000. As regards the second contention, he held that, in view of the language of Section 5(1)

(iv), the assessee was entitled to exemption of Rs. 1,00,000 as provided thereunder.

The department being aggrieved with the Appellate Assistant Commissioner''s order went up in appeal to the Tribunal. The assessee also went

up in cross-objection being aggrieved by the Appellate Assistant Commissioner''s decision that what was includible was the value of the house

property and not merely the cash of Rs. 90,000 gifted by the assessee to his wife. The Tribunal held that the inclusion of Rs. 1,60,000 in the net

wealth of the assessee was correct. With regard to the appeal preferred by the department, the Tribunal allowed the appeal. The result was that

the value of the house, namely, Rs. 1,60,000, as on the valuation date was included in the net wealth of the assessee and the assessee was not

given the exemption u/s 5(1)(iv). It is the correctness of this conclusion of the Tribunal that is challenged in this reference in the form of the

following two questions which have been referred to this court by the Tribunal at the instance of the assessee;

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that under the provisions of Section 4(1)(a)(i) of

the Wealth-tax Act, 1957, the sum of Rs. 1,60,000 was properly included for assessment instead of Rs. 90,000 being cash gifted by the assessee

to his wife?

If the answer to question No. 1 above is in the affirmative, whether the Tribunal was justified in holding that the assessee was not entitled to the

exemption u/s 5(1)(iv) of the Wealth-tax Act, 1957, as regards the said inclusion of Rs. 1,60,000?

Let us take the first question first. The answer to this question depends upon the interpretation of Section 4(1)(a) of the Wealth-tax Act, 1957.

Section 4(1)(a)(i), as far as it is relevant, is:

In computing the net wealth of an individual, there shall be included, as belonging to that individual--

(a) the value of assets which on the valuation date are held - (i) by the spouse of such individual to whom such assets have been transferred by the

individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart.....

There are similar sub-clauses in Section 4(1)(a) as 4(1)(a)(ii) to 4(1)(a)(v) and at the end of the Sub-Clause (v) the following provision occurs:

Whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise.

There is no dispute that the value of the asset transferred is includible in the net wealth of the assessee in the present case, notwithstanding the

fact that the assessee made a gift of only Rs. 90,000 to his wife and that Rs. 90,000 has now taken the shape of the house referred to above. It is

only on this basis the assessee himself claimed that only a sum of Rs. 90,000 was includible in the net wealth and not the value of the house as on

the valuation date. Consequently, the liability to the inclusion of the asset in the net wealth of the individual is not in dispute and what is disputed is

as to how the asset has to be valued. According to the learned counsel for the assessee what was transferred was only a sum of Rs. 90,000 and it

is that Rs. 90,000 which should be included in the net wealth of the assessee. As against this, the case of the revenue which has been accepted by

the Tribunal is that the sum of Rs. 90,000 which was transferred by the assessee to his wife has been now converted into the existing asset of the

house and it is the value of the house, which alone is existing as an asset as on the valuation date, that has to be included in the net wealth of the

assessee. We are of the opinion that the contention of the revenue which has been accepted by the Tribunal is correct.

The section itself says that the value of the asset to be included should be the asset which is held on the valuation date by the spouse. The only

other question is whether the value of the asset as on the valuation date has to be taken into account or the value of the asset as on the date of the

transfer has to be taken into account. It is conceded that so long as the asset transferred continued to be in the same form in which it was at the

time of the transfer, the value of the asset as on the valuation date alone can be taken into account. But with regard to the present case the

contention on behalf of the assessee is that what was transferred was a sum of Rs. 90,000 and though that sum of Rs. 90,000 has taken the shape

of the house which belonged to the assessee''s wife on the valuation date, still the value as on the date of the transfer alone has to be taken into

account. We are unable to accept this argument. As a matter of fact, if this argument is to be accepted then the value that will be includible will be

the value of an asset that is not in existence on the valuation date. What was in existence on the valuation date was the house which was built with

the said sum of Rs. 90,000. Consequently, the value of the asset which exists on the valuation date alone has to be included in the net wealth, and if

so, in the present case the value of the house as on the valuation date alone has to be included. Therefore, we are of the opinion that the conclusion

of the Tribunal in this behalf is correct.

However, stress is laid on the word ""such"" qualifying the word ""assets"" occurring in the provision already extracted and, therefore, it is

contended that the words ""such assets"" must refer to only the sum of Rs. 90,000 which alone was transferred by the assessee to his wife, and,

therefore, its value can only be Rs. 90,000. We are unable to place any such construction on the word ""such"" qualifying the word ""assets"".

Normally speaking, but for the provision at the end of Sub-clause (v) which we have extracted, Section 4(1)(a)(i) would have required the

continued existence of the asset transferred by the husband to the wife in the same form in which it was transferred. Because of the specific

provision at the end of Clause (v) which we have extracted, it is not now necessary that the asset transferred should be the same as the asset held

by the spouse on the valuation date. The word ""such"" merely indicates the correlation between the asset transferred, and the asset held by the

spouse on the valuation date.

Reliance in this context was placed on a judgment of the Bombay High Court in Commissioner of Wealth Tax (Central), Bombay Vs. Kishanlal

Bubna, That is a case which dealt with Section 4(1)(a)(iii). Section 4(1)(a)(iii) stated:

In computing the net wealth of an individual, there shall be included, as belonging to that individual--

(a) the value of assets which on the valuation date are held......

(iii) by a person or association of persons to whom such assets have been transferred by the individual otherwise than for adequate consideration

for the immediate or deferred benefit of the ""individual, his or her spouse or minor child (not being a married daughter) or both.

The contention of the revenue in that case was that regard was to be had not to the form of the assets in which they were transferred but to the

form of the assets as they existed on the valuation date and if the asset transferred had undergone a change after the date of the transfer then for the

purposes of Section 4(1)(a) it was the converted asset that had to be looked at and the value of such converted asset on the valuation date had to

be determined and it was merely the valuation of the converted asset on the valuation date that had to be included in the net wealth of an assessee

u/s 4(1) and that the said section does not contemplate the value of the original assets that were transferred nor was the value of such original

assets to be determined as on the valuation date. The Bombay High Court did not accept these contentions advanced on behalf of the revenue.

The court pointed out--See Commissioner of Wealth Tax (Central), Bombay Vs. Kishanlal Bubna, :

Mr. Joshi (counsel for the revenue) is undoubtedly right that u/s 4(1)(a), the value of assets which on the valuation date are held is to be included

in computing the net wealth of an individual but such a provision is not to be seen in isolation but must be read in conjunction wita the other

provisions. Such other provisions are contained in Sub-clauses (i), (ii) and (iii) of Clause (a). Sub-clause (i) deals with the assets transferred to the

spouse of an individual and there also reference is made to ""such assets have been transferred by the individual"".

The use of the expression ""such assets"" really indicates that it is the assets in the original form that are to be taken into account because those

are the only assets which are transferred by the assessee, as the transferor. Identical language is used in Sub-clauses (ii) and (iii). We are

concerned in the present case with Sub-Clause (iii). It should not be overlooked that there is no article used before the word "" assets"" in Clause (a)

in the expression, ""value of assets which on the valuation date are transferred"". The identification of ""such assets"" is to be found from the language

used in Sub-clause (iii). The assets which are contemplated in Clause (a) are the assets held by a person or association of persons to whom such

assets have been transferred by the assessee in the manner indicated therein. The words ""such assets"" really indicate and pinpoint the specific

assets which have been transferred. That such was the intention is made very clear by the latter part of this section because it says ""whether the

assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise"". The object of this latter part

of the section is that regard is to be had to the valuation of the original assets irrespective of the fact whether the original assets are retained in the

form in which they are transferred or they are converted into different types of assets. In either case, it is the value of the assets that are transferred

that is to be determined as on the relevant valuation date."" With respect, we are unable to agree with the above reasoning and conclusion of the

Bombay High Court. The decision of the Bombay High Court leads to this anomaly, namely, the value to be included in the net wealth of the

assessee is the value of an asset which is no longer in existence and though the existence of the different form of the asset on the valuation date is to

be taken note of for the purpose of the liability to inclusion of the value of the asset u/s 4(1)(a), its value as on the date of the valuation is

completely ignored.

The learned counsel for the assessee submitted that the conclusion which the Tribunal has reached and which we are affirming will lead to this

position, namely, the assessee will be in a worse position for having transferred the asset to his spouse than the position in which he would have

been if he had not made the transfer. We are unable to accept this submission. If the assessee in the present case had not transferred Rs. 90,000 to

his wife and retained that Rs. 90,000 simply as cash, certainly Rs. 90,000 alone would be included in his net wealth. If, on the other hand, instead

of transferring the Rs. 90,000 to his wife he himself had built the house out of the sum of Rs. 90,000 it is only the value of the house as on the

valuation date that would be included in the net wealth. There is, therefore, no question of the assessee being in a worse position for having made

the transfer of a sum of Rs. 90,000 to his wife. For these reasons we answer the first question referred to this court in the affirmative and against

the assessee.

As far as the second question is concerned, it is covered by a judgment of this court in S. Naganathan Vs. Commissioner of Wealth Tax, in

favour of the assessee, namely, that the benefit of Section 5(1)(iv) of the Wealth-tax Act, 1957, will be available also where the property

transferred to the wife is included in the wealth-tax assessment of the husband by reason of Section 4(1)fa) of the Act. Following that judgment, it

must be held that the Tribunal was in error in denying the benefit of the exemption u/s 5(1)(iv) to the assessee in the present case. However, it is

submitted that u/s 5(1)(iv) the assessee will not be entitled to the benefit of exemption to the entire extent of Rs. 1,60,000 but only to the extent of

Rs. 1,00,000 as provided for in the very statute itself. Consequently, we answer the second question in the negative and in favour of the assessee

to the extent of Rs. 1,00,000 as against the sum of Rs. 1,60,000 mentioned in the question. There will be no order as to costs.