KALYANBHAI TRIKAMLAL SHAH Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) AN assessee impressed an item of property belonging to him with the character of HUF. Thereupon a question arose as to what would be the extent of the interest of the assessee on the converted property for the purpose of valuation for inclusion in the net wealth in his wealth -tax return. The question arises n respect of the assessment year 1972 -73. Similar question arose in the assessment years 1973 -74 and 1974 -75. Similar question having been raised in all the three references and the same will be disposed of by this common judgment. The question arose in the context of s. 4(1A)(b) read with clause (d) of the Explanation. The said provision, so far as material for the purpose of this matter, requires to be quoted in order to understand the controversy :

(2.) THE assessee contended that only 1/12th of the converted property was attributable to his interest. This argument was advanced in the context of the fact that he had a wife and two major sons. The HUF in which the converted property was thrown consisted of the assessee, his brother and their mother. In the context of these facts, the question arose whether the interest attributable to the assessee in the converted property was 1/3rd, 1/6th or 1/12th. The assessee contended that it was 1/12th as 1/3rd interest in the HUF would take within its sweep his own individual interest as well as the interest of his wife and two major sons (1/3 x 1/4). In the alternative, it was contended that in any case, the interest attributable to the assessee in the converted property cannot be more than 1/6th having regard to the fact that his interest and the interest of his wife could perhaps be clubbed together. The revenue on the other hand assumed the posture that he being a member of the HUF along with his brother and his mother he had 1/3rd interest and that the interest attributable in the converted property should be computed on the basis that he had 1/3rd interest. The expression 'interest of the individual in the property of the family' has been defined by clause (d) of the Explanation to mean the proportion in which the individual would be entitled to share the property of the family if there had been a total partition in the family as on the valuation date. It is, therefore, clear that a fictional total partition on the valuation date is postulated by the expression 'interest of the individual in the property of the family'. The interest of the assessee would have to be clubbed with the interest of his spouse having regard to the provision contained in s. 4(1)(a), which provides that in computing the net wealth of an individual, the value of the assets which, on the valuation date, are held by the spouse of such individual to whom the same had been transferred by the individual otherwise than for adequate consideration or in connection with an agreement to live apart, shall be include. In the present case, it is evident that it would amount to an indirect transfer in favour of the spouse. The share of the spouse would, therefore, be required to be clubbed together with the share of the assessee. If there was a minor child, his share would also have been required to be clubbed with that of the assessee. In the present case, there is no minor child and, therefore, that question does not arise. The share of the major sons, of course, cannot be clubbed together. The interest of the assessee in the converted property in the family must, therefore be computed on the basis of 1/6th share (1/3 x 1/2=1/6). The view taken by the Tribunal is that the interest of the assessee in the converted property should be valued on the basis of an 1/3rd share without taking into account the fact that each of his major sons would be entitled to a share in case of total partition of the family. The expression 'total partition' employed in clause (d) of the Explanation is of considerable significance. It would justify the conclusion that the interest which a minor son would acquire upon there being a partition in the family and the share of the assessee being separated must be taken into account in computing the share of the assessee in the property belonging to the family. The aforesaid interpretation which commends itself to us is in consequence with the notes on clauses in the Finance (No 2) Bill, 1971, whereby the aforesaid provision was introduced with effect from January 1, 1972. The relevant amendment was brought about by clause 31 of the Finance Bill and the note on clause 31 extracted from Vol. 80 of the ITR (Statutes), page 153, is as under :

(3.) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that at least some portion of the stock -holding (namely, the converted property) was includible in the assessee -individual's net wealth under section 4(1A). of the Wealth -tax Act as deemed asset ? In the affirmative and against the assessee. 2. If the above question is answered in the affirmative would, the deemed asset so includible in the assessee -individual's net wealth be 1/3rd, 1/6th or 1/12th portion of the converted property ? 1/6th portion of the converted property would be includible in the net wealth of the assessee.