COMMISSIONER OF WEALTH TAX Vs. RASESH N MAFATLAL

JUDGEMENT

(1.) THE assessee had on 26th Dec., 1958, gifted ornaments and jewellery worth Rs. 83,000 to his wife and in the next year on 26th Dec., 1959, jewellery and ornaments worth Rs. 10,779 were gifted by him to his daughter. The ornaments left with the assessee were worth Rs. 1,10,000. In the asst. yrs. 1964 65 and 1965 66, the value of all these ornaments were included in the net wealth of the assessee by the WTO. It appears that the value of the ornaments gifted to the wife and the daughter were included in the net wealth in view of the provisions of S. 4(1)(a) of the WT Act, 1957 (hereinafter referred to as "the Act").

(2.) THE AAC, while upholding the inclusion of ornaments of the value of Rs. 1,10,000 in the net wealth of the assessee, held that the ornaments gifted to the wife and the daughter were exempt under s. 5(1)(viii) of the Act as it then stood. The view which was taken by him was that these ornaments and jewellery would have been exempted for the purposes of assessment in the respective assessments of the wife and the daughter under S. 5(1)(viii) of the Act because they were their articles of personal use and, according to the AAC, this position could not be ignored for the purpose of deciding whether these ornaments should be excluded from the net wealth of the assessee. He thus took the view that, as these ornaments were exempt in the hands of the donees, they would also be exempt from assessment in the hands of the assessee who was the donor. The exclusion of the ornaments was put in issue by the Revenue in the appeal filed before the Tribunal. The assessee filed cross objection challenging the inclusion of the jewellery worth Rs. 1,10,000 in his net wealth. The Tribunal took the view that the ornaments worth Rs. 1,10,000 belonging to the assessee were exempt under S. 5(1)(viii) of the Act as they were intended for the houshold use of the assessee. With regard to the inclusion of the value of the ornaments gifted to the wife and the daughter of the assessee, the Tribunal referred to the proviso to S. 4(1)(a) of the Act and held that in view of the provision made in the proviso, S. 4(1)(a)(i) and (ii) of the Act did not apply to the case of the assessee because the proviso "banned the inclusion of the value of the assets referred to in the sub clauses of cl. (a) of Sub S. (1) of S. 4 in any assessment year commencing after the 31st day of March 1964, provided the transfer of such assets was either chargeable to gift tax or was not chargeable under S. 5 of the Act". The Tribunal took the view that the benefit of the proviso was not restricted only to those gifts which had been made in the assessment years commencing from 1964 65, but was also available in the case of all gifts which were either chargeable to gift tax or were not chargeable under S. 5 of the G. T. Act, even though made prior to the asst. year 1964 65, the only restriction being that the exemption was available in the asst. year 1964 65 and later years. The Tribunal further taking the view that S. 4(1)(a) under which the ornaments gifted to the wife and the daughter of the assessee were sought by the Revenue to be included in the net wealth of the assessee, created a legal fiction, viz., that in computing the net wealth of the assessee, they were deemed to belong to him and not to his wife and children, the Tribunal further observed that "if the legal fiction was carried to its logical end, which must be done, . . . . . . there remained no difference in the position regarding the ornaments worth Rs. 1,10,000 owned by the assessee and the ornaments gifted by him to his wife and daughter". The Tribunal thus took the view that the ornaments gifted to the wife and the daughter were deemed to belong to the assessee and there was no difficulty in holding "that the assessee intended them for the use of his wife and daughter, that is, for household use".

(3.) THESE are the legal provisions which are relevant for deciding the controversy in this reference. Now, taking question No. 1 first, it is obvious that by the amendment in S. 5(1)(viii) of the Act, an infirmity is created in the view which is taken by the Tribunal when it held that ornaments worth Rs. 1,10,000 belonging to the assessee were liable to be exempt as they were articles intended for the household use of the assessee. Having regard to the amendment made retrospectively from 1st April, 1963, in cl. (viii) the controversy as to whether jewellery or ornaments were articles intended for the household use or not becomes wholly academic. The effect of the amendment is that jewellery now stands excluded specifically from articles in respect of which the provision for exemption is made in cl. (viii) of S. 5(1) of the Act. The effect of this amendment has been considered by this Court in Smt. Mukundkumari vs. K. V. S. Namoondari, 17th ITO (1979) 118 ITR 433.