COMMISSIONER OF WEALTH TAX Vs. RAI C

JUDGEMENT

(1.) IN this reference under s. 27(1) of the W. T. Act, 1957, the Appellate Tribunal has referred the following question for our opinion :

(2.) THE facts giving rise to the question lie in a very narrow compass. The question relates to the wealth -tax assessment of the assessee, an individual, for the assessment years 1960 -61 and 1961 -62, the corresponding valuation dates being March 31, 1960, and March 31, 1961, respectively. The assessee was the holder of certain shares in a company called Colour Chem Ltd., which admittedly was a company to which s. 45(d) of the W. T. Act applied. Out of his aforesaid shareholding the assessee gifted 400 shares to his wife on September 23, 1959, and the said shares were immediately transferred to her name in the share register of the company. The assessee had declared in an annexure to the return the value of the shares so transferred by him to his wife but he claimed that the value of those shares would be exempt under the provisions of s. 5(1)(xx) of the W. T. Act. The WTO took the view that the exemption under s. 5(1)(xx) would be available to the assessee only if he had held the shares, that is to say, the shares had stood in his name as on the valuation dates. The shares having been transferred and having been held by the assessee's wife in her name in the share register of the company on the valuation dates, it could not be said that the shares were 'held by the assessee' in order to justify the claim for exemption. The WTO, therefore, added the value of these shares, as on the respective valuation dates, to the net wealth of the assessee in accordance with the provisions of s. 4(1)(a)(i) of the Act; in other words, for the year 1960 -61, he added an amount of Rs. 1,28,000 and for the year 1961 -62, he added an amount of Rs. 1,45,000. The assessee carried the matter in appeal for both the years to the AAC. It was contended that the WTO's interpretation of the expression 'held by the assessee' occurring in s. 5(1)(xx) was not correct in view of the clear provisions of s. 4(1) and s. 2(m) of the Act, that the identity of the wife merged with that of the husband and that if for the purpose of s. 4(1)(a)(i) of the Act the transferred shares were regarded as 'belonging to the assessee', the fiction so created should be given the full effect, in all its necessary implications or corollaries and as such the benefit of exemption under s. 5(1)(xx) should be allowed to the assessee. The AAC accepted the contentions urged on behalf of the assessee and he directed that the additions of two sums, viz., Rs. 1,28,000 and Rs. 1,45,000, should be deleted from the respective assessments. The department being aggrieved by the AAC's order preferred appeals to the Tribunal and principally relying upon the decision of the Gujarat High Court in the case of CWT v. Harshad Rambhai Patel : [1964]54ITR740(Guj) , it was contended that the expression 'held by the assessee' occurring in s. 5(1)(xx) must mean shares standing in the name of the assessee in the company's register. Since in the instant case 400 shares did not stand in the name of the assessee but stood in the name of his wife in the company's register of shares, the said shares could not be regarded as having been 'held by the assessed's within the meaning of s. 5(1)(xx) and as such the exemption was not available to the assessee. The Tribunal, after considering the decision of the Gujarat High Court as also some other authorities, came to the conclusion that under s. 4(1)(i) the legislature clearly intended that the assets transferred by the assessee to his wife should be treated as assets belonging to the assessee, that is, as owned by the assessee with all its attributes and the legal fiction created must be carried to its logical conclusion and if it was so carried the assessee would be entitled to the exemption claimed. The Tribunal also took the view that there was a well -known principle of construction that the exemption provision should be construed liberally and in favour of the assessee provided no violence was caused to the clear language employed by the particular section. In the circumstances the Tribunal confirmed the AAC's order of deleting the amounts of Rs. 1,28,000 and Rs. 1,45,000 from the net wealth of the assessee as on the respective valuation dates. At the instance of the CWT, the question set out at the commencement of the judgment has been referred to us for out determination.

(3.) HE further pointed out that the same Finance Act the words 'held by the assessee' have been deleted from s. 5(1)(xx). But, according to him, these amendments which were necessitated by the judicial decisions had been made effective from 1st April, 1975, onwards. Relying on these amendments that were made in the W. T. Act by the Finance Act, 1975, he urged that since the instant case was governed by the unamended provisions, the principles laid down by the Gujarat High Court in Harshad Rambhai Patel's case [1964] 54 ITR 740 should be applied to the facts of the case and the exemption claimed by the assessee in respect of the 400 shares should be negatived.