SUSHILA DEVI Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THE Tribunal, Jaipur Bench, Jaipur (for short "the Tribunal"), has referred the following question for the opinion of this Court under S. 27(1) of the WT Act, 1957 (hereinafter to be referred to as "the Act"): "Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in rejecting the claim of the assessee for exemption in respect of the fixed deposit of Rs. 50,000 under S. 5(1)(xxvi) r/w S. 5(3)(b) of the WT Act, 1957?" The facts of the case giving rise to this reference are as under: Smt. Sushila Devi, assessee, had taken out a Fixed Deposit Receipt (for short "the FDR") of Rs. 50,000 on 21st April, 1972, from the State Bank of Bikaner and Jaipur, Bikaner. On 22nd April, 1972, the assessee pledged the aforesaid FDR with the State Bank of Bikaner and Jaipur in order to facilitate advance of loan of Rs. 47,000 to M/s Fibre Trading Company, Bikaner (for short "the Company" hereinafter). By a letter the assessee discharged the FDR and directed that on its maturity, the amount may be credited to the account of the company.

(2.) WHILE filing the return for the asst. year 1973 -74 the assessee claimed exemption of the amount of the aforesaid FDR under S. 5(1)(xxvi) of the Act. The WTO rejected that claim on the ground that the pledging of the FDR was for consideration of the amount of Rs. 47,000 to be advanced to the company and as such the assessee cannot be said to have held the FDR for six months ending on the valuation date as required by S. 5(3) of the Act. The assessee went in appeal before the AAC of income -tax, Bikaner Range, Bikaner. The Appellate Authority agreed with the findings of the WTO and rejected the appeal. The assessee approached the Tribunal for redressal of her grievance against the order of the Asstt. CIT but was unsuccessful. The assessee then filed an application under S. 27(1) of the Act before the Tribunal. The Tribunal agreed with the assessee that a question of law arises out of the order of the Tribunal and, therefore, made a reference for the opinion of this Court on the question of law stated earlier. Mr. Rajesh Balia, learned counsel for the assessee, strenuously contended that the, amount of the Fixed Deposit Receipt fell in the definition of the net wealth of the assessee, |hat she had only pledged the Fixed Deposit Receipt by way of security for the loan to be advanced to the company and that she had control over the amount of the Fixed Deposit Receipt till the date of its maturity, i.e., 21st April, 1973. Mr. Balia emphasised that the interpretation of the term "held by the assessee" appearing in S. 5(3) of the Act, by the Tribunal confirming the orders of |he WTO and the AAC cannot be said to be correct in view of the principle enunciated in various decisions on the point. According to Mr. Balia, the word "held" is to be interpreted as "owned". Referring to the amendment of cl. (xxvi) of S. 5 w.e.f. 1st April, 1975, Mr. Balia submitted that in order to avoid the controversy regarding the interpretation of the term "held by the, assessee", the words "owned by the assessee" have been substituted and, therefore, even prior to the aforesaid amendment, the word "held by the assessee" should not have been taken to mean actual physical possession and that at the relevant time the assessee was constructively holding the fixed deposit receipt and exemption under cl. (xxvi) of S. 5(1) has rightly been claimed by her and wrongly refused by the concerned authorities. Mr. B. R. Arora, appearing for the Revenue, justified the findings of the Tribunal affirming the orders of the WTO and the AAC on the ground that the assessee had parted with the fixed deposit receipt for valid consideration on 22nd April, 1972. According to Mr. Arora, the concept of ownership is distinct from the concept of possession and the term " held by the assessee" appearing in S. 5(3) of the Act means real and not constructive possession. That the circumstances of the case clearly reveal the intention of the assessee to part with the possession of the fixed deposit receipt as she had also directed that the profits of the fixed deposit receipt on its maturity may be credited to the account of the company. Mr. B. R. Arora contended that the fact that on maturity the amount of the fixed deposit receipt along with the interest was credited in the account of the company is sufficient to justify the order of the Tribunal that the assessee, while pledging the fixed deposit receipt, had given up her control over its value. The assessee wanted the amount of Rs. 50,000 of the fixed deposit receipt to be excluded from her wealth under S. 5(1)(xxvi) of the Act which reads as under: 5. Exemptions in respect of certain assets. -(1) Subject to the provisions of sub -s. (1A), wealth -tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee -... (xxvi) any deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in S. 51 of that Act), or with a co -operative society engaged in carrying on the business of banking including a co -operative land mortgage bank or a co - operative land development bank)." Sub -s. (1A) of S. 5 of the Act imposes a ceiling on the amount claimed to be exempt under the various clauses mentioned therein and cl. (xxvi) is one of them/ The limit fixed is a sum not exceeding in the aggregate one hundred and fifty thousand rupees. The value of the fixed deposit receipt in the present case being Rs 50,000 only, this sub -section will not be a hurdle for the assessee in claiming exemption. The important provision having a bearing on the matter is S. 5(3) which at the relevant time read as under: "Notwithstanding anything contained in sub -s. (1), wealth -tax shall be payable b} an assessee in respect of assets referred to in clauses... (xxvi) ... of sub -s. (1) or in sub -s. (2) for any assessment year unless the assets are held by him." It is to be noted that by the Finance Act, 1975, the word "held" has been substituted by the word "owned". By the Finance Act of 1975, made effective from 1st April, 1975, the exemption under cl. (xxvi) has been made available to an assessee on proving the ownership of the assets on the valuation date. The contention of Mr. Arora is that by the amendment brought by the Finance Act, 1975, the assessee is not required to hold the assets and it would be sufficient for claiming exemption if he owns the assets on the valuation date but while deciding the matter relating to the assessment of property prior to 1975, the term "held by the assessee" would operate. In other words, the constructive possession of the assessee, as in the present case, would not bring her claim within the ambit of S. 5(1)(xxvi) r/w S. 5(3) of the Act. In order to properly understand the implications of the matter, the material provisions of the Act relating to the exemption will have to be looked into. Sec. 3 of the Act is the charging provision. The net wealth of an individual is liable to be taxed for every assessment year at the rate or rates specified in the Schedule. The term "net wealth" has been defined in S. 2(m). The relevant portion of it reads as under: "2. (m) 'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date..." Sec. 4(1) of the Act creates a legal fiction by which assets enumerated in that section are deemed to be the assets belonging to the assessee for the purpose of computing his net wealth. Sec. 5(1) of the Act provides that, in respect of certain assets, exemption is to be made and they are to be excluded while computing the net wealth of the assessee. The correct conclusion in the matter on hand would depend on the interpretation of the word "held". This word has been the subject - matter of construction in a number of decisions dealing with the provisions of this Act as well as certain other Acts. In the case of Manohar vs. G. G. Desai, AIR 1951 Nag 33, the question before their Lordships was as to whether C. P. & Berar Accommodation (Requisition) Act, 1948 had been rendered unconstitutional because of Arts. 19 and 31 of the Constitution. The argument advanced was that the word "held" means to "possess" and as the act of requisitioning interferes with that right, it is unconstitutional. According to their Lordships, the word "held" has several meanings, one of which is no doubt "possess" but then it also means "be the owner of" (property). It was further observed that whether to give the word the meaning contended for by counsel or some other meaning would depend upon the context. Taking in the context of the preceding word acquire under Art. 19 of the Constitution and the following word "dispose of", their Lordships were of the opinion that the word "held" can have no other meaning other than "own" or "be the owner of".

(3.) THE subject of discussion in that case was the interpretation of the words "held by the assessee" appearing in S. 5(1)(xx) of the Act. The question referred for the opinion of the High Court was whether the Tribunal erred in law in holding that the 400 shares of "Colour Chem Ltd." transferred to the name of the assessee's wife were exempt under S. 5(1)(xx) r/w S. 4(1)(a)(i) of the WT Act.