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K. Anand Rao Vs. Commissioner of Wealth-tax, Karnataka - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberTax Revision Cases Nos. 129, 130 & 131 of 1975
Judge
Reported in[1980]126ITR719(KAR); [1980]126ITR719(Karn); [1981]5TAXMAN320(Kar)
ActsWealth Tax Act, 1957 - Sections 2, 2(2), 5(1) and 27(1)
AppellantK. Anand Rao
RespondentCommissioner of Wealth-tax, Karnataka
Appellant AdvocateK. Shivasankara Bhat, Adv.
Respondent AdvocateS.R. Rajasekhara Murthy, Adv.
Excerpt:
.....was set aside. award of maintenance is enhanced to rs.2,000/- for the wife and rs.1,500/- to the daughter. - the document also provided that if the respective sharers fail to pay the areca and coconuts towards the equalisation of the shares, the assesses was entitled to collect the same with interest thereon at the rate of 5 1/2% of the market value of those commodities and on the charge of the properties allotted to the defaulting sharers......the parties. in the return filed by the assesses, he proceeded to compute the value of this right by assesses, he proceeded to computer the value of this right by assuming that in order to receive 10 candies of areca, there must be land yielding at least 15 candies and 5 acres of land would yield 15 candies of arecanut and the value of land would be rs. 15,000 per acre and the outgoing by way of cultivation expenditure, etc., would be about rs. 5,625 and the balance was arrived at rs. 69,375. the value of the agricultural land actually possessed by the assesses was shown at a value less than rs. 1,50,000 and the assesses claimed exemption in terms of s. 5(1)(iva) of the act. it transpires that for the first two years, this contention of the assesses had been accepted by the wto,.....
Judgment:

Srinivasa Iyengar, J.

1. In these three references made under s. 27(1) of the W.T. Act, 1957 (hereinafter referred to as 'the Act'), common question arises for consideration. The references are in relation to the assessment years 1970-71, 1971-72 and 1972-73, the relevant valuation dates being the March 31, 1970, and succeeding years. In relation to the first two years, there was a rectification made by the WTO on the ground that the value of certain assets had been wrongly exempted from the computeration of the net wealth. In the third year, the assessment itself was made without giving any exemption in relation thereto. The appeals preferred to the AAC and the Appellate Tribunal were not successful and at the instance of the assesses these references have been made. The question referred to our opinion is as follows :

'On the facts and circumstances of the case, whether the right of the assesses to receive 10 candies of arecanut per year as owelty is entitled to exemption under section 5(1)(iva) of the Wealth-tax Act, 1957 ?'

2.The material facts are not in dispute. The assesses was a member of a joint family and a partition was effected among the members which is evidenced by a deed of partition dated July 24, 1968. The assesses was the 8th party to the deed. It transpires that for equalisation of shares certain adjustments had to be made by way of periodical payments of agricultural produce, namely, areca. The assesses was to get 2 candies of areca on May 31, 1969, and 2 1/2 candies of areca on May 31, 1970, and thereafter every year by the 31st of May at the rate of 2 1/2 candies of areca from sharer No. 7. Similarly, from sharer No. 5 he was to get 6 1/2 candies of areca and 650 coconuts on or before the May 31, 1969, and 7 1/2 candies of areca and 1,000 coconuts no or before May 31, 1970, and thereafter every year by the 31st of May. Some of the sharers including the assesses were to pay on or before 31st of May every year 14 1/2 maunds of areca to sharer No. 1, who was the father of the assesses. The document also provided that if the respective sharers fail to pay the areca and coconuts towards the equalisation of the shares, the assesses was entitled to collect the same with interest thereon at the rate of 5 1/2% of the market value of those commodities and on the charge of the properties allotted to the defaulting sharers. There was a further provision that if both the parties agreed at any time five years after the date of document, the areca of that year may be paid together with ten times the market value of areca nuts coconuts and thereupon the recipient of the owelty should give up his right to receive the arecanut. The document also stated that the parties had partitioned the property that should come to their respective shares and specifically stated :

'....... It is not open to any one of us to assert hereafter that the shares are not properly allotted and that the property should be exchanged. This is binding on all of us and our descendants.'

3. Exhibit-D, which is an annexure to the reference made by the Tribunal, contains the extracts from the agreed translation of the partition deed entered into between the parties. In the return filed by the assesses, he proceeded to compute the value of this right by assesses, he proceeded to computer the value of this right by assuming that in order to receive 10 candies of areca, there must be land yielding at least 15 candies and 5 acres of land would yield 15 candies of arecanut and the value of land would be Rs. 15,000 per acre and the outgoing by way of cultivation expenditure, etc., would be about Rs. 5,625 and the balance was arrived at Rs. 69,375. The value of the agricultural land actually possessed by the assesses was shown at a value less than Rs. 1,50,000 and the assesses claimed exemption in terms of s. 5(1)(iva) of the Act. It transpires that for the first two years, this contention of the assesses had been accepted by the WTO, but subsequently realising that this was an error apparent on the face of the record he revised. The relevant provision during the assessment years under consideration was as follows :

'5. (1) Subject to the provisions of sub-section (1A) wealth-tax shall not be payable by an assesses in respect of the following assets, and such assets shall not be included in the net wealth of the assesses - .....

(iva) agricultural land belonging to the assesses, subject to a maximum of one hundred and fifty thousand rupees in value.'

4. Before the AAC (in relation to the first two assessment years), it was contended that the rectification made by the WTO was untenable. But the AAC observed that the WTO had in the first instance taken the appellant's right to receive certain agricultural produce as agricultural wealth and this was patently erroneous and, therefore, the rectification proceedings were justified. He observed that the assesses's right to receive a certain thing whether it was movable or immovable, was only movable property and there could be no two opinions about that. In the further appeals before the Tribunal for all the three years, the contention was that the assesses was entitled to the exemption as provided in s. 5(1)(iva) of the Act. The contention was that the right of the assesses to receive 10 candies of arecanut was a provision for owelty and the said right it the same as the right to the agricultural land yielding a similar income. It appears that there was also a contention raised that the said right amounted to a right to an annuity. The Tribunal negatived the contention that the right amounted to a right to an annuity and even assuming that it was an annuity, as under the terms of the document there was a right to commute the payment into a lump sum payment, the exemption under s. 2(e)(2) of the Act was not available. The Tribunal noticed the several provisions in the document and held that the assesses agreed to receive 10 candies of arecanut per year in lieu of certain quantity of agricultural land which ought to have come to his share and he did not retain any interest in the land in lieu of which this payment was agreed upon the specific provision thereunder, that the parties were not at liberty to claim even exchange of the properties allotted and, therefore, the right cannot come within the ambit of the expression 'agricultural land belonging to the assesses' in s. 5(1)(iva) of the Act. It also held that the provision for enforcing the payment in case of default by enforcing a charge on the property allotted to the defaulting sharer would not by itself tantamount to agricultural land belonging to the assesses and the appeals were dismissed.

5. Before us the argument of the learned counsel for the petitioner was that the provision for payment of 10 candies of arecanut was by was of owelty and this implies a charge and in the instant case there is actually a charge over the properties of the defaulting sharers and, therefore, he has got an interest in the agricultural land, which should be evaluated on the basis of the value of the land which would yield 10 candies of arecanut per year. He referred to the decision of the Supreme Court in Swaminatha Odayar v. Official Receiver of West Tanjore, : [1957]1SCR775 , and the observations therein in paras. 13 to 26 to the effect that even without any specific provision, a person entitled to the owelty has got a lien over the property allotted to the other sharers and it gets precedence over prior encumbrances. His further submission was that the said charge is an interest in immovable property and he referred to the decisions, Imperial Bank of India v. Bengal national Bank Ltd. : AIR1931Cal223 and Ray Chand Jivaji v. Basappa Virappa, Bellary AIR 1941 Bom 71. The further argument was based upon the decision of the Supreme Court in Union of India v. Harbhajan Singh Dhillon : [1972]83ITR582(SC) , where the majority opinion was that the imposition of wealth-tax on agricultural land was valid and the relevant enactment came within the ambit of entry 97, List I and not entry 86, List I or entry 49 of list II of the Seventh Schedule of the Constitution. The argument was that the Supreme Court's decision was based on the premise that the tax was not a tax on land as such but on an interest resulting in wealth which could include both agricultural land and other property. The argument of the learned counsel is that the expression 'agricultural land' in s. 5(1)(iva) of the Act must be interpreted as an interest in the agricultural land and the exemption granted.

6. The recitals in the document which we have referred to earlier are clear. The assesses was allotted certain area of agricultural land, but as the property allotted to him was deficient to some extent and the shares had to be equalised, a further provision was made by way of payment of arecanut annually. This itself shows that the assesses could not claim any interest in the land as appertaining to this payment, as the payment would be in lieu of actual allotment of land as such. But the document has made the matter quite explicit. It was provided that the allotment of properties is final and binding upon the parties and no one sharer had any right to claim even an exchange of the properties allotted. Therefore, it is clear that the assesses retained no interest in any land as such which had been allotted to the other sharers, who are liable to pay the owelty. The terms of the document forbid the assesses from claiming any interest in any extent of property other than the property which was specifically allotted to him. The expression 'agricultural land' belonging to the assesses in s. 5(1)(iva) of the Act is plain enough. It may be that a particular person may not be the full owner of the property or that he may have only a life interest, but all the same the property would be belonging to him, but this is not the same thing as saying that a property belongs to a person merely because he has got a right to recover money from out of the property either by way of a charge or otherwise. A mere attachment of the property in execution proceedings would not create an interest in favour of the creditor. The decisions relied upon by the learned counsel are also not explicit that a mere charges on an immovable property is an interest therein. In the case of Imperial Bank : AIR1931Cal223 the question was whether a document creating a floating charge was compulsorily registrable under s. 17 of the Registration Act. It was observed by the Calcutta High Court thus :

'The words 'any right, title or interest' are intended to be very wide, they are the words usually employed to denote what passes upon an execution sale. In drawing a distinction between a charge and a mortgage it has often been said that while a mortgage, even a simple mortgage, involves the transfer of an interest in specific immovable property, charges transfers on such interest. The entire interest remaining in the owner, the consequence has been drawn that a charge cannot be enforced against a purchaser for value without notice....... I think a mere charge on immovable property is within the clause of s. 17. It is a right in immovable property, a right to have it brought to sale to realize a sum of money to be paid to the charge.'

7. This case was referred to by the Bombay High Court in Ray Chand Jivaji's case. AIR 1941 Bom 71, where also the question was about the registrability of a document. It is clear that though it was observed that a charge was a right in immovable property, it was explained as a right to have it brought to sale to realise a sum of money to be paid to the chargee. Such a right to enforce payment by proceeding against the property cannot be construed as a right inhering in that person in the immovable property itself or leading to a conclusion, that the property or any interest therein belongs to him.

8. The Supreme Court in the case of J. K. (Bombay) (P.) Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. : [1969]2SCR866 explained the distinction between a charge and mortgage. It was observed thus (at p. 708) :

'The distinction between a charge and a mortgage is clear. While in the case of a charge there is no transfer or any interest therein, but only the creation of a right of payment out of the specified property, a mortgage effectuates transfer of property or an interest therein.'

9. Therefore, the submission that the assesses acquired an interest in any immovable property on account of the provision for owelty cannot be accepted as correct.

10. Learned counsel for the petitioner also relied upon a decision in CED v. Estate of late Sethuraman Pillai [1980] ITR 121 , where a right to receive rent had been held to be an interest in property passing on the death of the person and was liable to be included in the computation of the estate duty. There is an observation that such an interest may be something lower than a charge. The argument was that when such a right has been held to be an interest in property, the higher right of a charge must also be held to be an interest in property. We are unable to draw such an inference. The argument based upon the decision of the Supreme Court in Union of Indian v. H. S. Dhillon : [1972]83ITR582(SC) in regard to the validity of the wealth-tax on an agricultural land imposed by Parliament is also farfetched. In that case, the question was about the legislative competence of Parliament to enact such a law. It was held by the majority that the power was to be found in entry 97 in List I and entry 86, List I or entry 49 of List II was not attracted. The observations made therein cannot be construed as leading to an inference that what is sought to be imposed is not wealth-tax in respect of agricultural land, but only a wealth-tax upon some interest in agricultural land.

11. Learned counsel for the petitioner also made a submission that the receipt of 10 candies of arecanut would amount to receipt of an agricultural income and, therefore, as a corollary the source should be held to be agricultural land. In our opinion, the submission is based upon assumptions which are not warranted. The sharer liable to pay the owelty was at liberty to pay it from whatever source he desired. He was not obliged to give 10 candies of arecanut grown only in the lands allotted to him. The assesses could not insist upon receiving arecanut grown only in the land belonging to the other sharers. The right was only to receive compensation and not necessarily linked to any particular agricultural land. It does not also follow that merely because a person receives agricultural produce that should be linked with any ownership or interest in agricultural land. There is no force in the submission put forth on behalf of the petitioner.

12. During the course of the arguments, a question was debated as to whether the right to receive areca by way of owelty could be considered as an asset at all existing on the relevant valuation dates and whether it would fall within the definition of 'asset' under s. 2(e) of the Act and if at all only the value of 10 candies of arecanut, if it existed in the hands of the assesses on the relevant valuation dates, could be included in the computation of net wealth. As this was not the question in regard to which a reference had been made, the matter was not pursued to any finality.

13. In our opinion, the view taken by the Tribunal is correct and we answer the question as follows.

14. That the right of the assesses to receive 10 candies of arecanut per year as owelty was not entitled to exemption under s. 5(1)(iva) of the W.T. Act, 1957.

15. Parties to bear their own costs.


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