B. J. Divan, C.J. - In this case, at the instance of the Revenue, the following questions have been referred to us for opinion :
Q. No. 1. Whether on the facts and in the circumstances of the case, the provisions of S. 4(1)(a) are applicable to a residential building ?
Q. No. 2. If so, whether on the facts and in the circumstances of the case, the assessee is entitled to the exemption under S. 5(1)(iv) of the Act ?
2. We are concerned, in the instant case, with the assessment years 1965-66, 1966-67 and 1967-68. The assessee is an individual. In making the assessment for wealth-tax in her case the Wealth Tax Officer included the value of certain assets held by her husband in the assessment of the particular assessee under the provisions of S. 4(1)(a) of the Wealth-tax Act. In particular the value of the house belonging to her husband and financed by the assessee earlier was now included. However, in respect of this very house exemption which was claimed under S. 5(1)(iv) of the Act, was denied by the Wealth-tax Officer on the ground that the owner of the property being the husband, the provisions of S. 5(1)(iv) did not apply in the case of the assessment of the wife.
3. The assessee took the matter in appeal before the Appellate Assistant Commissioner and thereafter to the Appellate Tribunal. The Appellate Tribunal remanded the matter back to the Appellate Assistant Commissioner to find out whether the provisions of S. 4(1)(a) of the Act, were at all applicable as such to a residential building. The Appellate Assistant Commissioner, on remand, found that the value of the building was includible but held that the exemption under S. 5(1)(iv) was also available and, hence, the value of the house should be excluded from the net wealth of the assessee. Against this decision of the Appellate Assistant Commissioner the matter was taken in further appeal by the Revenue before the Tribunal and it was contended that the exemption available under S. 5 was available only the transferee and not to the transferor if the transferee was not the assessee. The assessee in this case was the transferor and since the house belonged to her husband, though it was financed by the assessee, it could not be regarded as belonging to the assessee and, hence, entitled to the exemption under S. 5(1)(iv).
4. The Tribunal held that on a proper reading of S. (1), it is clear that the fiction created was one of belonging to the transferor rather than one requiring certain assets to be included in the net wealth of the transferor. The fiction under S. 4(1)(a) was that wherever the transfer which was referred to under S. 4, had taken place, the transferred property was the property belonging the assessee. The transferor assessee, therefore, even after the transfer must by virtue of S. 4(1)(a) be regarded as having a house belonging to her. This is the very condition necessary for exemption under S. 5(1)(iv). The Tribunal, therefore upheld the order of the Appellate Assistant Commissioner. Therefore, at the instance of the Revenue, the two questions hereinabove set out have been referred to us for our opinion.
5. S. 4 of the Wealth Tax Act, provides for inclusion of certain assets in the net wealth of an assessee S. 4(1) provides :
'In computing the net wealth of an individual, there shall be included, as belonging to that individual :
(a) the value of assets which on the valuation date are held -
(b) by the spouse of such individual to whom such assets have been transferred by the Tribunal, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart.'
The rest of the provisions of Clause (a) of S. 4(1) are not material for purposes of this Judgment.
6. S. 5 provides for exemption in respect of certain assets S. 5(1) provides :
'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 -
(iv) One house or part of a house belonging to the assessee.'
Proviso to Clause (iv) of S. 5(1) is again not material for purposes of this judgment.
7. It is, therefore, clear that the value of one house belonging to the assessee is not to be included in the ret wealth of the assessee. Under S. 4, a fiction is created that the assets referred to in sub-S. (1) of S. 4 shall be included in the net wealth of the individual on the finding that these assets belong to that individual; the actual words of the section being 'as belonging to that individual'. It for purposes of S. 4(1)(a)(i) the house is to be treated as belonging to that individual and is, therefore, to be included in the net wealth, it is equally clear that for purposes of S. 5(1)(iv) it must also be treated as the house belonging to the assessee; because it is on the footing that the house belongs to the assessee that it is required to be included in her net wealth. On a clear construction of the provisions of S. 4(1)(a)(i) and S. 5(1)(iv) of the Wealth-tax Act, this is the only conclusion that can be arrived at.
5. We find that in S. Naganathan vs. Commissioner of Wealth Tax, the Madras High Court also arrived at this very conclusion. The Madras High Court there has held that under the scheme of the Wealth-tax Act what is sought to be subjected to Wealth-tax is the aggregate value of all the assets belonging to an assessee S. 4 of the Act is intended only be prevent any evasion or avoidance of tax by reporting to transfers and taking the properties out of the provision of the Act. There is nothing either in S. 4 or S. 5(1) of the Act to show an intention of Parliament either to limit the fiction created under S. 4(1) only for the purposes of including the value of the asset transferred in the net wealth of the transferor or exclude the application of S. 5(1)(iv) to a case where the transfer related to a house belonging to the assessee. By this provision Parliament could not have intended that the transferor should be put under a worse position or shall be subjected to more liability than what he would have been if the transfer had not taken place. The words as belonging to that individual have been used in S. 4(1)(a) not only for the purpose of uniformity of expression which is found in other provisions of the Act such as S. 2(m), 5(1)(iv) i.e. but also with the intention of giving the benefit of S. 5(1)(iv) to those cases where a S. 4(1)(a) is applicable. It was held by the Madras High Court on this reasoning that the benefit of S. 5(1)(iv) of the Wealth-tax Act, 1957, will be available also where the property transferred to the wife is included in the Wealth-tax assessment of the husband by reason of S. 4(1)(a) of the Act.
9. It may be pointed out, as has been noted by the Editor at the foot of the head-note in S. Naganathans case, that sub-S. (3) of S. 4 of the Wealth tax Act, 1957, as substituted by the Finance Act, 1975, with effect from 1-4-1975, now specifically provides that the provisions of S. 5 shall apply to assets included in the net wealth of an assessee under S. 4(1)(a).
10. This Legislative interpretation of the provisions of S. 4(1)(a) read with S. 5(1)(iv) of the Act, also supports the conclusion that we have reached, independently on our own. Under these circumstances, the two questions referred to us must be answered as follows :-
Q. No. 1 viz., whether, on the facts and in the circumstances of the case, the provisions of S. 4(1)(a) are applicable to a residential building in the affirmative, since there is not restriction under S. 4(1)(a) which would exclude residential building; and
Q. No. 2 viz., If no, whether, on the facts and in the circumstances of the case, the assessee is entitled to the exemption under S. 5(1)(iv) of the Act, in the affirmative i.e., in favour of the assessee and against the Revenue.
11. Since the respondent has not appeared there will be no order as to costs. Advocates fee Rs. 250/-.