M. C. DESAI, C.J. - This is a case referred by the Income-tax Appellate Tribunal, Delhi Bench A, under section 27(1) of the Wealth-tax Act, 1957, the question framed by the Tribunal being :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 3 lakhs was rightly included in the total wealth of the assessee for the assessment year 1959-6 ?'
The assessee is a Hindu undivided family and the question is of its assessment to wealth-tax for the assessment year 1959-60. The previous year selected by it is the Diwali year, for the assessment year 1959-60, which ended on November 8, 1958. The assessee had invested 3 lakhs of rupees in a certain firm. On November 8, 1958, the last day of the previous year, the investment of rupees 3 lakhs was distributed among the various coparceners by necessary entries being made in the accounts. The result was that the assessee could not be said to possess the amount of rupees 3 lakhs on November 8, 1958. In assessing the wealth-tax, the Wealth-tax Officer, the Appellate Assistant Commissioner of Wealth-tax and the Income-tax Appellate Tribunal included the amount of rupees 3 lakhs in the net wealth of the assessee for assessment purposes. The case of the assessee was that since the amount of rupees 3 lakhs had been partitioned among the coparceners, it ceased to be its wealth and could not be included in its net wealth. This claim was rejected by the wealth-tax authorities and also the Tribunal on the ground that at the first moment of November 8, 1958, the assessee possessed this amount of Rs. 3 lakhs and was, consequently, liable to pay wealth-tax on it.
'Net wealth' is defined in section 2(m) to mean the amount by which the aggregate value of all the assets belonging to the assessee 'on the valuation date' is in excess of the aggregating value of all the debts owed by him on the valuation date (barring certain debts with which we are not concerned). 'Valuation date' is defined in section 2(q) to mean in relation to any assessment year 'the last day of the previous year as defined in clause (11) of section 2 of the Income-tax Act if an assessment were to be made under that Act for that year.' The valuation date for the assessment year 1959-60 is, therefore, November 8, 1958, and there is no controversy on this point. At the first moment of November 8, 1958, the net wealth of the assessee included the amount of rupees 3 lakhs and at the last moment it did not include it, because, between the two moments, it had gone out of the possession of the assessee on account of its being partitioned among the members of the Hindu undivided family. The question before us is whether the net wealth at the first moment is to be taken into account or at the last moment. There is no provision in the Wealth-tax Act which directly supplies an answer to this question. 'Net wealth' means the excess of the valuation of the assets over the value of the debts on the last valuation date but the valuation date is a continuous period beginning at the first moment, and ending at the last moment, of a certain day, and there may be change of the assets or of the debts between the two moments.
As the net wealth on the last date of the previous year is to be assessed to tax, it is more reasonable to hold that the net wealth at the last moment of the last date should be assessed and not the net wealth at the first moment of the last date. If the object is to take the net wealth at a time as late as possible in the previous year, one must take the net wealth at the last moment, rather than at the first moment, of the last date. Selecting the first moment does not fit in very well with the legislatures selecting the last date of the previous year for assessing the net wealth.
If an assessee acquires an asset on the valuation date, it does not seem to be doubted that its value will be included in the net wealth; it will be included even though the asset was acquired in the middle of the valuation date and not at the first moment of it. If so, when an assessee parts with an asset on the valuation date, its value should not be included in the net wealth.
An expenditure incurred on the valuation date must be deducted (because it has reduced the asset); if it is not deducted (on the ground that it is incurred after the first moment of the valuation date), it would amount to an asset being included in the assessment in spite of its having become non-existent and for this there is no provision. If an expenditure incurred on the valuation date is to be deducted, it follows that if an asset is parted with by an assessee by way of gift, its value must not be included in the net wealth.
Section 20, to which reference was made by Sri Gulati as well as Sri Das, has no application. What has happened here is that the assessee remains a Hindu undivided family and that only its property is reduced by 3 lakhs of rupees which sum has been divided among its members. As we pointed out recently (see Commissioner of Income-tax v. Purushottam Dass Rais (I. T. R. No. 232 of 1960 decided on 11-8-1965), a partial partition is recognized by the Hindu Law and it does not affect the status of jointness. Therefore, even though the assessee divided the amount of rupees 3 lakhs among its members, it remains a Hindu undivided family. Section 20 applies when a partition takes place in a Hindu undivided family; there is a further condition that the joint family property has been partitioned as a whole, but the first condition that there is a severance of the status of jointness is a pre-requisite for the application of section 20. As in the case of a partial partition there is no severance of the status of jointness, it is not governed by section 20. What is laid down in section 20 is that if a partition takes place on the valuation date, it is to be ignored. This express provision requiring a partition taking place on the valuation date to be ignored suggests that in the absence of it, it would not be ignored. A partition taking place on the valuation date necessarily takes place between the first and the last moments of it. If in the absence of section 20 such a partition would have to be taken into account, it means that anything that happens up to the last moment of the valuation date has to be taken into account and that, consequently, if any asset is lost on the valuation date but before its last moment, its value must not be included in the net wealth.
As it seems not to be in doubt that any asset acquired on the valuation date is to be included in the assets for calculating the net wealth, it means that if an asset changes hands twice or thrice on the valuation date, its value will be included in the net wealth of two or three assessees. This would be anomalous, the same asset being taken into account in the computation of the net wealth of two or three assessees. This anomaly can be avoided only by holding that the net wealth at the last moment of the valuation date is to be assessed.
Finally, we must apply the well-known principle of interpretation of taxing statutes that any ambiguity in it must be resolved in favour of the taxpayer and that no tax liability should be attached unless the law is clear. There is no clear law that the net wealth at the first moment of the valuation date is to be assessed. An assessee can be assessed on only one net wealth; it is impossible to assess any one on two net wealths. If there are two net wealths on a valuation date, only one of them can be assessed, and neither the other nor both. In the absence of any law clearly laying down either that the higher of the amounts should be assessed or that the net wealth at a particular moment of the valuation date should be assessed, the lower amount should be assessed. The lower net wealth in the instant case is the net wealth at the last moment of the valuation date. If it can be assessed and the law does not compel assessment of the higher net wealth existing at the first moment of the valuation date, the court can assess only the former.
Our answer, therefore, to the question is in the negative.
Sri Das criticises the order of the Tribunal on the ground that it did not go into the question whether the assessee had really divided the sum of 3 lakhs of rupees among its members. The view that the Tribunal took was that as the alleged division took place after the first moment of the valuation date it was to be ignored and, therefore, it did not go into the question whether there was in fact a division of the amount or not. But the Wealth-tax Officer accepted the division as a fact and the Appellate Assistant Commissioner of Wealth-tax proceeded on the assumption that it was a fact. We have to answer the question 'on the facts and the circumstances of the case'; so we must proceed on the assumption that the division was a fact.
A copy of the judgment shall be sent under the seal of the court and the signature of the Registrar to the Appellate Tribunal as required by section 27(6) of the Wealth-tax Act. The assessee shall get its costs of this reference, which we assess at Rs. 100. Counsels fee is assessed at Rs. 100.
Question answered in the negative.