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Commissioner of Wealth-tax Vs. Abdul HussaIn Mulla Mohd. Ali - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberM.C.C. No. 352 of 1971
Judge
Reported in[1976]103ITR400(MP)
ActsWealth Tax Act, 1957 - Sections 2
AppellantCommissioner of Wealth-tax
RespondentAbdul HussaIn Mulla Mohd. Ali
Cases ReferredKesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth
Excerpt:
- - on appeal to the income-tax appellate tribunal the learned members were of the opinion that 'quaraza-e-hasana',as known in quaranic law, is a loan given in good faith and goodwill. if the debtor pays it is well and good, but in case he does not pay, the creditor would have no legal remedy or no legal right to make a demand......sum of money. therefore, according to the majority of their lordships in the said case, the debt must be payable. that means there must be a liability to pay and that it must also be recoverable, which means that it should not be barred by the provision of any statute. if these two tests are fulfilled, then only for the purposes of section 2(m) of the wealth-tax act, 1957, a debt owed to the assessee can be included in the net wealth for the purposes of the wealth-tax act, 1957. but, however, if these tests are not fulfilled, then in our opinion, the amount such as ' quaraza-e-hasana ' regarding which there is no legal obligation of the debtor to pay and regarding which there is no legal right of the creditor to recover, cannot be included in 'net wealth ' under section 2(m) of.....
Judgment:

P.K. Tare, C.J.

1. In this reference under Section 27(1) of the Wealth-tax Act, 1957, the Income-tax Appellate Tribunal has sought our opinion on the following two questions :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 4 lakhs cannot be included in the total assets of the assessee ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in accepting that the amount of Rs. 4 lakhs was in the nature of 'Quaraza-e-Hasana', particularly when the amount of Rs. 1,21,800 out of Rs. 4 lakhs has been repaid '

2. The present reference, which governed four different cases before the Income-tax Appellate Tribunal, relates to the assessment years 1957-58, 1958-59 and 1960-61. The case is to the effect that the respondent, Abdul Hussain, orally gave an amount of Rs. 4,00;000 to one Faizullabhai some time before the year 1950. There was no written document in that behalf nor was it entered in the account books. There was no recovery made from Faizullabhai during the four assessment years. However, on July 24, 1961, Faizullabhai repaid Rs. 1,21,800 to the respondent, Abdul Hussain, voluntarily. In the original return filed by the respondent for the assessment year 1957-58, he had included this amount, but in a revised return he claimed exemption in respect of the amount of Rs. 4,00,000 on the ground that the amount was neither a loan nor an obligation. This contention was not accepted by the Wealth-tax Officer, as also by the Appellate Assistant Commissioner of Wealth-tax, who included the amount of Rs. 4,00,000 in the total wealth of the respondent. On appeal to the Income-tax Appellate Tribunal the learned members were of the opinion that ' Quaraza-e-Hasana', as known in Quaranic law, is a loan given in good faith and goodwill. The creditor does not exercise his legal rights and there is no obligation on the debtor to pay. However, if the debtor voluntarily pays the amount, the creditor accepts it; otherwise he does not even make a demand for the payment.

3. The contention of the learned counsel for the petitioner-department was that as an amount of Rs. 1,21,800 had been repaid by Faizullabhai on July 24, 1961, and as Faizullabhai had been admitted as a partner of the respondent's firm in the year 1955, it ought to be held that this was very much a loan and it was liable to be included in the total wealth of the respondent during the relevant years.

4. In this connection we might advert to Section 2(m) of the Wealth-tax Act, 1957, which defines 'net wealth' as follows :

'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 other than--

(i) debts which under Section 6 are not to be taken into account ;

(ii) debts which are secured on or which have been incurred in relation to any property in respect of which wealth-tax is not chargeable under this Act; and

(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953, the Expenditure-tax Act, 1957, or the Gift-tax Act, 1958,--

(a) which is outstanding on the valuatipn date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or

(b) which, although not claimed by the assessee as not being payable by hirn, is nevertheless outstanding for a period of more than twelve months on the valuation date.'

5. In the present case the valuation date for the first assessment year was March 31, 1957, while for the subsequent years it was March 31, 1958, March 31, 1959, and March 31, 1960, respectively. The word 'debt' mentioned in Section 2(m) of the Act defining the words ' net wealth ' would mean debt due to the assessee which is legally due and legally recoverable. A debt which has become barred by time and regarding which the assessee has no right of recovery, the same would not be includible in the net wealth. In this connection we might advert to a Full Bench decision of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee, [1909] ILR 36 Cal 936 wherein the question was whether the heirs of the deceased were required to obtain a succession certificate in respect of debt due to the deceased which was not payable during his lifetime, but which was payable after his death only. The learned judges constituting the Full Bench held that the heirs could not recover the debt after the death of the deceased without obtaining a succession certificate. Jenkins C.J. and Mookerjee J., who delivered separate concurring judgments, held that in order that a debt owed to the deceased may require succession certificate, it is necessary that the debt should be payable and that it must be recoverable. The clear implication was that it must not be by any provision of the statute.

6. We may further advert to the pronouncement of their Lordships of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax : [1966]59ITR767(SC) wherein their Lordships laid down that for the purposes of Section 2(m) of the Wealth-tax Act, 1957, the word 'owe' would imply an obligation to pay and the words ' debt owed ' would mean liability to pay in praesenti or in futuro an ascertainable sum of money. Therefore, according to the majority of their Lordships in the said case, the debt must be payable. That means there must be a liability to pay and that it must also be recoverable, which means that it should not be barred by the provision of any statute. If these two tests are fulfilled, then only for the purposes of Section 2(m) of the Wealth-tax Act, 1957, a debt owed to the assessee can be included in the net wealth for the purposes of the Wealth-tax Act, 1957. But, however, if these tests are not fulfilled, then in our opinion, the amount such as ' Quaraza-e-Hasana ' regarding which there is no legal obligation of the debtor to pay and regarding which there is no legal right of the creditor to recover, cannot be included in 'net wealth ' under Section 2(m) of the Wealth-tax Act, 1957. It is another matter that the debtor in such a case may make payment voluntarily if his cicumstances permit. Faizullabhai was admitted as a partner of the respondent's firm in the year 1955 and on July 24, 1961, he was able to repay an amount of Rs. 1,21,800. Therefore, this repayment made on July 24, 1961, could certainly be included in the net wealth of the respondent in the relevant subsequent assessment year, but the amount of Rs. 4,00,000 could not be included in the net wealth of the respondent during the relevant assessment years, that is, from 1957-58 to 1960-61. We would affirm the view of the learned Members of the Income-tax Appellate Tribunal on this point.

7. In this connection we might advert to the view expressed by the learned author, Tyabji, on Muslim Law, in the 4th edition, at pages 404 and 405 of his commentary :

' It is clear that neither a hiba-bil-iwaz nor a hiba-bi-shartil-iwaz is complete without each side taking possession of the subjects of gift and return respectively. Each of these two transactions consists of two completed reciprocal donations : and each of the component donations requires transfer of possession for its completion.

It would be difficult in India and Pakistan to prove such a hiba-bi-shartil-iwaz as would not be a contract : for it would mean proving that though the donor stipulated for a return at the time he was making a declaration of gift, the stipulation did not form consideration for the property purported to be transferred by way of gift. But, when a transaction once comes within the category of a hiba-bil-iwaz or a kiba-bi-shartil-iwaz, it is submitted, that there is no warrant for stating that transfer of possession can be dispensed with in regard to its completion unless it can be said that contract for consideration has been made.'

8. Therefore, there can be a sort of loan regarding which there is no legal obligation to pay and it will depend on the volition of the debtor whether to pay or not and the creditor would not have any enforceable right under the law. If the debtor pays it is well and good, but in case he does not pay, the creditor would have no legal remedy or no legal right to make a demand. Such a loan, which may be a combination of a gift and a debt in respect of which there is no right or there is no obligation, can certainly not constitute the wealth of an assessee. However, it will constitute wealth if the debtor voluntarily repays the amount when circumstances permit; otherwise, it will operate as a gift.

9. As a result of the discussion aforesaid we would answer the two questions as follows :

(1) That, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 4,00,000 cannot be included in the total assets of the assessee.

(2) That, on the facts and in the circumstances of the case, the Tribunal was justified in accepting that the amount of Rs. 4,00,000 was in the nature of ' Quaraza-e-Hasana ' even though the amount of Rs. 1,21,800 out of Rs. 4,00,000 had been paid.

10. As a result we answer the reference as stated above and remit this case to the Income-tax Appellate Tribunal for passing the consequential order in accordance with our opinion. However, under the circumstances, we direct that there shall be no order as to the costs of this reference.


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