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Commissioner of Wealth-tax Vs. Shivjibhai Jairam (Huf) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 460 of 1976
Judge
Reported in(1982)30CTR(MP)311; [1983]143ITR759(MP)
ActsWealth Tax Act, 1957 - Sections 2; Transfer of Property Act, 1882 - Sections 3
AppellantCommissioner of Wealth-tax
RespondentShivjibhai Jairam (Huf)
Appellant AdvocateB.K. Rawat, Adv.
Respondent AdvocateP.D. Thakar and ;A.L. Halve, Advs.
Cases Referred(Venkatarama Aiyar v. Ramaswami Aiyar
Excerpt:
.....be raised, it cannot be said that onus shifts exclusively and heavily on him to prove his innocence. conviction of appellant is liable to be set aside. - moreover, in the instant case, as pointed out earlier, after the passing of the decree for possession in november, 1962, in favour of the assessec, his right to recover mesne profits had clearly crystallized and all that remained to be done in the suit was the quantification of mesne profits. 6. before parting with the case, we would like to make it clear that the valuation of the right to recover mesne profits on the valuation date will not be necessarily the amount of mesne profits which the court later adjudicates......on the facts and in the circumstances of the case, the asset, that is the right to receive mesne profits, came into existence only on the passing of the order by the district judge in the year 1967 and not earlier '2. the reference relates to the assessment years 1964-65 to 1967-68. the assessee owned a cinema house which was leased out to one shyama charan for a period of ten years beginning from 22nd may, 1950, and ending on 21st may, 1960, at a rent of rs. 1,600 per month. as the lessee did not hand over possession ;after the expiry of the lease, a suit was instituted by the assessee for recovery of vacant possession, arrears of rent and mesne profits. the suit was first decreed on 3rd november, 1962, regarding the claim for possession by the district judge leaving the.....
Judgment:

G.P. Singh, C.J.

1. This is a reference made by the Wealth-tax Appellate Tribunal, referring for our answer the following question of law :

' Whether, on the facts and in the circumstances of the case, the asset, that is the right to receive mesne profits, came into existence only on the passing of the order by the district judge in the year 1967 and not earlier '

2. The reference relates to the assessment years 1964-65 to 1967-68. The assessee owned a cinema house which was leased out to one Shyama Charan for a period of ten years beginning from 22nd May, 1950, and ending on 21st May, 1960, at a rent of Rs. 1,600 per month. As the lessee did not hand over possession ;after the expiry of the lease, a suit was instituted by the assessee for recovery of vacant possession, arrears of rent and mesne profits. The suit was first decreed on 3rd November, 1962, regarding the claim for possession by the district judge leaving the question of arrears of rent and mesne profits to be settled thereafter. The decree for possession was affirmed by the High Court and the Supreme Court. The possession was delivered to the assessee on 4th October, 1964. The district judge thereafter tried the claim of arrears of rent and mesne profits. By a decree passed on 2nd January, 1967, the district judge directed payment of arrears of rent amounting to Rs. 16,353 and mesne profits at the rate of Rs. 4,000 per month for the period from 22nd May, 1960, to 4th October, 1964. The decree passed by the district judge was affirmed in appeal by the High Court on 4th November, 1970, in First Appeal No. 37 of 1967. The judgments of the district judge and the High Court are annexed to the statement of the case as annexs. A and B. From these judgments, it appears that the main contention of the lessee was that mesne profits should be allowed at the rate of Rs. 1,600 per month which was the rate of rent and not at any higher rate. This contention was negatived and mesne profits were allowed at the rate of Rs. 4,000 per month. Against the judgment and decree of the High Court an appeal was taken to the Supreme Court which granted stay on 25th November, 1971. It is not known from the statement of case as to what happened thereafter. However, the stay order of the Supreme Court, even assuming it continues, only means that that court may review the rate at which mesne profits were allowed by the district judge and the High Court. The Supreme Court had earlier affirmed the decree for possession and it was only thereafter that possession was obtained by the assessee.

3. The valuation date for the assessment year 1964-65 is 31st December, 1963, and similarly 31st December, 1964, for 1965-66, 31st December, 1965, for 1966-67 and 31st December, 1966, for 1967-68. The WTO added the amount of Rs. 1,72,000 which is the amount of mesne profits payable for the period up to 31st December, 1963, as an asset for the assessment year 1964-65 and for the subsequent years, the amount of Rs. 2,08,000. The AAC confirmed the order of the WTO. The Tribunal held that the right to receive the asset in the shape of mesne profits arose to the assessee only on 2nd January, 1967, when the district judgepassed the decree and this did not relate back to any earlier period and, therefore, the Tribunal deleted the addition made by the WTO. On an application made by the Revenue, the Tribunal referred the aforesaid question of law.

4. The charge of wealth-tax as provided in s, 3 of the W.T. Act, 1957, for every assessment year is ' in respect of the net wealth on the corresponding valuation date '. The expression ' net wealth ' is defined in s, 2(m). Briefly stated ' net wealth ' means the amount by which the aggregate value of all assets, wherever located, belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on that date. The word 'assets' as defined in Section 2(e) includes ' property of every description, movable or immovable ', but does not include those excluded by Clauses (1) and (2) of that section. A reading of Section 3 along with these definitions makes it clear that everything which can be described as ' property ' belonging to the assessee on the valuation date if not excluded by the exclusionary clauses of Section 2(e) has to be taken into account in the computation of net wealth for charging wealth-tax. In Ahmed G. H. Ariff v. CWT : [1970]76ITR471(SC) , the Supreme Court observed that there is no reason or justification to give any restricted meaning to the word ' assets ' as defined in Section 2(e) of the Act when the language employed shows that it was intended to include property of every description. It was further observed that when Section 3 imposed the charge of wealth-tax on the net wealth, it necessarity included property of every description, movable and immovable, barring the exceptions stated in Section 2(e) and other provisions of the Act. The same view was reiterated by the Supreme Court in Pandit Lakshmi Kant Jha v. CWT : [1973]90ITR97(SC) .

5. The question then is whether the assessee's right to recover mesne profits for which he had filed a suit and which was pending on all the relevant valuation dates could be called property belonging to the assessee even before the passing of the decree relating to mesne profits. It is true that the right to recover or sue for mesne profits is a claim for unliquidated damages. It is not a debt. It is not an actionable claim as defined ins. 3 of the Transfer of Property Act, 1882. Speaking generally it is also not transferable except along with the property in respect of which it is claimed (Gangaraju v. Gopala Krishnamurthi AIR 1957 AP 190) or when the right becomes undisputed and what remains is only a quantification of the damages (Venkatarama Aiyar v. Ramaswami Aiyar AIR 1921 Mad 56). Even so, it cannot be said that it is not property. The right to recover mesne profits is a chose-in-action as understood in the English law. It is heritable. It is not a right or interest mentionedin the exclusionary clauses of the definition of assets in Section 2(e) of the Act. In the instant case, after the passing of the decree for possession in November, 1962, there could be no doubt that the assessee was entitled to recover mesne profits for the period from the date of expiry of lease up to the delivery of possession and all that remained to be decided in the suit was a quantification of the amount. In a narrower sense property comprises of rights in rem in contrast with obligations which give rise to rights in personam. But the term 'property' is frequently used in a broad sense to include assets which the law would regard as mere rights in personam (Paton's Jurisprudence, 3rd Edn., p. 455). As the word ' property ' has to be understood in a wide sense as held by the Supreme Court in Ariff's case : [1970]76ITR471(SC) , we are of opinion that the right to recover mesne profits, although a right in personam, is property falling within the definition of assets in Section 2(e) of the W.T. Act. It was submitted that under Section 7 of the W.T. Act the valuation of any asset is estimated to be the price which in the opinion of the WTO it would fetch if sold in the open market on the valuation date and as the right to recover mesne profits cannot be sold, its valuation cannot be determined which shows that it is not property falling within the definition of assets contained in the Act. This argument cannot be accepted. It was held in Ariff's case : [1970]76ITR471(SC) , that the words ' if sold in the open market' occurring in Section 7 do not contemplate actual sale or the actual state of the market but only enjoin that it should he assumed that there is an open market and the property can be sold in such a market. As further pointed out in that case, these words contemplate a hypothetical case and the WTO must assume that there is an open market in which the asset can be sold. The same view was expressed by the Supreme Court in Purshottam N. Amarsay v. CWT : [1973]88ITR417(SC) and it was held that even if the property in question is incapable of being sold in the open market, being a personal estate, in that event also the interest of the assessee has to be valued by the WTO on a hypothetical basis. The fact, therefore, that the right to recover mesne profits cannot be sold does not negative its being property within the definition of assets in Section 2(e) of the Act. The right to recover mesne profits exists even before the passing of the decree in a suit for enforcing the right. The decree only settles the dispute as to the right and quantifies the amount of mesne profits. Moreover, in the instant case, as pointed out earlier, after the passing of the decree for possession in November, 1962, in favour of the assessec, his right to recover mesne profits had clearly crystallized and all that remained to be done in the suit was the quantification of mesne profits. In other words, the right torecover mesne profits, in the instant case, was not merely a right to sue on the relevant valuation dates. The legal possession that the right to recover mesne profits, as property, exists even before the passing of the decree for mesne profits is amply borne out from the fact that this right is heritable and passes on to the heirs on the demise of the claimant before the passing of the decree. Had it been merely an inchoate right and not property, it could not have passed on to the heirs before its adjudication and quantification.

6. Before parting with the case, we would like to make it clear that the valuation of the right to recover mesne profits on the valuation date will not be necessarily the amount of mesne profits which the court later adjudicates. Normally, it would be much less having regard to the unpredictable course that a litigation may take in future. The Tribunal has not dealt with the question of valuation as it came to the conclusion that the right is not an asset. It will have to go into that question now.

7. For the reasons given above, we answer the question as follows :

'The right to receive or recover mesne profits existed as an asset belonging to the assessee on the relevant valuation dates in this case even before the passing of the decree of the district judge quantifying the amount of mesne profits.'

8. There will be no order as to costs.


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