Skip to content


Damji Jairam Vs. Commissioner of Wealth-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberSpecial Jurisdiction Case No. 36 of 1976
Judge
Reported in[1980]126ITR245(Orissa)
ActsWealth Tax Act, 1957 - Sections 4, 4(1), 5, 5(1) and 5(3)
AppellantDamji Jairam
RespondentCommissioner of Wealth-tax
Appellant AdvocateB.K. Mohanty, Adv.
Respondent AdvocateStanding Counsel
Cases ReferredLtd. v. State of Bihar
Excerpt:
.....not. no formal order condoning the delay is necessary, an order of adjournment would suffice. the provisions of limitation embodied in the substantive provision of the sub-section (1) of section 173 of the act does not extend to the provision relating to the deposit of statutory amount as embodies in the first proviso. therefore an appeal filed within the period of limitation or within the extended period of limitation, cannot be admitted for hearing on merit unless the statutory deposit is made either with the memo of appeal or on such date as may be permitted by the court. no specific order condoning any delay for the purpose of deposit under first proviso to sub-section (1) of section 173 is necessary. [new india assurance co. ltd. v md. makubur rahman, 1993 (2) glr 430 and new india..........the asset under consideration. our answer to the question, therefore, is !10. on the facts and in the circumstances of the case, the tribunal was not correct in holding that the meaning of the phrase held by him appearing in section 5(3) of the act did not extend to the asset held by the wife of the assessee and included in the total wealth of the assessee by virtue of section 4(1)(a) of the act.11. assessee shall have costs of this reference. hearing fee is assessed at rupees one hundred.n.k. das, j. 12. i agree.
Judgment:

R.N. Misra, J.

1. The Cuttack Bench of the Wealth-tax Tribunal has stated a case under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as ' the Act ', referred the following question for the opinion of the court:

' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the meaning of the phrase held by him appearing in Section 5(3) of the Wealth-tax Act, 1957, did not extend to assets held by the wife of the assessee and included in the total wealth of the assessee by virtue of Section 4(1)(a) of the Act '

2. Assessee is an individual. The relevant assessment year is 1974-75, the relevant valuation date being March 31, 1974. Assessee had made a gift of Rs. 20,000 in cash to his wife in an earlier year and the donee had invested the same amount in a fixed deposit with a bank. The WTO treated this amount as includible in the assessee's assets under Section 4(1)(a) of the Act and finding that the asset was not held by the assessee did not grant exemption in respect of the asset under Section 5(1)(xxvi) of the Act. The assessee appealed to the AAC who took the view that the exemption in Section 5(l)(xxvi) of the Act was intended to be given to all fixed deposits forming part of the net wealth of the assessee subject to other limitations and accordingly directed exemption in respect of the asset under consideration.

3. Upon appeal by the revenue, the Appellate Tribunal came to the following conclusion:

' ... ...There is no dispute that the asset in question, namely, the fixed deposit of Rs. 20,000 standing in the name of the assessee's wife is includible in the net wealth of the assessee by virtue of the provisions of Section 4(1)(a) of the Act. There is also no dispute that the asset is a deposit in a bank as envisaged under Section 5(1 )(xxvi) of the Act. The only dispute in this appeal is whether the provision of Section 5(3) of the Act is applicable to the asset. We find that Section 5(3) of the Act prescribes an overriding condition in granting the exemption to the assets enumerated in Section 5(1) of the Act. One such condition is that the asset in question must be held by the assessee for a period of at least six months reckoned from the relevant valuation date. Now, the question is whether the phrase held by him would include the assets which are deemed to be held by him under Section 4(1) of the Act, On a careful consideration of the relevant provisions of the Act, we are of opinion that the meaning of held by him occurring in Section 5(3) of the Act cannot be enlarged to mean held or deemed to be held by him. It is well settled that a taxing Act has always to be strictly construed and no words which are not in the statute can be read into it, vide Controller of Estate Duty v. R. Kanakasabai reported in : [1973]89ITR251(SC) . Again it was held in the case of Commissioner of Income-tax v. Vadilal Lallubhai reported in : [1972]86ITR2(SC) that legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field. In our opinion, the legal fiction enacted in Section 4(1) of the Act was created for the definite purpose of including certain assets in the net wealth of the assessee even though they did not belong to him. Once this is done, that purpose is completely fulfilled. Consequently, the legal fiction is no longer available for granting the exemption contemplated in Section 5(1)(xxvi) of the Act read with Section 5(3) of the Act. We, therefore, come to the conclusion that the Appellate Assistant Commissioner erred in his decision.'

and restored the order of the WTO. At the assessee's instance, this reference has been made.

4. There is no dispute before us that in terms of Section 4(1){a)(i) of the Act, the asset in question has been rightly included in the computation of the assessee's net wealth. The record clearly indicates that the gift was in a previous year and the amount was lying in fixed deposit in the name of the wife in a bank from before. While Section 4 provides for inclusion of certain assets in the matter of computation of the net wealth, Section 5 provides for exemptions in respect of certain assets. There is no dispute before us that if the asset in question stood in the name of the assessee, it would have squarely come within the ambit of Section 5(1)(xxvi) of the Act and as such the assessee would have been entitled to exemption of this asset in the matter of computation of his net wealth. Admittedly, the net asset gets included in the net wealth of the assessee by a deeming provision. Assessee's stand is that Sections 4 and 5 are the legislative machinery for inclusion and exclusion in the matter of computation of net wealth--while Section 4 deals with the inclusive process, Section 5 covers the exemptions. If by a deeming provision, an asset which was not of the assessee is brought into the ambit, the deeming position should continue also for the purposes of Section 5 and the benefit extended by the statute should not be withheld. In support of this proposition, reliance is placed on a Bench decision of the Madras High Court in the case of S. Naganathan v. CWT : [1975]101ITR287(Mad) . That was a case where a house standing in the name of the wife was treated as an asset includible for the purpose of determining the net wealth of the assessee under Section 4(1). The WTO did not grant the exemption provided in Section 5(1)(iv) and included the value of the house in the net wealth of the assessee. The Tribunal ultimately took the view that in spite of the fiction created under Section 4(1)(a), the house still belonged to the wife and the exemption under Section 5(1)(iv) would apply only to a case where the assessee was the owner of the asset and not to a case where the property was treated as belonging to him under a fiction. The Madras High Court indicated (pp. 289, 290):

'Asset is defined in Section 2(e) as including property of every description, moyable and immovable, but excluding certain items which are not necessary to be set out here. Section 2(m) defines net wealth as meaning the amount by which the aggregate value computed in accordance with the provisions of the 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 under the provisions of the Act which is in excess of the aggregate value of all the debts owed by the assessee except certain debts which are specified in that provision. The charging provisions in Section 3 enact that wealth-tax shall be charged for every assessment year in respect of the net wealth of the individual at the rate or rates specified in the Schedule. Section 4 deals with assets which are required to be included in the net wealth of the assessee and Section 5 sets out the assets which shall not be included in the net wealth of the assessee. It may be seen from the scheme of the Act that what is sought to be subjected to wealth-tax is the aggregate value of all the assets belonging to the assessee. Section 4 is thus intended only to prevent any evasion or avoidance of tax by resorting to transfers and taking the properties out of the provisions of the Act. If the intended purpose of Section 4(1) is to be achieved, the transferor shall not be allowed, to be in a better position than what he would have been in if he had not resorted to such a fraudulent transfer. We have used the expression ' fraudulent transfer ' not with the intention of restricting the scope of Section 4(1) to only such fraudulent transfers, but in order to emphasize the need for a provision like Section 4(1)(a). But we are not persuaded to hold that by this provision Parliament 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. There is nothing either in Section 4 or in Section 5(1), in our view, which show an intention of Parliament either to limit the fiction created under Section 4(1) only for the purpose of including the value of the asset transferred in the net wealth of the transferor or exclude the application of Section 5(1)(iv) to a case where the transfer related to a house belonging to the assessee. While we agree with the learned counsel for the revenue that the assessee shall not be permitted to be in a better position by resorting to such transfers without consideration, we are unable to agree with him that he shall be penalised by reason of such transaction. Unless there is a clear indication in the provisions of the Act itself, we cannot assume that Parliament intended to impose a more onerous obligation on the assessee than would have been but for the transfer. We may also in this connection point out that. Parliament has also provided for the recovery of the tax due even from the property transferred under Section 33 of the Act. Thus, the position prior to the transfer is retained for all purposes except that the transfer itself is not avoided.'

and the court ultimately found in favour of the assessee.

5. Assessee's counsel relies upon the oft-quoted words of Lord Asquith in the case of East End Dwellings Co, Lid. v. Finsbury Borough Council [1952] AC 109:

' If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it......The statute says that you must imagine a certain state of affairs ; it does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corrollaries of that state of affairs. '

6. These words have been quoted with approval by the Supreme Court. in the cases of State of Bombay v. Pandurang Vinayak : 1953CriLJ1049 ; CIT v. S. Teja Singh : [1959]35ITR408(SC) and Sri Jagadgum Ran Basava Rajendraswami of Govimutt v. Commissioner of Hindtt Religious and Charitable Endowments, Hyderabad : [1964]8SCR252 .

7. Learned standing counsel on the other hand has relied upon a passage from the well-known decision of the Supreme Court in the case of Bengal Immunity Co, Ltd. v. State of Bihar [1955] 6 STC 446, where it was pointed out that a legal fiction is to be limited for the purpose for which it was created and should not be extended beyond that legitimate field. Learned standing counsel has also relied upon the decisions referred to by the Tribunal in this connection.

8. As we have already pointed out, the scheme in Sections 4 and 5 of the Act are essentially one, namely, provisions made for the computation of net wealth of the assessee. Section 4 provides for the inclusion of certain assets which in normal circumstances may not have been included and Section 5 makes a provision for the exclusion of certain assets which keeping the law in view would have been treated as assets in the hands of the assessee for computation of his net wealth. Exemptions under Section 5 have been provided, to give effect to the intention of Parliament as a matter of public policy. We are impressed by the reasoning indicated in the Madras High Court's judgment in S. Naganathan v. CWT : [1975]101ITR287(Mad) that Parliament did not intend to penalise the assessee and had also not intended to subject the assessee to a more onerous position than one where the asset would have been treated as his for all purposes. If under Section 4(1 )(a) the gifted amount became the assessee's asset, there is no legislative mandate to treat this sum as an asset in the hands of the assessee not liable to be treated under Section 5 of the Act. If it came in as an asset for inclusion in the assessee's net wealth for the purpose of computation of his liability under the Act, in administering the law, the provision of Section 5 which has been prescribed by parliament for the purpose of completing the assessment must also be taken into account. We are in accord with the view expressed by the Madras High Court and we do not subscribe to the contention of the learned standing counsel that in doing so we violate the doctrine applicable to a legal fiction.

9. The Tribunal was very much impressed by the provision in Section 5(3) of the Act which at the relevant time had provided that the asset should be held by the assessee. The construction put by the Tribunal on the provision of Sub-section (3) of Section 5 seems to be wholly unwarranted. We are not concerned with the position as to whether the amendment introduced with effect from April 1, 1975, was retrospective or not. It is sufficient to indicate that Sub-section (3) provided an additional requirement to the clauses named therein of Sub-section (1) of Section 5, namely, the asset thereunder should have been held for a period of six months immediately preceding the relevant valuation date in order to entitle the assessee for a claim of exemption. The further requirement in Sub-section (3) to entitle the assessee to claim exemption was the period. Sub-section (1) in its different clauses had at several places used the concept of ' held by him '. The dominant purpose in Sub-section (3) was the requirement of the period prescribed therein, and not incorporation of the requirement of the asset being held by the assessee. Here again, if by operation of the fiction the asset is taken as the assessee's, nothing turns on the use of the phrase held by him. We are inclined to agree with the AAC and not the Tribunal that, in the facts stated, the assessee was entitled to the exemption in respect of the asset under consideration. Our answer to the question, therefore, is !

10. On the facts and in the circumstances of the case, the Tribunal was not correct in holding that the meaning of the phrase held by him appearing in Section 5(3) of the Act did not extend to the asset held by the wife of the assessee and included in the total wealth of the assessee by virtue of Section 4(1)(a) of the Act.

11. Assessee shall have costs of this reference. Hearing fee is assessed at rupees one hundred.

N.K. Das, J.

12. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //