1. This appeal concerns the treatment of cash seized from the assessee by the income-tax department in making an assessment to wealth-tax.
2. The assessee is an individual and we are concerned with the valuation date 31-3-1976. Earlier on 31-7-1974 there was a search in the premises of the assessee when a sum of Rs. 3 lakhs was seized. On 28-10-1974 an order was made under Section 132(5) of the Income-tax Act, 1961 ('the 1961 Act') by the ITO holding that the seized cash represented only part of the undisclosed income of the assessee which was estimated at Rs. 4,21,000 and he determined the tax payable thereon at Rs. 3,00,003. He, therefore, retained the cash of Rs. 3 lakhs towards payment of that tax. On 8-10-1975 the Voluntary Disclosure of Income and Wealth Ordinance, 1975 was promulgated which enabled the assessee to make a disclosure of the seized cash of Rs. 3 lakhs and get the benefit of a reduced rate of tax available under the scheme. Notice under Section 148 of the 1961 Act was issued on 5-3-1976 and after the assessee filed returns of income for the earlier assessment years in accordance with the voluntary disclosure made by him showing Rs. 3,62,980 spread over the assessment years 1971-72 to 1975-76, total tax due thereon was determined at Rs. 1,73,315. After deducting similar wealth-tax liability up to the assessment year 1975-76 of Rs. 3,379, a sum of Rs. 1,25,306 became refundable to the assessee out of the cash seized of Rs. 3 lakhs. These assessments were completed on 27-5-1976.
In the meanwhile the Commissioner had deposited the seized cash in a bank and the amount had remained with the bank until it was returned to the assessee on 23-2-1977. On these facts while computing the net wealth for the assessment year 1976-77 corresponding to the valuation date 31-3-1976 the WTO added a sum of Rs. 1,24,306 as an asset of the assessee, but declined to grant exemption under Section 5(1)(xxvi) of the Wealth-tax Act, 1957 ('the Act'), on the ground that the deposit in the bank was not held by the assessee. On appeal, the AAC confirmed the assessment on the ground that the cash seized did not retain the character of cash but only represented an amount due to the assessee and the Commissioner could not be said to have kept the said sum as a deposit in the bank on behalf of the assessee.
3. In this appeal it was contended on behalf of the assessee that since by an order under Section 132(5) the seized cash had been appropriated towards the tax due and the assessee received the amount back only on 23-2-1977, neither the amount seized nor the balance paid to the assessee could be treated as an asset of the assessee as on the valuation date 31-3-1976. In the alternative, it was argued that since the amount was kept in deposit with a bank by the Commissioner, the assessee was entitled to exemption under Section 5(1)(xxvi). On the other hand, it was contended on behalf of the revenue that the order under Section 132(5) was only provisional and since it did not confiscate the amount, the assessee continued to be the owner of the asset and it was liable to be treated as part of his net wealth. It was submitted that the Commissioner was not the agent of the assessee and his retaining the amount in the bank was irrelevant for the consideration of any exemption under Section 5(1)(xxvi). In the alternative, it was submitted that if it was held that the deposit in the bank should be taken into account, the amount accrued to the assessee only from December 1975 and, therefore, it was not held as a deposit in the bank for more than six months, which was a condition to be fulfilled for granting the exemption.
4. On a consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed. The cash of Rs. 3 lakhs had been seized on 31-7-1974. But it did not cease to be an asset of the assessee because it was not confiscated. No doubt under Section 432(5) an order had been passed retaining the amount towards a tax demand of Rs. 3,00,003. While it did not deprive the assessee of ownership, it can only be said that there was a corresponding liability over the amount and until that order under Section 132(5) was vacated the right of the assessee to receive the amount was practically nil. The position, however, changed when the assessee filed a voluntary disclosure and the tax liability was reduced with the result that the assessee was entitled to get back a sum of Rs. 1,24,306. From the date of the determination of this tax liability and the adjustment of such tax from the seized cash of Rs. 3 lakhs, the Commissioner was holding the balance only as a bailee with the liability to return the amount to the assessee who was the owner. It has been held by the Supreme Court in the case of State of Gujarat v. Memon Mohamed Haji Hasan AIR 1967 SC 1885 that the Government is in the position of a bailee in respect of a goods seized and liable to be returned to the owner who has a right to demand the same unless or until it is confiscated. Similarly it has been held by the Kerala High Court in the case of Assainar v. ITO  101 ITR 854 that when articles are seized under statutory provisions, the officer who seized the articles will be in the position of bailee so long as the enquiry is pending and when the enquiry is over he is bound to return the article and would thereafter be holding the article on behalf of the person from whom it was seized. There is also a decision of the Gujarat High Court in Jayantilal Amritlal v. CWT  135 ITR 742 which affirms that there is no curtailment of the ownership of an assessee in the article seized unless there is a confiscation even though there is a possibility of any confiscation. In the light of these principles the assessee never ceased to be the owner and after the appropriation of the liabilities determined in the assessment the balance due to the assessee was held by the Commissioner only on behalf of the assessee who was the owner of the amount of Rs. 1,24,306. But that amount was determined only when the assessments were completed after the disclosure for the earlier assessment years 1971-72 to 1975-76 on 27-5-1976. In the circumstances on the valuation date 31-3-1976 the position of the cash of Rs. 3 lakhs being liable for tax of Rs. 3,00,003 and practically the asset of the assessee was nil and, therefore, nothing could be added to the net wealth as on that valuation date in respect of the sum seized. Even assuming that the income-tax liability estimated under the order made under Section 132(5) is to be ignored, on the filing of the voluntary disclosure it must be accepted that the assessee continued to be the owner of that asset, being the balance due to the assessee and the Commissioner was holding it only on behalf of the owner. When the amount was deposited in the bank it was the deposit made on behalf of the owner and, therefore, the assessee was entitled to the benefit of that deposit.
Section 5(3) has been amended by the Finance Act, 1975 with effect from 1-4-1975 to substitute the word 'owned' instead of the word 'held' in respect of the condition that the asset in question should be held by the assessee for at least six months ending with the valuation date.
The Notes on Clauses- 98 ITR (St.) 177-has explained that this amendment was made so that exemption in respect of specified assets will be available even in cases where such assets are owned, though not held, by the assessee for a specified period. This amendment applies to the present assessment year 1976-77 with which we are concerned and Parliament having clarified that it should be sufficient if the asset is owned by the assessee and not that it is held by the assessee, the fact that the cash in question was deposited in the bank during the period when the assessee owned it would be sufficient and such period of ownership being admittedly beyond the required period of six months, the assessee is definitely entitled to the exemption under Section 5(1)(xxvi) even if it is held that such asset is includible in the net wealth of the assessee. Looked at from either point of view, we are convinced that the sum of Rs. 1,24,306 was not assessable as part of the net wealth of the assessee. We, therefore, direct the WTO to recompute the net wealth by deleting this amount. The appeal is partly allowed.