1. These appeals are concerned with the valuation of certain jewellery in computing the net wealth of the assessees.
2. The two assessees before us are late Kamalambal Ammal and her great grand daughter, Vidyalakshmi. The house of Kamalambal Ammal was searched on 29-8-1972 and several items of jewellery were seized by the income-tax department on 4-9-1972 and 5-9-1972. An order was made under Section 132(5) of the Income-tax Act, 1961 on 25-11-1972 determining the tax that may become payable by the assessees at Rs. 16,54,745 in respect of the assets seized including the jewellery and such jewellery were kept in the custody of the department. However, when the Voluntary Disclosure Scheme was promulgated, the assessees made disclosures on 31-12-1975 to get the benefit of reduced rate of tax available under the scheme. But the assessments were completed only in 1976 determining the actual tax payable by the assessees. In the meanwhile, an objection had been filed under Section 132(10) and that application was dismissed on 30-9-1976 as infructuous because of the declaration made under the Voluntary Disclosure Scheme. It is also pertinent to note that even though the disclosure of the assessees accepted the ownership of the jewellery, reference was made by the income-tax department to the gold control authorities. It is also seen that on 3-2-1979 the Collector of Central Excise and Customs passed an order under the Gold Control Act imposing penalty and ordering confiscation of the ornaments. An appeal was decided on 20-3-1980 revoking the confiscation.
3. On these facts, the question at issue before us is whether the jewellery which was in the custody of the income-tax department during the valuation dates 31-3-1973 to 31-3-1977 in the case of Miss P.Vidyalakshmi and as on 31-3-1977 in the case of Kamalambal Ammal could be regarded as assets at all and if so, the valuation that should be taken for the purpose of computing the net wealth. The contention of the assessees is that because the assessees had lost possession of the jewellery which was also liable for confiscation under the Gold Control Act, such jewellery cannot be treated as an asset at all. The alternate contention is that since on the valuation dates the jewellery was liable to be appropriated for meeting the tax dues, the value of such jewellery was practically nil. The revenue opposes both the contentions and claims that even though the department was holding on the jewellery, it should be treated as fully valuable assets of the assessee independent of any liability to pay tax thereon.
4. On the consideration of the rival submissions, we are of the opinion that the assessees are entitled to succeed only on the question of valuation. We find that the assessees were the owners of the jewellery and upon the seizure, the Government was only a bailee-State of Gujarat v. Memon Mahomed Haji Hasam AIR 1967 SC 1885. In the absence of any order of confiscation as on the valuation dates, the assessees could never be considered to have ceased to be the owners. Therefore, the jewellery in question must be treated as the assets of the assessees and liable to be included in the net wealth.
5. We now come to the question of valuation of such jewellery.
Admittedly, the jewellery had been kept for appropriation towards the income-tax liabilities estimated by the department. In that situation, as on the valuation dates before the tax liability was actually determined by assessment made in 1976. Such assets could only be regarded as encumbered assets. In the case of encumbered assets, it is only after excluding the charge that one could get the value of the encumbered assets-CWT v. Smt. Shirinbanoo  102 ITR 735 (Guj.). On that principle, the tax liability estimated in the 132(5) order at Rs. 16,54,000 has to be set off against the jewellery valued in that order at Rs. 4,47,000 which leaves practically nothing for being added to the net wealth. In respect of the valuation dates after 1976 also, even though the tax liability would have been reduced, the jewellery was subject to the order of confiscation made by the Collector of Central Excise and Customs on 3-2-1979 and was in the custody of that department. In that situation, it is hardly possible to imagine any willing buyer to pay equal value for purchasing the jewellery in question. In such a situation, in these valuation dates also, until the actual release of the jewellery we do not think there will be any justification for adding the value of such jewellery. We are, therefore, of the opinion that the entire value of the jewellery has to be excluded from the computation of the net wealth in the case of both the assessees for all the valuation dates. In that view, we direct the WTO to recompute the net wealth accordingly.