P.N. Khanna, J.
(1) In compliance with the directions of this court under section 27(3) of the Wealth-tax Act, 1957, the Income-tax Appellate Tribunal, Delhi Bench 'C', has drawn up a consolidated statement of the case and referred the following question to us for opinion:
'WHETHERon the facts and in the circumstances of the case, the Tribunal was right in holding that the value of assessed's right to acquire further equity shares which right he renounced in favor of his minor daughter was not fticludible in assessed's net wealth under section 4(l)(a)(ii) of the Wealth-tax Act, 1957 ?'
THErelevant assessment years are 1958-59 to 1962-63 and the valuation dates corresponding thereto are the last dates of the respective preceding calendar years- Krishan Mohan, the assessed, was a share-holder in Motor General Finance Limited. The said company proposed to increase its subscribed capital by allotment of further spares which it offerd to the xisting share holder.the assessed became entitled to a 'right' to acquire further shares at their face value of Rs. 10.00per share. The assessed got this 'right' on two occasions. On both occasions, he renounced his 'right' in favor of his minor unmarried daughter, Miss Sujata Gupta. The first right was renounced in respect of 460 shares on May 30, 1957, while the second renunciation in respect of 670 shares was made
'Assessment year Amounts 1958-59 14.070.00 1959-60 14.070.00 1960-61 34,170.00 1961-62 34.170.00 1962-63 32,462.00'
THEAppellate Assistant Commissioner of Wealth-tax dismissed all the appeals. The Tribunal in second appeal, however, reversed the decision of the Appellate Assistant Commissioner, and took the view that the said 'right' got extinguished and ceased to exist as soon as the minor acquired the shares- As such, there was no asset, the value of which was required to be computed in ascertaining the net wealth of the assessed. The appeal was accepted and the additions made by the Wealth-tax Officer were excluded from the computation of net wealth of the assessed. The application of the Commissioner of Wealth-tax for reference of the question already referred to above, to this court was also dismissed by the Tribunal- On his application, this court. however, framed the above question and directed the Tribunal to state the case and refer it under section 27(3) of the Act.
MR.R. H. Dhebar, the learned counsel appearing on behalf of the Revenue, contended that what the minor unmarried daughter acquired were the assets worth Rs. 40.00 per share, out of which she paid Rs. 10.00 only from out of her own funds. The assets held by her on the valuation date of the balance value to the extent of Rs. 30.00 per share were held under a transfer from the assessed to her otherwise than for adequate consideration. This, thereforee, said Mr. Dhebar, was a clear case which attracted clause (ii) of section 4(l)(a) of the Wealth-tax Act.
(2) Mr. G. C. Sharma, the learned counsel appearing on behalf of the assessed, on the other hand, contended that there did not exist any asset on the valuation date, the value of which could be computed for purpose of inclusion in the net wealth of the assessed- We are inclined to hold that the contention of Mr. Sharma is correct.
THErelevant part of section 4 of the Wealth-tax Act, 1957 reads as follows:
'4(1).In computing the net wealth of an individual, there shall be included, as belonging to that individual
(A)the value of assets which on the valuation date are held
(II)by a minor child, not being a married daughter, of such individual, to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration, or
(3) We have, thereforee, to ascertain first the assets, which on the valuation date were held by the unmarried minor daughter and which had earlier been transferred to her by the assessed. The questions, whether they were transferred otherwise than for valuable consideration and of their valuation on the valuation date, would arise only after such assets have been ascertained.
(4) According to the revenue, the assessed transferred his 'right' to acquire shares at Rs. 10.00 per share, the market value of which on the date of transfer and on the valuation date was Rs. 40.00 per share. But, what is the precise nature of the said 'right'? This 'right' of a shareholder to acquire shares in case the company proposes to increase its subscribed capital by allotment of further shares is governed by section 81 of the Companies Act, 1956. According to clause (b) . of its sub-section (1) the offer of further share is required to be made by notice limiting a time not being less than 15 days from the date of the offer within which the offer if not accepted is deemed to have been declined. Under the relevant part of clause (e) of the said subsection, the offer aforesaid is deemed to include a right exercisable by the person concerned to renounce the shares offered to him in favor of any other person. Under sub-section (2) of section 81, nothing in clause (e) of sub-section (1) is deemed to extend the time within which the offer should be accepted, or to authorise any person to exercise the right of renunciation for a second time on the ground that the person in whose favor the renunciation was first made has declined to take the shares comprised in the renunciation. According to clause (d) of sub-section (1) of section 81, after the expiry of the time specified in the notice, or on receipt of earlier intimation from the person to whom the said notice is given that he declines to accept the shares offered, the , of Directors may dispose of them in such manner as they think most beneficial to the company. The 'right' thus given to a shareholder to acquire further shares has a limited life. The option given to him has to be exercised within a given time, failing which the option lapses. In case the 'right' is exercised, the share-holder concerned acquires further shares and the right to acquire is exhausted. The person in whose favor the said right may be renounced or transferred likewise, exhausts the said right by actual purchase of the said shares offered or by not exercising the right within the limited time fixed for the purpose- The 'right' in any case ceases to exist after the expiry of the time fixed for its exercise.
(5) In this case after the renunciation by the assessed, the 'right' to acquire the shares was exercised by his unmarried minor daughter and was exhausted on the said minor daughter purchasing the right shares immediately after the 'rights' were transferred to her on May 30, 1957 and then on June 20, 1959. There is no dispute that on the last day of the calendar year, which is the valuation date for each of the assessment years in question, these rights had already been exercised, and the shares offered had been purchased. The 'right', thus, had been exhausted and extinguished and did not exist. There was, thereforee, nothing, on the valuation date, of the said 'right to acquire further equity shares', which had been transferred by the assessed to his unmarried minor daughter, which could be said to be still held by her- The said 'right' had been extinguished, by its exercise, and the question of its valuation cannot arise.
(6) Mr. Dhebar contended that section 4 has introduced a legal fiction and, thereforee, even if the asset does not exist in reality, it is deemed to be in existence by virtue of the legal provision. The contention of Mr. Dhebar is not well founded. There is nothing in the section to suggest such kind of fiction. The only fiction which has been introduced in the section operates to make the asset held by the minor as the asset of the assessed, if it has been transferred by the assessed to the minor otherwise than for adequate consideration. The fiction does not operate to bring into existence any asset. It only brings about a change in the ownership of an existing asset. In the present case, the minor on the valuation date holds certain shares. These shares were not transferred to her by the father. These shares had been acquired by her from out of her own funds. The question which is posed to us for our answer speaks of 'the right to acquire further equity shares' and not the shares. It is the value of the said right to acquire further shares and not of the shares, which is sought to be included in the net wealth of the assessed. The said right, as already noticed, was exhausted and extinguished as soon as the minor daughter purchased the shares. No such right to acquire any further shares existed in her hands on the valuation date. Mr. Dhebar contended that the shares held by the daughter should be taken as the asset though of a somewhat different nature, which was transferred to her by the assessed. This contention is not sound. The language of the section clearly shows that the value has to be ascertained of 'such assets' as have been transferred by the assesisee to the minor and which are held by the minor on the valuation date. In this case, the minor was holding shares and not the rights which the assessed had transferred to her. The two are basically different in nature and are quite distinct and different from each other. The mere right to acquire further shares may never be exercised and may become of no value after a given time, if it is not exercised during that time. The shares, on the other hand, have a permanance and do not have such a transitory value. The assets held by the minor on the valuation date were, thereforee, entirely different from the assets which had been transferred to her by the assessed.
(7) Mr. Dhebar contended that the words 'directly or indirectly' would cover even different assets, which may have been acquired by the help of the asset which was transferred. It is, however, not necessary to examine this contention, as the relevant assessment years involved in this case a-e 1958-59 to 1962-63. The words 'directly or indirectly' were introduced in the section by the Wealth-tax (Amendment) Act. 1964, with effect from April 1, 1965. Before the amendment, clause (ii) of section 4(l)(a), which is the relevant paft of section 4 read as follows
'(2)hv fi minor child not being a married danger to whom such.assets have been transferred by the individual otherwise han for adequate consideration-'
THEquestion of examining the effect of the words 'directly or indirectly', thereforee does not arise. On the other hand, the effect of the word 'such', which qualifies the word 'asset' has a significance of its own. The legislature unmistakably intended to include in the net wealth of the assessed 'such' asset only which was actually transferred by the said assessed to his minor child (not being a married daughter) without adequate consideration- Further, the question before us as already noticed, is, whether the Tribunal was right in not including in the assessed's net wealth, the value of his 'right to acquire further equity shares', which was renounced by him in his daughter's favor. No question has been asked about any claim for inclusion in his net wealth, the value of 'the equity shares' purchased by the daughter. Mr. Dhebar's contention, accordingly is not sound.
(8) The Tribunal, in our opinion, was, thereforee, right in holding that on the valuation date 'the right' had ceased to exist and the same was exhausted on the minor acquiring the shares. There was, thereforee, no asset in the hands of the minor daughter, which had been transferred to her by the assessed and which required to be valued for the purpose of inclusion in his net wealth. The question referred to us, thereforee, has to be and is answered in the affirmative, that is in favor of the assessed and against the revenue.
(9) In the peculiar circumstances of the case, however, there shall be no order as to costs.