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Kalyanbhai Trikamlal Shah Vs. Commissioner of Wealth-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference Nos. 4 and 6 of 1978 and 1 of 1980
Judge
Reported in(1982)28CTR(Guj)139; [1982]135ITR750(Guj)
ActsWealth Tax Act, 1957 - Sections 4(1A)
AppellantKalyanbhai Trikamlal Shah
RespondentCommissioner of Wealth-tax, Gujarat
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate B.R. Shah, Adv.
Excerpt:
.....- section 4 (1a) of wealth tax act, 1957 - matter pertaining to extent of interest of assessee on converted property for purposes of valuation for inclusion in net wealth in his return - interest of assessee to be clubbed with interest of spouse as per section 4 (1) (a) - share of major sons not to be clubbed together - interest of share of assessee in converted property in family to be computed on basis of 1/6th share that is his share along with wife's share - assessee had 1/6th interest in converted property. - - the assessee contended that it was 1/12th as 1/3rd interest in the huf would take within its sweep his own individual interest as well as the interest of his wife and two major sons (1/3 x 1/4). in the alternative, it was contended that in any case, the interest..........at least some portion of the stock-holding (namely, the converted property) was includible in the assessee-individual's net wealth under section 4(1a) of the w.t. act as deemed asset in the affirmative and against the assessee. 2. if the above question is answered in the affirmative, would the deemed asset so includible in the assessee-individual's net wealth be 1/3rd, 1/6th or 1/12th portion of the converted property 1/6th portion of the converted property would be includible in the net wealth of the assessee. 4. w. t. r. no. 6 of 1978. 1. whether, on the facts and circumstances of the case, the appellate tribunal was right in law in holding that at least some portion of the stock-holding (namely, the converted property) was includible in the assessee-individual's net wealth under.....
Judgment:

Thakkar, J.

1. An assessee impressed an item of property belonging to him with the character of HUF. Thereupon a question arose as to what would be the extent of the interest of the assessee on the converted property for the purpose of valuation for inclusion in the net wealth in his wealth-tax return. The question arises n respect of the assessment year 1972-73. Similar question arose in the assessment years 1973-74 and 1974-75. Similar question having been raised in all the three references and the same will be disposed of by this common judgment. The question arose in the context of s. 4(1A)(b) read with clause (d) of the Explanation. The said provision, so far as material for the purpose of this matter, requires to be quoted in order to understand the controversy :

'4. (1A) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has at any time after the 31st day December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family (such property being hereinafter referred to as the converted property,) then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1972.....

(b) the converted property or any part thereof, in so far as it is attributable to the interest of the individual in the property of the family, shall be deemed to be assets belonging to the individual and not to the family;.........

Explanation : For the purposes of this section - ........

(d) the expressions `interest of the individual n the property of the family' and `interest of the spouse or any minor child of the individual in the property of the family' mean, respectively, the proportion in which the individuals or, as the case may be, the spouse or minor child would be entitled to share the property of the family if there had been a total partition in the family as on the valuation date of the family relevant to the assessment year for which the individual is to be assessed under subsection (1A).

2. The assessee contended that only 1/12th of the converted property was attributable to his interest. This argument was advanced in the context of the fact that he had a wife and two major sons. The HUF in which the converted property was thrown consisted of the assessee, his brother and their mother. In the context of these facts, the question arose whether the interest attributable to the assessee in the converted property was 1/3rd, 1/6th or 1/12th. The assessee contended that it was 1/12th as 1/3rd interest in the HUF would take within its sweep his own individual interest as well as the interest of his wife and two major sons (1/3 x 1/4). In the alternative, it was contended that in any case, the interest attributable to the assessee in the converted property cannot be more than 1/6th having regard to the fact that his interest and the interest of his wife could perhaps be clubbed together. The revenue on the other hand assumed the posture that he being a member of the HUF along with his brother and his mother he had 1/3rd interest and that the interest attributable in the converted property should be computed on the basis that he had 1/3rd interest. The expression 'interest of the individual in the property of the family' has been defined by clause (d) of the Explanation to mean the proportion in which the individual would be entitled to share the property of the family if there had been a total partition in the family as on the valuation date. It is, therefore, clear that a fictional total partition on the valuation date is postulated by the expression 'interest of the individual in the property of the family'. The interest of the assessee would have to be clubbed with the interest of his spouse having regard to the provision contained in s. 4(1)(a), which provides that in computing the net wealth of an individual, the value of the assets which, on the valuation date, are held by the spouse of such individual to whom the same had been transferred by the individual otherwise than for adequate consideration or in connection with an agreement to live apart, shall be include. In the present case, it is evident that it would amount to an indirect transfer in favour of the spouse. The share of the spouse would, therefore, be required to be clubbed together with the share of the assessee. If there was a minor child, his share would also have been required to be clubbed with that of the assessee. In the present case, there is no minor child and, therefore, that question does not arise. The share of the major sons, of course, cannot be clubbed together. The interest of the assessee in the converted property in the family must, therefore be computed on the basis of 1/6th share (1/3 x 1/2=1/6). The view taken by the Tribunal is that the interest of the assessee in the converted property should be valued on the basis of an 1/3rd share without taking into account the fact that each of his major sons would be entitled to a share in case of total partition of the family. The expression 'total partition' employed in clause (d) of the Explanation is of considerable significance. It would justify the conclusion that the interest which a minor son would acquire upon there being a partition in the family and the share of the assessee being separated must be taken into account in computing the share of the assessee in the property belonging to the family. The aforesaid interpretation which commends itself to us is in consequence with the notes on clauses in the Finance (No 2) Bill, 1971, whereby the aforesaid provision was introduced with effect from January 1, 1972. The relevant amendment was brought about by clause 31 of the Finance Bill and the note on clause 31 extracted from Vol. 80 of the ITR (Statutes), page 153, is as under :

'Clause 31 seeks to make certain amendments to section 4 of the Wealth-tax Act, 1957, under which certain assets are included in the net wealth.

Under the amendment in sub-clause (a)(i), the value of the assets transferred by an individual to his spouse or minor children after the end of the previous year relevant to the assessment year 1971-72 for purposes of gift-tax under the Gift-tax Act will be included in the net wealth of such individual for the assessment year 1972-73 or any subsequent assessment year.'

3. We are, therefore, of the opinion that the Tribunal was in error in holding that the assessee had 1/3rd interest in the converted property instead of accepting the alternative contention of the assessee that he had 1/6th interest therein. In any view of the matter, the question referred to us are answered in the following manner :

W.T.R. No. 4 of 1978.

'1. Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that at least some portion of the stock-holding (namely, the converted property) was includible in the assessee-individual's net wealth under section 4(1A) of the W.T. Act as deemed asset

In the affirmative and against the assessee.

2. If the above question is answered in the affirmative, would the deemed asset so includible in the assessee-individual's net wealth be 1/3rd, 1/6th or 1/12th portion of the converted property

1/6th portion of the converted property would be includible in the net wealth of the assessee.

4. W. T. R. No. 6 of 1978.

1. Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that at least some portion of the stock-holding (namely, the converted property) was includible in the assessee-individual's net wealth under section 4(1A). of the Wealth-tax Act as deemed asset

In the affirmative and against the assessee.

2. If the above question is answered in the affirmative would, the deemed asset so includible in the assessee-individual's net wealth be 1/3rd, 1/6th or 1/12th portion of the converted property

1/6th portion of the converted property would be includible in the net wealth of the assessee.

5. W. T. R. No. 1 of 1980.

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the asset deemed u/s. 4(1A)(b) of the W.T. Act to be long to the assessee was 1/3rd portion of the stock-holding and not 1/12th portion

In the negative in part, in the sense that the Tribunal was in error in including 1/3rd portion of the stock-holding. The Tribunal should include 1/6th portion of the stock-holding.

2. If the answer to the above question is in the negative and in favour of the assessee, was 1/12th portion of the stack-holding further taxable in the assessee's hands under section 4(1)(i) of the W.T. Act as being asset deemed u/s. 4(1A)(c) of the W.T. Act to be indirectly transferred to the assessee's spouse

In view of our answer to question No. 1, question No. 2 does not survive. 1/6th portion of the stock holding is includible in the net wealth of the assessee.'

6. All the three references are answered accordingly. There will be no order as to costs.


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