Compulsory deposit deemed a banking deposit, securing wealth-tax exemption and exclusion from net wealth

A compulsory deposit made under the Compulsory Deposit (Income-tax Payers) Scheme, 1974 was treated by the statutory deeming fiction in section 7A as a deposit with a banking company for exemption under the Wealth-tax Act, 1957. On that basis, the deposit was not liable to wealth-tax and was excluded from the assessee's net wealth for the relevant assessment years.

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Issues: Whether compulsory deposits made under the Compulsory Deposit (Income-tax Payers) Scheme, 1974, are exempt from wealth-tax and excluded from the assessee's net wealth.

Analysis: The reference concerned assessment years 1982-83 and 1983-84. The controlling provision was section 7A inserted in the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 by the Finance (No. 2) Act, 1980, with effect from 1 April 1975. That provision deems the compulsory deposit to be a deposit with a banking company for the purposes of exemption under section 5 of the Wealth-tax Act, 1957. In view of this statutory deeming fiction, the compulsory deposit was not liable to wealth-tax as part of the assessee's net wealth.

Conclusion: The compulsory deposit was held exempt from wealth-tax and excluded from the assessable net wealth of the assessee.

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