Forfeiture order divests ownership for wealth-tax purposes unless stayed, excluding the asset from net wealth on valuation date

For wealth-tax purposes, only assets legally belonging to an assessee on the valuation date form part of net wealth. A forfeiture order under SAFEMA, once in force, divests the assessee of ownership and vests the property in the Central Government free from encumbrances; pending appeal does not revive ownership unless the order is stayed or set aside. As the forfeiture order remained operative on the relevant valuation dates, the silver bars had ceased to belong to the assessee and their value was not includible in net wealth.

---

---

Issues: Whether silver bars forfeited under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 could be included in the assessee's net wealth for the relevant valuation dates despite the pendency of an appeal against the forfeiture order.

Analysis: Wealth tax is chargeable on the net wealth of an assessee as on the valuation date, and net wealth comprises assets belonging to the assessee on that date. An order under section 7(3) of SAFEMA declares the property forfeited to the Central Government free from all encumbrances, with the result that the assessee is divested of ownership while the order remains in force. The mere pendency of an appeal against the forfeiture order does not dilute its operation or restore ownership unless the order is stayed or set aside. On the facts, the forfeiture order remained operative during the relevant valuation dates and the assets had vested in the Central Government.

Conclusion: The silver bars did not belong to the assessee on the relevant valuation dates and their value was not includible in net wealth.

Ratio Decidendi: For wealth-tax purposes, only assets legally belonging to the assessee on the valuation date are chargeable, and a forfeiture order that is in force divests ownership and excludes the asset from net wealth until it is stayed or set aside.

---