1991 (4) TMI 37 - HC - Wealth-tax

Court rules tax liability deductible in wealth tax calculation; compensation not an asset until consent decree.

Akber A. Dehgamwalla Versus Commissioner Of Wealth-Tax

Akber A. Dehgamwalla Versus Commissioner Of Wealth-Tax - [1992] 195 ITR 17, 59 TAXMANN 291 Issues Involved:1. Deductibility of proportionate tax liability under section 68 of the Finance Act, 1965.2. Right to receive compensation and interest as an asset for wealth-tax purposes.3. Accrual of right to receive damages and interest thereon.Issue-wise Detailed Analysis:1. Deductibility of Proportionate Tax Liability:The Tribunal referred a question regarding whether the proportionate tax liability of Rs. 78,000, due to disclosure under section 68 of the Finance Act, 1965, was a debt owed under section 2(m) of the Wealth-tax Act, 1957, and thus deductible in computing the net wealth of the assessee for the assessment years 1963-64 and 1964-65. Counsel agreed that, based on the Supreme Court decision in Ahmed Ibrahim Sahigra Dhoraji v. CWT [1981] 129 ITR 314, the question should be answered affirmatively and in favor of the assessee. Consequently, the court answered the question in the affirmative.2. Right to Receive Compensation and Interest as an Asset:For the assessment years 1963-64 to 1966-67, the Tribunal questioned whether the right of the assessee to receive compensation and interest from the Central Government, based on a consent decree dated June 11, 1969, constituted an asset for wealth-tax purposes. The Tribunal held that the right to receive compensation and interest did not amount to the assessee acquiring any right in immovable property to be treated as wealth. Consequently, it directed the Wealth-tax Officer to delete the amounts from the net wealth of the assessee for the respective years.For the assessment years 1967-68 to 1969-70, a similar question was raised regarding the amounts representing the assessee's right to receive compensation and interest. The Tribunal's decision was consistent with the earlier years, holding that such amounts were not liable to wealth-tax.3. Accrual of Right to Receive Damages and Interest:The assessee's suit for specific performance of a contract, alternatively claiming damages for breach, was decreed by a single judge on September 20, 1961. The Union of India appealed, challenging the decree. The appeal was dismissed on July 16, 1965. Subsequently, the Commissioner determined compensation at Rs. 10,92,000, but both parties filed objections. Eventually, a consent decree was passed on June 11, 1969, settling damages at Rs. 2,52,000 plus interest.The Wealth-tax Officer included the amounts received as damages and interest in the assessee's wealth-tax returns for the relevant years. However, the Tribunal held that on the relevant valuation dates, the assessee did not own any asset in respect of damages or interest within the meaning of section 2(e) of the Wealth-tax Act, 1957.Shri Jetley, counsel for the Revenue, argued that the right to receive compensation or damages constituted an asset from the date of the decree. He cited several precedents, including Pandit Lakshmi Kant Jha v. CWT [1973] 90 ITR 97, and Andhra Pradesh High Court decisions, asserting that accrued amounts, even if not received, should be included in wealth.Conversely, Shri Dastur, counsel for the assessee, argued that an asset only materializes when the right to receive damages becomes absolute and indefeasible. He referenced CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524, where the Supreme Court held that disputed compensation did not accrue as income until the dispute was resolved.The court distinguished between statutory compensation rights and contractual damages, noting that a right to sue for damages is not an asset. Only when damages are established and quantified does the right to receive them become an asset. The court agreed with Shri Dastur, concluding that the right to receive damages and interest accrued only on the date of the consent decree, June 11, 1969. Thus, on the relevant valuation dates, no right to receive damages had accrued to the assessee.Conclusion:The court held that the proportionate tax liability under section 68 of the Finance Act, 1965, was deductible in computing the net wealth. It also ruled that the right to receive compensation and interest did not constitute an asset for wealth-tax purposes until the consent decree was passed. The questions were answered in favor of the assessee, with no order as to costs. The Karnataka High Court decision in U. S. Nayak v. CWT [1968] 68 ITR 171 was deemed irrelevant to the present case.