State Government bonds as exempt securities under wealth-tax rules where debt regulations treat them as Government securities

Zamindari Abolition Compensation Bonds and Rehabilitation Grant Bonds issued by Uttar Pradesh were treated as State Government securities for wealth-tax exemption purposes. The bonds were issued as promissory notes through the Public Debt Office and the governing debt rules treated them as Government securities for redemption and payment, bringing them within the broader meaning of "security" under the Wealth-tax Act exemption for Central or State Government securities. The analysis also applied the settled rule that any reasonable ambiguity in a taxing exemption should be construed in favour of the assessee, supporting exclusion of the bonds from net wealth.

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Issues: Whether the Zamindari Abolition Compensation Bonds and Zamindari Abolition Rehabilitation Grant Bonds issued by the State Government of Uttar Pradesh were "security" of a State Government within section 5(1)(xxii) of the Wealth-tax Act, 1957 and therefore exempt from inclusion in net wealth.

Analysis: The exemption in section 5(1)(xxii) covered any security of the Central Government or a State Government. The bonds in question were issued in the form of promissory notes, through the Public Debt Office, and the governing rules treated them as Government securities for the purposes of redemption and payment. The provisions of the Public Debt Act, 1944 and the relevant rules showed that such bonds fell within the broader concept of Government security. The Court also relied on the settled principle that, where a taxing provision is reasonably capable of two interpretations, the construction favourable to the assessee must be adopted.

Conclusion: The bonds were held to be securities of the State Government within section 5(1)(xxii) of the Wealth-tax Act, 1957 and were exempt from inclusion in the assessee's net wealth.

Ratio Decidendi: Bonds issued by a State Government in the form of Government promissory notes and treated under the governing debt rules as Government securities are covered by the expression "security" in a wealth-tax exemption provision, and any reasonable ambiguity in such exemption must be resolved in favour of the assessee.

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