Spousal gift transfers and wealth-tax exclusion under the proviso turn on gift-tax chargeability within the statutory period.

Section 4(1)(a) of the Wealth-tax Act treats assets transferred to a spouse without adequate consideration as belonging to the transferor, but the proviso excludes such assets where the transfer is chargeable to gift-tax or not chargeable under section 5 of the Gift-tax Act for assessment years commencing after 31 March 1964 and before 1 April 1972. The key construction point is that the temporal words qualify the gift-tax chargeability or exemption condition, not wealth-tax assessments alone. On that reading, a spouse-transfer falling within the specified period is not includible in the donor's net wealth.

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Issues: Whether, on a proper construction of the proviso to section 4(1)(a) of the Wealth-tax Act, 1957, the value of assets gifted by the assessee to his spouse on 31 March 1967 could be included in computing his net wealth.

Analysis: Section 4(1)(a) brings to tax, as belonging to the transferor, assets transferred to the spouse otherwise than for adequate consideration, but the proviso carves out an exception where the transfer is chargeable to gift-tax or is not chargeable under section 5 of the Gift-tax Act, 1958, for the relevant assessment years commencing after 31 March 1964 and before 1 April 1972. The decisive question was whether the temporal words in the proviso qualify the assessment years under the Gift-tax Act or restrict the wealth-tax exemption only to wealth-tax assessments within that period. The earlier contrary observation was treated as obiter, and the better view adopted by several High Courts was that the proviso links the assessment-year condition to gift-tax chargeability or exemption, so that once the transfer falls within the statutory period, the transferred asset is not includible in the donor's net wealth.

Conclusion: The value of the gifted assets was not includible in the assessee's net wealth; the question was answered in the negative, in favour of the assessee and against the Revenue.

Ratio Decidendi: The proviso to section 4(1)(a) of the Wealth-tax Act excludes gifted assets from the donor's net wealth where the transfer is chargeable to gift-tax or exempt under the Gift-tax Act within the specified assessment-year period, and the exemption is not confined to wealth-tax assessments only during that period.

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