1980 (2) TMI 43 - HC - Wealth-tax

Court denies exemption for arecanut owelty under Wealth-tax Act

The court held that the right of the assessee to receive 10 candies of arecanut per year as owelty was not entitled to exemption under section 5(1)(iva) ... Agricultural Land, Exemptions, HUF, Partition, Wealth Tax Issues Involved:1. Whether the right of the assessee to receive 10 candies of arecanut per year as owelty is entitled to exemption under section 5(1)(iva) of the Wealth-tax Act, 1957.Issue-wise Detailed Analysis:1. Right to Receive Arecanut as Owelty and Its Exemption under Section 5(1)(iva) of the Wealth-tax Act, 1957:The material facts are undisputed. The assessee was a member of a joint family, and a partition was effected among the members, evidenced by a deed of partition dated 24th July 1968. For equalisation of shares, the assessee was to receive periodic payments of agricultural produce, specifically arecanut, from other sharers. The assessee claimed exemption for this right under section 5(1)(iva) of the Wealth-tax Act, which exempts agricultural land up to a value of Rs. 1,50,000.Initially, the Wealth Tax Officer (WTO) accepted the assessee's claim for the first two years but later rectified this, stating it was an error. The Appellate Assistant Commissioner (AAC) upheld the rectification, stating the right to receive agricultural produce is movable property, not agricultural wealth. The Tribunal also dismissed the assessee's appeals, holding that the right to receive 10 candies of arecanut per year did not amount to agricultural land belonging to the assessee.2. Assessee's Argument and Legal Precedents:The assessee argued that the provision for payment of 10 candies of arecanut was by way of owelty, implying a charge over the properties of the defaulting sharers, thus constituting an interest in agricultural land. The assessee cited the Supreme Court decision in Swaminatha Odayar v. Official Receiver of West Tanjore, which held that a person entitled to owelty has a lien over the property allotted to other sharers. Further, the assessee referred to Imperial Bank of India v. Bengal National Bank Ltd. and Ray Chand Jivaji v. Basappa Virappa, arguing that a charge on immovable property is an interest therein.3. Tribunal's and Court's Findings:The Tribunal held that the assessee did not retain any interest in the land in lieu of which the payment was agreed upon. The document explicitly stated that the allotment of properties was final and binding, and no sharer had the right to claim an exchange of the properties allotted. Therefore, the right to receive arecanut could not be construed as 'agricultural land belonging to the assessee' under section 5(1)(iva) of the Act.The court agreed with the Tribunal, stating that the expression 'agricultural land' is plain enough, and a mere charge on immovable property does not constitute an interest in the property. The court distinguished between a charge and a mortgage, noting that a charge does not transfer property or any interest therein but only creates a right of payment out of the specified property.4. Additional Arguments and Observations:The assessee also argued that the receipt of 10 candies of arecanut amounted to agricultural income, implying a link to agricultural land. The court rejected this, stating the sharer liable to pay the owelty could source the arecanut from anywhere, and the right to receive compensation was not necessarily linked to any particular agricultural land.During arguments, the question of whether the right to receive arecanut as owelty could be considered an asset under section 2(e) of the Act was debated. However, since this was not the question referred, it was not pursued to finality.Conclusion:The court concluded that the right of the assessee to receive 10 candies of arecanut per year as owelty was not entitled to exemption under section 5(1)(iva) of the Wealth-tax Act, 1957. The question was answered in the negative, and parties were to bear their own costs.