1967 (8) TMI 6 - HC - Wealth-tax

Inheritance and Compensation Included in Net Wealth

Seth Narsinghdas Kanhaiyalal Versus Commissioner of Wealth-Tax.

Seth Narsinghdas Kanhaiyalal Versus Commissioner of Wealth-Tax. - [1968] 67 ITR 412 Issues Involved:1. Inclusion of the value of properties given to the assessee's mother in the net wealth of the assessee.2. Inclusion of the compensation amount received from the Government in the net wealth of the assessee.Detailed Analysis:Issue 1: Inclusion of the Value of Properties Given to the Assessee's MotherThe primary issue is whether the value of 1,000 shares and land given to the assessee's mother under a partition deed should be included in the assessee's net wealth. The partition deed dated October 3, 1955, allocated these properties to the assessee's mother for her maintenance. The Wealth-tax Officer included the value of these properties in the assessee's net wealth after the mother's death, a decision upheld by the Appellate Assistant Commissioner and the Appellate Tribunal.Contentions:- Assessee's Argument: The properties were given to the mother only for her maintenance and should revert to the Hindu undivided family (HUF) after her death, not to the assessee individually.- Department's Argument: The mother received the properties absolutely, and under Section 14 of the Hindu Succession Act, 1956, she became the full owner. Consequently, the properties should be included in the assessee's net wealth after her death.Court's Analysis:- The court examined the language of the partition deed and concluded that the mother received the properties absolutely, not just the usufruct. The deed's wording, such as 'I have transferred 1,000 preference shares' and 'I further give her the land,' indicated an absolute transfer.- The court noted that there was no presumption that a Hindu female gets only a limited estate unless expressly stated. The Supreme Court's decisions in Ram Gopal v. Nand Lal and Nathoo Lal v. Durga Prasad supported this view.- Even if the mother received the properties as a limited owner, Section 14(1) of the Hindu Succession Act, 1956, would transform her limited interest into full ownership. The court referenced the Supreme Court's decision in Sarin v. Ajit Kumar Poplai to support this interpretation.- The court also considered whether the mother was entitled to a share in the partition. Following the precedent in Rambhau Krishnajee v. Bala Punjaji, the court held that a paternal grandmother is entitled to a share in a partition between her son and his sons.- Therefore, the properties became the full ownership of the mother under Section 14(1) and, upon her death, passed to the assessee under Section 15 of the Hindu Succession Act, 1956.Conclusion: The value of the properties left by the assessee's mother was rightly included in the assessee's net wealth.Issue 2: Inclusion of the Compensation Amount Received from the GovernmentThe second issue is whether the compensation amount of Rs. 1,56,471 received by the assessee from the Government for acquired properties should be included in the net wealth. The assessee argued that this amount was a liability because it was refundable to the Government under certain conditions.Contentions:- Assessee's Argument: The compensation amount was a liability as it was refundable to the Government if the assessee's claim was unascertained.- Department's Argument: The amount was received by the assessee as the owner of the acquired properties, and the indemnity clause did not postpone the ownership of the amount or make it a liability.Court's Analysis:- The court examined the agreement dated July 4, 1960, between the assessee and the Government, which showed that the amount was paid to the assessee as the owner of the acquired properties.- Clause 3 of the agreement was an indemnity clause, stating that the assessee would refund the amount if it turned out he was not entitled to it. This clause did not make the amount a liability or a debt owed by the assessee on the valuation date.- The court referred to the principle that an indemnifier cannot be called to make good his promise until the indemnified incurs actual loss (Rangnath v. Pachusao).- Since the assessee did not incur a liability to refund the amount in the assessment year, it could not be considered a debt owed on the valuation date under Section 2(m) of the Wealth-tax Act, 1957.Conclusion: The amount of Rs. 1,56,471 was rightly included in the net wealth of the assessee, and the claim for its exclusion as a liability was rejected.Final Judgment:Both questions were answered in the affirmative, and the assessee was ordered to pay the costs of the reference, with counsel's fee fixed at Rs. 200.