1972 (12) TMI 22 - HC - Wealth-tax

Interpretation of Wealth-tax Act Exclusions & Dividend Assessability: Court Decision

The court ruled that sections 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957 were not applicable as the transfer of shares was by the Hindu ... ' 1. Whether, on the facts and in the circumstances of the case, the provisions of sections 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957, were rightly applied ; and 2. Whether the dividends of Rs. 53,809 and Rs. 12,500, respectively, declared by the company but not actually paid to the assessee prior to the valuation dates could be assessed to wealth-tax for the assessment years 1962-63 and 1963-64 ? ' - we answer the first question in the negative, against the department and the second question in the affirmative, in favour of the department. Issues Involved:1. Application of sections 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957.2. Inclusion of dividends declared but not actually paid to the assessee in the net wealth for the assessment years 1962-63 and 1963-64.Issue-wise Detailed Analysis:1. Application of Sections 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957:The first issue revolves around whether the provisions of sections 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957, were rightly applied in the case of the assessee. The core of the dispute is whether the shares allotted to the wife and daughters of Narendra Lal during the partial partition of the Hindu undivided family (HUF) could be included in his net wealth.The court noted that for section 4 to apply, two conditions must be met: the assessment must be of an individual, and the assets must have been transferred by that individual to his wife or minor child. Here, the assessee is an individual, satisfying the first condition. The second condition, however, hinges on whether the shares were transferred by Narendra Lal in his individual capacity or as the karta of the HUF.The court analyzed the partition's effect and concluded that the shares remained the property of the HUF, even after the partition. The Supreme Court's decision in N. V. Narendra Nath v. Commissioner of Wealth-tax was pivotal in this analysis, affirming that the property received on partition by a coparcener remains HUF property, not individual property. Consequently, any transfer of shares by Narendra Lal was in his capacity as the karta of the HUF, not as an individual.Thus, sections 4(1)(a)(i) and 4(1)(a)(ii) were deemed inapplicable as the transfer was not by the individual but by the HUF. The court also referenced L. Hirdey Narain v. Commissioner of Income-tax and Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, supporting the view that such provisions do not apply when the transfer is made by the karta of an HUF.Conclusion: The court answered the first question in the negative, ruling that sections 4(1)(a)(i) and 4(1)(a)(ii) were not rightly applied.2. Inclusion of Dividends Declared but Not Paid:The second issue concerns whether dividends declared by the company but not actually paid to the assessee before the valuation dates could be assessed to wealth-tax.Under the Wealth-tax Act, all assets belonging to an assessee on the valuation date must be valued and taxed. The court noted that the dividends had been declared before the valuation date, giving the assessee an indefeasible right to recover them. The mere fact that the dividends had not been received did not exclude them from being considered assets. The court emphasized that liability to tax is based on the right to the asset, not on physical possession.Conclusion: The court answered the second question in the affirmative, ruling that the dividends declared but not paid should be included in the net wealth of the assessee.Final Judgment:The court concluded by answering the first question in the negative and the second question in the affirmative. Each party was directed to bear its own costs, with counsel's fee assessed at Rs. 200.