TaxTMI 
TaxTMI 
TaxTMI 
2003 (4) TMI 1
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....biter of an issue decided on facts. A perusal of the judgment extracted hereinabove clearly shows that this court in Bharat Hari Singhania's case [1994] 207 ITR 1, has in specific terms laid down the principle that in cases where the statute creates a legal fiction for determination of market value, no amount like provision for taxation, provident fund and gratuity, etc., can be deducted from the market value of the estate while evaluating the estate for the levy of wealth-tax. If this be the correct principle in law then it will not be possible for the respondents to contend that the value of the estate duty payable, if any, should be deducted from the market value of the estate while determining the wealth-tax. If the principle as we have understood it to be enunciated in Bharat Hari Singhania's case [1994] 207 ITR 1 (SC), is correct then the same, in our opinion, runs counter to the earlier decision of this court in the case of Nizam's Family Trust [1977] 108 ITR 555 and both the judgments being judgments of a Bench of three judges, we think it appropriate that this issue should be settled by a larger Bench. Therefore, we direct that the papers of these appeals and connected mat....
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....s is liable to be deducted from the valuation of the asset in the context of valuation of interest of the remainder interest holder ? (2) Whether the view of the court runs counter to the decision of the Supreme Court in Bharat Hari Singhania v. CWT [1994] 207 ITR 1 ?" Mr. R. P. Bhatt, learned senior counsel appearing on behalf of the appellant, would submit that the High Court went wrong in interpreting the provisions of sections 21(1) and 24 of the Wealth-tax Act, 1957, in so far as it failed to appropriately apply the legal fiction created thereunder. Learned counsel would contend that the High Court should have followed Bharat Hari Singhania's case [1994] 207 ITR 1 (SC). Mr. Bhatt would urge that having regard to the provisions contained in section 21 of the Wealth-tax Act, the same principles of valuation would apply in relation to the jewelleries held by the remaindermen despite the fact that the persons having life interest in the trust are alive. Mr. S. Ganesh, learned senior counsel appearing on behalf of the respondent, on the other hand, would submit that the valuation of the Jewelleries will have to be assessed having regard to what a willing and informed buyer woul....
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....lared by him ; or (ia) none of the beneficiaries has net wealth exceeding the amount not chargeable to wealth-tax in the case of an individual who is a citizen of India and resident in India for the purposes of this Act or is a beneficiary under any other trust ; or (ii) such assets are held under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor or where the settlor is a Hindu undivided family exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance ; or (iii) such assets are held by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, wealth-tax shall be charged at the rates specified in Part I of Schedule I. Explanati....
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....ed : "In our opinion, the High Court was right in holding that there are no two separate rights-one a right to receive compensation and the other, a right to receive extra or further compensation. Upon acquisition of his lands under the Land Acquisition Act the claimant has only one right which is to receive compensation for the lands at their market value on the date of the relevant notification and it is this right which is quantified by the Collector under section 11 and by the civil court under section 26 of the Land Acquisition Act. It is true that under section 11 the Collector after holding the necessary inquiry determines the quantum of compensation by fixing the market value of the land and in doing so is guided by the provisions contained in sections 23 and 24 of the Act-the very provisions by reference to which the civil court fixes the valuation. It is also true that the Collector's award is, under section 12, declared to be, except as otherwise provided, final and conclusive evidence as between him and the persons interested. Even so, it is well settled that in law the Collector's award under section 11 is nothing more than an offer of compensation made by the Governm....
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....er be below the figure quantified by the Collector because under section 25(1) of the Land Acquisition Act, the civil court cannot award any amount below that awarded by the Collector; the estimated value can be equal to the Collector's award or more but can never be equal to the tall claim made by the claimant in the reference nor equal to the claim actually awarded by the civil court inasmuch as the risk or hazard of litigation would be a detracting factor while arriving at a reasonable and proper value of this property as on the date of the deceased's death. The assessing authority will have to estimate the value having regard to the peculiar nature of the property, its marketability and the surrounding circumstances including the risk or hazard of litigation looming large at the relevant date. The first contention of counsel for the appellant, therefore, fails." The view of ours also finds support from a decision of this court in CWT v. Maharaja Kumar Kamal Singh [1984] 146 ITR 202 wherein in estimating the value of the assets for the purpose of computation of compensation on vesting of lands under the Bihar Land Reforms Act, 1950, this court held : "But in estimating the va....
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....n subsequent years before the date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on the relevant valuation date that the beneficiaries are known and their shares are determinate, the possibility that the beneficiaries may change by reason of subsequent events such as birth or death would not take the case out of the ambit of sub-section (1) of section 21. It is no answer to the applicability of sub-section (1) of section 21 to say that the beneficiaries are indeterminate and unknown because it cannot be predicated who would be the beneficiaries in respect of the remainder on the death of the owner of the life interest. The position has to be seen on the relevant valuation date as if the preceding life interest had come to an end on that date and if, on that hypothesis, it is possible to determine who precisely would be the beneficiaries and on what determinate shares, sub-section (1) of section 21 must apply and it would be a matter of no consequence that the number of beneficiaries may vary in the future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being . . ." Thi....
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....ase. This court posed six questions as would appear from paragraph 9 of the judgment. The question as to whether the Valuation Officer is bound by rule 1D or not was answered in the affirmative. As regards the question as to whether the application of the breakup method in rule 1D means that the capital gains tax, which would be payable in case the said shares are sold on the valuation date, is liable to be deducted from the market value determined, it was held : "The contention of learned counsel , in this behalf, is rather involved if not obscure. The argument runs thus : section 7(1) says that the value of an asset shall be the price which such asset would fetch if sold in the open market on the valuation date. In other words, the sub-section creates a fiction of sale of such asset on the valuation date for the purpose of determining its market value. Once a fiction is created, it must be carried to its logical extent and the court should not allow its imagination to boggle by any other considerations. If an asset is sold, it would be subject to capital gains tax. For finding out the net wealth received in the hands of assessee, one must necessarily deduct the capital gains ....
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....ce to the book profits in accordance with the law applicable thereto ; (f) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares." The following principles emerge from the said decision : (a) What is relevant is the market value of the shares i.e., what sale price the shares would fetch if sold in the open market on the valuation date. (b) There is no legal fiction of sale created by Parliament; and therefore no deemed capital gains tax on sale is to be considered. (c) The net realization by the assessee after meeting Expenses is not material. It is very important to note that this judgment was not concerned with what price a buyer would offer for the shares on the valuation date but only whether the seller can claim certain deductions from the price which the buyer would be willing to offer. In this case, however, this court is only concerned with what price the buyer would offer for the interest of the remainderman. There cannot be any doubt or dispute that the question as regards capital gains liability will not affect the value of the shares or land inasmuch the same is incurred by the seller. ....