TaxTMI 
TaxTMI 
2005 (8) TMI 39
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....aid gold at 25 per cent, of the market value of gold on the relevant valuation date?" The question referred in R.A. Nos. 114 to 119/JP/96 at the instance of the Revenue reads as under: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in estimating the value of 57 kgs. of gold at 25 per cent, of the market value on the relevant dates?" These reference applications before the Tribunal relate to the assessment years 1983-84 to 1988-89. Likewise in W.T. appeals filed by the assessee, the following common substantial questions of law have been framed respectively. "(A) Whether the learned Tribunal was right in law in holding that 25 per cent, of the market value of the gold need to be included in the assessee's net wealth? (B) Whether the impugned gold having been assessed in the wealth of M/s. Meghji Girdhar Lal (HUP), its inclusion in the hands of the appellant suffers from vice of double taxation?" In addition to the aforesaid two questions in W.T.A. Nos. 8 to 11 on behalf of the assessee, the following additional question has been framed: "(C) Whether the learned Tribunal had material and was right i....
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....he surface. Each gold bar was weighing 3 seers or so. It was further alleged that prior to handing over the aforesaid gold to Ganpat Lal, the house of the complainant had already been subjected to a raid by the Customs and Central Excise Department in which a large quantity of primary gold and silver and other ornaments were recovered. Apprehending further action by the Department, he (Gunwant Lal) entrusted the said gold to the assessee Ganpat Lal by handing over the custody of the said gold and it was assured by the assessee, Ganpat Lal, to Gunwant Lal that the gold would be returned whenever demanded. On making demand to return the goldbars on December 8,1965, when Gunwant Lal himself went to the assessee, the assessee had refused to return the gold bars to him. On December 9, 1965, Gunwant Lal had lodged the FIR at Police Station, Chhoti Sadri. According to the complainant, after this happening, on December 11, 1965, an announcement was made on All India Radio about the offer made by the assessee and about this fact Gunwant Lal was informed by Ganpat Lal on December 16, 1965. Thereafter, Ganpat Lal submitted a letter to the District Collector, Chittorgarh, to take possession....
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....ssee may be taken at nil. As we shall notice hereinafter since his case was also that he has applied for gold bonds in lieu of the gold so deposited in the Treasury, after the death of Shri Shastri, he must be deemed to have become entitled to gold bonds in lieu of the said gold and that the gold bonds were exempt from wealth-tax under section 5(1)(xvia) of the Act of 1957, as it was then existing. He has also claimed that the question of ownership has not been decided so far and, therefore, there exists a serious dispute about the ownership of the gold in question and because of the provisions of the Gold (Control) Act which were in force throughout the period, for which we are concerned in these cases. Firstly, the assessee cannot be said to be a clear owner of the gold in question as his title over the same is being disputed and the assessee cannot be entitled to take possession of the gold in question whether under the orders of the court or under the provisions of the Gold (Control) Act. It was contended by learned counsel for the assessee that the gold in question cannot be sold and transacted, therefore, its market value may be taken at nil. At any rate, it has been the c....
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....f the gold in question as on the respective valuation dates may not be taken to be the value of the assessee's asset but it was prayed that a discounted value may be taken keeping in view the adjunct dispute so far as the assessee is concerned. The Tribunal while rejecting that the value of gold is nil has held that the possession of the gold in question at the time of deposit coupled with the receipt and the other attending circumstances can be said to have some value in the hands of the assessee. According to the aforesaid conclusions, the Tribunal has estimated the discounted value of the gold in question in the hands of the assessee at 25 per cent, of its market value as on each valuation date and included it in the assessee's net wealth. The assessee was held liable to pay wealth-tax for each assessment year by including such discounted value in computing his net wealth. Aggrieved by the aforesaid order of the Tribunal, dated September 30, 1996, and other orders of different dates, the statements of case have been submitted by referring the aforesaid question and wealth-tax appeals have been preferred at the instance of the assessee as well as the Revenue to the extent t....
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....luation date at the full market value of the primary gold. A number of cases have been cited at the Bar by learned counsel for the assessee which relate to the properties which have been acquired by the State, where the assessee had no claim to possession of the land which had already been acquired. In such event, it was held that the assessee was not the owner of the land but his asset was his right to receive compensation for the immovable property which had been acquired. This aspect of the matter, we would discuss later. Before we address the issue of valuation of the gold in, question in the circumstances in which the question has arisen, it shall be apposite to notice the provisions relating to control of the production, manufacture, supply, distribution, use and possession of, and business in, gold, ornaments and articles of gold and for matters connected therewith or incidental thereto. These provisions were introduced vide Chapter XII-A in the Defence of India Rules, which were in force at the time the assessee had delivered the primary gold to the Collector for weighing the Prime Minister, Shri Lal Bahadur Shastri, and the later legislative development in respect th....
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.... total statutory prohibition against owning or possessing any primary gold. Even any custody or control over any primary gold was statutorily prohibited. Since imposition of the prohibition, for the first time a transitory provision was introduced for those who were having ownership or possession of primary gold on such date by inserting sub-rule (1B) vide the same notification in rule 126H which inter alia, reads as under: "(1B) Every person who owns or has in his possession, custody or control at the commencement of the Defence of India (Fourth Amendment) Rules, 1966, any primary gold which has been included in a declaration or further declaration made under rule 126-I (as in force immediately before the commencement of the said rules) or in respect of which no such declaration is required to be made under that rule, shall dispose of such primary gold in the following manner, namely: (i) if he, being the owner, is in possession, custody or control thereof at such commencement, he shall, within a period of six months from such commencement, either sell primary gold to a refiner or dealer licensed under this Part or deliver the same to a dealer or goldsmith licensed or cer....
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....gold to a refiner or dealer licensed under this Part or deliver the same to licensed or certified goldsmiths, as the case may be, under this Part for conversion of such gold into ornaments. The second contingency which the rule envisaged was where the person who may be claiming his ownership over the gold was not in possession thereof at such commencement of new provisions. Such person was either required to recover possession of such primary gold within a period of four months after redemption where necessary or authorise within the said period the person who is in actual possession or control thereof to sell such primary gold to a dealer or refiner licensed under the rules or to deliver the same to a dealer or goldsmith licensed or certified, as the case may be, under this Part, for conversion thereof into ornaments. The third contingency which the rule envisaged was where the owner omits or fails to recover possession, custody or control of such primary gold within the said four months under the aforesaid provision, or fails, omits or neglects to authorize the person who is in possession thereof to sell such primary gold or to deliver the same to a dealer or goldsmith for ....
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....tional Defence Gold Bonds, 1980, which were notified on February 27, 1965, and October 19, 1965, respectively. In the first scheme namely, 7 per cent. Gold Bonds, 1980 Scheme, in lieu of gold tendered, a bond for the value equivalent to the value of the gold was to be issued. The value of the bonds was to be determined in denominations of Rs. 10 and multiples thereof, the value of the gold was to be calculated at the rate of Rs. 53.58 per 10 gms. of 0.995 fineness equivalent to Rs. 62.50 per tola of the same fineness. The bonds were redeemable at par on March 2,1980. However, the bonds were to bear interest at the rate of 7 per cent, per annum from the date of issue. The interest was payable half-yearly on 2nd of September and 2nd of March every year and the interest on the bonds was exempted from the Income-tax Act, 1961. The bonds were also exempted from wealth-tax and from capital gains tax on their sale. Subscription to 7 per cent. Gold Bonds, 1980, opened on March 2, 1965 and was to remain open only up to May 31,1965. No fresh subscription by surrendering gold thereafter was envisaged. Another scheme, i.e., National Defence Gold Bonds, 1980, was introduced by the Gove....
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....he Act of 1968. Except to the limit permitted under the Act of 1968, depending upon the age of the holder, 20 gms. and 50 gms., no primary gold could be owned or possessed by any person. Significantly, while providing restrictions regarding acquisition, possession and disposal of gold under section 8 of the Act of 1968, that no person shall own or have in his possession, custody or control, or acquire or agree to acquire the ownership, custody or control of, or buy, accept or otherwise receive or agree to buy, accept or otherwise receive any primary gold under sub-section (1) of section 8, no procedure was made in the Act for persons owning or having possession or control over any primary gold as on the commencement of the Act. No provision was made laying down any transitory provisions under which the ownership of primary gold could be converted into ornaments or other articles or it can be sold to the authorised persons and can be encashed by the owner or possessor of the gold as was contemplated under sub-rules (1A) and (1B) of rule 126H of the Defence of India Rules, 1962. The reason was obvious that since the commencement of sub-rules (1A) and (1B), noticed above, in rule 1....
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.... commencement of the provision, i.e., from November 1, 1966, and deal with the proceeds in accordance with the manner prescribed under the Defence of India Rules, 1962. The question which may call for consideration is whether the assessee's right to own or the right to get possession of the said primary gold survived after the expiry of the period prescribed in sub-rule (1B) of rule 126H, which operated in respect of gold which was already in the possession of the State authorities and about which the assessee has claimed his ownership at the time of depositing the same with the Collector, Chittorgarh, for weighing the then Prime Minister of India, the late Shri Lal Bahadur Shastri. Apparently, the primary gold in question was delivered to the custody of the Collector, Chittorgarh, to be used for the purpose of donation later on. The purpose having been lost with the death of the then Prime Minister, Shri Lal Bahadur Shastri, the assessee made a request to give him Gold Bonds in lieu of the gold, as per his own assertion, the situation crystallized into that the assessee was the owner of the primary gold on November 1, 1966, when sub-rules (1A) and (1B) were inserted in rule ....
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....uld encash the primary gold during that period. The distinction, we have noticed above, between the owner possessing 54 any primary gold on commencement of the aforesaid provisions and the owner not in physical possession of the primary gold on such date is clear. In the former case, the owner had a six-month period to exercise either of the options to sell or convert the primary gold into cash or ornaments and act accordingly. In the latter case, the owner without possession of the primary gold, had to exercise his option to retain the gold as converted into ornaments or to encash the gold within a four-month period by issuing instructions to the person in physical possession of the gold in this regard. After the expiry of the four-month period, without exercising the options as aforesaid, the consequence was not to make the owner a defaulter and subject to confiscation of the gold, but his rights stood merged into obligation of the person in possession of such primary gold to sell that gold within two months by disposing of the gold to a licensed dealer or refiner, as the case may, and to dispose of the proceeds of sale in accordance with law confining the right of the owner to s....
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....the provisions of the Defence of India Rules, 1962. However, rule 126W envisaged that nothing in Part XII-A shall apply to or in relation to any gold belonging to, or in the possession or under the control of, the Government. As we have noticed above, the primary gold in question was in the possession of the Government as it was delivered by the assessee to the Collector, Chittorgarh, for placing it in the Government Treasury on December 16,1965. The Government in possession of primary gold owned by any other person could not be obligated to dispose of the gold in the open market to a licensed dealer as it would be contrary to the object of the gold control law. However, that will not alter the position of the person claiming ownership of such gold at the commencement of sub-rules (1A) and (1B) of rule 126H of the Defence of India Rules, 1962. Apparently, looking to the provisions of the Rules, the continued possession of the Government would not have been contrary to the provisions of Rules of 1962 inasmuch as the ultimate destination of primary gold under the scheme of the Rules would be the Government, Government agencies, licensed dealers or refiners to the extent perm....
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....e of India Rules or the Gold (Control) Act leads us to conclude that on the expiry of a six-month period from the date of commencement of sub-rules (1A) and (1B) of rule 126H, when the respondent-assessee failed to exercise his option for authorising the person in possession of the primary gold, earlier owned by him, to convert it into ornaments, his right survived to receive its money value which it could fetch within a period of two months from the expiry of the period of four months from November 1, 1966. In these circumstances, during the assessment years in question which all fell after the coming into force of the Gold (Control) Act, 1968, and sub-rules (1A) and (1B) of rule 126H of the Defence of India Rules, 1962, had operated long before the valuation date of each of the assessment years, he had the right only to receive money in lieu of the primary gold in question at the price which it could fetch between March 1,1967 and April 30,1967. The Government being not under any compulsion to sell the gold in view of the provision of rule 126W of the Defence of India Rules, 1962, ordinarily, the assessee must be held entitled to receive the market proceeds at the maximum price o....
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....t, the value of every right in whatever form possessed by a person in relation to an asset, has to be included in the aggregate value of all assets, on the valuation date. Both learned counsel for the assessee as well as for the Revenue have cited a number of decisions on the principle of valuation of different assets. However, none of the cases cited by counsel have a bearing on the issue that fell for consideration in the light of clear provisions of the gold control law which has come into existence after the primary gold alleged to be owned by the assessee was delivered to the State Government in December, 1965, affecting the right to own and possess any primary gold by any person. Notwithstanding the admissions as to the title of primary gold, the right of the person vis-à-vis such primary gold has to be determined in the light of the statutory provisions in relation to the right to own and possess the primary gold. The principle of estoppel arising from the admission cannot be held to be against the statutory provisions and the rights to the asset or the property belonging to the assessee as on the valuation date has to be decided in the light of the relevant statutory....
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....see as on the valuation date, was the right of assessee to receive value of the primary gold in question as on May 1, 1967, and if law provided a reasonable rate of interest until the payment is made, then the right to receive such interest is to be included in the assessment of the net wealth of the assessee. Since 1971 onwards, he could not own primary gold as such on the respective valuation dates but the value of his right qua such primary gold has to be included in his net wealth. Hence, the Tribunal was manifestly in error of law in ignoring the legal effect of the provisions of the gold control statutes as they existed from time to time having vital bearing on the question of the right owned by the assessee in relation to the primary gold, the asset in question on the valuation dates. Taking into consideration the market value of primary gold on each valuation date or to take its discounted value to be the value of the assessee's asset, only because of its title being disputed by Gunwant Lal, on the respective valuation dates, cannot be sustained inasmuch, as on the respective valuation dates, ownership in the gold did not vest in either of them and it did not belong to e....
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....962. The ownership and possession of primary gold has also been prohibited under the Gold (Control) Act, 1968. Coming to the other contention of the assessee that because the assessee had applied for gold bonds in lieu of the primary gold, after his offer to weigh the then Prime Minister of India in primary gold was frustrated on account of his death, therefore, he should be assumed to have applied for and be deemed to be entitled to receive gold bonds in lieu of the said primary gold which were exempted from levy of wealth-tax under section 5(1)(xvia). This contention is noticed to be rejected. It is nowhere the case of the assessee that he even applied to the competent authority under the respective Gold Bond Scheme in the prescribed form for acquiring any gold bonds by surrendering a specific quantity of gold. He merely relies on his request to the Government for refunding his gold in the form of gold bonds. This act even if assumed to be true does not fulfil the condition on which the assessee could be said to have become even entitled to receive gold bonds of any particular description. We find that the Gold Bonds Schemes were not open indefinitely to be availed of by....
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....he Government of India reserve the right to close the issue earlier without notice. Subscriptions will be in the form of gold, gold coins and/or gold ornaments. The date of issue of the bonds will be the date on which the gold is tendered at the receiving office." Under the aforesaid scheme instead of issuing redeemable bonds in a specified sum of money, the bonds were issued in terms of the weight of the gold, gold coins and/or gold ornaments delivered for the purpose of obtaining the National Defence Bonds, 1980. Again, the subscribed gold could be received only between October 19, 1965 and January 31, 1966, and not thereafter. Here it is not the case of the assessee that he had subscribed or tendered the gold in question at the receiving office by January 31, 1966. In the absence of such tender, the assessee did not acquire any right to receive National Defence Gold Bonds, 1980, also. It may be noticed that both the schemes had come prior to the imposition of restriction on ownership and possession of primary gold. The return envisaged under the National Defence Gold Bond, 1980 Scheme, was in the form of primary gold, therefore, the question had arisen when the time bec....
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....f such bonds could be received. Merely submitting a letter somewhere in 1966 that since the purpose for which the gold was delivered to the Government Treasury in December, 1965, has failed, he may be given the gold bonds in lieu thereof was not to make him the acquirer of any of the gold bonds, nor would it bring into existence a state of affairs where the assessee can be deemed to be the holder of any gold bonds under any of the gold bonds schemes stated above, which were exempted from wealth-tax under section 5(1)(xvia) of the Act of 1957. In view of the conclusions arrived at in the light of the provisions referred hereinabove, firstly, that under the Defence of India Rules, 1962, and then thereafter under the Gold (Control) Act, 1968, the ownership of gold in question ceased to vest in the assessee on April 30, 1966 and it did not belong to the assessee, so as to be valued on each successive valuation dates, but he has only a right to get the money realised or money's worth if the primary gold was with the Government on the date of the expiry of the period of six months. Assuming for the sake of argument, as suggested by the assessee that the gold in question belonged to....
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...., after determination of the respective title to the rights in relation to the primary gold in question, ultimately the person found entitled to that right shall alone be liable to pay the wealth-tax in respect of it and the other shall be entitled to refund of the wealth-tax, if any tax is recovered from him. Question No.(C): In appeal Nos. 8, 9, 10 and 11 preferred by the assessee relating to the assessment years 1995-96 to 1998-99, an additional question has been framed to the effect that, "Whether the learned Tribunal had material and was right in law in changing the status from individual to Hindu undivided family instead of annulling the impugned assessment?" We are of the opinion that this question really does not arise for consideration in this case as it is not a substantial question of law. As a matter of fact, it was the assessee's admitted case that the correct status of the assessee is Hindu undivided family only as claimed by him in the returns submitted by him. The mistake is stated to be a typographical and clerical error. On being pointed out, the mistake has been rectified by the Department. The Department has also admitted the case of the assessee and ha....