TMI Blog1974 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... s under section 27 of the Wealth-tax Act, 1957, is : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in taking the view that 50% of the unearned increase payable to the lessor of the land, formed part of and was not deductible out of the valuation of the property for the purposes of wealth-tax ? " The assessee was assessed to wealth-tax as individual for the assessment year 1968-69. The relevant valuation date is December 31, 1967. His total wealth was computed by the Wealth-tax Officer at Rs. 8,10,165. This included, inter alia, a sum of Rs. 6 lakhs, as the value of a house on Plot No. 12, Block No. 39, Kautilya Marg, Chanakya Puri, New Delhi. The assessee had never challenged in the past the determination of the value of this property at Rs. 6 lakhs ; but in the relevant assessment year the assessee returned its value at Rs. 4,52,000 on the basis of a certificate from Messrs. Anand Apte Jhabwala, architect and approved valuer of New Delhi. The value of the property was estimated at Rs. 5,82,268 from which a sum of Rs. 1,30,000 was deducted as 50% of the unearned increase in the value of land which was required under the terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee " on that date. The word " assets " has been defined in section 2(e) as including property of every description, movable or immovable, but not including certain types of property mentioned in the section. In other words, wealth-tax is charged in respect of the amount, by which the aggregate value of all the assets of an assessee is in excess of the aggregate value of all the debts owed by him on the valuation date. The aggregate value of the assets as also that of debts owed by the assessee has, therefore, to be determined. The manner of determining the value of the assets is given in section 7(1) of the Act, which reads as follows : "7. (1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. " The law thus provides a fictional approach by which an hypothetical sale in the open market of the asset in question is assumed on the valuation date. In this case, the price which the asset in question would so fetch on the valuation date was estimated to be Rs. 6 lakhs. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the said intended lessee. " Mr. J. K. Kohli, the learned counsel for the assessee, contended before us that the asset in question has defects and disadvantages attached to it, which are not irrelevant and cannot be ignored when estimating the price it would fetch if sold in the open market. In order to make a correct estimate of the price, 50% of the unearned increase payable to the lessor has to be deducted out of the valuation. The assessee, in any case, contended Mr. Kohli in the alternative, incurs the liability to the extent of 50% of the unearned increase, towards the lessor at the time of sale of the property. This, according to him, is a debt owed by the assessee. The net wealth consists only of the excess of the aggregate value of the assets over the aggregate value of the debts owed by him. This amount, he urged, has to be deducted from the value, which the Wealth-tax Officer is required to estimate, in order to arrive at the figure of net wealth of the assessee. Mr. R. H. Dhebar, the learned counsel for the revenue, on the other hand, contended that the price which the asset would fetch when sold in the open market cannot be interpreted to mean the price which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of section 7(5), considered it essential first to determine what was the property which has to be valued, and observed : " The right to receive the price fixed by the articles in the event of a sale to existing shareholders under sub-clause (14a) is only one of the elements which went to make up the value of the shares. In addition to that right, the ownership of the share gave a number of other valuable rights to the holder, including the right to receive the dividends which the company was declaring, the right to transmit the shares in accordance with article 34(1), (2) and (3), and the right to have the shares of other holders who wished to realise offered on the terms of article 34(14a). All these various rights and privileges go to make up a share and form ingredients in its value. They are just as much part of the share as the restriction upon the sale. " The Lord Chancellor then treated section 7(5) as merely a statutory direction as to the method by which the value of such property was to be ascertained. In complying with that direction, he considered it necessary to make the assumptions which the statute directed, viz., sale in an open market. But in doi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the asset for the purpose of section 7(1) of the Act. To accede to the contention advanced on behalf of the appellant would be reading in section 7(1), the words 'to the assessee', after the words 'it would fetch', although the legislature has not inserted those words in the statute. Such a course is not permissible. " The appellant in that case had asked for deduction of expenses of sale, such as brokerage commission, which was not allowed. But there is no claim for expenses in the present case, nor is there the question of any net receipt by the assessee. The lessor has a right to recover 50% of the unearned increase in the value of the property, when granting his consent, without which the sale cannot take place. The lessor's entitlement to 50% of the unearned increase cannot be said to be expenses of sale. It is a condition precedent, without which a sale cannot be contemplated. The lessor has even an overriding right to pre-emption at a price after deducting this amount. A breach of this condition will entail a forfeiture of the lease and give a right of re-entry to the lessor. It is a restriction or limitation attached to the rights of the assessee and determines the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... something imaginary, in the nature of a fiction, which the section brings into play. As was observed by the Supreme Court in Commissioner of Income-tax v. S. Teja Singh, in construing the scope of a legal fiction, it would be proper and even necessary to assume all those facts on which alone the fiction can operate. The hypothetical sale cannot be assumed unless we also assume that the consent of the lessor has been obtained. This consent under the terms of the lease was not to be granted without entitling the lessor to recover 50% of the unearned increase in the value of the land at the time of transfer. If we have to assume a sale, as indeed we have to, then there is no escape from assuming the existence of this liability to the extent of 50% of the said unearned increase in the value of land as well. This would, therefore, be a debt owed by the assessee on the valuation date. In order to ascertain the amount by which the aggregate value of the assets on the valuation date is in excess of the aggregate value of the debts owed by the assessee on that date, which would be " net wealth ", as defined in section 2(m), this 50% of the unearned increase has to be deducted as debt owed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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