1964 (12) TMI 45 - HC - Income Tax

Summary

Issues Involved:

1. Whether the right of the assessee to receive a specified share of the net income from the wakf estate is an asset the capitalized value of which is assessable to wealth-tax.
2. Whether such right is excluded from the category of "assets" under section 2(e)(iv) of the Wealth-tax Act.
3. Whether the right to receive allowances from the income of the wakf estate is assignable and has market value under section 7(1) of the Wealth-tax Act.
4. Whether the allowance payable to the beneficiaries is an allowance by way of maintenance and hence not assignable under section 6(dd) of the Transfer of Property Act.

Issue-wise Detailed Analysis:

1. Assessability of the Right to Receive Income from Wakf Estate as an Asset:

The court examined whether the right of the assessee to receive a specified share of the net income from the wakf estate constitutes an asset under the Wealth-tax Act. The assessee argued that this right is not an asset liable to be included in the net wealth because it is not a saleable interest and has no market value within the meaning of section 7(1) of the Wealth-tax Act. The Tribunal, however, found that the applicant had a life interest in the income, and its value would depend on factors such as life expectancy, rent, and security. The Tribunal directed that the value of the assessee's interest should be capitalized based on standard valuation tables, taking the rent and security at 6%.

2. Exclusion from the Category of "Assets" under Section 2(e)(iv):

The assessee contended that the right to receive allowances from the wakf estate is excluded from the category of "assets" under section 2(e)(iv) of the Wealth-tax Act, which excludes a right to any annuity where the terms preclude commutation into a lump sum grant. The court noted that the right of the assessee was incapable of being commuted into a lump sum grant either by the terms of the wakf deed or under Mohammedan law. However, the court clarified that the right to receive an aliquot share of the net income of the properties does not constitute an annuity. The court emphasized that an annuity typically refers to a fixed sum of money payable periodically, which was not the case here.

3. Assignability and Market Value of the Right under Section 7(1):

The court addressed whether the right to receive allowances from the wakf estate is assignable and has market value under section 7(1) of the Wealth-tax Act. The assessee argued that since the right is not assignable, it has no market value. The court rejected this argument, stating that the value of an asset for wealth-tax purposes must be estimated as the price it would fetch if sold in the open market on the valuation date. The court held that even if the asset is non-transferable, it does not mean it has no value. The Wealth-tax Officer must proceed to value it as if it could be sold in the open market, which would depend on actuarial valuation considering factors such as the age and estimated life expectancy of the person receiving the income.

4. Allowance by Way of Maintenance under Section 6(dd) of the Transfer of Property Act:

The assessee contended that the allowance payable to the beneficiaries is an allowance by way of maintenance, which is not assignable under the general law laid down in section 6(dd) of the Transfer of Property Act. The court did not find merit in this argument, emphasizing that the right to receive income from the wakf estate is a distinct asset belonging to the assessee, irrespective of whether it is dependent on the existence of some property. The court concluded that the right to receive income from the wakf estate is exigible to wealth-tax.

Conclusion:

In conclusion, the court answered the referred question in the affirmative, holding that the right of the assessee to receive a specified share of the net income from the wakf estate is an asset the capitalized value of which is assessable to wealth-tax. The assessee was directed to pay the costs of the reference.