TMI Blog2003 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... o this Bench observing : "We do see some force in the arguments of learned counsel for the respondent that on the facts it could be said that the decision in Nizam's Family Trust case [1977] 108 ITR 555 (SC) is more akin to the facts of the appeals before us now. But then we do not agree with the learned counsel for the respondent that what is stated in Bharat Hari Singhania's case [1994] 207 ITR 1 (SC), is only an obiter 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 enuncia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this court in H. E H. Nizam's case [1977] 108 ITR 555. On an application made under section 261 of the Income-tax Act by the Revenue, the High Court referred the following questions for this court's consideration holding that it was a fit case for appeal to this court : "(1) Whether the court was justified in holding that the estate duty liability arising on the assumed death of life interest holder on notional basis 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be leviable upon and recoverable from an individual who is a citizen of India and resident in India for the purposes of this Act, and - (a) at the rates specified in Part I of Schedule I ; or (b) at the rate of three per cent. ; whichever course would be more beneficial to the revenue Provided that in a case where (i) such assets are held under a trust declared by any person by will and such trust is the only trust so declared 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 main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the right of a seller to sell the same would be subject to such charge. The restrictions and disadvantages attached to the right of the assessee would indisputably diminish the value of the property to the said extent. In Mrs. Khorshed Shapoor Chenai v. Assistant Controller of Estate Duty [1980] 122 ITR 21 (SC), while considering the question as to whether a right to receive extra or further compensation is a separate right, this court observed : "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 provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing authority has to estimate the value of this property at the price which it would fetch if sold in the open market at the time of the deceased's death. In the case of the right to receive compensation, which is property, where the Collector's award has been made but has not been accepted or has been accepted under protest and a reference is sought or is pending in a civil court at the date of the deceased's death, the estimated value can never 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 ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the net wealth on the relevant valuation date, and, therefore, the question in regard to the applicability of subsection (1) or (4) of section 21 has to be determined with reference to the relevant valuation date. The Wealth-tax Officer has to determine who are the beneficiaries in respect of the remainder on the relevant date and whether their shares are indeterminate or unknown. It is not at all relevant whether the beneficiaries may change in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assembly [1996] 2 SCC 353." Once the legal fiction under the Act is taken to its logical corollary, the conclusion is inescapable that while assessing the value of the jewelleries in question, the charge created thereupon in terms of section 74(2) of the Estate Duty Act will have to be taken into consideration. Bharat Singhania's case [1994] 207 ITR 1 (SC) whereupon strong reliance has been placed by Mr. Bhatt cannot be said to have any application in the instant case. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for payment of dividends on preference shares and equity shares where such dividends have not been declared before the valuation date at a general body meeting of the company ; (c) reserves, by whatever name called, other than those set apart towards depreciation ; (d) credit balance of the profit and loss account ; (e) any amount representing provision for taxation (other than the amount referred to in clause (i)(a)) to the extent of the excess over the tax payable with reference 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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