TMI Blog1970 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact where such compensation under the West Bengal Estates Acquisition Act has neither been determined nor paid? " The facts of this case lie within a small compass. The statement of case refers to the assessments during 1957-58, 1958-59 and 1959-60. There are six reference applications upon which the statement of case is made raising the combined contention relating to the inclusion within the net wealth of the assessee the value of his right to receive compensation under the West Bengal Estates Acquisition Act, 1953. The admitted fact, as appeared in the statement of case, is that the assessee had extensive zamindary properties which vested in the State of West Bengal under the provisions of the West Bengal Estates Acquisition Act. The Wealth-tax Officer assessed the right to receive compensation at Rs. 32,00,000 for each of the three years under reference. The Appellate Assistant Commissioner, however, reduced the value of the assessee's right to receive compensation to Rs. 3,25,000 for each year. It is said that the Appellate Assistant Commissioner held that there was a debt owed by the Government under the Estates Acquisition Act to the assessee which could be quantified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accruing from the date of vesting to the date of the offer of payment." The logic of the Tribunal is that the intermediary is not entitled to receive any compensation until the compensation assessment roll has been prepared and finally published under section 21 of the Act, although he may be allowed ad interim payment from time to time against the compensation receivable by him after the final publication of the compensation roll. Therefore, the Tribunal came to the conclusion, (1) that the Wealth-tax Officer was wrong in assuming that the assessee had a right to receive compensation upon the claim preferred by him in Form 3A under rule 10(3) of that Act, and (2) the Appellate Assistant Commissioner was wrong in holding that the assessee had an actionable claim which had a hypothetical market value on the valuation date. The Tribunal repelled also the argument made on behalf of the revenue that the provision for interest suggests a different conclusion. It was argued that under section 23(1) of the West Bengal Estates Acquisition Act, which is quoted above, interest was payable at the rate of 3% on that compensation accruing from the date of vesting. Therefore, it was argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the amount receivable has not been finally determined and not known when the amount would be paid. This objection cannot be entertained as the right to receive compensation remains with the assessee and the amount of compensation can be determined with reference to the Estates Acquisition Act. As the claim filed by the assessee before the compensation officer have not been disclosed and there is no material before me from which it can be ascertained what would be the compensation money receivable by the assessee, I, on the basis of the agricultural income determined by the Agricultural Income-tax Officer as per his order, dated 28th November, 1956, estimate the income at Rs. 15,00,000, and therefrom value the right to receive compensation at Rs. 32,00,000. " The big issue unquestionably then is that this land to begin with is agricultural land which has been expressly excluded by section 2(e) of the Wealth-tax Act as forming part of the assets in the scheme of the Wealth-tax Act, but the revenue authorities contend that by a statutory provision a "new kind of property", described as right to receive compensation, has been created independently of all concepts of agricult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where Jenkins C.J. observed: "A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation." And where Mookerjee J. observed: " That a debt was no less a debt because it had not yet matured, if it would certainly become payable in the future. " The other case on which the Andhra Pradesh High Court relied is the Supreme Court authority in Sassoon (E.D.) Co. Ltd. v. Commissioner of Income-tax, where the Supreme Court, dealing with the question when managing agency commission became payable to the managing agents of a company, observed as follows: " If the assessee acquired a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody." Finally, reference is also made to the well-known decision of Dawson v. Preston (Law Society, Garnishee). It will not be necessary to say anything more on this decision except that the Andhra Pradesh High Court decision in V. Chandramani Pattamaha Devi v. Commissioner of Wealth-tax was ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It may be observed also that at page 342 of that report it has been said : " As this asset of unpaid compensation instalments is a "cash asset", the question of determining its market value clearly does not arise. Section 7 of the Act speaks of the determination of the market value of any asset other than cash. " Now, this is a consideration which is absent in the instant reference before us and quite a good deal of argument has been advanced from the Bar on this aspect of the problem which we shall presently discuss. The third case on which reliance was placed by the revenue authorities is one reported in the same volume under the title Pandit Lakshmi Kant Jha v. Commissioner of Wealth-tax. That case came up under the Bihar Land Reforms Act holding that as soon as the estate of an ex-proprietor vested in the Government under the provisions of the Bihar Land Reforms Act, the proprietor was entitled to receive compensation though the date of payment of the compensation and the manner of such payment had been left to the discretion of the State Government. In holding so, this authority was following the decision in Maharajkumar Kamal Singh v. Commissioner of Wealth-tax, a prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms Act, 1950, and he was held to be entitled to compensation under the said Act. The Tribunal held in that case that the right to receive compensation under the Bihar Act was an asset and its market value had to be estimated as provided under section 7(1) of the Wealth-tax Act. The decision of the Patna High Court was: " (1) That the right to receive compensation was one relating to property and, hence, fell within the definition of 'asset' in the Wealth-tax Act, and (2) its value had to be computed for inclusion in the net wealth. " There also the basis of calculation for wealth-tax valuation was the agricultural income taxes paid on the assessee's zamindary income. It must be emphasised here again that the assessee there admittedly received interim compensation of Rs. 41,000 from the State of Bihar and it is expressly said by the learned judge at page 463 : " That pre-supposes that the approximate amount of compensation payable to the assessee must have been arrived at according to section 33 of that Act." We cannot say the same thing in the instant reference before us. This was clearly a distinctive feature and fact(sic) from the present case. This Patna decision is, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing calculated on the basis of 1/4 th of the net revenue collection of the jagir. The question was, therefore, whether the amount received by the respondent during the relevant period on account of pension was agricultural income in his hands. The decision was that it was not so on those facts. The present case before us, however, is not of a treaty or an arrangement or a compromise between the parties and contestants, but of a compulsory acquisition of the estates under the West Bengal Estates Acquisition Act of the lands and specially agricultural land in this case, belonging to the intermediary. The next case cited for the revenue was the Privy Council decision of Commissioner of Income-tax v. Raja Bahadur Kamakshya Narain Singh, holding interest on arrears of rent payable in respect of land used for agricultural purpose is not agricultural income within the definition of the then Income-tax Act. On this basis the argument for the revenue is that the compensation payable in respect of acquisition of agricultural land or zamindary is not agricultural income and, therefore, was not excluded from the assets for the purpose of calculation of net wealth of the assessee under the We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rustees and not the assessee. The main distinguishing feature of the decision from the instant reference before us is that it was a case of a trust created by parties or their predecessors and concerning a life interest, but it is not so in the instant reference before us. The importance of this distinction will appear later when we consider this point later in this judgment. The third case in this group cited for the revenue is Ahmed G. H. Ariff v. Commissioner of Wealth-tax, in Civil Appeal Nos. 2129-32 of 1968 in the Civil Appellate Jurisdiction whose judgment is yet unreported, laying down the principle of open market test as a notional concept. But there again the distinctive point between that case and the instant reference before us is that it was again a case of trust deed under the Mohamedan law by the settlor governed by the Hanafic school of law who created a wakf and the question was whether, on the facts and circumstances of that case, the right of the assessee to receive the specified share of the net income from the wakf estates was an asset, the capitalised value of which was assessable to wealth-tax. It was not a case of statutory acquisition of agricultural land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... potentiality is the authority that has obtained the compulsory powers, the arbitrator in awarding compensation must ascertain to the best of his ability the price that would be paid by a willing purchaser to a willing vendor of the land with its potentiality in the same way that he would ascertain it in a case where there are several possible purchasers...." Here again, this case is distinguished on the ground that it was not concerned with a sale, if possible, of a right to compensation under the West Bengal Estates Acquisition Act. The last of the cases in this series cited for the revenue was another decision of the Judicial Committee of the Privy Council in Maori Trustee v. Ministry of Works following the previous decision of the Judicial Committee just cited. Broadly speaking, this concludes the review of the case law and the authorities cited for the revenue in support of its contention that a right to compensation, in the facts and circumstances of the case, under West Bengal Estates Acquisition Act, is an asset and is a part of the net wealth of the person whose property has been acquired and attracts the wealth-tax under the Wealth-tax Act. We have carefully studied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a kind of property or asset within the meaning of the Wealth-tax Act. The first step in this construction is to find out from the West Bengal Estates Acquisition Act what is this right to compensation which is said to be "the property" on which wealth-tax is imposed in this case. In the first instance, is it a "right" at all? or, is it a mere chance or expectancy, a possibility which may or may not mature? The argument for the revenue seemed to assume that it was a legal right complete in itself. This, in our view, is the basic fallacy in the arguments for the revenue. If this is at all any kind of a right, it appears, on an analysis of the different sections of the West Bengal Estates Acquisition Act, that it is at best a very inchoate right, as the Tribunal points out that the right to compensation does not arise at all until the requirements under section 23 of the West Bengal Estates Acquisition Act are satisfied. What are the requirements under that section? First, there must be the "final publication" of a compensation assessment roll under section 21 of the West Bengal Estates Acquisition Act. It is that final publication which, expressly by the statute, is considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... create any right to compensation. There are many steps which have to be taken before that right to compensation arises. For this purpose, section 5 of the Act may also be seen. Indeed, section 7 of the Act says that even all arrears of land revenue, cesses, taxes and other impositions by the State due from any intermediary prior to the date of vesting will continue to become recoverable in the same manner as before against the intermediary. The amount of compensation is also thus wholly uncertain and indeterminate. The next step is also vital and significant and, that is, when the Collector shall take charge of the estate and interest of the intermediary under section 10 of the West Bengal Estates Acquisition Act, by which the Collector may by written order require the intermediary to hand over or deliver possession at a particular date or time. Non-compliance with the Collector's order is provided with penalty provided in section 11 of the Act. The other processes begin thereafter for assessment and payment of compensation and the final stage is reached, as indicated, with the publication of the compensation assessment roll under section 23. In this view of the interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporeal rights. This point apparently does not seem to have been decided directly in any of the decisions. Almost all the decisions appear to have taken for granted and are satisfied with the words "property of every description" and come to the conclusion that, therefore, all properties must be included whatever their nature and have almost treated the expression "movable or immovable" appearing in that definition as otiose or meaningless appendage. The base of tax in a taxing statute should, in our view, be clearly indicated and not left to mere inference. If property of other description was really intended to be "asset" within the meaning of the Wealth-tax Act the simplest thing for Parliament would have been to say so and stop at the expression "property of every description". The next step is the first exclusion under section 2(e) of the Wealth-tax Act. Now, section 2(e)(1)(i) says this: "...... does not include in relation to the assessment year commencing on the 1st day of April, 1969, or any earlier assessment year, agricultural land, etc." Obviously, therefore, "agricultural land" as such was expressly excluded from the ambit of "assets" under the Wealth-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o compensation arising by virtue of its acquisition. In its broadest implication that contention of the assessee cannot be accepted and there are decisions, already discussed, which would indicate that in appropriate circumstances the tangible property may be considered independently and dissociated from a right to compensation arising from it. But, even if the assessee's contention is not to be accepted broadly, there are other implications arising from the scheme of the West Bengal Estates Acquisition Act which require examination. Before proceeding to such examination, a reference may, at this point, be appropriately made to the decision of V. Chandramani Pattamaha Devi v. Commissioner of Wealth-tax, which has already been noticed, where this contention was mentioned, at page 148, in the observation of Gopalakrishnan Nair J. to the effect: "Regarding the advance payment on account of compensation under section 54A of Act XXVI of 1948, the assessee contended that as the Chemudu Estate taken over by the Government under the Act consisted of agricultural lands, the amount paid as part compensation must be held to represent agricultural property which was to be excluded in compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of years. The time for payment of any compensation is, therefore, now indeterminate and there is no statutory time within which it must be paid. That makes it in the first instance indeterminate. In the second instance, the scheme of the West Bengal Estates Acquisition Act, conclusively shows that nothing may be payable at all as compensation to the assessee. This point is illustrated by reference to section 7 which expressly provides that all arrears of land revenue, cesses, taxes and other impositions due from any intermediary shall remain recoverable from the assessee as provided therein, followed by section 16 laying down how the gross and the net income is to be computed for the purpose of preparation of compensation assessment roll where it will be found that by section 16(1)(b) that the gross income must be reduced by any sum payable or even deemed to be payable by such intermediary during the previous agricultural year as land revenue, cess or rent, if any, to the State Government and the average of all sums payable as taxes under the Bengal Agricultural Income-tax Act or the Indian Income-tax Act. These deeming provisions for averaging make the sum itself vague and indete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now created property for the assessee, which is the right to compensation apart from the compensation itself, which may or may not become payable and for which there is no time limit any more under the statute to pay and for which the basic conditions of publication or preparation of the final compensation assessment roll have not been fulfilled and where nothing has been paid as ad interim or other compensation in the meantime, although today in 1970, sixteen years have elapsed since the vesting took place in 1954. The plain contention of the State is that this property is created by the compulsory statutory acquisition for the assessee by giving him this curious, inchoate and indeterminate right to compensation which is contingent and problematic and on which the State claims to impose the wealth-tax. Add to this the prospect that if the tax is imposed on this so-called right then the assessee will keep on paying the tax year after year and may ultimately find that he cannot have any compensation at all when the computation and calculations are made under sections 16 and 17 of the West Bengal Estates Acquisition Act. These considerations, in our opinion, are repugnant to the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, of that very agricultural income-tax which he had to pay if the assessee had the use, enjoyment and the ownership of these agricultural lands which were excluded from the wealth-tax. So, because the State had compulsorily acquired these agricultural lands of the assessee, the State is supposed to have created by its acquisition a new kind of taxable property for the assessee, and, therefore, he goes on paying wealth-tax on the basis of agricultural income-tax of these very properties. This in our view is taxing indirectly what could not be taxed directly. We are unable to accept these contentions of the revenue authorities. Learned counsel for the revenue, here, wanted to apply which, in the absence of a better expression, we shall describe as the "doctrine of measure". It is contended on behalf of the revenue that although the compensation is referable to agricultural land and the agricultural income arising out of it and although such compensation is based entirely on the record-of-rights of such agricultural interest, yet this is not agricultural land but money. Indeed, it is and it is an ideal legal argument. Very resourcefully, learned counsel for the revenue tried to app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer has computed the wealth-tax in this very case. We do not think that the doctrine of measure was intended to save or serve such a situation for the revenue. This brings us to the next vexed question of valuation of such wealth. The embarrassment of the revenue authorities in the present case is plain from the fact that at one time the valuation of this alleged right to compensation is said to be Rs. 32,00,000 for each of the three years according to the Wealth-tax Officer, but, which according to the Appellate Assistant Commissioner, becomes very much smaller and comes to only Rs. 3,25,000 for each year. Behind this yawning disparity lies an unexpressed confusion that such a wealth was not intended at all to be valued or taxed either under section 2(e) of the Wealth-tax Act or under section 7 of the Wealth-tax Act. Now, section 7 of the Wealth-tax Act provides the method of determining the valuation of an asset under that Act, and, inter alia, it provides: " 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket even under section 7 of the Wealth-tax Act. In Abdul Khaleque v. Medaswar Hossain, this right to compensation under the West Bengal Estates Acquisition Act was considered along with the question whether it could be sold under it. The observations made there at pages 60-61 are relevant on the point and are as follows: "From the practical point of view I cannot see how a right to proceed against compensation money can itself be sold. There are enormous practical difficulties. A right to compensation is a total right under the West Bengal Estates Acquisition Act. In the first place, the final publication of the compensation assessment roll under section 21 read with the manner of payment of compensation under section 23 and sections 16 and 17 of the Act dealing with the gross and net income with its particular tables appears to indicate that this compensation depends ultimately on two major factors: (1) deduction of dues, and (2) gross and net income. Now, it may just be possible that in a particular case an intermediary who has his own dues to the State under sections 7, 8 and 9 of the Act may actually have no particular sum of money to his credit as compensation after deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point is that here it is not merely difficulty in valuing but legal disqualification under the statute to sell it at all. That consideration raises the basic problem whether this was at all a kind of property or an asset which is contemplated to be taxed under the Wealth-tax Act. We have already shown the wide disparity among the taxing authorities in valuing such a right. It is not a question of one valuer differing from another. The whole principle, even including the principle of notional and imaginary market and price under section 7 of the Wealth-tax Act appears to be inapplicable in the present context of this instant reference. There is yet one more consideration about the valuation under section 7 of the Wealth-tax Act which is not a mere difficulty in the process or mechanics of valuation but again springing from the basic incongruity indicated-above. Now, under section 7, it is the opinion of the Wealth-tax Officer. He has got to exercise his opinion to find out the imaginary open market and discover the imaginary price available for such a right. But between the imagination and the reality there is a flagrant and unbridgeable conflict in law in the present case that ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be no deterrent under section 7 of the Wealth-tax Act, so long it does not suffer from legal prohibition of being sold in real or imaginary open market. The Wealth-tax Officer will have to do as best as he can in this respect. Once the land or the right is computed in money either legally or physically, then that money unquestionably is asset attracting wealth-tax. The further fact that whether it is payable at once or payable in instalments or spread out for a longer number of years will not affect its chargeability or assessability to wealth-tax. The learned counsel for the revenue submits that section 5 of the Wealth-tax Act lists the exclusion and this right to compensation or compensation itself is not one in the excluded list. We accept that argument but the difficulty there is that the exemption mentioned in section 5 of the Wealth-tax Act proceeds on the basic assumption that they are all assets within the meaning of section 2(e) of the Wealth-tax Act and are primarily liable to attract wealth-tax. It is, therefore, that section 5 excludes such "assets" from the net wealth of the assessee under the Wealth-tax Act. Section 5 of the Act listing exclusion of admitted ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Wealth-tax Act and, therefore, the application of the mechanism of valuation would also be not applicable to such an asset. Before concluding we may make a brief reference to the concept of property and actionable claim referred to in the decision of the Tribunal. It will be recalled that section 2(e) of the Wealth-tax Act defines asset as including any "property of every description, movable or immovable." Section 3 of the Transfer of Property Act defines immovable property to say that it does not include standing timber, growing crops or grass. It is a negative definition. The Transfer of Property Act has no definition for immovable property. The General Clauses Act has a definition for immovable property to say "immovable property shall include land, benefits arising out of land and things attached to the earth". The General Clauses Act defines movable property to mean "property of every description except immovable property". The Registration Act defines movable property to include property of every description except immovable property. From this analysis it will appear that there is in law and jurisprudence no tangible and concrete definition of property, yet it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Acquisition Act, but it will not be relevant for our purpose. Independently of section 58 and section 46, which in our view do not apply in the present reference, we come to the conclusion that it is not a legal right at all in the facts and circumstances of the case in the instant reference. Mr. Panda, appearing for the assessee, at one stage submitted that under section 2(e) of the Wealth-tax Act, property of every description, movable or immovable, only meant tangible property and not intangible property and not rights arising from such property. In support of this contention, he tried to attract us by the word "located" in section 2(m) appearing therein, viz., "'Net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date" etc. Therefore, he submits that location meant location of tangible property and not intangible property. We are unable to accept this proposition put forward on behalf of the assessee. Even in section 2(e) of the Wealth-tax Act and looking at the excluded list we find such properties as right to annuity, which also may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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