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TMI Blog1970 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under the provisions of that Act. In other words, the Appellate Assistant Commissioner took the view that the assessee had an actionable claim against the Government, the value of which was includible in the net wealth of the assessee as an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 by the revenue that the fact that the intermediary was entitled to receive interest from the date of vesting was itself evidence that he acquired a right to receive compensation from the date of vesting. The Tribunal came to the conclusion that such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 agricultural land and its exemption. Therefore, they contend that this "right" has become assessable by a matter of interpretation and inference from the combined operation of the West Bengal Estates Acquisition Act and the Wealth-tax Act. From the point of taxin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 based on the Madras Estates Abolition Act, 1948, which we have said is not in pari materia with the West Bengal Estates Acquisition Act and, secondly, it is not an authority on the points indicated and argued in the instant reference before us. The next decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 previous Bench decision of the Patna High Court. There was one more decision reported in the same volume under the title Vadrevu Venkappa Rao v. Commissioner of Wealth-tax, on which reliance was placed for the revenue. This authority decided that the amount of compensation p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, therefore, not only distinguishable on the ground that the scheme of the Bihar Act is different from the scheme of the West Bengal Act but also on the ground of facts indicated. These are the main cases on which reliance was placed by the learned counsel for the revenue authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Wealth-tax Act. The third group of cases relied on for the revenue raises the question of the saleability of the property in open market as the basis of valuation under section 7 of the Wealth-tax Act because the point has been argued in this case that this right to compensation cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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 liable to agricultural income-tax. The fourth case in this group of authorities cited for the revenue is Narayana Gajapathiraju v. Revenue Divisional Officer, Vizagapatam, a decision of the Privy Council. That was a case under the Land Acquisition Act. The ratio of that decision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 and scrutinised these numerous authorities. None of them is a direct decision or authority on the point that arises for determination in the instant reference before us. The statutes discussed in those authorities are different from the statutes with which we are concerned. The principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 considered to be the "conclusive evidence" that the said roll has been duly made and that every entry in such rolls so finally published shall be conclusive evidence of the matters referred to in such entry. This final publication of the compensation assessment roll is the crucial event on which the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the relevant sections of the West Bengal Estates Acquisition Act and the scheme provided, there is no right yet in the assessee to compensation, in the facts and circumstances of the case, and the Tribunal was right in coming to the conclusion accordingly. We are not to be misunderstood as holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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. Now, what is "agricultural land" is not defined under the Wealth-tax Act. But it is defined by section 2(b) of the West Bengal Estates Acquisition Act which provides that "agricultural land means land ordinarily used for purpose of agriculture or horticulture and includes such land that may be lying fallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 computing the taxable wealth." But this point was not pressed as will appear from the learned judge's observation at page 150 : " Nor has he pressed the contention that the amount of compensation paid or payable to the assessee under the Act, XXVI of 1948, must be treated as representing agricultural land and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 indeterminate, apart from the time which also is indeterminate as indicated above. It is only after the net income has been computed under section 16 of the West Bengal Estates Acquisition Act that the compensation officer shall proceed to determine the amount of compensation payable to the intermediary in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 basic concept of a taxing law. It is also repugnant, in our opinion, to the specific sections and scheme provided under the West Bengal Estates Acquisition Act. To tax in such circumstances is to tax by inference, by implication and by strained interpretation and should not be adopted. To do so would be to invent a kind of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition 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 apply the observation of the Supreme Court in Commissioner of Income-tax v. Kunwar Trivikram Narain Singh, which we have already quoted elsewhere and specially the observations at page 32, which we shall repeat, viz.: " The allowance was in a sense related to the land revenue assets on the land, i.e., it was fixed as a perce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." This is well-settled law that the open market may be a hypothetical market and the price may be a notional and hypothetical price. The physical impossibility of either determining the price or selling the right in the open market will not be a deterrent for valuing the asset for the purposes of the Wealth-tax Act. It will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deduction of the debts. What then is the concrete and tangible content of the so-called right to compensation which has been advertised in the sale proclamation in the mortgage decree in this case? The attempt to put a valuation on this right to compensation by valuing the three items of properties which were mortgaged is both illogical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axing 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 needs to be examined more carefully. The right to compensation necessarily has to be regulated by the compensation payable. We shall assume that the contention of the revenue authorities is correct for the purposes of this branch of the argument that the right to compensation is different from the compensation itself. But then, in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ably 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 assets cannot, therefore, be any index or guide to determine the more basic question of what is an asset within the meaning of section 2(e) of the Wealth-tax Act. The argument from that point of view turns back and relates to the basic question whether this alleged right is at all an asset. The view that we are taking is that, in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efines 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 is used in the widest and most generic legal sense. Section 6 of the Transfer of Property Act speaks of some of the properties which cannot be transferred at all. As for instance, the transfer of a mere possibility of a like nature as the chance of heir-apparent or where such transfer is opposed to the nature of the interest affected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 not in that sense have a "location". We are inclined to the view that the word "located" in section 2(m) of the Wealth-tax Act has reference to the tax instance, under such sections as section 6 of the Wealth-tax Act with the exclusion of assets and debts outside India for resident and non-resident assessees. Learned counsel for the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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