TMI Blog1977 (7) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... 59, and the said shares were immediately transferred to her name in the share register of the company. The assessee had declared in an annexure to the return the value of the shares so transferred by him to his wife but he claimed that the value of those shares would be exempt under the provisions of s. 5(1)(xx) of the W.T. Act. The WTO took the view that the exemption under s. 5(1)(xx) would be available to the assessee only if he had held the shares, that is to say, the shares had stood in his name as on the valuation dates. The shares having been transferred and having been held by the assessee's wife in her name in the share register of the company on the valuation dates, it could not be said that the shares were " held by the assessee " in order to justify the claim for exemption. The WTO, therefore, added the value of these shares, as on the respective valuation dates, to the net wealth of the assessee in accordance with the provisions of s. 4(1)(a)(i) of the Act; in other words, for the year 1960-61, he added an amount of Rs. 1,28,000 and for the year 1961-62, he added an amount of Rs. 1,45,000. The assessee carried the matter in appeal for both the years to the, AAC. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as on the respective valuation dates. At the instance of the CWT, the question set out at the commencement of the judgment has been referred to us for our determination. Mr. Joshi appearing for the revenue has referred us to the relevant provisions of the W.T. Act, particularly ss. 2(m), 3, 4(1)(a)(i) and 5(1)(xx) thereof and has contended that the legal fiction which has been created under s. 4(1)(a)(i) should not be extended beyond its legitimate field and the court should not indulge in creating yet another legal fiction for the purpose of considering the question of exemption under s. 5 of the Act over and above the legal fiction created under s. 4 of the Act. He urged that the legal fiction created under s. 4(1) of the Act had been created for the purpose of including within the net wealth of the assessee certain assets or certain items of property more specifically specified in that section and such legal fiction which was created for the purpose of inclusion should not be extended for the purpose of enabling an assessee to claim exemption under s. 5 of the Act. According to him s. 2(m) defined the expression " net wealth " as meaning the amount by which the aggregate v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1964] 54 ITR 740. He pointed out that in that case the court was concerned with s. 5(1)(xvi) of the W.T. Act as it stood before the same was amended in 1963 where also the expression used in connection with National Savings Certificates and other securities was " held by the assessee " and he pointed out that the Gujarat High Court while construing the expression made a distinction between the two expressions " belonging to " and " held by the assessee " and construed the latter expression to mean that the National Savings Certificates and other securities must stand in the name of the assessee and it was only then that exemption under s. 5(1)(xvi) could be claimed. He pointed out that the Gujarat High Court held in that case that the exemption under cl. (xvi) was limited to those certificates which were held by the assessee at the relevant time, that is to say, those certificates which stood in the name of the assessee, and not in respect of certificates standing in the name of another person, his nominee, though the assessee had beneficial ownership in such certificates. He urged that the same expression occurs in s. 5(1)(xx) and as such the same construction should be placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " occurring in s. 5(1)(xx) which expression, according to him, should mean " belonging to " or " owned by " the assessee and it was not necessary that the assets in question, particularly the shares herein, should have stood in the name of the assessee in the company's share register. In support of that contention reliance was placed upon the decision of the Madras High Court in the case of S. Naganathan v. CWT [1975] 101 ITR 287. In order to appreciate the rival submissions that were put before us it will be necessary to set out the relevant material provisions of the Wealth-tax Act as they stood prior to amendments mentioned by Mr. Joshi. The expression " net wealth " has been defined in s. 2(m), which runs thus : " ' 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, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than -- . ........" (then follows enumeration of certain specified debts) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4(1) and 5(1) of the Act it seems to us quite clear that the intention of the Legislature was unquestionably to prevent evasion or avoidance of tax by resorting to transfer of assets but the intention clearly was not to put the assessee in a worse position than when he had not transferred his assets as contemplated by s. 4(1). Mr. Joshi's contention, however, suggests that the legal fiction had been created only for the purpose of inclusion of transferred assets in the computation of the wealth of the assessee and at the same time the legislation did not intend to grant any exemption to the assessee in respect of such transferred assets even when they properly fell within the provisions of s. 5(1) of the Act. Acceptance of such argument must lead to an inference that the Legislature intended to place an assessee in a worse position in respect of transferred assets than he would have been when he had not transferred the assets, which, in our view, could never have been the intention of the Legislature. Apart from this aspect of the matter the entire foundation of Mr. Joshi's contention rests upon a particular construction or interpretation which he has sought to place upon the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perties must stand in the name of the assessee would be inapporpriate. Moreover, on a reading of the other clauses of s. 5(1) it does appear to us that various expressions like " hold ", " belonging to " , " standing to the credit of " have been indiscriminately used. Having regard to these aspects which stare one while considering the provisions of s. 5(1) it will be difficult to accept Mr. Joshi's contention that the expression " held by the assessee " occurring in cl. (xx) of s. 5(1) should be interpreted to mean " standing in the name of the assessee in the company's register " as suggested by him. The expression " any share held by the assessee " should, according to the dictionary meaning, be interpreted as shares possessed of or owned by or belonging to the assessee. If such a meaning is given to that expression, then obviously the 400 shares in question were held by the assessee in that sense and as such he would be entitled to exemption under s. 5(1)(xx) of the Act. Apart from the question of construction of the expression involved in this case, the problem could be approached by having regard to the legal fiction, that has been created by s. 4(1) of the Act. We have alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute says that you must imagine a certain state of affairs ; it does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." In other words, reconciling both the principles together it will appear clear that within the limit set by the purpose for which the legal fiction is created, the legal fiction must be allowed itself to be worked without allowing the mind to boggle, that is to say, you must also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it ; inevitable corollaries flowing from the putative state of affairs which one is bidden to treat as real must be drawn and given effect to. If, in the instant case, therefore, the putative state of affairs as contemplated by legal fiction are to be treated as real, namely, that the transferred assets are to be treated as if belonging to the transferor-assessee himself, then, carrying this legal fiction to its logical end its corollaries must be given effect to. One such corollary finds place in s. 5, which deals with exemption i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase where the transfer related to a house belonging to the assessee. It also took the view that by this provision Parliament would not have intended that the transferor should be put under a worst position or shall be subjected to more liability than what he would have been if the transfer had not taken place. The words " as belonging to that individual " have been used in s. 4(1)(a) not only for the purpose of uniformity of expression which is to be found in the other provisions of the Act such as ss. 2(m), 5(1)(iv), etc., but also with the intention of giving the benefit of s. 5(1)(iv) to those cases where s. 4(1)(a) is applicable. In terms the Madras High Court took the view that by granting the exemption claimed the court was not extending the fiction beyond the purpose for which it was created, but the court only gave effect to the fiction created and had not extended the same. It is true that Mr. Joshi has brought to our notice the fact that by the Finance Act, 1975, some amendments have been made both in s. 4 as well as in s. 5 of the Act and these amendments have been brought into effect from 1st April, 1975. He pointed out that s. 4 was amended by incorporating additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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