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2003 Supreme(SC) 460
2003(4) Supreme 65
SUPREME COURT OF INDIA
(From Andhra Pradesh High Court)
V.N. Khare, CJI., R.C. Lahoti, B.N. Agrawal, S.B. Sinha and AR. Lakshmanan, JJ.
Commissioner of Wealth Tax, Hyderabad -Appellant
versus
Trustees of HEH -Respondent
Civil Appeal No. 4703 of 1999
With
Civil Appeal Nos. 4962/1999, 7102/1999, 2519/2000, 2640/2000, 5688/1999, 1794/2000, 1809-1811/2000, 6170/1999, 4913/1999, 6074/1999, 4914/1999, 4316/1999, 5636/1999, 7459/2000, 4912/1999, 5616/1999, 820/ 2000 and 2354/2000
Decided on 16-4-2003
Counsel for the Parties :
For the Appellant : R.P. Bhatt, Sr. Advocate, Ranbir Chandra, Ms. Neera Gupta, Rajiv Tyagi, K.C. Kaushik, Pritesh Kapoor, B.V. Balram Das and Ms. Sushma Suri, Advocates.
For the Respondent : S. Ganesh, Sr. Advocate, J.B. Dadachanji, P. Muralikrishna, Buddy A. Ranganadhan, A.V. Rangam, A. Ranganadhan, Advocates.
IMPORTANT POINT
While assessing the net wealth of the jewelleries of a Trust, the charge created thereupon in terms of Section 74(2) of the Estate Duty Act will have to be taken into consideration.
Headnote:Wealth Tax Act, 1957-Sections 21(1) and 54-Valuation of jewelleries held by remaindermen-Assessees are all beneficiaries of a Trust called HEH the Nizam Jewellery Trust-They returned value of their interest in Trust properties on basis of valuer s report-Valuation made by assessees value challenged-Whether Estate Duty liability arising on assumed death of life interest holder on notional basis is liable to be deducted from valuation of asset in the context of valuation of interest of remainder interest holder-(Yes).
Held : It is not in dispute that on the death of holder of the life-interest, the provisions of the Estate Duty Act would be applicable. The estate duty so determined in terms of sub-section (2) of Section 74 of the Act shall be the first charge on such interest. There cannot, therefore be any doubt or dispute that the position has to be evaluated having regard to the value of the assets assessable at each relevant date. It is further not in doubt or dispute that the value of the jewelleries would be the price which a willing or informed buyer would offer therefor. As arrears of the estate duty would be a charge on the property, the same being encumbrance , the potential estate duty liability shall be a relevant factor while determining the market value of the jewelleries. Whenever there is a charge or encumbrance in the property, 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. (Paras 13 & 14)
Once the legal fiction under the Act is taken to its logical corollary, the conclusion is inescapable that while assessing the net wealth 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. (Para 20)
JUDGMENT
S.B. Sinha, J.-Noticing a purported conflict in the decisions of this Court in Bharat Hari Singhania and Others vs. Commissioner of Wealth Tax (Central) and Others [(1994) Supp. (3) SCC 46] = [(1994) 207 ITR 1] and The Commissioner of Wealth Tax, Andhra Pradesh, Hyderabad vs. Trustees of H.E.H. Nizam s Family (Remainder Wealth Trust), Hyderabad [(1977) 3 SCC 362] = [(1977) 108 ITR 555], a Division Bench of this Court by an order dated 1.11.2002 referred this matter to this Bench observing :
"We do see some force in the arguments of the learned counsel for the respondent that on facts it could be said that the decision in Nizam s Family Trust case (supra) 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 Hari Singhania s case (supra) is only an obiter of an issue decided on facts. A perusal of the judgment extracted hereinabove clearly shows that this Court in Hari Singhania s case (supra) 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, PF 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 what we have understood it to be, enunciated in the Hari Singhania s case (supra) is correct then the same, in our opinion, runs counter to the earlier decisions of this Court in the case of Nizam s Family Trust (supra) and both judgments being judgments of a Bench of three Judges, we think it appropriate that this issue should be settled by a larger Bench. Therefore, we direct that the papers of these appeals and connected matters be placed before the Hon. C.J.I. for appropriate orders."
2. The fact of the matter as noticed by the High Court is as under:-
The assesses are all beneficiaries of a Trust called H.E.H. the Nizam Jewellery Trust. They returned the value of their interest in the Trust properties on the basis of the valuer s report. The Wealth Tax Officer accepted the returns. In some cases, the Commissioner of Wealth Tax considered such assessments to be erroneous and prejudicial to the Revenue. In other case, the Wealth Tax Officer, himself reopened the assessments. The view of the Department was that the valuation made by the assessees valuer was incorrect for three reasons, namely, (i) that the Estate Duty payable on the death of the life tenant was wrongly deducted, (ii) that no adjustment has been made for appreciation in the value of the property; and (iii) that the interest rate was wrongly taken at 6½ per cent or the purpose of actual valuation.
The Tribunal rejected these three grounds on finding that the accepted method of valuing the remaindermen s interest included a deduction of the Estate Duty, that the value had been taken on the basis of the Department, valuer s report and so did not call for appreciation and that the interest rate adopted was given in the table annexed to Wealth-tax rules itself.
3. The Tribunal made a reference to the High Court, inter alia, on the following question:
1. Whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that the probable Estate Duty payable on the death of the life tenant has to be taken into account and the value of the property will be diminished by that for charge of W.T in the hands of the remaindermen?"
4. The High Court answered the question in affirmative, i.e., in favour of the Assessee and against the Revenue, relying on the decision of this Court in H.E.H. Nizam (supra).
5. On an application made under Section 261 of the Income Tax Act by the Revenue, th
