Commissioner of Wealth Tax, v. N. T. Agrawal — 1984 DIGILAW 200 (RAJ)

S.K. Mal Lodha, J.—The Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short the Tribunal herein) has referred the following question for the opinion of this Court:- "Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in holding that the assessee was entitled to exemption u/s 5 (1)(iv) of the Wealth-tax Act, 1957 in respect of the value of his 3/4th share in the house property thrown by him into the common hotch-potch of H.U.F. which was includible in his net wealth under section 4 (1A) of the Act ?" 2. The assessee-respondent is an individual The valuation date relevant to the assessment year 1975-76 was March 31, 1975. The assessee filed Wealth Tax Return declaring the wealth of Rs. 1,96,400/-. He claimed exemption for Rs. 1, 00, 000/- u/s 5 (1) (iv) of the Wealth Tax Act (Act No. XXVII of 1957) (which will for the sake of bravity hereinafter be referred to as the Act) in respect of the immovable property. The Wealth Tax Officer, by his order dated February 20, 1976, was of the opinion that the ownership of property has been shifted from individual to H.U.F. as soon as the property is thrown in the common hotch-potch and that individual and the HUF are two different persons (entities) and, therefore, the ownership has changed hands. According to the Wealth Tax Officer, the property cannot be said to be owned by the assessee and therefore, the claim for exemption u/s 5(1) (iv) of the Act was not allowed. He, therefore, determined the value of the immovable property u/s 4(1A) of the Act. 3. On appeal the Appellate Assistant Commissioner by his order dated June 3, 1976, allowed the appeal and in view of the finding of the Tribunal for the immediately preceding year namely, 1974-75 directed the Wealth Tax Officer to allow exemption to the assessee in terms of s. 5(1) (iv) of the Act. A further appeal was taken by the Revenue. The Tribunal by its order dated May 13, 1977 held that the assessee is entitled to exemption u/s 5 (1) (iv) of the Act in respect of the property which was included in the wealth of the assessee in terms of s. 4(1A) of the Act. The Tribunal, therefore, dismissed the appeal. A further appeal was taken by the Revenue. The Tribunal by its order dated May 13, 1977 held that the assessee is entitled to exemption u/s 5 (1) (iv) of the Act in respect of the property which was included in the wealth of the assessee in terms of s. 4(1A) of the Act. The Tribunal, therefore, dismissed the appeal. A Reference Application was filed by the Commissioner of Wealth Tax, Rajasthan, Jaipur, requiring the Tribunal to refer the question of law arising out of its order. The Tribunal has, therefore, referred the aforesaid question. 4. We have heard Mr. J.P. Joshi, learned counsel for the Revenue and Mr. Rajendra Mehta, learned counsel for the assessee-respondent. 5. The assessee-respondent had claimed exemption of Rs. 1,00,000/-u/s 5(1) (iv) of the Act during the accounting year in respect of the immovable property. The assessee was asked to explain as to why the exemption should not be allowed for the reason that immovable property in question does not belong to him. The contention of the assessee was that the property in question was thrown in the common-hotch-potch of the Hindu Undivided Family and as such its ownership was that of H.U.F. On the other hand it was submitted on behalf of the Revenue that as the property was thrown in the common hotch-potch, the property is not owned by the assessee and, therefore, claim for exemption under s 5 (1) (iv) cannot be allowed. The Wealth Tax Officer has stated as under:- "The ownership of the property has been shifted from individual to H.U.F. as soon as the property is thrown in common hotch-potch. Individual and HUF are two different persons (entities) and therefore the ownership has changed hands. Thus the property is not owned by the assessee and therefore the claim for the exemption u/s 5 (iv) is not allowable." 6. The Appellate Assistant Commissioner did not agree with the Wealth Tax Officer as according to him the assessee was entitled to the exemption u/s 5 (1) (iv) of the Act. The Tribunal also held that the assessee was entitled to exemption u/s 5 (1) (iv) of the Act. 7. S. 3. is the charging section which is as follows:- "3. The Appellate Assistant Commissioner did not agree with the Wealth Tax Officer as according to him the assessee was entitled to the exemption u/s 5 (1) (iv) of the Act. The Tribunal also held that the assessee was entitled to exemption u/s 5 (1) (iv) of the Act. 7. S. 3. is the charging section which is as follows:- "3. Charge of wealth-tax.—Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the 1st day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule." 8. S. 4 deals with net wealth to include certain assets, s. 4(1A) of the Act runs as follows:- "4. Net wealth to include certain assets.- "(1A) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1959, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been traneferred by the individual, diractly or indirectly to the family otherwise then for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property) then, notwithstanding any thing contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1972,- (a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly; (b) the converted property or any part thereof (. . . . . .) shall be deemed to be assets belonging to the individual and not to the family; (c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the converted property or any part thereof which is received by the spouse or minor child of the individual on such partition shall be deemed to be assets transferred indirectly by the individual to the spouse or minor child and the provisions of sub-section (1) shall, as far as may be, apply accordingly; Provided that the property referred to in clause (b) or clause (c) shall, on being included in the net wealth of the individual, be excluded from the net wealth of the family or, as the case may be, the spouse or minor child of the individual. (2) In making any rules with reference to the valuation of the interest referred to in clause (b) of sub-section (1), the Board shall have regard to the law for the time being in force relating to the manner in which accounts are to be settled between partners of a firm and members of an association on the dissolution of a firm or association, as the case may be." 9. S. 4(3) of the Act is as under.- "(3) Where the value of any assets is to be included in the net wealth of an assessee in accordance with clause (a) of sub-section (1) or sub-section (1A)" (a).......... (b) the provisions of section 5 shall apply in relation to such assets as if such assets were belonging to the assessee." 10. The only other section which remains to be considered is s. 5 rela-ting to exemptions in respect of certain assets The relevant for our purpose is s. 5 (1) (iv) which reads as under:- "5. Exemption in respect of certain asscts.-(1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assesse. (iv) One house or part of a house belonging to the assessee." 11. Having noticed the aforesaid provisions we have to see whether exemption u/s 5 (1) (iv) is available to the assessee, when the property has been thrown in the common hotch-potch of the Hindu Undivided Family. (iv) One house or part of a house belonging to the assessee." 11. Having noticed the aforesaid provisions we have to see whether exemption u/s 5 (1) (iv) is available to the assessee, when the property has been thrown in the common hotch-potch of the Hindu Undivided Family. The question relating to exemption u/s 5 (1) (iv) along with the provisions of s. 4 of the Act was examined by some of the High Courts. 12. The earliest case is S. Nagnathan vs. C.W.T. (1). Before the Division Bench of the Madras High Court in S. Nagnathans case (supra) the question was with respect to s. 4(1) (a) of the Act. Ramaswami, J., speaking for the Court observed as under:- "There is nothing either in section 4 or in section 5 (1), in our view, which show an intention of Parliament either to limit the fiction created under section 4(1) only for the purpose of including the value of the asset transferred in the net wealth of the transferor or exclude the application of section 5(1) (iv) to a case where the transfer related to a house belonging to the assessee." 13. Another Division Bench of the same High Court followed S. Nagana-thanscase (supra) in V. Vaidya Subramaniam vs. C.W.T (2). Secs. 4(1)(a) and 5 (1) (iv) were considered and the learned Judges followed the view taken in S. Nagnathans case (supra and held that the benefit of S. 5(1) (iv) of the Act would also be available to a case falling u/s 4(1) (a) of the Act. 14. The aforesaid two provisions were examined by the Division Bench of the Karnataka High Court consisting of K.S. Venkataramaiah, J. as he then was, and M.K. Srinivasa Iyangar, J, in C.W.T. v. G.S. Manvi (3). While following S. Nagnathans case (supra) it was held that the assessee was entitled to exemption u/s 5 (1) (iv) of the Act in respect of his residential property which was transferred by him to his wife. They noticed s. 4(1 )(a) of the Act. The learned Judges have expressed themselves in the following words:- "The section itself contemplates the house "as belonging to" the assessee and the exemption is in respect of a house belonging to the assessee. They noticed s. 4(1 )(a) of the Act. The learned Judges have expressed themselves in the following words:- "The section itself contemplates the house "as belonging to" the assessee and the exemption is in respect of a house belonging to the assessee. Therefore, when the value of the house is to be considered for the computation of the net wealth, it has to be assumed even for purpose of section 5(1)(iv) of the Act that the house in question belongs to the assessee and the exemption that has to be allowed is in the hands of such assessee." (Itelic is ours). 15. In C.W.T. v. C. Rai (4) the Appellate Tribunal referred the question whether it has erred interalia, in holding that 400 shares of Colour Chem Ltd. transferred to the name of the assessees wife were exempted under s. 5(1)(xx) read with section 4(1)(a)(i) of the Wealth-tax Act, 1957. Tulzapurkar. J., as he then was, who delivered the judgment of the Division Bench of the Bombay High Court opined that having regard to the provisions contained in ss. 2(m), 3, 4 (1) (a)(i) and 5 (1)(xx) it is clear that to grant exemption which was sought by the assessee is merely to give effect to the legal fiction created by s. 4(1) and not extending it beyond the purpose for which it is created or make it operate beyond its legitimate field. 16. The learned Judge derived some support from S. Nagnathans case (supra). The only other authority that needs to be noticed is of the Orissa High Court reported in Danji Jairam v. C.W.T. (5). R.N. Misra, J. as he then was, while following S. Nagnathans case (supra) disagreed with the Appellate Tribunal and observed as under;- " ... ...the scheme, in ss. 4 and 5 of the Act are essentially one, namely, provisions made for computation of not wealth of the assessee. Section 4 provides for the inclusion of certain assets which in normal circumstances may not have been included and s. 5 makes a provision for the exclusion of certain assets which keeping the law in view would have been treated as assets in the hands of the assessee for computation of his net wealth. Exemptions under s. 5 have been provided to give effect to the intention of Parliament as a matter of public policy." (Itelic added) 17. Exemptions under s. 5 have been provided to give effect to the intention of Parliament as a matter of public policy." (Itelic added) 17. No authority was cited by the learned counsel for the Revenue in which a contrary view has been taken. 18. The aforesaid authorities are nearer home for considering the provisions of s. 4 (1A) and s. 5(1)(iv) of the Act. The reasons given in connection with s. 4(1)(a) are equally applicable while examining s. (lA) of the Act. 19. The expression belonging to the family used in s. 4(1 A) seems to us to have been included for the purpose of uniformity of expression which us find in other provisions like s. 2 (m) and s. 5 (1) (iv) and not for any other specific purpose. For the purpose of considering s. 4 (1A) and s. 5 (1) (iv) we may adopt what has been stated by the learned Judges of the Madras High Court in S. Nagnathans case (supra):- "We may even go to the extent of stating that these words have been used only with the intention of giving the benefit of section 5(1)(iv)to those cases where section 4(1) (a) is applicable. It might be, as contended by the learned counsel for the Revenue, that it would have been easier to refer in such cases of transfer that "the property shall be deemed to be the property of the transferor in respect of the transfer" rather then using the expression like "as belonging to that individual." But the form and style are the exclusive jurisdiction of Parliament itself. So long as there is no indication that the benefit under section 5(1) (iv) shall not be available to a case falling under section 4(1) (a) We cannot give any restricted interpretation and deny the benefit to the assessee. It is not necessary for us to refer to those decisions where the well settled principle is that a fiction shall not be extended for more than the purpose for which it is created because in this case we are not extending the fiction beyond the purpose for which it was created, but in effect we give only affect to the fiction created and are not extending the case." 20. While respectfully following the reasonings given in S. Nagnathans case (supra), which has consistently been followed in the authorities referred to above, we hold that the assessee was entitled to exemption under s. 5 (1) (iv) of the Act in respect of the value of his 3/4 th share in the house property which was thrown by him into the common hotch-potch of H.U.F. which was includible in his net wealth under s. 4 (1 A) of the Act. 21. We answer the question referred to this Court in the affirmative, in favour of the assessee-respondent and against the Revenue. 22. We direct the parties to bear their own costs of this reference. 23. Let the Appellate Tribunal be informed in accordance with s. 27 (6) of the Act.