Commissioner Of Wealth Tax v. S. C. Varshnei — 1984 DIGILAW 359 (PAT)

Judgment Nazir Ahmad, J. 1. A statement of the case has been submitted by the Income-tax Appellate Tribunal, "B" Bench, Patna, under Sec.27(3) of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"), under the direction of this court, referring the following question of law for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in excluding the value of 10 shares transferred by the assessee to his wife, in computing the net wealth of the assessee ?" 2. The relevant facts of the case can be found out from the statement of the case. The assessment year involved is 1966-67, for which the valuation date is March 31, 1966 (wrongly stated in the assessment order annexure "A" as March 31, 1965). The assessee is an individual and was holding certain shares in M/s. Seraikella Glass Works Private Limited. The shares of the company were not quoted. The assessee sold 10 shares to his wife, Smt. Padmini Devi, on August 6, 1965. The shares were valued at the rate of Rs. 3,250 per share. The Wealth-tax Officer found that these shares were valued at the rate of Rs. 8,739 in the assessment order for the assessment year 1965-66. He, therefore, came to the conclusion that the shares were not transferred for adequate consideration. He, therefore, valued the share at Rs. 8,666.58 per share and accordingly included the value of the shares in the net wealth of the assessee under Section 4(1)(a)(i) of the Act. The order of the Wealth-tax Officer has been annexed and marked as annexure "A" forming part of the statement of the case. 3. The assessee came in appeal before the Appellate Assistant Commissioner and contended that the current value as determined by the assessee of 10 shares sold to the wife of the appellant would come to Rs. 66,630 at the rate of Rs. 6,663 per share. The total price received by the appellant from his wife amounted to Rs. 32,500. He, therefore, submitted that if the value of such shares is to be included in the net wealth of the appellant, the sum of Rs. 32,500 realised by the appellant from his wife would at least be excluded. The assessee further claimed, relying on Sec. 4(1)(a)(i) of the Act, that the amount realised from the assessees wife should be excluded. He, therefore, submitted that if the value of such shares is to be included in the net wealth of the appellant, the sum of Rs. 32,500 realised by the appellant from his wife would at least be excluded. The assessee further claimed, relying on Sec. 4(1)(a)(i) of the Act, that the amount realised from the assessees wife should be excluded. The assessee also drew the attention of the Appellate Assistant Commissioner to Sec. 5 of the Gift-tax Act, 1958, and claimed exemption to the extent of Rs. 50,000 of the value of the shares transferred to the wife. The Appellate Assistant Commissioner, pursuant to the argument of the assessee, directed the Wealth-tax Officer to examine the contention of the assessee afresh. He stated that if the Wealth-tax Officer was satisfied that the valuation of the shares did not exceed Rs. 50,000, Rs. 50,000 was to be excluded in the computation of the value of 10 shares of M/s. Seraikella Glass Works Private Limited transferred by the appellant to his wife which is to be included in the wealth of the appellant under Sec. 4(1)(a)(i) of the Act. A copy of the order of the Appellate Assistant Commissioner has been annexed and marked as annexure "B" to the statement of the case. 4. The assessee came in appeal before, the Tribunal and the Tribunal followed its earlier order in I.T.A. No. 21857 (Pat) of 1967-68, in which it was held that Sec. 64(1)(iii) of the Income-tax Act, 1961 (hereinafter referred to as the "I.T. Act"), as it was in force in the assessment year 1966-67 was not applicable to the transfer of shares. The Tribunal, therefore, excluded the inclusion of the value of 10 shares in the total wealth of the assessee. A copy of the order of the Tribunal has been annexed and marked as annexure "C" forming part of the statement of the case and a copy of the order of the Tribunal in I.T.A. No. 21857 (Pat) of 1967-68 has also been annexed and marked as annexure "D" forming part of the statement of the case. 5. The Tribunal also pointed out that in I.T.A. No. 21857 (Pat) of 1967-68, the Department came in reference against the above finding and the same was dismissed by the Tribunal, vide order in R.A. Nos. 5. The Tribunal also pointed out that in I.T.A. No. 21857 (Pat) of 1967-68, the Department came in reference against the above finding and the same was dismissed by the Tribunal, vide order in R.A. Nos. 84 and 85 (Pat) of 1971-72, which has been annexed and marked as annexure "F" forming part of the statement of the case. The Tribunal has also pointed out that the Department moved a petition under Sec.256(2) before this court and this court by an order dated February 5, 1974, in Taxation Case No. 113 of 1972 rejected the petition holding that no question of law arises on the facts as found by the Tribunal. 6. On these facts, Mr. B. P. Rajgarhia, senior standing counsel for the Revenue, has submitted that the Tribunal has committed an error of law in excluding the value of 10 shares of M/s. Seraikella Glass Works Private Limited transferred by the assessee to his wife in computing the net wealth of the assessee. In this case, the assessee has not appeared to contest the case and so the argument has been heard ex parte on behalf of the Revenue and the case is being disposed, of ex parte on the argument made on behalf of the Revenue. 7. Mr. B.P. Rajgarhia has invited our attention to the order of the Income-tax Appellate Tribunal in W.T.A. No. 4 (Pat) of 1970-71 relating to the assessment year 1966-67, which clearly shows that the assessee was holding some shares of the Seraikella Glass Works Private Limited and that the shares of the company were not quoted. The assessee valued the shares at the rate of Rs. 3,250 per share. The Wealth-tax Officer found that the valuation made by the assessee was low and, accordingly, he took the valuation of the shares at Rs. 8,666.58, On appeal, the Appellate Assistant Commissioner allowed a little relief to the assessee and determined the value of the shares at Rs. 6,663. The Tribunal has also pointed out that the assessee came in appeal on similar addition before the Tribunal and the Tribunal, vide its rectification order in W.T. No. 117 of 1967-68, took the figure at Rs. 6,916 per share for the year 1965-66. The Tribunal has also pointed out that in the assessment year 1966-67, on the principle adopted by the Tribunal, the assessee calculated the value at Rs. 6,378 per share. 6,916 per share for the year 1965-66. The Tribunal has also pointed out that in the assessment year 1966-67, on the principle adopted by the Tribunal, the assessee calculated the value at Rs. 6,378 per share. The Tribunal, therefore, in the assessment year 1966-67, held that the valuation determined by the assessee at Rs, 6,378 is fair. The Tribunal also found that the Appellate Assistant Commissioner took the value at Rs. 6,678 against which the assessee has determined the value at Rs. 6,378 on the principle determined by the Tribunal. The Tribunal also held that there was not much difference between the figure taken by the Appellate Assistant Commissioner and that arrived at by the assessee. The Tribunal also held that as the value of the assessee is fair, the same is accepted and so the Wealth-tax Officer was directed to revalue the shares held by the assessee at the above figure. 8. However, when the question of valuation of 10 shares of Seraikella Glass Works Private Limited sold by the assessee to his wife was considered, the Tribunal relied on the order passed in I. T. A. No. 21857 of 1967-68, where it was held that Sec. 64(1)(iii) of the Income-tax Act was not applicable to the transfer of the shares. 9. The order of the Tribunal in LT.A. No. 21857 of 1967-68 for the assessment year 1966-67 is annexure "D" to the statement of the case. It appears from paragraph 12 of this order that 10 shares transferred to the wife of the assessee on August 6, 1965, at the rate of Rs. 3,250 per share by the assessee were considered and in connection with Sec. 64(1)(iii) of the Income-tax Act, the Tribunal has observed that in the present case, there is no question that there was no consideration and that consideration was there in money value and, therefore, it was only to be determined whether the consideration was adequate or sufficient or not. The Tribunal also pointed out that the yield method was the proper method to determine the fair value of the shares and that if the yield method is taken, the value comes to more or less the same at which the shares were transferred in the name of the wife, and so the Tribunal held that the shares were transferred for adequate consideration and so Sec. 64(1)(iii) was not applicable in the present case. 10. It cannot be doubted that in the wealth-tax assessment for the assessment year 1966-67, the assessee himself showed the value at Rs. 6,378 per share and this valuation was treated as fair. In I.T.A. No, 21857 of 1967-68 for the assessment year 1966-67, the basis of yield has not been given when in the wealth-tax assessment, the valuation per share of M/s. Seraikella Glass Works Private Limited has been taken at Rs. 6,378 as fair. It does not stand to reason how the valuation can be held to be for adequate consideration at least under the Act. On the very finding in W.T.A. No. 4 (Pat) of 1970-71, if the valuation of M/s. Seraikella Glass Works Private Limited has been taken at Rs. 6,378 per share, it does not stand to reason as to how in the wealth-tax assessment, for 10 shares of the same company transferred by the assessee to his wife, a different valuation can be taken and it can be held that the transfer was for adequate consideration. 11. Of course, Sec. 64(1)(iii) of the Income-tax Act, as it was in force in the assessment year 1966-67, was to the effect that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly: "(iii) subject to the provisions of Clause (i) of Sec.27 to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration.....;" 12. Sec. 4(1)(a)(i) of the Act lays down that in computing the net wealth of an individual, there shall be included as belonging to that individual the value of assets which on the valuation date are held by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration. Thus, it is evident that the provisions of Sec. 64(1)(iii) of the Income-tax Act and Section 4(1)(a)(i) of the Act are similar. Thus, in both cases, it has to be considered whether the transfer is for inadequate consideration. If in the wealth-tax assessment the valuation of shares in M/s. Seraikella Glass Works Private Limited was fixed at Rs. Thus, it is evident that the provisions of Sec. 64(1)(iii) of the Income-tax Act and Section 4(1)(a)(i) of the Act are similar. Thus, in both cases, it has to be considered whether the transfer is for inadequate consideration. If in the wealth-tax assessment the valuation of shares in M/s. Seraikella Glass Works Private Limited was fixed at Rs. 6,378 per share in the assessment year 1966-67, it does not stand to reason how the same shares can be said to have been transferred for adequate consideration, Under such circumstances, the finding in the income-tax assessment has to be ignored while considering the valuation under the Act. Under such circumstances, I hold that for determining the net wealth of the assessee in the assess ment year 1966-67, the valuation of 10 shares transferred by the assessee to his wife on August 6, 1965, has to be taken at Rs. 63,780. 13. It is the admitted case of the Department that the assessee sold 10 shares to his wife at the rate of Rs, 3,250 and so the total value of 10 shares will come to Rs. 32,500. Under such circumstances, it has to be held that the transfer was for inadequate consideration and the difference between Rs. 63,780 and Rs. 32,500 will be Rs. 31,280. 14. Now the question is as to whether the entire value of Rs. 63,780 has to be added in the net wealth of the assessee or only Rs. 31,280 should be added after excluding the amount of Rs. 32,500 paid by the wife of the assessee to the assessee. For this purpose, only two decisions are relevant for our consideration. 15. Mr. B.P. Rajgarhia, senior standing counsel for the Revenue, has referred to the case of Rai Bahadur H.P. Banerjee V/s. CIT [1941] 9 ITR 137, which is a decision of the Patna High Court, where the provisions of Sec.16(3)(a)(iii) of the Indian Income-tax Act, 1922, were considered and in that connection, it was held that the transfers by a husband to his wife of assets otherwise than for adequate consideration, cover all transfers in the nature of gifts or transfers made purely on the ground of natural love and affection. It has also been held in this decision that the word "consideration" appearing in Section 16(3)(a)(iii) is used in its legal sense as it is used in connection with the transfer of assets. It has also been held in this decision that the word "consideration" appearing in Section 16(3)(a)(iii) is used in its legal sense as it is used in connection with the transfer of assets. It has also been observed that the word has not been defined in the Transfer of Property Act and it must be given a meaning similar to the meaning which it has in the Indian Contract Act. It has also been observed by this court that as "natural love and affection" is not consideration in the eye of the law, a transfer on account of natural love and affection is not a transfer for consideration adequate or otherwise, but is in effect a gift by one party bearing love and affection to the other. It has also been held by this court that the words "adequate consideration" used in Sec.16(3)(a)(iii) do not mean good consideration and the law draws aclear distinction between good consideration and adequate consideration and that a transaction may well be valid, though the consideration in the view of an independent Tribunal might be wholly inadequate and even if it is assumed that "natural love and affection" amounts to consideration within the meaning of the sub-section, it could not amount to adequate consideration. This decision is not relevant for any other purpose. In the present case, the transfer is for consideration of Rs. 32,500. 16. The issue which we have to consider is covered by the decision in the case of H.N. Patwardhan V/s. CIT [1970] 76 ITR 279 (Bom). In this decision, by a deed of sale dated August 31, 1956, the assessee sold immovable property to his wife in consideration of the price of Rs, 1 lakh. In connection with the return for wealth-tax, the assessees consulting engineer valued the property at Rs. 1,50,000 as on April 1, 1957. The Income-tax Officer, relying on Section 16(3)(a)(iii) included the income from the above immovable property in the income of the assessee. In connection with the return for wealth-tax, the assessees consulting engineer valued the property at Rs. 1,50,000 as on April 1, 1957. The Income-tax Officer, relying on Section 16(3)(a)(iii) included the income from the above immovable property in the income of the assessee. The Appellate Tribunal held that the assessee was entitled to the exclusion of two-thirds of the income from the immovable property transferred to his wife in view of the fact that he had received adequate consideration for two-thirds of the property but that one-third of the income was liable to be included in the assessees income, and, in those circumstances, it was held that the purpose of Sub-clause (ii) of Section 16(3)(a) of the Act was to include the income of the transferred assets in the computation of the total income of the husband only to the extent that the consideration was found inadequate and that on the finding of the Tribunal that the minimum value of the immovable property at the time of the transfer was Rs. 1,50,000, the consideration of Rs. 1,00,000 for the sale of that property by the assessee to his wife could not be said to be adequate consideration and, therefore, one-third of the income from that property was includible in the income of the assessee for the assessment years in question and two-thirds of the income could be excluded from his total income. 17. Sec.16(3)(a)(iii) of the Indian Income-tax Act, 1922, lays down that in computing the total income of any individual for the purpose of assessment, there shall be included from the assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration. Thus, it is evident that Sec.16(3)(a)(iii) of the Indian Income-tax Act, 1922, Section 64(1)(iii) of the Income-tax Act and Sec. 4(1)(a)(i) of the Act contain similar provisions and so the aforesaid decision will be applicable in all cases as mentioned above. 18. Mr. B. P. Rajgarhia has also referred to the case of Smt. V. Amirtham Ammal v. CIT [1976] 102 ITR 350 (Mad). In this decision, the assessee transferred 110 shares in a private limited company to the minor son of B.S., who transferred 115 shares in the company to the minor son of R.S., who in turn transferred 110 shares in the company to the minor son of the assessee. All the transfers were effected on the same date. In this decision, the assessee transferred 110 shares in a private limited company to the minor son of B.S., who transferred 115 shares in the company to the minor son of R.S., who in turn transferred 110 shares in the company to the minor son of the assessee. All the transfers were effected on the same date. The Income-tax Officer took the view that these transfers were cross-transfers hit by the provisions of Sec. 64(iv) of the Income-tax Act and that the transfers were not for adequate consideration, and included the entire dividend income in respect of the shares transferred by the assessee as the income derived by her minor son from and out of the shares transferred indirectly to him. This was confirmed by the Appellate Assistant Commissioner and the Tribunal. On a reference to the High Court at the instance of the assessee, the Madras High Court held that "adequate consideration" contemplated by Sec. 64 is consideration equal or nearly equal to the value of the assets transferred and so long as the consideration is not equal to or nearly equal to the value of the assets transferred, Sec. 64(iv) will be attracted and it cannot be contended that the section will not apply where consideration has been paid at least in part and the authorities were right in finding that the transactions in question were cross-gifts. It was also held by the Madras High Court that this section has to be strictly construed and only that part of the income referable to the transfer for inadequate consideration is assessable under Sec. 64(iv) and the Tribunal will have to go into the apportionment of the income assessable under Sec. 64(iv) and, in this connection, reliance was placed on Patwardhans case [1970] 76 ITR 279 (Bom). In view of these decisions, it cannot be doubted that the difference of Rs. 31,280 has to be included in the net wealth of the assessee, as out of the total value of 10 shares of Rs. 63,780, the consideration actually paid was only Rs. 32,500. 19. In view of the aforesaid decisions, I hold that out of the total value of 10 shares transferred by the assessee to his wife, Rs. 31,280 will be included in the net wealth of the assessee. 20. 63,780, the consideration actually paid was only Rs. 32,500. 19. In view of the aforesaid decisions, I hold that out of the total value of 10 shares transferred by the assessee to his wife, Rs. 31,280 will be included in the net wealth of the assessee. 20. In view of my above findings, I hold that the Tribunal erred in law in excluding the value of 10 shares transferred by the assessee to his wife in computing the net wealth of the assessee which has to be computed as pointed out above. The question is, therefore, answered in the affirmative and in favour of the Revenue. However, in view of the peculiar circumstances of the case, the Revenue will bear its own costs. Uday Sinha, J. 21 I agree.