Ajit K. Sengupta, J.
1. In this reference Under Section 27(1) of the Wealth-tax Act, 1957, a short but interesting question has been raised. The assessee has movable assets including shares in joint stock companies. For the assessment year 1977-78, she submitted her wealth-tax return in which she claimed deduction of appropriate amount of capital gains tax which would have attracted in case she had sold the assets on the valuation date. The claim for deduction of notional capital gains tax was not allowed by the Wealth-tax Officer. When the matter came up before the Appellate Assistant Commissioner, he also disallowed the said claim. Before him, it was contended that if the shares and other assets were sold by the assessee on the valuation date or earlier, she would have to incur some expenses like brokerage and would have incurred liability to pay capital gains tax on the difference between the sale and the cost of acquisition, as the net worth of the assets would have been the net sale proceeds as reduced by the capital gains tax. In view of this, it was contended that, while valuing the shares, the Wealth-tax Officer should have allowed deduction for notional capital gains tax in this regard. The Appellate Assistant Commissioner rejected this contention stating that any notional capital gains tax which may be payable by an assessee in the event of the assets being sold in the open market on the valuation date is not an allowable deduction. He relied on a decision of the Madras High Court in T.S. Srinivasa Iyer v. CWT : [1976]104ITR625(Mad) and the decision of the Allahabad High Court in Bharat Hari Singhania v. CWT : [1979]119ITR258(All) .
2. In the second appeal, the Tribunal was of the view that the issue under consideration was set at rest by the decision of the Allahabad High Court in Bharat Hari Singhania : [1979]119ITR258(All) and the decision of the Supreme Court in Pandit Lakshmi Kant Jha v. CWT : [1973]90ITR97(SC) . Accordingly, the appeal was dismissed. On these facts, the following question of law has been referred to this court:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction of the estimated amount of capital gains tax ?'
3. At the hearing before us, Dr. Pal, learned counsel for the assessee, has contended that, while valuing the assets, viz., the shares, for the purposes of Section 7(1) of the Wealth-tax Act, the capital gains liability is to arise if the shares are to be sold in the open market on the basis of which the price is determined for the purposes of valuation of the shares under the Wealth-tax Act.
4. It is his contention that, under Section 7(1) of the Wealth-tax Act, the Wealth-tax Officer has to determine the price which the property would fetch if sold in the open market on the valuation date and, on such determination of the price, the value of the assets is to be computed for the purposes of the Wealth-tax Act. It will appear, therefore, that the price which the property would fetch if sold in the open market is the notional one which an assessee will realise if such property is sold in a hypothetical open market to a hypothetical buyer. When, for the purpose of valuation of the property, it is assumed that the property is to be sold in the open market, the price received does not, in its entirety, belong to the assessee if, by reason of any overriding agreement or by the overriding provision of any statute, the assessee is obliged to discharge such a liability arising by reason of any overriding agreement or any overriding provision of the statute. If, by reason of any paramount statutory provision, the liability to' capital gains is to be discharged, what is received by the assessee on his own account is only the price reduced by the capital gains liability which is inherent in the transaction of sale which, by a fiction, is assumed under Section 7(1) of the Wealth-tax Act. The true test for determining the question is whether a payment by the assessee out of an amount received by him is an application of part of the amount which belongs to him or it is the payment of an amount which is diverted before it reaches the assessee so that, at the time of receipt, it belongs to the payee and not to the assessee.
5. Judged by the above test, it is submitted that if the value of the assets, viz., the shares, is to be determined in accordance with Section 7(1), one has to assume a fictional sale, in a hypothetical market, of the shares. Once the fiction is brought into play by reason of Section 7(1) of the Act, the logical conclusion of such fiction is that capital gains liability is inherent in such notional sale and the capital gains liability attaches to the transaction as soon as the sale of such property is assumed and on the basis of such assumption, the value of the shares is made. Dr. Pal heavily relied on the decision of the Supreme Court in the case of CWT v. P.N. Sikand : [1977]107ITR922(SC) . There, the Supreme Court observed that what is received by the assessee on his own account is only the price less 50 per cent, of the unearned increase in the value of the land and that represents the net realisable worth of the asset in the hands of the assessee.
6. Dr. Pal, therefore, contends that one has to consider what is the net realisable worth of the asset in the hands of the assessee. If the value of the property is to be determined on the fiction that the property is assumed to be sold in a hypothetical market to a hypothetical buyer, one has necessarily to accept the logical conclusion which follows inevitably from such fiction. If the fiction of sale is assumed, the logical conclusion which inevitably flows from such imaginary sale is a capital gains tax liability which is immediately attracted as soon as the imaginary notional sale is conceived and is assumed to have taken place.
7. Dr. Pal relied on the decision of the Supreme Court in CIT v. S, Teja Singh : [1959]35ITR408(SC) , where the Supreme Court quotes with approval the observation of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 to the effect that one cannot cause or permit the imagination to boggle when it comes to the inevitable corollaries of that putative state of affairs.
8. Dr. Pal has also drawn our attention to the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT : [1966]59ITR767(SC) , where the Supreme Court has observed that, under the Indian Income-tax Act, 1922, the liability to pay income-tax arises on the accrual of the income and not on the computation made by the taxing authorities in the course of assessment proceedings. He, therefore, contends that if the liability to pay income-tax as soon as the income is earned is a perfected debt and constitutes a debt owed within the meaning of Section 2(m) of the Act, the liability to pay capital gains tax arises as soon as it is assumed that the property which is to be assessed under the Wealth-tax Act is to be sold and on the basis of such notional sale, whatever price the assessee notionally receives, the liability to capital gains tax is immediately attracted by reason of the overriding provision and should be allowed as a permissible deduction in the computation of the value of the asset, viz., the property in question. Such overriding statutory liability is different in its character from any expenses which the assessee may incur for bringing the property to sale. Such expenses like brokerage and commission are not an overriding statutory liability which is attracted immediately when the shares are assumed to be sold. Such expenses depend upon the volitional act of the party and do not constitute an overriding liability created either by agreement or by the statute.
9. According to Dr. Pal the decision in Pandit Lakshmi Kant Jha : [1973]90ITR97(SC) is clearly distinguishable because the expenses on account of brokerage and commission for effectuating the sale depended on the volitional act of the party and such expenses were not incurred on account of meeting any overriding statutory liability as in the present case.
10. Mr, Shome, learned counsel appearing for the Revenue, however, supported the order of the Tribunal. It is his contention that there is no inconsistency between the two decisions of the Supreme Court in Pandit Lakshmi Kant Jha : [1973]90ITR97(SC) and P. N. Sikand : [1977]107ITR922(SC) . It is his contention that the Supreme Court has categorically laid down how the valuation has to be made of an asset. He has also submitted that in Bharat Hari Singkania : [1979]119ITR258(All) , an identical question was raised before the Allahabad High Court and the contentions raised before this court by Dr. Pal were duly considered by the Allahabad High Court and rightly rejected. He has also cited a few English decisions to emphasise how the valuation of an asset is made for the purpose of assessment,
11. We have given our anxious consideration to the rival contention. Section 7, as it stood at the material time, provided that, subject to any rules made in this behalf, 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. Section 7(1), therefore, enjoins that the Wealth-tax Officer has to estimate the price which, in his opinion, it would fetch if sold in the open market on the valuation date, subject to the provisions contained in the rules in that behalf. The rules have been framed for the purpose of Section 7(1). It would, therefore, follow that, in the absence of any rule prescribing any different criterion, the value of an asset, other than cash, should be taken to be the price it would fetch if sold in the open market on the valuation date. It is no doubt true that Section 7(3) uses the expression 'if sold in the open market', but it does not contemplate any actual sale or the actual state of the market. It only enjoins that it would be assumed that there would be an open market and the property can be sold in such a market and, on that basis, the value has to be found out. It is a hypothetical case which is contemplated and the Wealth-tax Officer must assume that there is an open market in which the asset can be sold. (See Ahmed G.H. Ariff v. CWT : [1970]76ITR471(SC) ; Commissioner? of Inland Revenue v. Crossman [1937] AC 26. It is to be observed that the section does not contemplate an actual sale or even the possibility of a sale. Notional sale alone is envisaged.
12. Our attention has been drawn to a decision of the House of Lords in Duke of Buccleuch v. Inland Revenue Commissioners, [1967] AC 506. There, the question was with regard to the valuation of land for the purpose of estate duty. There also, under the relevant Finance Act, there is a statutory assumption to arrive at a price which tne property would fetch if sold in the open market at the time of death of the deceased. There, Lord Reid observed that the Finance Act, 1894, which was being considered by the House of Lords did not permit deduction from the price fetched, of the expenses involved in the sale. The section must mean the price which the property would have fetched if it is sold at the time of death. Section 7(5) of the Finance Act, 1894, provides as follows (at page 523) :
'(5) The principal value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased.'
13. Lord Morris of Borth-Y-Gest observed as follows (at page 536) :
'The value of a property is to be estimated to be the price which it would 'fetch' if sold in the open market at the time of the death of the deceased. This points to the price which a purchaser would pay. The net amount that a vendor would receive would be less. There would be costs of and incidental to a sale. It would seem to be harsh or even unjust that allowances cannot be made in respect of them. But the words of the statute must be followed. A valuation would be on an entirely different basis if related to such figure as would be likely to be realised in fact and in practice if there was a sale at as early a date after the death as was practicable and if the units of property comprising what had been administered as a large estate could only at such time be sold to an investor or speculator.'
14. Lord Guest observed (at page 541) :
'The terms of Section 7(5) of the Finance Act, 1894, have already been quoted. The value of property under this section is to be taken to be at its market value at the date of the death of the deceased. Some things, I think, are reasonably clear. The words 'price the property would fetch' in Section 7(5) mean that it is not the price which the vendor would have received but what the purchaser would have paid to be put into the shoes of the deceased. This means that the costs of realisation do not form a legitimate deduction in arriving at the valuation. Such a result must follow from the provisions of Section 7(3) which allows a deduction of 5 per cent, in arriving at the value of foreign properties. The doctrine expressio unius exclusio alterius applies and indicates that cost of realisation are not permissible deductions in arriving at the valuation of properties within the United Kingdom. 'At the time of the death' means at the moment of death, not within a reasonable time after the death. Further, the section does not require the envisagement of an actual sale. In fact, it is irrelevant in arriving at the valuation to consider what would have been the circumstances attending an actual sale. So far the construction of Section 7(5) is, I think, reasonably clear.'
15. Dr. Pal sought to distinguish the decision in Duke of Buccleuch v. Inland Revenue Commissioners [1967] AC 506 by saying that this was not a case under the Wealth-tax Act inasmuch as there is no liability to pay wealth-tax under the English law. In that case, for the purposes of determining the value of the property under the Estate Duty Act, the entire property was assumed to be sold in units and the question was whether such method and the expenses relating to such sales were permissible. The House of Lords held that the expenses cannot be allowed because, some of the expenses have been specifically allowed under Section 7(3) of the Finance Act. The House of Lords observed that, in view of the specific provision in Section 7(3) under which 5 per cent, of the price is to be allowed as a deduction on account of cost of realisation, no further expenses can be allowed as deduction. In that case, the court was not concerned with the overriding statutory liability which is attracted as soon as a notional sale is assumed. Expenses voluntarily to be incurred are different in their quality and character from the discharge of a statutory liability arising from the sale itself. Such liability is inherent in Section 7(1) itself because what one has to consider is the net realisable worth of the asset to the assessee.
16. We may now refer to the decision of the Supreme Court in Pandit Lakshmi Kant Jha : [1973]90ITR97(SC) which has also considered Duke of Buccleuch [1967] AC 506 . There the assessee claimed deduction on account of brokerage commission from the value of shares and stocks held by him for the purpose of assessment under the Wealth-tax Act. The stand which was taken by the assessee was that, as and when he sells the shares and stocks in question, he would have to pay brokerage commission and as such in computing the value of the asset, the price which it would fetch in the market should be reduced by the brokerage which would have to be paid on account of the transaction of sale. The Supreme Court, after referring to Section 7(1) of the Act, rejected this contention in the following words (at page 102) :
'Bare reading of the section makes it plain mat subject to any rules which may be made in this behalf, the value of the assets, other than cash, has to be the price which the assets, in the opinion of the Wealth-tax Officer, would fetch in the open market on the valuation date. It would, therefore, follow that in the absence of any rule prescribing a different criterion, the value of an asset, other than cash, should be taken to be the price which it would fetch if sold in the open market on the valuation date.
No rules prescribing a different criterion in respect of the value of quoted stocks and shares have been brought to our notice. Rule 1C of the Wealth-tax Rules relates to the market value of unquoted preference shares, while Rule 1D of the said Rules relates to the market value of unquoted equity shares of companies other than investment companies and managing agency companies. The value of the stocks and shares in question, in the circumstances, would have to be estimated to be the price which they would fetch if sold in the open market on the valuation date. The authorities concerned under the Act for this purpose accepted the valuation as given in stock exchange quotations and the quotations furnished by well-known brokers. No objection can be taken to this mode of valuation. Indeed, this was the mode which had been adopted by the assessee himself in the return filed by him.
There is nothing in the language of Section 7(1) of the Act which permits any deduction on account of expenses of the sale which may be borne by the assessee if he were to sell the asset in question in the open market. The value according to Section 7(1) has to be the price which the asset would fetch if sold in the open market. In a good many cases, the amount which the vendor would receive would be less than the price fetched by the asset. The vendor may, for example, have to pay for the brokerage commission or may have to incur other expenses for effectual ing the sale. It is not, however, the amount which the vendor would receive after deduction of those expenses but the price which the asset would fetch when sold in the open market as would constitute the value of the asset for the purpose of Section 7(1) of the Act. To accede to the contention advanced on behalf of the appellant would be reading in Section 7(1) the words 'to the assessee' after the words 'it would fetch', although the Legislature has not inserted those words in the statute. Such a course would not be permissible unless there is anything in the relevant provisions which may show that the intention of the Legislature was that the value of an asset would be the price fetched after deducting the sale expenses.
It, no doubt, appears to be somewhat harsh that in computing the value of an asset only the price it would fetch if sold in the open market has to be taken into account and the expenses which would have to be borne in making the sale have to be excluded from consideration. This, however, is a matter essentially for the Legislature. No resort can be made to an equitable principle for there is no equity about a tax. So far as the construction of Section 7(1) of the Act is concerned, in view of its plain language, there is no escape from the conclusion that the expenses in effecting the sale of the asset in the open market cannot be deducted.'
17. The Supreme Court was of the view that the language of Section 7(1) of the Wealth-tax Act, 1957, is similar to Sub-section (1) of Section 36 of the Estate Duty Act, On account of the similarity in language, the value of an asset, other than cash, for the purpose of Section 7(1) of the Wealth-tax Act, should be the same as its value for purposes of Section 36(1) of the Estate Duty Act. Section 36(1) of the Estate Duty Act was based upon Section 7(5) of the U. K. Finance Act, 1894. In all these cases, the principal value of any property shall be estimated to be the price which it would fetch if sold in the open market on the material date, in the case of wealth-tax, the valuation date and, in the case of estate duty, the date of death of the deceased. The Supreme Court also noted that Section 48 of the Estate Duty Act, which corresponds to Section 7(3) of the U. K. Finance Act, 1894, specifically allowed a deduction up to a prescribed percentage on account of certain expenses relating to the property. The Supreme Court was of the view that, where the Legislature intended that an allowance or deduction should be made from the value of the property, it made an express provision to that effect as in Section 48 of the Estate Duty Act and Section 7(3) of the U. K. Finance Act, 1894. The fact that no provision was made in respect of expenses which may have to be borne by the assessee in effecting the sale of an asset shows that, in computing the value of an asset, such expenses cannot be deducted from the price which the asset would fetch if sold in the open market.
18. It may also be mentioned that the Supreme Court referred to the observation of Green on Death Duties to the effect that the price which the property fetches is the gross sale price paid by the purchaser without deduction for the vendor's cost and expenses,
19. In our view, therefore, the price which is relevant is the price which will be paid by a willing purchaser and it has nothing to do with the return the vendor will receive. Because of the specific provision, certain allowance relating to the administration of the property is allowable under the Estate Duty Act, which is not allowable in computing the valuation under the Wealth-tax Act.
20. The Supreme Court in Pandit Lakshmi Kant Jha : [1973]90ITR97(SC) , has laid down that it is not the amount which the vendor would receive after deduction of these expenses, but the price which the asset would fetch when sold in the open market which would constitute the value of the asset for the purposes of Section 7(1) of the Act. In the later decision of the Supreme Court in P. N. Sikand : [1977]107ITR922(SC) , the Supreme Court also considered Pandit Lakshmi Kant Jha : [1973]90ITR97(SC) and observed that the entire price, when received, would belong to the assessee and the payment of brokerage and commission would be merely application of part of the price in meeting the expenditure necessary for effectuating the sale and hence it would not be deductible in ascertaining the net realisable worth of the shares in the hands of the assessee. In P. N. Sikand : [1977]107ITR922(SC) , the Supreme Court also referred to CIT v. Sitaldas Tirathdas : [1961]41ITR367(SC) .
21. Dr. Pal has also sought to distinguish the decision in Pandit Lakshmi Kant Jha : [1973]90ITR97(SC) , on the ground that the expenses on account of brokerage and commission for effectuating the sale depended on the volitional act of the party and such expenses were not incurred on account of meeting any overriding statutory liability as in the present case.
22. Dr. Pal heavily relied on the decision of the Supreme Court in P.N. Sikand : [1977]107ITR922(SC) , support of his contention that the Supreme Court has laid down the principle that it is the net realisable worth of an asset to the assessee which is the decisive factor. There, the asset consisted of a leasehold interest of the assessee in the land together with the building constructed upon it. The building having been constructed by the assessee, the determination of its valuation was to be made on the basis of recognised methods of valuation of buildings. The question was only with regard to the valuation of the leasehold interest of the assessee in the land. The Supreme Court observed that the price which this asset, that is to say, the leasehold interest in the land would fetch, if sold in the open market on the valuation date, would depend on the nature of the asset and the nature of the interest in the property, qualitative as welt as quantitative. The lease deed in that case contained a burden or limitation attaching to the leasehold interest. Clause (13) of the lease deed provided that the assessee shall not be entitled to assign the leasehold interest in the land without obtaining the prior approval in writing of the lessor and 50 per cent, of the unearned increase in the value of the land at the time of the assignment shall be claimable by the lessor, and, moreover, if the lessor so desires, he shall have a pre-emptive right to purchase the property after deducting 50 per cent, of the unearned increase in the value of the land. In this context the Supreme Court observed thus (at page 928) :
'The covenant in Clause (13) is, therefore, clearly a covenant running with the land and it would bind whosoever is the holder of the leasehold interest for the time being. It is a constituent part of the fights and liabilities and advantages and disadvantages which go to make up the leasehold interest and it is an incident which is in the nature of a burden on the leasehold interest. Plainly and indisputably it has the effect of depressing the value which the leasehold interest would fetch if it were free from this burden or disadvantage. Therefore, when the leasehold interest in the land has to be valued, this burden or disadvantage attaching to the leasehold interest must be duly discounted in estimating the price which the leasehold interest would fetch. To value the leasehold interest on the basis that this burden or disadvantage were to be ignored would be to value an asset different in content and quality from that actually owned by the assessee . . . The burden or limitation attaching to the leasehold interest in the present case must, therefore, be taken into account in arriving at the value of the leasehold interest and it cannot be valued ignoring the burden or limitation.'
23. The Supreme Court then proceeded to hold thus (at page 929) :
'That takes us to the question as to how the leasehold interest of the assessee with the burden or limitation attaching under Clause (13) of the lease deed should be valued .... Here the asset to be valued is the leasehold interest in the land with the burden or restriction contained in Clause (13) of the lease deed and the inquiry has, therefore, to be directed to the question as to what is the price which this asset would fetch if sold in the open market. What would be the realisable value of this asset It would indeed be difficult to speculate as to what the leasehold interest in the land would fetch in the open market when it is affected by the burden or restriction contained in Clause (13) of the lease deed. If the leasehold interest were free from this burden or restriction, it would be comparatively easy to determine its market value, for there are recognised methods of valuation of leasehold interest, but where the leasehold interest is cut down by this burden or restriction and some right or interest is abstracted from it, the problem of valuation becomes a difficult one and some method has to be evolved for resolving it, The only way it can be done in a case of this kind is by taking the market value of the leasehold interest as if it were unencumbered or unaffected by the burden or restriction of Clause (13) and deducting from it, 50 per cent, of the unearned increase in the value of the land on the basis of the hypothetical sale, as representing the value of such burden or restriction.' .
24. In our view, the Supreme Court has laid down a method of valuation of property encumbered and burdened with restrictions. The reasonableness of this method of valuation has been tested from another angle which will be evident from the following observation of the Supreme Court (at page 930) :
'There is also one other consideration which reinforces the adoption of this method of valuation. When, for the purpose of valuation of the leasehold interest, it is assumed that the leasehold interest is sold in the open market, the price received does not in its entirety belong to the assessee. Fifty per cent, of the unearned increase in the value of the land is diverted to the lessor by virtue of the paramount title contained in Clause (13) and when received by the assessee, it belongs to the lessor. It is in truth and substance collected by the assesses on behalf of the lessor. What is received by the assessee on his own account is only the price, less 50 per cent. of the unearned increase in the value of the land and that represents the net realisable worth of the asset in the hands of the assessee.' .
25. The Supreme Court also considered the said method of valuation in the light of the principles laid down in CIT v. Sitaldas Tirathdas : [1961]41ITR367(SC) and observed (at page 931) :
'It is clear on the application of this test that in the present case, 50 per cent. of the unearned increase in the value of the land would be diverted to the lessor before it reaches the hands of the assessee as part of the price. The assessee holds the leasehold interest on condition that if he assigns it, 50 per cent. of the unearned increase in the value of the land will be payable to the lessor. That is the condition on which he has acquired the leasehold interest and hence -50 per cent. of the unearned increase in the value of the land must be held to belong to the lessor at the time when it is received by the assessee and it would not be part of the net realisable worth of the leasehold interest in the hands of the assessee. If a question is asked as to what is the real wealth of the assessee in terms of money so far as the leasehold interest is concerned, the answer would inevitably be that it is the price less 50 per cent. of the unearned increase in the value of the land. It is difficult to see how 50 per cent. of the unearned increase in the value of the land which belongs to the lessor can be regarded as part of the wealth of the assessee. The position would undoubtedly be different where a payment is made by an assessee which is an application of a part of the price received by him. Where such is the case, the whole of the price would represent the net realisable worth of the asset in the hands of the assessee and what is paid out by the assessee would be merely a disbursement made after the price reaches the assessee as his own property. That was the position in Pandit Lakshmi Kant Jha v. CWT : [1973]90ITR97(SC) , where the question arose whether the expenditure in connection with brokerage, commission or other expenses which would be liable to be incurred by the assessee in effectuating a sale would be deductible from the market value of the shares in determining their value for the purpose of assessment to wealth-tax. This court held that in computing the value of the shares, the assessee is not entitled to deduction of brokerage and commission from the valuation of the shares as given in the stock exchange quotations or quotations furnished by well-known brokers, ft was pointed out by this court that (at page 103) : ' 'It is not . . . the amount which the vendor would receive after deduction of those expenses, but the price which the asset would fetch when sold in the open market which would constitute the value of the asset for the purposes of Section 7(1) of the Act.''
26. It would, therefore, be evident that the Supreme Court in P. N. Sikand : [1977]107ITR922(SC) laid down the principle of valuation of an asset encumbered and affected by burdens and restrictions. The encumbrances and restrictions, burdens and disadvantages attached to an asset will necessarily depress the value of an asset. To value an asset on the basis that the restrictions contained in the deed or otherwise are to be ignored would be to value a property which the assessee never owned. The restrictions and disadvantages, etc., are a few of the elements which go to make up the value of the asset. One has to assume that the property which is to be valued is being sold in the open market and to fix its value for wealth-tax purposes upon that hypothesis. It is necessary to make the assumption which the statute directs but not to ignore the limitations attached to the asset. There is no encumbrance attached to the asset sold in this case. It has been valued according to the statutory direction. The liability to pay capital gains, if any, is not attached to the asset as an encumbrance. A willing purchaser is not concerned with the tax which the vendor would have to pay if there be any capital gains arising out of the transfer, This is not and cannot be an element going to make up the value. It is only after the valuation is determined that the question of payment of capital gains tax, if any, may arise. It is clear from the following passage of the Supreme Court in P. N. Sikand : [1977]107ITR922(SC) :
'Obviously, this view was taken because the entire price, when, received, would belong to the assessee and payment of brokerage and commission would be merely application of part of the price in meeting expenditure necessary for effectuating the sale and hence it would not be deductible in ascertaining the net realisable worth of the shares in the hands of the assessee.'
27. After the amount reaches the hands of the assessee, the payment of capital gains would be an obligation and there is no question of any diversion by an overriding title, statutory or otherwise.
28. Dr. Pal relied on the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. : [1966]59ITR767(SC) to emphasise that the liability for capital gains arises as soon as the transfer takes place. Accordingly, this should be deducted from the price the buyer would offer. This case has no application inasmuch as it does not deal with the question of valuation of an asset. It is concerned with the liability that may be allowed as a 'debt owed' on the valuation date. It has nothing to do with the method of valuation. That apart, the 'debt owed' would come for deduction only after the price is determined and it extends to the actual debt and not a notional debt. Apart from the fact that the capital gains may not arise in all cases and that capital gains may be avoided by investing the full consideration in specified securities, it is not an element in determining the price that may be fetched in an open market, In the case of a leasehold interest where the lessee's interest is sold in the open market, the purchaser has to take into account all the restrictions and disadvantages and what the lessee would be entitled to get for the unexpired period of the lease. This consideration is an element in the determination of the value.
29. In CWT v. Maharaja Kumar Kamal Singh, : [1984]146ITR202(SC) , the Supreme Court was considering a case where the assessee was entitled to receive compensation under the Bihar Land Reforms Act, 1950. The question arose about the inclusion in the assessee's net wealth of the value of the estimated amount of compensation receivable by the assessee from the Bihar Government under the said Act. The Wealth-tax Officer estimated 75 per cent. of the compensation payable as the market value of the assessee to receive the compensation. The contention of the assessee was that the unpaid agricultural income-tax was a debt deductible while computing the net wealth of the assessee. There, the Supreme Court considered Section 4(c) of the Bihar Land Reforms Act which provided that the arrears of revenue and cesses remaining lawfully due in respect of the estate or tenure shall continue to be recoverable from the assessee in spite of the vesting of the estate and 'shall, without prejudice to any other mode of recovery, be recoverable, when so ordered by the Collector, by the deduction thereof from the amount payable to such intermediary under Section 32, Section 32A or Section 33'.
30. In this context, the Supreme Court observed as follows (p. 209) :
'It may be mentioned that these compensations were payable in 40 years. That is a factor which has to be taken into account and discounted but the other vital factor affecting the value of the asset, namely, the liability and the obligation to have the amount deducted under Section 4(c) of the Bihar Land Reforms Act has not been taken into account at all. In case where bonds have been issued after taking into consideration the liability under Section 4(c) of the Bihar Land Reforms Act or where liability under Section 4(c) has been determined and deducted from the compensation, in such a case no question of deduction on account of the arrears of agricultural income-tax mentioned in Section 4(c) of the Bihar Land Reforms Act would arise but, in all other cases, this is a liability, a hazard, a factor, a clog or a jeopardy which detracts from the value of the asset and in estimating the value which one has to do on the basis which a willing purchaser would pay for buying the said asset in open market, the Wealth-tax Officer must take that factor into account, otherwise it would be an unreal estimate. This chance and hazard must influence all buyers.
There are two different stages. One is the estimation of the value of the assets and the other deduction therefrom of the debts owed by the assessee.
In the last mentioned stage, surely in view of the provisions of Section 2(m), the debt in respect of income-tax which is outstanding for more than 12 months cannot be deducted. But, in estimating the value of the assets, this possibility which is indeed in the nature of an obligation of the Compensation Officer is a hazard, a clog or a hindrance which, if a proper estimate is made under Section 7(1) by the Wealth-tax Officer, he has to take into consideration. It is not a question of deducting the debt but a question of estimation of the value of the asset in question.'
31. No such question arises in the case before us where the shares have been valued. There is no hindrance, liability, hazard, clog or a jeopardy which detracts from the value of the asset,
32. It is, therefore, evident that it is the price that a purchaser would pay which is the decisive factor and not what the vendor would realise upon such sale. It is not the price which would fetch to the assessee but the price which the asset would fetch. The estimation of the value of an asset under Section 7(1) of the Act is on the basis of what such asset would fetch in the open market 'taking into consideration the view-point of a willing purchaser'. In other words, estimating the value which one has to do is on the basis which a willing purchaser would pay in buying the said asset in the open market. It has nothing to do with how the vendor would apply the consideration after he receives it. The concept of the net realisable worth of an asset has no relevance at all in valuing the shares in the present case. There is no liability which would go to make up the valuation .
33. We may also add that in Bharat Hari Singhania : [1979]119ITR258(All) , the Allahabad High Court relied on the principle laid down by the Supreme Court in Pandit Lakshmi Kant Jha : [1973]90ITR97(SC) and held that the notional capital gain would not come within the meaning of 'debt owed' and cannot be deducted from the value of the shares which it would fetch in the open market.
34. For the reasons aforesaid, we answer the question in the affirmative and in favour of the Revenue.
35. There will be no order as to costs.
Shyamal Kumar Sen, J.
I agree.