Commissioner of Wealth-tax Vs. Tikam Chand Agrawal - Court Judgment

SooperKanoon Citationsooperkanoon.com/464457
SubjectDirect Taxation
CourtAllahabad High Court
Decided OnFeb-05-1991
Case NumberWealth-tax Reference No. 104 of 1979
JudgeB.P. Jeevan Reddy, C.J. and ;R.A. Sharma, J.
Reported in(1991)94CTR(All)130; [1991]192ITR601(All); [1991]55TAXMAN516(All)
ActsWealth Tax Act, 1957; Wealth Tax Rules, 1957 - Rule 2
AppellantCommissioner of Wealth-tax
RespondentTikam Chand Agrawal
Respondent AdvocateVikram Gulati, Adv.
Excerpt:
- b.p. jeevan reddy, c.j. 1. under section 27(3) of the wealth-tax act, 1957, the tribunal has stated the following question : 'whether, on the facts and circumstances of the case, the appellate tribunal was legally justified in its opinion that the addition made by the wealth-tax officer for the sustained cash credit as part of the assessee's wealth treating them as the assessee's asset is incorrect ?' 2. the assessee is a hindu undivided family. sri tikam chand agrawal is its karta. the assessment years concerned are 1963-64 to 1969-70, both inclusive, seven years in all. sri tikam chand agrawal was a partner in a firm, messrs. chittar mal ram dayal, in his capacity, as the karta of the assessee-hindu undivided family. in the income-tax assessment of the said firm, messrs. chittar mal ram dayal, in his capacity as the karta of the assessee-hindu undivided family. in the income-tax assessment of the said of the said loans as income of the firm. the assessee's share in the said amounts was sought to be treated as wealth of the hindu undivided family in the relevant assessment years under the wealth-tax act. the assessee filed an appeal against such additions. meanwhile, appeals preferred by the firm under the income-tax act were also pending. in the appeals preferred by the assessee under the wealth-tax act, the commissioner of wealth-tax (appeals) deleted the said additions with the following observations : 'it may further be added that, as already observed, the validity of these additions would depend upon the final view taken in the income-taxassessments. under the circumstances, if as a result of any appellate order, it is held that any portion of the cash credit as appearing in the books of the firm did not represent genuine loans, the addition to that extent would be made while giving effect to the appellate order itself.' 3. against this appellate order, both the assessee and the revenue filed seven appeals each, which were considered together and disposed of under a common order by the tribunal on june 26, 1975. by this date, evidently, the appeals preferred by the firm under the income-tax act had been decided finally. the firm's case was accepted in respect of some hundi loans and rejected in respect of some others. the tribunal held that in so far as the amounts which had been deleted in the firm's assessment accepting its explanation are concerned, no question can arise of adding any portion thereof in the wealth-tax assessment of the assessee-hindu undivided family. the tribunal then dealt with those hundi loans which were held not to have been properly explained in the income-tax assessment of the firm and which, according'to the observations of the commissioner of wealth-tax (appeals), were liable to be taken into account in the wealth-tax assessment of the assessee-hindu undivided family. even on this score, the tribunal held that no additions are permissible. the reasoning of the tribunal is that the credits were in the books of the firm and until and unless the money was put at the disposal of the partners by the firm, no share of those credits could be treated as the net wealth of the assessee. the tribunal also observed that the additions made on account of cash credits were in the nature of intangible additions and the share in such additions could not be treated as the net wealth of the assessee. reliance was placed upon the decision of the kerala high court in annamma paul perincherry v. cwt : [1973]88itr204(ker) . the tribunal also observed that no creditor of the firm could obtain a decree in the civil court to attach the said credits and, even if such decree is obtained, it could not be enforced against the said credits on the basis of the finding with respect to their genuineness recorded in income-tax proceedings. accordingly, the tribunal allowed the appeals preferred by the assessee and dismissed those preferred by the revenue. aggrieved by the findings of the tribunal, the revenue obtained this reference. 4. according to sub-section (1) of section 7 of the wealth-tax act, as it stood at the relevant time, the value of any asset, subject to the rules made in this behalf, 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. rule 2 of the wealth-tax rules, as it was in force at the relevant time, prescribed the method following which the interest in a partnership had to be valued. sub-rule (1) of rule 2, which alone is relevant for our purpose, read as follows :'(1) the value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is a member, shall be determined in the manner provided herein. the net wealth of the firm or the association on the valuation date shall first be determined. that portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which capital has been contributed by them. the residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits. the sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of the partner or member in the firm or association.' 5. it does not appear that this rule was kept in mind by the assessing authority. in view of the rule, it cannot be said that any and every addition in the income-tax assessment of the firm should naturally be reflected in the wealth-tax assessment of the partner. the proper approach is to follow the rule and value the interest of the partner for the purposes of the wealth-tax act. at the same time, we must confess that we have not been able to appreciate the reasoning of the tribunal that until and unless the money is placed at the disposal of the partners by the firm, no share in those credits can be treated as the net wealth of the assessee or the argument that since the additions were in the nature of intangible additions, a share therein could not be added to the net wealth of the assessee. the tribunal relied upon the decision of the kerala high court in annamma paul perincherry : [1973]88itr204(ker) , for this proposition. on a perusal of the said decision, however, we do not find that it lays down any such proposition. that was a case where the individual was assessed both under the income-tax act and the wealth-tax act. in the income-tax assessments relating to the assessment years 1957-58, 1958-59 and 1959-60, large amounts were added as income from undisclosed sources. in the wealth-tax assessments relating to the assessment years 1960-61, 1961-62 and 1962-63 (for which the respective valuation dates were march 31, 1960, march 31, 1961 and march 31, 1962), the amounts added in the income-tax assessments for the aforesaid anterior three years were included in the wealth of the individual. the assessee challenged the same and carried the matter to the high court. the high court held in favour of the assessee on the following reasoning (at p. 206) : 'from the fact that the assessee had been taxed on estimated income for the years 1957-58, 1958-59 and 1959-60, it is not possible to postulate that either at the time those assessment orders were made or at any subsequent time thereafter the assessee was possessed of the incomeassessed as an 'asset'. it must be established that the assessee had assets on the valuation dates mentioned above. there is certainly no presumption that income that had accrued as long as three years before the valuation dates should be available as an 'asset' on that date. it appears to us that the tribunal took it as axiomatic that assessment to income-tax is sufficient to assume that the assessee was possessed of assets, to the extent to which income had been estimated and assessed, on the valuation date. we feel that there is no justification for such an assumption.' 6. this decision has, no doubt, been approved by the supreme court in cwt v. j. k. cotton . : [1984]146itr552(sc) , where too the same view was taken. it was held that where the assessee had made secret profits in the past, no presumption can be raised that they are continued to be held by the assessee subsequently on a valuation date falling after the lapse of a sufficiently long period of time. the present case is not a case where secret profits made several years earlier are sought to be added. in this case, it appears that the assessment years in the case of the firm's assessment under the income-tax act and the assessee's assessment under the wealth-tax act are the same. it, therefore, cannot be said that the said decision supports the reasoning of the tribunal in any manner. similarly, the circumstance that no creditor of the firm could have maintained a suit against the firm in a civil court does not appear to be either relevant or conclusive on the question at issue. learned counsel for the assessee relied upon the decision of this court in cwt v. j. k. jute mills co. ltd. : [1979]120itr150(all) , which too lays down the very same proposition, namely, that the concealed income relating to the assessment years 1939 to 1946 cannot be treated as available for inclusion in the net wealth of the assessee in the assessment years 1968-59 and 1959-60. this decision too is of no relevance in the facts of the present case. 7. the result of the above discussion is that while we do not appreciate the reasoning of the tribunal on which it allowed the assessee's appeals and dismissed the revenue's appeals, we cannot, at the same time, answer the question stated straightaway. 8. the proper course would be to direct the tribunal to pass orders afresh in the light of the legal position and observations adumbrated herein. it is but proper that the tribunal hears both the parties before passing final orders in the matter. 9. accordingly, we decline to answer the question, subject to the observations made hereinabove. no costs.
Judgment:

B.P. Jeevan Reddy, C.J.

1. Under Section 27(3) of the Wealth-tax Act, 1957, the Tribunal has stated the following question :

'Whether, on the facts and circumstances of the case, the Appellate Tribunal was legally justified in its opinion that the addition made by the Wealth-tax Officer for the sustained cash credit as part of the assessee's wealth treating them as the assessee's asset is incorrect ?'

2. The assessee is a Hindu undivided family. Sri Tikam Chand Agrawal is its karta. The assessment years concerned are 1963-64 to 1969-70, both inclusive, seven years in all. Sri Tikam Chand Agrawal was a partner in a firm, Messrs. Chittar Mal Ram Dayal, in his capacity, as the karta of the assessee-Hindu undivided family. In the Income-tax assessment of the said firm, Messrs. Chittar Mal Ram Dayal, in his capacity as the karta of the assessee-Hindu undivided family. In the income-tax assessment of the said of the said loans as income of the firm. The assessee's share in the said amounts was sought to be treated as wealth of the Hindu undivided family in the relevant assessment years under the Wealth-tax Act. The assessee filed an appeal against such additions. Meanwhile, appeals preferred by the firm under the Income-tax Act were also pending. In the appeals preferred by the assessee under the Wealth-tax Act, the Commissioner of Wealth-tax (Appeals) deleted the said additions with the following observations :

'It may further be added that, as already observed, the validity of these additions would depend upon the final view taken in the income-taxassessments. Under the circumstances, if as a result of any appellate order, it is held that any portion of the cash credit as appearing in the books of the firm did not represent genuine loans, the addition to that extent would be made while giving effect to the appellate order itself.'

3. Against this appellate order, both the assessee and the Revenue filed seven appeals each, which were considered together and disposed of under a common order by the Tribunal on June 26, 1975. By this date, evidently, the appeals preferred by the firm under the Income-tax Act had been decided finally. The firm's case was accepted in respect of some hundi loans and rejected in respect of some others. The Tribunal held that in so far as the amounts which had been deleted in the firm's assessment accepting its explanation are concerned, no question can arise of adding any portion thereof in the wealth-tax assessment of the assessee-Hindu undivided family. The Tribunal then dealt with those hundi loans which were held not to have been properly explained in the income-tax assessment of the firm and which, according'to the observations of the Commissioner of Wealth-tax (Appeals), were liable to be taken into account in the wealth-tax assessment of the assessee-Hindu undivided family. Even on this score, the Tribunal held that no additions are permissible. The reasoning of the Tribunal is that the credits were in the books of the firm and until and unless the money was put at the disposal of the partners by the firm, no share of those credits could be treated as the net wealth of the assessee. The Tribunal also observed that the additions made on account of cash credits were in the nature of intangible additions and the share in such additions could not be treated as the net wealth of the assessee. Reliance was placed upon the decision of the Kerala High Court in Annamma Paul Perincherry v. CWT : [1973]88ITR204(Ker) . The Tribunal also observed that no creditor of the firm could obtain a decree in the civil court to attach the said credits and, even if such decree is obtained, it could not be enforced against the said credits on the basis of the finding with respect to their genuineness recorded in income-tax proceedings. Accordingly, the Tribunal allowed the appeals preferred by the assessee and dismissed those preferred by the Revenue. Aggrieved by the findings of the Tribunal, the Revenue obtained this reference.

4. According to Sub-section (1) of Section 7 of the Wealth-tax Act, as it stood at the relevant time, the value of any asset, subject to the rules made in this behalf, 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. Rule 2 of the Wealth-tax Rules, as it was in force at the relevant time, prescribed the method following which the interest in a partnership had to be valued. Sub-rule (1) of Rule 2, which alone is relevant for our purpose, read as follows :

'(1) The value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is a member, shall be determined in the manner provided herein. The net wealth of the firm or the association on the valuation date shall first be determined. That portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which capital has been contributed by them. The residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits. The sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of the partner or member in the firm or association.'

5. It does not appear that this rule was kept in mind by the assessing authority. In view of the rule, it cannot be said that any and every addition in the income-tax assessment of the firm should naturally be reflected in the wealth-tax assessment of the partner. The proper approach is to follow the rule and value the interest of the partner for the purposes of the Wealth-tax Act. At the same time, we must confess that we have not been able to appreciate the reasoning of the Tribunal that until and unless the money is placed at the disposal of the partners by the firm, no share in those credits can be treated as the net wealth of the assessee or the argument that since the additions were in the nature of intangible additions, a share therein could not be added to the net wealth of the assessee. The Tribunal relied upon the decision of the Kerala High Court in Annamma Paul Perincherry : [1973]88ITR204(Ker) , for this proposition. On a perusal of the said decision, however, we do not find that it lays down any such proposition. That was a case where the individual was assessed both under the Income-tax Act and the Wealth-tax Act. In the income-tax assessments relating to the assessment years 1957-58, 1958-59 and 1959-60, large amounts were added as income from undisclosed sources. In the wealth-tax assessments relating to the assessment years 1960-61, 1961-62 and 1962-63 (for which the respective valuation dates were March 31, 1960, March 31, 1961 and March 31, 1962), the amounts added in the income-tax assessments for the aforesaid anterior three years were included in the wealth of the individual. The assessee challenged the same and carried the matter to the High Court. The High Court held in favour of the assessee on the following reasoning (at p. 206) :

'From the fact that the assessee had been taxed on estimated income for the years 1957-58, 1958-59 and 1959-60, it is not possible to postulate that either at the time those assessment orders were made or at any subsequent time thereafter the assessee was possessed of the incomeassessed as an 'asset'. It must be established that the assessee had assets on the valuation dates mentioned above. There is certainly no presumption that income that had accrued as long as three years before the valuation dates should be available as an 'asset' on that date. It appears to us that the Tribunal took it as axiomatic that assessment to income-tax is sufficient to assume that the assessee was possessed of assets, to the extent to which income had been estimated and assessed, on the valuation date. We feel that there is no justification for such an assumption.'

6. This decision has, no doubt, been approved by the Supreme Court in CWT v. J. K. Cotton . : [1984]146ITR552(SC) , where too the same view was taken. It was held that where the assessee had made secret profits in the past, no presumption can be raised that they are continued to be held by the assessee subsequently on a valuation date falling after the lapse of a sufficiently long period of time. The present case is not a case where secret profits made several years earlier are sought to be added. In this case, it appears that the assessment years in the case of the firm's assessment under the Income-tax Act and the assessee's assessment under the Wealth-tax Act are the same. It, therefore, cannot be said that the said decision supports the reasoning of the Tribunal in any manner. Similarly, the circumstance that no creditor of the firm could have maintained a suit against the firm in a civil court does not appear to be either relevant or conclusive on the question at issue. Learned counsel for the assessee relied upon the decision of this court in CWT v. J. K. Jute Mills Co. Ltd. : [1979]120ITR150(All) , which too lays down the very same proposition, namely, that the concealed income relating to the assessment years 1939 to 1946 cannot be treated as available for inclusion in the net wealth of the assessee in the assessment years 1968-59 and 1959-60. This decision too is of no relevance in the facts of the present case.

7. The result of the above discussion is that while we do not appreciate the reasoning of the Tribunal on which it allowed the assessee's appeals and dismissed the Revenue's appeals, we cannot, at the same time, answer the question stated straightaway.

8. The proper course would be to direct the Tribunal to pass orders afresh in the light of the legal position and observations adumbrated herein. It is but proper that the Tribunal hears both the parties before passing final orders in the matter.

9. Accordingly, we decline to answer the question, subject to the observations made hereinabove. No costs.