Wealth-tax Officer Vs. H.H. Setu Parvathi Bayi, Maharani - Court Judgment

Excerpt:
1. this appeal for the assessment year 1975-76 is by the revenue. the point at issue is whether the interest in life insurance annuities and life insurance policies could be included in the net wealth of the assessee for this assessment year. the policies were for a term of less than ten years. under section 5(1)(vi) of the wealth-tax act, 1957 ('the act') exemption is available in respect of the right or interest of the assessee in any policy of insurance before the moneys covered by the policies become due and payable to the assessee. on such amounts wealth-tax shall not be payable and the assets will also not be included in the net wealth of the assessee. the proviso to clause (17) was introduced with effect from 1-4-1975. it is laid down in this proviso that in the case of a policy.....

Judgment:
1. This appeal for the assessment year 1975-76 is by the revenue. The point at issue is whether the interest in life insurance annuities and life insurance policies could be included in the net wealth of the assessee for this assessment year. The policies were for a term of less than ten years. Under Section 5(1)(vi) of the Wealth-tax Act, 1957 ('the Act') exemption is available in respect of the right or interest of the assessee in any policy of insurance before the moneys covered by the policies become due and payable to the assessee. On such amounts wealth-tax shall not be payable and the assets will also not be included in the net wealth of the assessee. The proviso to Clause (17) was introduced with effect from 1-4-1975. It is laid down in this proviso that in the case of a policy of insurance where the premium or other payment is payable during a period of less than ten years, the amount that shall not be included in the net wealth of the . assessee under Clause (vi) shall be a sum that bears to the value of the right or interest of the assessee in the policy the same proportion as the number of years during which the premium or other payment on the policy is payable bears to ten. The WTO held that this proviso will have to be applied for this assessment year as the proviso was introduced with effect from 1-4-1975 by the Finance Act, 1974.

2. The assessee appealed before the Commissioner (Appeals) and contended that this proviso was introduced from 1-4-1975 and, therefore, it cannot be applied while computing the net wealth as on 31-3-1975. The Commissioner (Appeals) referred to the decision of the Supreme Court in the case of CWT v. Smt. R.A. Muthukrishna Ammal [1969] 72 ITR 801 and held that the law to be applied is the law as it stands on the valuation date and not on the first day of the assessment year and, therefore, the proviso which came into existence on 1-4-1975 cannot be applied bringing to charge an item of asset as on 31-3-1975.

Two other contentions were raised by the assessee before the Commissioner (Appeals) and one was regarding the manner in which the proviso was implemented by the WTO and the other was that the annuity in respect of an annuity policy taken from the LIC cannot be commuted and, therefore, under Section 2(e)(2)(ii) of the Act, it cannot be subjected to wealth-tax. The Commissioner (Appeals) held that only the surrender value, if at all, can be taken into account for the computation. He also held that because the provision regarding annuity purchased by the assessee was introduced with effect from 1-4-1975, it cannot be applied to this assessment year. However, as held by him earlier, the provision withdrawing the exemption in respect of the insurance policy could not be operative for this assessment year and, therefore, deleted the value of the annuities.

3. It is submitted on behalf of the revenue that in respect of taxing statutes, the law as it stands on the first day of the assessment year should govern the assessment for that assessment year. Tt is submitted that this position has been laid down in a number of decisions. It is pointed out that the proviso to Clause (vi) of Sub-section (1) of Section 5 had been introduced with effect from 1-4-1975 and, therefore, it would govern the assessment for the assessment year 1975-76. It is pointed out that the decision of the Supreme Court in Smt. R.A.Muthukrishna Ammal's case (supra) cannot be taken to have laid down a proposition different from this. It is submitted that that decision was not on the question whether the particular amendment considered in that decision (introduced by the Finance Act, 1964) was applicable to the assessment year 1965-66. The question was whether that amendment would apply to the assessment year 1959-60. It was only in that context that the Supreme Court had held that that amendment would not have any retrospective effect because the net wealth would have got crystallised on the valuation date for that assessment year, namely, 1959-60. It is pointed out that if the interpretation advanced by the assessee and accepted by the Commissioner (Appeals) were to be accepted, there could not have been any assessment at all to wealth-tax for the assessment year 1957-58. The Act came into force from 1-4-1957 and any valuation date for that assessment year would have been prior to 1-4-1957.

4. On behalf of the assessee, it is submitted that the Supreme Court has held in H.H. Setu Parvati Bayi v. CWT [1968] 69 ITR 864, 866 that the liability to wealth-tax gets crystallised on the valuation date.

The proviso to Clause (vi) of Sub-section (1) of Section 5 is for the purpose of computation of net wealth and not for creating a charge. It is submitted that as per the law on the valuation date, namely, 31-3-1975, the assessee had a right under the main clause to have the exemption in respect of the insurance policies. The proviso that comes into force from 1-4-1975 cannot remove that right of the assessee.

5. On a careful consideration of the submissions, we are of the opinion that the assessment to wealth-tax is to be governed by the law as it stands on the first day of the assessment year. That it is the law on the first day of the assessment year that would govern an assessment has been laid down by the Supreme Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262. It has been held in this decision that the Income-tax Act, 1961 ('the 1961 Act') as it stands amended on the first day of April of any financial year, must apply to the assessment of that year, that any amendments in the 1961 Act which come into force after the first day of April of a financial year would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. This principle has been applied to the Act by the Andhra Pradesh High Court in M.Sulochanamma v. CWT [1972] 85 ITR 201. The High Court has observed as follows: It is well settled that the income charged to tax under the Indian Income-tax Act is that of the previous year. The law that is applicable is that in force in the year of assessment unless otherwise stated or implied. See CiTv. Isthmian Steamship Lines [1951] 20 ITR 572 577 (SC). The provisions of the Income-tax Act as they stand amended on the 1st day of April of a financial year are applicable to the assessment of that year. See Maharajah of Pithapuram v. CIT[1945] 13 ITR 221, 224 (PC). However, any amendments in the Act made subsequent to the 1st April of the financial year, unless retrospective effect expressly or by necessary intend-ment was given, are not applicable to the assessment of that year. See CIT v. Scindia Steam Navigation Co.

Ltd. [1961] 42 ITR 589 (SC) and Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC). If the amendments relate not to substantive provisions but purely provisions of procedural character, they must be given retrospective effect to pending assessments before the authorities. If the amendment has been specifically made retrospectively applicable to a particular assessment year, the Tribunals, before whom the appeals relating to that assessment year were pending must give effect to the amended law though enacted after the close of the assessment year. Vide S.C. Prashar v. Vasantsen Dwarka-das [1963] 49 ITR 1 (SC). The aforesaid principles made applicable to income-tax assessments must be applied to the wealth-tax assessments also.... (p. 210) 6. The learned Counsel for the assessee has brought to our notice the observations of the Supreme Court in H.H. Setu Parvati Bayi's case (supra) at page 866. In this case, the question was regarding the allowability of the deduction in this context that the liability to wealth-tax crystallised on the valuation date. The Supreme Court in this connection had referred to its earlier decision in the case of Kesoram Industries & Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 where the question was regarding the deduction of the liability to income-tax. That income-tax liability also was for the assessment year 1957-58. It was held that even though the income-tax assessment can only be made after the first day of April following the valuation date for an assessment to wealth-tax for the same assessment year, the liability accrued to the assessee on the last day of the previous year for the income-tax assessment which would correspond to the valuation date for the wealth-tax assessment. This decision should be read in conjunction with the decision of the Supreme Court in the case of Karimtharuvi Tea Estate Ltd. (supra). As mentioned earlier, in that case it has been held that the law governing the assessment is the law as it stood on the first day of the assessment year. If these two decisions are considered together, it would follow that though the liability to wealth-tax or income-tax might be considered to have accrued on the last day of the previous year or the valuation date, as the case may be, that liability itself is to be determined according to the law as on the first day of the assessment year, that is, a day necessarily subsequent to the last day of the previous year or the valuation date. It would follow that the determination of the net wealth and for that purpose the determination of the liability will have to be made on the state of affairs factually on the valuation date or the last day of the previous year, but in accordance with the law as on the first day of the assessment year. We would, in the light of this hold that the Commissioner (Appeals) was not correct in holding that the proviso to Clause (vi) of Sub-section (1) of Section 5 could not apply to the determination of the net wealth of the assessee for this assessment year. The proviso which has come into force on 1-4-1975 will determine the net wealth on the valuation date even though the valuation date is prior to the first day of the assessment year. We, therefore, restore the order of the WTO on this question.