Wealth tax---

---- Valuation of assets'-Assets seized by Customs Authority and lying with them on valuation date---Assets confiscated subsequent to valuation date-- Mere legal ownership of assets on valuation date not sufficient---Market value of assets not includible in net wealth of assessee---Right of assessee which was in jeopardy on valuation date must be valued---Matter remanded.

A person whose property has been seized cannot exercise the right of ownership so far as possession, enjoyment and sale of such property was concerned. There could not be any market value of such property inasmuch as section 7(1) of the Wealth Tax Act, 1957, provides that the market value 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. In view of the aforesaid restriction on the ownership and the goods being liable to confiscation, mere leggy 3l ownership would not be enough to fasten liability on the assessee in respect f the market value of the seized assets as made by the Customs Authority on the date of seizure. The assets, no doubt, belong to the assessee but his right 0n the valuation date was in jeopardy being subject to confiscation proceeding. Such a right has to be valued.

Held, that the aspect of the matter was not adverted to by the Tribunal. The Tribunal Proceeded on the legal contention as to whether the assessee was the owner of the seized goods on the relevant valuation date. [Matter remanded].

C.W.T. v. Smt . Sumitra Devi Jalan (1974) 96 ITR 75 (Cal.) ref.

P.K. Mullick and Jaydeep Gupta for the Assessee.

S.K. Mitra and R-C. Prasad for the Commissioner.

JUDGMENT

AJIT K. SEN GUPTA, J.---In this reference under section 27(1) of the Wealth Tax Act, 1957,, for the assessment year 1976-77, the following question of law has been referred to this Court:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in coming to the conclusion that the ownership in the seized assets had been vested in the Government on the date of passing the adjudication order of confiscation and not earlier?"

Shortly stated, the facts are that the assessee is an individual. The valuation date for the assessment year 1976-77 was April 13,1976. He objected to the addition of the value of gold and gold coins amounting to Rs.6,96,544 which were seized from his custody by the income-tax authorities on January 17, 1975, and, later on, the Customs Authorities took over the custody of the said gold and gold coins from the income-tax authorities on January 18, 1975. The Collector of Customs initiated action against the assessee in respect of the said seized gold and gold coins and, ultimately confiscated the same, vide his order dated June 29,1978.

The Wealth Tax Officer included the value of the seized ornaments in his net wealth as on April 13, 1976. The assessee opposed the above action of the Wealth-tax Officer and pointed out to him that the aforesaid gold and gold ornaments did, not belong to him after their seizure and confiscation, and that the confiscation order dated June 29, 1978, related back to the date of seizure of the said ornaments, namely, January 17, 1975. Inasmuch as the said date fell prior to the valuation date, namely, April 13,1976, the value of the said seized assets ought not to be included in his wealth. The Wealth-tax Officer did not accept the above submission of the assessee and, accordingly, he included the said value in the assessee's wealth on the ground that the aforesaid gold and gold coins continued to be the property of the assessee on the valuation date.

The above action of the Wealth Tax Officer was approved on appeal by the learned Commissioner of Wealth Tax (Appeals).

The assessee- appealed against the aforesaid order of the Commissioner of Wealth Tax (Appeals) to the Tribunal and repeated the same arguments before it as were canvassed by it before the learned Commissioner of Wealth Tax (Appeals). The Tribunal, after taking note of the various sections of the Customs Act and, in particular, sections 110, 111, 112, 122, 124, 126 and 128 of the Customs Act, gave the finding that the ownership of the property remained vested in the assessee till the confiscation order was passed by the Collector of Customs on June 29, 1978. The observations of the Tribunal bearing on this subject were, inter alia, as follows;

"There is no merit in the assessee's stand that the order of confiscation, as finally passed by the Collector of Customs, relates back to the date of seizure of the goods, for section 136 specifically makes a distinction between the period up to which the goods were in the custody of the Customs Officer who had seized them and the period commencing from the date on which the confiscation order is passed. On the date when the confiscation order is passed, the Officer who had adjudged confiscation is required to take over possession of the confiscated goods from the Customs Officer concerned and hold possession thereof thereafter. The goods also vested in the Central Government only upon the order of confiscation being passed. The use of the word `thereupon' in subsection (1) of section 126 is important in this context. We are, therefore, unable to accept the assessee's contention that the order passed under section 126 relates back to the date of the seizure of the goods with regard to the vesting of the goods in the Central Government:'

We have heard counsel for the parties.

We are of the view that the real controversy before the authorities below as well as the Tribunal was ownership of the seized assets on the relevant valuation date. The question which has been raised before us is about the ownership of the assets on the relevant valuation date. If the ownership of the seized assets had vested in the Government on the date of passing the adjudication order of confiscation, then certain consequences would follow and, if not, the assessee would be the owner of the assets though the articles were in the possession of the Customs Authority. The real question, however, is what would be the value of the seized assets on the valuation date which had been subsequently confiscated by the Customs authorities.

It appears that the seizure was effected during the relevant previous year but, ultimately, it was confiscated on June 29,1978. On the valuation date the goods were seized and were lying with the Customs Authority, and those goods were liable to confiscation in view of the contravention of the provisions of section 126 of the Customs Act, 1962. The fact of confiscation is no doubt a subsequent event. But the value of such a property belonging to the assessee which is liable to confiscation has to be arrived at.

Our attention has been drawn to a decision of this Court in the case of CWT v. Smt. Sumitra Devi Jalan (1974) 96 ITR 35. In that case, the Division Bench observed as follows (at p.43):

"The right, however, was in jeopardy on the relevant valuation date because according to the assessee she had lost the shares because of stealing or otherwise. Therefore, all that she had at the relevant moment was the right to recover her equitable ownership in respect of these shares. The Tribunal or the Revenue authority, however, had not considered whether the right of equitable ownership was capable of having any market value in terms of section 7(1) of the Wealth Tax Act, 1957. We need not, therefore, advert to this aspect of the matter.

It may, incidentally be mentioned that in the case of Smt. Chandra Jalan v. CWT (in Matter No.378 of 1962) in respect of dividends declared in East Pakistan which the shareholder had the right to get was property within the meaning of the definition of asset in section 2(e) of the Act, it was held that in respect of such property, in view of the restrictions in respect of such property, the Wealth Tax Officer was not justified in estimating the value on the face value thereof."

We may also refer to the observation of the Division Bench in that case to the following effect (at page 43):

"Counsel for the assessee, in our opinion, was justified in contending that a man who was the owner of movable property like a diamond or jewellery and if that property or goods had been lost due to stealing or theft, even then if the assessee was made liable as the owner of that property and as such liable to pay wealth-tax ad infinitum year after year in .respect of that property that would lead to great hardship and anomaly. We might here mention the observations of the Select Committee on the `assets stolen, or destroyed' which is noted in paragraph 13 of the report and are as follows:

'With regard to the definition of "net wealth", the Committee have noted the assurance given by the Minister of Finance that if any asset referred to in the said definition was lost or stolen or destroyed, it would not be included in computing the net wealth of an asset, provided the same had not been insured and that necessary instructions in this respect would be issued to the authorities concerned'."

In our view, a person whose valuable property had been seized could not exercise the right of ownership so far as possession, enjoyment and sale of such property is concerned. There cannot be any market value for such property inasmuch as section 7(1) provides that the market value 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. In view of the aforesaid restriction on the ownership and the goods being liable to confiscation, mere legal ownership will not be enough to fasten liability on the assessee in respect of the market value of the seized assets as made by the Customs Authority on the date of seizure. The assets no doubt belong to the assessee but his right on the valuation date was in jeopardy being subjected to confiscation proceedings. Such a right has to be valued. This aspect of the matter was not adverted to by the Tribunal. The Tribunal proceeded on the legal contention as to whether the assessee was the owner of the seized goods on the relevant valuation date.

We, therefore, decline to answer but remand the matter to the Tribunal for fresh disposal in accordance with law bearing in mind the right the assessee had over the seized assets on the valuation date. The Tribunal will allow reasonable opportunity of being heard to the parties and determine the valuation, if any, of the seized assets taking into account all the relevant facts and circumstances of the case.

There will be no order as to costs.

SHYAMAL KUMAR SEN, J.---I agree.

M.BA./2307/TCase remanded.