1993 P T D 105

[Karachi High Court]

Before Mamoon Kazi and Kamal Mansur Alam, JJ

THE COMMISSIONER OF INCOME-TAX, WEST ZONE, KARACHI

Versus

HABIB DOST MUHAMMAD

I.T.R. No.51 of 1983, decided on 09/12/1991.

Wealth Tax Act (XV of 1963)---

----S. 2(e)---Banks Nationalisation Act (XIX of 1974), Ss.6 & 7---Value of shares in nationalised Banks---Promise to pay compensation an inchoate and intangible right---Such promise not an asset ---Assessee owned shares of certain amount in two Banking Companies which were later on nationalised by the Government under the Banks (Nationalisation) Act, 1974---Assessee showing the value of such shares as "Nil" in his return filed under the Wealth Tax Act-- Assessing Officer treating amount of such shares as an "asset" included the same in the wealth of assessee--Income Tax Appellate Tribunal in appeal by assessee, finding that assessee was no longer the owner of such shares, treated the promise of the Government to pay compensation for the same as an intangible right and deleted the amount from the assets of the assessee-- Reference to High Court against the decision---Held, although there was provision for payment of compensation for the shares of assessee under S.6 of the Banks Nationalisation Act, 1974 but since under S.7 of the Act compensation equal to the break up value of the shares as determined by an auditor appointed by the Federal Government from the latest published balance-sheet by the Bank, was payable within fifteen years at any time, there was only a promise to pay compensation which was inchoate and thus it was an intangible and incorporeal right and did not constitute an "asset" within the meaning of S.2(e) of the Wealth Tax Act.

Commissioner of Wealth Tax v. U.C. Mahatab (1973) 27 Taxation 174; Pandit Lakshmi Kant Jha v. Commissioner of Wealth Tax, Bihar and Orissa (1973) 90 ITR 97 and H.H. Maharaja Lokendra Singhji v. Commissioner of Wealth, Tax, M.P, (1984) 150 ITR 68 ref.

Nasrullah Awan for Applicant.

Nemo for Respondent.

Date of hearing: 9th December, 1991.

JUDGMENT

MAMOON KAZI, J.---The facts of the case are that the respondent owned shares of Habib Bank Limited and Habib Bank Overseas Limited of the face value of Rs.84,980. However, in the return filed under the Wealth Tax Act he declared the value of such shares as "Nil". The same was done by the respondent as the banks had been nationalised by the Government after the promulgation of Banks Nationalisation Act, 1974. The Assessing Officer, however, included in the wealth of the assessee/respondent the amount of Rs.84,980 as an `asset'. This was done on the ground that compensation for the shares was payable to the respondent by the Government on the basis of their break-up value. The First Appeal filed by the respondent was dismissed by the learned Assistant Commissioner of Wealth Tax but on the Second Appeal filed before the learned Income Tax Appellate Tribunal, the Tribunal held that since the proprietary rights vesting in the respondent were extinguished after vesting of the shares held by the respondent in the Government, the respondent no longer continued to be the owner thereof. Relying upon the decision of the High Court of Calcutta in Commissioner of Wealth Tax v. U.C. Mahatab (1973) 27 Taxation 174, it held that promise to pay compensation being an intangible right could not be regarded as an `asset' within the meaning of section 2(e) of the Wealth Tax Act.

2. The Department was not satisfied with the aforesaid decision and consequently the following question has been referred to this Court for determination: ---

"Whether on the facts and in the circumstances of the case, the Tribunal rightly held that, the shares originally owned by the assessee, which vested in the Government with effect from 1-1-1974, did not constitute an asset of the assessee under the Wealth Tax Act, on the date of valuation, relevant to charge year 1974-75?"

3. Mr. Nasrullah Awan, learned counsel appearing on behalf of the Department has placed reliance upon some cases from the Indian jurisdiction wherein the import of the word "asset" occurring in section 2(e) of the Wealth Tax Act has been examined. The first case referred to by the learned counsel in this regard is the case of Pandit Lakshmi Kant Jha v. Commissioner of Wealth Tax, Bihar and Orissa (1973) 90 ITR 97. In this case the property of the assessee was acquired by the Government under the Bihar Land Reforms Act but the said Act made a provision for payment of compensation to the assessee. On the basis of the said provision in the said Act, the assessee was held to be liable for the payment of wealth tax on the assets held by him. When the matter went before the Supreme Court of India, it observed as follows: --

"Perusal of the different provisions of the Bihar Land Reforms Act shows that as soon as the estate or tenure of a proprietor or a 'tenure holder vests in the State, he becomes entitled to receive compensation. The fact that the payment of compensation in terms of the provisions of the Act may be deferred and be spread over a number of years does not affect the right of the proprietor or tenure-holder to compensation. The assessee, in our opinion, was vested with a right to get compensation immediately his land was vested in the State Section 2(e) of the Act defines "assets" to include property of ever' description, movable or immovable, but does not include certain categories of property with which we are not concerned. The word `property', as mentioned by this Court in the case of Ahmed G.H. Ariff v. Commissioner of Wealth Tax is a term of the wides import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy. The definition of the `assets' as given in section 2(e) of the Act, though not exhaustive, shows its wide amplitude and we see no reason as to why the right to receive compensation cannot be included amongst the assets of an assessee."

In the case of H.H. Maharaja Lokendra Singhji v. Commissioner of Wealth Tax, M.P. (1984) 150 ITR 68 a similar question came up for determination before the Madhya Pradesh High Court. In this case also the assessee had a right to receive compensation which was regarded as "asset" by the Wealth Tax Officer. It was observed in this case as follows:--

"Now, as regards question No-1, the matter, in our opinion, is concluded by the decision-of the Supreme Court in Pandit Lakshmi Kant Jha v. CWT (1973) 90 ITR 97. In that case, it has been held by the Supreme Court that the right to receive compensation from the State is a valuable right, moreso when it is based upon statute and even though the date of payment is deferred, the right to receive compensation is property and constitutes an asset for the purpose of the W.T. Act. In view of this decision, our answer to question No.1 referred to this Court by the Tribunal is in the affirmative and against the assessee."

It was further held that:---

"It has been held by the Supreme Court in Pandit Lakshmi Kant Jha's case (1973) 90 ITR 97, that the right to receive compensation becomes vested in an assessee the moment he is divested of his estate. As the assessee in the instant case was divested of the land in question on the date of acquisition, i.e. February 26, 1965, the Appellate Tribunal was justified in holding that the right to receive compensation was an asset of the assessee on March 31, 1974, even though compensation was finally determined by the High Court on April 26, 1977. Our answer to the question reframed is in the affirmative and against the assessee."

As is evident from the observations just reproduced by us, reliance was placed in this case on the decision of the Supreme Court in the case of Pandit Lakshmi Kant Jha. However, the Calcutta High Court in the case of Commissioner of Wealth Tax v. U.C. Mahatab, reference whereto has earlier been made m this. judgment, appears to have taken a completely different view as would appear from the following observations in this case:---

"....although the assessee's rights vested in the State immediately on the notification under section 4 of the West Bengal Estates Acquisition Act, under the provisions of that Act, there was no legal right yet in the assessee to compensation, which right would arise only on the final publication of the compensation assessment roll, as rightly held by the Appellate Tribunal. In the definition of `assets' in the Wealth Tax Act, the words `property of every description' are qualified by the words `movable or immovable', and, consequently, properties which do not ordinarily answer the test of movability or immovability, such as intangible rights or incorporeal rights, will not be assets within the meaning of the Wealth Tax Act. Where agricultural land has been taken away and has vested- in the State under the Act, but where the final compensation assessment roll has not been prepared and published and the compensation assessment roll has not calculated the amount, if any, at all payable to the assessee, then this inchoate right is not yet a legal right which can be regarded as an `asset' within the meaning of section 2(e) of the Wealth Tax Act. Not being an asset, then mechanism of valuation provided in section's of the Wealth Tax Act will not apply."

4. We would like to point out that the facts of the cases of Pandit Lakshmi Kant Jha and H.H. Maharaja Lokendra Singhji appear to be distinguishable because here compensation was payable to the assessee immediately after taking over, of his assets by the Government, and in the latter case the assessee had even received a part of compensation from the Government but the final compensation payable to the assessee was yet to be determined. While in the present case, no doubt, section 6 provides for payment of compensation for ownership of shares in a bank nationalised under the provisions of the Banks Natoinalisation Ordinance, 1974 but, as is evident from the section 7 of the said Ordinance, the compensation equal to the break up value of the shares as determined by an auditor appointed by the Federal Government from the latest published balance-sheet by the bank was payable within fifteen years at any time. Consequently, it appears that there was only a promise to pay compensation which was inchoate and which could not be considered as an "asset". No doubt, as is evident from the definition of the term "asset" in the. Wealth Tax Act, the same includes "property movable or immovable" but as was held in the case of U.C. Mahatab referred to earlier in this judgment, intangible rights or incorporeal rights could not be treated as assets within the meaning of the Wealth Tax Act. As has been pointed out earlier, the promise of the Government to pay compensation for the shares to the assessee was intangible and in corporeal right.

5. We are consequently of the view that the Tribunal was right in holding that the shares originally owned by the assessee which vested in the Government did not constitute an-`asset' within the meaning of Wealth Tax Act. The question is, therefore, answered in the affirmative i.e. in favour of the, assessee.

M.B.A./C-280/K Question answered in affirmative.