(Civil Appeals Nos. 1596 to 1598 of 1980 are by special leave from the judgment and order, dated March 1, 1979 of the Bombay High Court in WTR No.44 of 1977).

(a) Wealth tax-

----'Net wealth---Exemption---Spouses governed by Portuguese Civil Code married according to custom without ante-nuptial agreement to keep property separate---Each spouse entitled to exemption separately.

The assessee and his wife were governed by the Portuguese Civil Code. They were married according to custom without having any ante-nuptial agreement to keep their property separately. On the question whether the exemption of Rs.1,50,000 had to be given separately to each of them in computing the net wealth for the purposes of wealth tax, the High Court held that each of them was entitled to the deduction under section 5 of the Wealth Tax Act, 1957. On appeal, the Supreme Court affirmed the decision of the High Court on the basis that the Act had been amended on April 1, 1989 to that effect.

(b) Circulars-

---- To be accepted and followed by the Income-tax Authorities.

The circulars issued by the Department are normally, meant to be followed and accepted by the authorities. We do not find any justification for the Officer not following the circular nor was the Department justified in pursuing the matter further in this Court.

CWT v. Vasudeva v. Dempo (1981) 13? ITR 291 affirmed on the basis of the amendment of the Act.

J. Ramamurthy, Senior Advocate and Ms. A. Subhashini. Advocate with him for Appellants (in both Appeals).

Mrs. A.K. Verma and Vibhu Bhakru, Advocates for Respondents (in both Appeals).

ORDER

The facts and circumstances giving rise to these appeals filed by the Commissioner of Wealth Tax against the assessee in Appeals of 1980 and the wife of the assessee in Appeals of 1990 are as follows. They were governed by the Portuguese Civil Code. They were married according to custom, without having any ante-nuptial agreement to keep the property separately. For the assessment years 1971-72 to 1973-74, the Wealth Tax Officer calculated the value of the movable properties consisting mostly of shares in limited companies, deposits in bank and loan to company of the husband as belonging to the body of individuals comprising the husband and wife. He then worked out the net wealth of the communion by deducting from it Rs. 1,50,000 under section 5(1)(xxxii) read with section 5(1-A) of the Wealth Tax Act. After allowing the exemption and deducting the liabilities of the communion, the net wealth of the communion was arrived at and fifty per cent. of it was determined as the net wealth of the husband. The order was maintained in appeal. The Tribunal allowed the appeals of the assessee against which Department moved an application under section 27(1) of the Act. The reference was heard and decided by the High Court of Bombay by answering the question against the Department and in favour of the assessee. Against this order, the Department did not move any application under section 27(3) but approached this Court under Article 136 as the High Court had relied on a decision of the Bombay High Court in which a certificate of fitness to appeal had been granted and the appeal was pending in this Court. The special leave petition was allowed and leave was granted by this Court after hearing learned counsel for parties. These are Appeals Nos. 1596 to 1598 of 1980.

In the other set of appeals, the Wealth Tax officer passed assessment orders for the assessment years 1972-73 and 1973-74 against the wife in 1973. But, by the time the appeals came up for hearing before the Appellate Assistant Commissioner, the judgment of the High Court in the case of the husband had been pronounced. Consequently, the appellate authority allowed the appeals. The appellate order was maintained by the Tribunal. The applications Filed under section 27(1) before the Tribunal and section 27(3) before the High Court were rejected. The appellant, therefore, approached this Court under Article 136 in which notice was issued as a similar matter was pending.

All these appeals are being disposed of by this common order.

The question of law which was referred for the opinion of the High Court in Wealth Tax Reference No.44 of 1977 (See CWT v. Vasudeva V. Dempo (1981) 131 ITR 291 (Bom.), out of which the appeals of 1980 were filed was as under (at page 292):

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that each of the spouses married under the Portuguese Civil Code is entitled to deduction under section 5 of the Wealth Tax Act, 1957, separately?"

The High Court after elaborate discussion of the provisions of law and various decisions under the Income-tax Act on the construction of the expression "association of persons", held that even though joint rights in the properties of the spouse came into being as a result of marriage under the provisions of the Portuguese Civil Code, in the absence of any ante-nuptial agreement providing for their separate holding of respective property, it did not follow that the prospective husband and wife get married with the purpose or object or motive of constituting themselves as joint holders of the property. The Bench held that, under the Portuguese Civil Code, the communion of the property was a necessary incidence but it could not be regarded as the object or purpose of marriage. The Bench further held that, in order to constitute an association of persons, there should have been for purposes of the Wealth Tax Act, an association or coming together for the purposes of wealth or acquiring wealth. But the character of the communion formed as a result of marriage, under the Portuguese Civil Code did not have that character. Consequently, no association of persons could have come into being as a result of the marriage of the two assessees and they could not be assessed under section 4(1)(b) of the Act read with rule 2 of the Wealth Tax Rules. The Bench also referred to an instruction issued by the Department in 1975 inviting attention to the Board's letter, dated December 12, 1969, where it was stated that a married individual in Goa, Daman and Diu, who was governed by the system of community of property and who had not entered into an ante-nuptial agreement of the nature referred to therein, was required to be assessed separately in respect of his or her share of the property for purposes of wealth tax. It was mentioned that the Board was further advised that the exemptions under section 5 of the Wealth Tax Act were admissible to each one of the spouses as individual. The Bench, however, felt that the instructions having been issued in 1975, it was debatable if the decision could be based only on it.

We have heard learned counsel for the parties at length. We do not propose to express any considered opinion as learned counsel appearing for the Department fairly accepted that the Act had been amended on April 1, 1989, and what was provided in the circular has now been incorporated in the Schedule itself. That lends support to the view taken by the High Court. Further, the Department is clear from the circular, at all points of time, intended that the spouses in Goa should be treated as individuals and granted exemption accordingly. We, however, consider it necessary to observe that the circulars issued by the Department are normally meant to be followed and accepted by the authorities. We do not find any justification for the officers not following it nor was the Department justified in pursuing the matter further in, this Court.

In the result, all the appeals fail and are dismissed. But there shall be no order as to costs.

M.B.A./1725/T Appeals dismissed.