(Appeal by special leave against the judgment and order dated July 21, 1975, of the Bombay High Court in W. T. R. No. 17 of 1965. The judgment of the High Court is reported as CWT v. Kishanlal Bubna (1976) 103 ITR 56 (Bom.))

Wealth tax---

---- Inclusion of assets---Assets transferred for benefit of spouse or minor child---Conversion of transferred assets---Value of assets to be included is value of converted assets on valuation date and not of assets originally transferred-- Indian Wealth Tax Act, 1957, S. 4(1)(a)(iii).

Reading section 4(1)(a)(iii) of the Wealth Tax Act, 1957, there is no doubt that the provision contemplates that where the assets which have been transferred have been converted to some other assets, it is the value of the converted assets on the valuation date that has to be taken into account in computing the net wealth of the transferor assessee. The words "such assets" in sub-clause (iii) of section 4(1)(a) do, no doubt, refer to the assets described in clause (a) in the sense that they mean "those assets". But the use of the words "such assets" does not imply that it is only the value on the valuation date of the assets that were actually transferred which has to be taken into account and not of any assets to which those transferred assets may have been converted. The words "whether the assets referied to in any of the sub-clauses aforesaid are held in the form in which-they were transferred or otherwise" put the matter beyond doubt. Where what is transferred by the assesses is money and the transferee utilises that money to acquire an asset, it is the value of that asset on the valuation date which is relevant for the purpose of inclusion in the net wealth of the assessee. Where what is transferred by the assessee is an asset and the transferee disposes of that asset and acquires with the consideration received another asset, it is the value of that acquired asset on the valuation date which is relevant for the purposes of computing the net wealth of the assessee.

Held, accordingly, that where the assessee, an individual, created two trusts for the benefit of his two minor daughters and transferred to the trustees Rs.25,101 and Rs.21,201 and the trustees purchased shares out of the trust funds and on the valuation date the shares were of the value of.Rs.75,610, the sum of Rs.75,610 and not Rs.46,302 had to be included in the net wealth of the assessee under section 4(1)(a)(iii).

Decision of the Bombay High Court in CWT v. Kishanlal Bubna (1976) 103 ITR 56 reversed.

Mohini Thapar (Smt.) v. CIT (1972) 83 ITR 208 (SC) and Vaidyasubramaniam (V.) v. CWT (1977) 108 ITR 538 (Mad.) ref.

J. Ramamurthi, Senior Advocate (B.S. Ahuja and D.S. Mehra, Advocates, with him) for Appellant.

None appeared for Respondent.

JUDGMENT

S.P. BHARUCHA, J.---This is an appeal by special leave against the judgment of the High Court at Bombay (see(1976) 103 ITR 56) on a reference under the provisions of section 27(1) of the Wealth Tax Act, 1957. The question arose in respect of the assessment year 1962-63, for which the relevant valuation date was March 31, 1962 and it read, thus (at page 58 of 103 ITR):

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that under section 4(1)(a)(iii) of the Wealth Tax Act, 1957, it is the value of the assets which have been actually transferred by the assessee that should be included in the net wealth of the assessee, the transferor, although the form of assets transferred had undergone a 'change since the date of the transfer, and the value thereof, on the valuation date, is different?"

The assessee, an individual, created two trusts, on February 18, 1957, and November 11, 1957, for the benefit of his two minor daughters. Thereby the respective amounts of Rs.2,5,101 and Rs.21,201 were settled upon trust and transferred to the trustees. After the trusts had been created, the trustees purchased shares out of the trust funds. On the valuation date, the trust funds were held in shares the valuation of which was Rs.75,610. In determining the wealth tax payable by the assessee, the Wealth Tax Officer took the view that it was the market value of the shares on the valuation date that was to be included in the wealth of the assessee. He rejected the contention that only the sum of Rs.46,302, which was settled by the assessee upon trusts was to be taken into account in computing his wealth. The decision of the Wealth Tax Officer was confirmed in appeal. In a further appeal before the Income-tax Appellate Tribunal, the assessee's contention. was upheld and, arising out of its judgment, the question quoted above was referred to the High Court. The High Court, upon an interpretation of section 4(1)(a)(iii) of the Wealth Tax Act, answered the question in tote affirmative and in favour of the assessee. The Revenue is in appeal before us.

Section 4(1)(a)(iii) of the Wealth Tax Act, 1957, reads thus:

"4(1) In computing the net wealth of an individual, there shall be included, as belonging to him---

(a) the value of assets which on the valuation date are held--...

(iii) by a ,person or association of persons to whom such assets have been transferred by the individual otherwise than for adequate consideration for the benefit of the individual or his wife or minor child; or .......

whether the assets referred to in any of sub-clauses aforesaid are held in the form in which they were transferred or otherwise. "

The High Court, in its judgment (which is reported in CWT v. Kishanlal Bubna (1976) 103 ITR 56), said that the identification of the words "such assets" used in sub-clause (iii) was to be found in clause (a) of subsection (1) of section 4. The assets which were contemplated in clause (a) were the assets held by the transferee to whom such assets had been transferred by the assessee. The words "'such assets" indicated and pinpointed the specific assets as being those which had been transferred. That this was the intention was made very clear by the latter part of the section because it said "whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were, transferred or otherwise". The object of this latter part of the section was that regard had to be had to the valuation of the original assets irrespective of whether they were. retained in the form in which they were transferred or were converted into different types of assets. In either case, it was -the value of the assets that were transferred that had to be determined as on the relevant valuation date. There could be no controversy as regards the value of the assets transferred when the assets transferred were in the form of monies; then, irrespective of whether the transferees retained the monies settled or invested them in other modes, for the purpose of section 4(1)(a)(iii), it was the value of the monies that were transferred that had to be taken into account and not the value of the assets into which they were converted. In the absence of clear and express provisions, it was not possible to accept the contention raised on behalf of the Revenue, merely because it emphasised the expression "value of assets which on the valuation date are held". The value on the valuation date that had to be determined was the value of the original assets which were transferred.

Learned counsel for the Revenue assailed the correctness of the interpretation placed in the impugned judgment upon section' 4(1)(a)(iii). In support of his case, he drew attention to the judgment of the Madras High Court in V. Vaidyasubramaniam v. CWT (1977) 108 ITR 538, wherein the impugned judgment had been discussed. The Madras High Court was considering a, case where the assessee had gifted a sum of Rs.90,000 to his Wife who had constructed a house there from. The assessee claimed that the value of the assets to be included in his wealth tax assessment was Rs.90,000 only and not the actual value of the house on the valuation date. Counsel on his behalf laid stress on the word "such" qualifying the word "assets" occurring in the provision and contended that the words "such assets" must refer only to the sum of Rs.90,000, which had been transferred by the assessee to his wife. The High Court was unable to place that construction on the word "such" qualifying the word "assets". It held that because of the specific provision at the end of sub-clause (v), namely; "whether the assets referred to in any of the sub clauses aforesaid are held in the form in which they were transferred or otherwise", it was not necessary that the assets transferred should be the same as the assets held by the spouse on the valuation date. The word "such" merely indicated the correlation between the asset transferred and the asset held by the spouse on the valuation date. The Madras High Court was unable to agree with the reasoning in the judgment impugned before us. It said that the impugned judgment led to this anomaly that the value to be included in the net wealth of the assessee was the value of an asset which was no longer in existence and though the existence of the different form of the assets on the valuation date had to be taken note of for the purpose of the inclusion of the asset, its value as on the date of the valuation was completely ignored.

Learned counsel for the Revenue also drew our attention to the judgment of this Court in Smt. Mohini Thapar v. CIT (1972) 83 ITR 208, which considered the provisions of section 16(3)(a)(iii) of the Indian Income-tax Act, 1922. That provision said that in computing the total income of any individual for the purpose of assessment, there shall be included---(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly--- ... (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; "This Court held that the income which could be brought to tax under section 16(3)(a)(iii) had to have a nexus with the assets transferred, directly or indirectly. Learned counsel urged that the object of section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, was the same as that of section 4(1)(a)(iii) of the said Act, namely, that where assets had been transferred by an assessee to or for the benefit of this wife or minor child, such assets should continue to be treated as belonging to the assessee and all income' derived from them should be treated as income derived by the assessee.

The assessee, though served, has remained un represented.

Reading section 4(1)(a)(iii) as a whole, we have no doubt that the provision contemplates that, where the asset which has been transferred has been converted to some other asset, it is the value of the converted asset on the valuation date which has to be taken into account in computing the net wealth of the transferor-assessee. The words "such assets" in sub-clause (iii) do, no doubt, refer to the assets described in clause (a) in the sense that they mean "those assets". But we do not think that the use of the words "such assets" implies that it is only the value on the valuation date of the assets that were actually transferred which has to be taken into account and not of any assets to which the transferred assets may have been converted. The words "whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise" appear to us to put the matter beyond doubt. Where what is transferred by the assessee is money and the transferee utilises that money to acquire an asset, it is the value of the asset on the valuation date which is relevant for the purposes of computing the net wealth of the assessee. Where what is transferred by the assessee is an asset and the transferee disposes of that asset and acquires from the consideration received another asset, it is the value of that acquired asset on the valuation date which is relevant for the purposes of computing the net wealth of the assessee. The object of this provision is much the same as the object of the provisions in the Income-tax Act by reason of which income arising from an asset transferred to or for the benefit of an assessee's wife or minor child is treated as the income of the assessee.

The interpretation placed by the impugned judgment, we may add, would, in given cases, make the provision well-nigh impossible to work when the assessee has transferred not money but an asset and that asset has been converted by the transferee into some other asset. An asset held neither by the assessee nor by the transferee on the valuation date could prove difficult to be valued.

In the result, the appeal is allowed. The judgment under appeal is set aside. The question referred to the High Court is answered in the negative and in favour of the Revenue. There shall be no order as to costs.

M.B.A./246/T.F.Appeal allowed.