COMMISSIONER OF WEALTH TAX VS AMIRTHAMMAL
2001 P T D 1614
[245 I T R 261]
[Madras High Court (India)]
Before Janarthanam and Mrs. A. Subbulakshmy, JJ
COMMISSIONER OF WEALTH TAX
versus
AMIRTHAMMAL
Tax Cases Nos. 951 to 955 of 1983 (References Nos. 507 to 511 of 1983), decided on 11/03/1998.
Wealth tax‑‑‑
‑‑‑‑‑Transfer of assets‑‑‑Settlement deed executed by assessee on 12‑11‑1959, creating life interest in respect of certain agricultural. lands‑‑‑Life interest in favour of wife and vested remainder in favour of assessee's brother‑in‑law's son‑‑‑Agreement to live apart entered into on 27‑2‑1972‑‑‑Life interest given under settlement deed, dated 12‑11‑1959, treated as consideration for living apart‑‑‑Rights in properties transferred under settlement deed as early as 12‑11‑1959‑‑‑No subsisting interest in favour of assessee on 27‑2‑1972, date on which agreement to live apart came into existence‑‑No transfer of interest directly 'or indirectly for adequate consideration‑‑‑Value of life interest includible in net wealth of assessee‑‑‑Indian Wealth Tax Act, 1957, S.4(1)(a)(i) & Sched. III, R.17.
The assessee, an individual, executed a settlement deed, dated November 12, 1959, by which he created a life interest in respect of certain agricultural lands in favour of his wife, and the vested remainder in favour of his brother‑in‑law's sod, V. The settlement deed was acted upon and the income from the lands was enjoyed by the wife. As difference of opinion arose among the spouses an agreement to live apart was entered into on February 27, 1972, and the life interest given under the settlement deed, dated November 12, 1959, was treated as consideration for living apart. The value of the asset originally excluded by the Wealth Tax Officer was sought to be included in the net wealth of the assessee by the Commissioner exercising his powers of revision. The Tribunal cancelled the order of the Commissioner. On a reference:
Held, that the rights which the assessee had in the landed properties had been transferred by way of life interest in favour of his wife and by way of vested remainder in favour of his brother‑in‑law's son by virtue of the settlement deed, dated November 12, 1959. The settlement deed had already been acted upon and the income front me agricultural lands was enjoyed by his wife till the date of agreement to live apart came into existence on February 27, 1972, on which date there was no subsisting interest in favour of the assessee in respect of the lands dealt with by him in the settlement deed; dated November 12, 1959: In the absence of such subsisting interest it was not possible for him to transfer the properties or any interest in the properties. Since the settlement deed of me year 1959 had been accepted and acted upon, nothing remained in the properties enabling the assessee to transfer directly or indirectly in favour of his wife in connection with an agreement to live apart. The value of the life interest created by the assessee in favour of his wife, S, by his settlement deed, dated November 12, 1959, was includible in the net wealth of the assessee under section 4(1)(a)(i) of the Wealth Tax Act, 1957.
S.V. Subramaniam for C.V. Rajan for the Commissioner
P. Veeraraghavan for the Asse4see.
JUDGMENT
JANARTHANAM, J.‑‑‑The common question involved for consideration under reference in all these actions for the opinion of this Court is reflected as below:
"Whether, on the facts and in the circumstances of the case, .the value of the asset transferred by the assessee to his wife was includible in the net wealth of the assessee under section 4(1)(a)(i) of the Wealth Tax Act, 1957?"
The assessments in question are relatable to the five assessment years, namely, 1970‑71 to 1974‑75.
The assessee is an individual. Ire executed a settlement deed, dated November 12, 1959,. in and by which, he created a life interest in respect of certain agricultural lands in favour of his wife. Sivakami Ammal, and the vested remainder in the said lands in favour of his brother‑in‑law's son, by name Velayutham. The settlement was acted upon, in the sense of the life estate‑holder, namely his wife, enjoying the income from the said agricultural lands.
It appears that there was a difference of opinion between the assessee and his wife in or about the year 1969 and the difference of opinion so arisen continued for about three years. By way of purchase of peace and harmony, the spouses, namely, the assessee and his wife, decided to live apart and as a matter of fact, an agreement to live apart was entered into on February 27, 1972, between them. As per the said agreement, the life interest given in favour of the wife by the earlier settlement deed, dated November 12, 1959, in respect of certain agricultural lands was to be treated as consideration for her living apart from him.
The assessee submitted returns under the Wealth Tax Act, ‑1957 (Act No. 27 of 1957‑‑‑for short' "the Wealth Tax Act"), for the relevant assessment years 1970‑71 to 1974‑75.
The Assessing Officer originally included the value of the life estate created by the assessee in respect of certain agricultural lands in favour of his wife, in his net wealth, in computing his wealth tax for the assessment years 1970‑71 to 1973‑74. The Assessing Officer, realising his mistake, rectified the assessment orders for those assessment years in the sense of excluding the value of the life estate created by the assessee in favour of his wife in the net assets of the assessee in the computation of the wealth tax payable by him.
The Assessing Officer took the same sort of a view for the assessment year 1974‑75.
The Commissioner of Wealth Tax, Madras 34, in exercise of the suo motu powers of revision, after complying with the requisite formalities, revised the orders of assessment for the five years in including the value of the life estate created by the assessee in favour of his wife in respect of the agricultural lands in the net wealth of the assessee for the purpose of computation of the wealth tax.
The aggrieved assessee took up the matter on appeal before the Income‑tax Appellate Tribunal, Madras Bench "B", Madras (for short "the Tribunal"), and the Tribunal, in turn, took the view that the value of life interest should not be added to the net wealth of the assessee, since it was held by the wife, in connection with the agreement to live apart and consequently cancelled the order of the Commissioner of Wealth Tax, by directing the inclusion of the value of the properties in the net wealth of the assessee.
The Tribunal, in the alternative, also found that if at all anything is includible in the net wealth of the assessee, the value of the life interest alone could be includible and not the value of the asset, as such.
On the facts, as above, the Tribunal referred the question, as set out above, for the opinion of this Court.
Arguments of Mrs. S.V. Subramaniam, learned senior standing counsel for income‑tax cases, representing Mr. C.V. Rajan, learned junior standing counsel for income‑tax cases representing the Revenue, and Mr. P., Veeraraghavan, learned counsel appearing for the assessee, were heard.
The issue‑wising for consideration on the question under reference is as to whether the value of the asset transferred by the assessee to his wife was includible in the net wealth of the assessee under section 4(1)(a)(i) of the Wealth Tax Act.
The expression "value of the asset transferred by the assessee to his wife" must be properly understood, in the light of, the factual matrix of the instant cases, before ever any attempt is made to answer the question posed for consideration. There is no denial of the fact that the assessee executed a deed of settlement, dated November 12, 1959. A copy of the deed of settlement in Tamil as well as its translated version in English had been placed before us for our consideration.
From a perusal of the said documents both Tamil as‑well as in English we are able to discern that the assessee had created a life interest in respect of certain agricultural lands in favour of his wife. Sivakami Ammal, and a vested remainder in favour of his brother‑in‑law's son, by name Velayutham. To put it otherwise, the assessee did not at all effect the transfer, of title in respect of agricultural lands in favour of his wife and he had simply. carved out a life interest in her favour in respect of those lands, leaving the vested remainder in favour of one Velayutham. The Assessing Officer, it appears, had committed a mistake in adding the value of the agricultural lands, in respect of which a life interest alone is created in favour of the wife, while determining the net wealth of the assessee in the computation of his wealth tax.
Section 4 of the Wealth Tax Act is captioned "net wealth to include certain assets". Section 4(1)(a)(i) and Explanation (a) thereto, which are relevant for our present purpose, read as under:
"4(1). In computing the net wealth‑‑‑
(a) of an individual, there shall, be included, as belonging to that individual, the value of assets which on the valuation data are held‑‑
(i) by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart; or ....
Explanation.‑‑‑For the purposes of this section,‑‑‑
(a) the expression transfer includes any disposition, settlement, trust, covenant, agreement or arrangement;?? disposition 'child' includes a step‑child and an adopted
(b) the expression irrevocable transfer includes a transfer of which, by the terms of the instrument effecting it, is not revocable for a period exceeding six years or during the lifetime of the transferee, and under which the transferor derives no direct or indirect benefit, but does not include a transfer of assets if such
(i) contains any provision for the re‑transfer, directly or indirectly, of the whole or any part of the assets or income therefrom to the transferor, or
(ii) in any way gives the transferor a right to re‑assume power, directly or indirectly, over the whole or any part of the assets or income therefrom, and
(c) the expression 'property' includes any interest in any property movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds, of sale: thereof and where the property is converted into any other property by any method, such other property."
A cursory glance or glimpse at the salutary provisions adumbrated under section 4(1)(a)(i) of the Wealth Tax Act would make it rather crystal clear that if transfer is made of any asset by the individual/assessee prior to the valuation date, directly or indirectly, either for adequate consideration or in connection with an agreement to live apart, such transferred assets are not includible in the not asset of the assessee in the computation of the wealth tax.
Explanation (a) appended to the said section explains the meaning of "transfer" for the purpose of the said section: "Transfer" for the purpose of the section may of confuse, include any disposition, settlement, `trust, covenant, agreement or arrangement.
"Assets" lave also been defined under section 2(e) of the Wealth Tax Act and the said definition is an inclusive and exclusive definition of property of either description‑‑‑movable or immovable. Suffice it for us to say, at this juncture, that the value of life interest created in respect of agricultural lands, as had been done in the instant case by the assessee, is not falling under the exclusive clause of the definition of "assets" and to say positively, the same is includible in the expression "assets" and a provision had also been made for valuation of the life interest created under Schedule III appended to the Wealth Tax Act and rule 17 of the 'Rules framed thereunder.
The moot question that arises for consideration here is as to whether the agreement entered into on February 27, 1972, between the assessee and his wife, Sivakami Ammal, to live apart, will constitute "transfer" for adequate consideration If the answer to such a question posed is in the affirmative, it goes without saying that the value of the life interest created by the assessee in respect of certain agricultural lands by his settlement deed, dated November 12, 1959, will be excludable from the net wealth of the assessee for the computation of wealth tax and if the answer, turns out to be in the negative, such value of the life interest will fall within the "net wealth" of the assessee in the computation of the wealth tax. We are of the view that the answer to such a question cannot be any, other than the one in the negative, on the facts and in the circumstances of. the case.
The settlement deed, dated November 12, 1959, contains relevant details of the agricultural lands, such as survey number, extent and the location, etc. In respect of those landed properties, as already adverted to the assessee created a life interest in favour of his wife and, the vested remainder in favour of one Velayutham, his brother‑in‑law's son. All the rights, the assessee had in those landed properties had been transferred, by way of life interest in favour of his wife and by way of vested remainder in favour of his brother‑in‑law's son. Velayutham. The settlement deed had already been acted upon and the income from the agricultural lands had been enjoyed by his wife till up to the agreement to live apart came .into existence on February 27, 1972 For the sake of emphasis, we may reiterate here that on February 27, 1972, the date on which the agreement to live apart came into existence, there was no subsisting interest in favour of the assessee in respect of the agricultural lands dealt with by him in the settlement deed, dated November 12, 1959 In the absence of any such subsisting interest in those lands, it is well‑nigh not possible for him to transfer the properties or any interest in the properties covered by the settlement, directly or indirectly for adequate consideration in favour of his wife, so as to enable him to exclude the life interest created in respect of the properties covered by the settlement in favour of his wife from his net wealth in the computation of the wealth tax. The transfer of life interest in respect of agricultural lands covered by the settlement deed had been created in favour of his wife and vested remainder in favour of his brother‑in‑law's son, Velayutham, long back in the year 1959 out of love and affection and the same had been accepted and acted upon, thereby nothing remains in those properties enabling the assessee to transfer directly or indirectly in favour of his wife in connection with an agreement to live apart.
For the reasons as above, we hold that the value of life interest created by the assessee in favour of his wife Sivakami Ammal, by his settlement deed, dated November 12, 1959, is includible in the net wealth of the assessee under section 4(l)(a)(i) of the Wealth Tax Act and we answer the point accordingly.
These tax cases (references) are thus, disposed of. There shall, however, be no order, as to costs, on the facts and in the circumstances of the case.
M.B.A./492/FC?????????????????????????????????????????????????????????????????????????????????? Order accordingly.