Decided on November 01,2002

TRUSTEES OF H.E.H. Respondents


- (1.)The primary question which arises for our consideration in these appeals is whether the probable estate duty payable on the death of the life-tenant has to be taken into account and the value of the property will be diminished by that for charge of wealth tax in the hands of the remainder man.
(2.)The revenue strongly relies upon a judgment of this Court in Bharat Hari singhania and Ors. v. Commissioner of wealth Tax (Central) and Ors. wherein this Court while considering the valuation of the estate for the purpose of the wealth Tax Act though arising under rule 1-D of the rules therein held :
"The contention of the learned counsel, in this behalf, is rather involved if not obscure. The argument runs thus: section 7 (1) says that the value of an asset shall be the price which such asset would fetch if sold in the open market on the valuation date. In other words, the sub-section creates a fiction of sale of such asset on the valuation date for the purpose of determining its market value. Once a fiction is created, it must be carried to it : logical extent and the court should not allow its imagination to be boggled by any other considerations. If an asset is sold, it would be subject to capital gains tax. For finding out the net wealth received in the hands of assessee, one must necessarily deduct the capital gains tax. Then alone one can arrive at the net price which the assessee will receive - and that should be the market value. We must say that the entire argument is misplaced. There is no sale of the asset and there is no question of capital gams tax being attracted or being paid. For the purpose of determining the market value, the sub-section says that the wealth tax officer shall make an estimate of the price which the asset would fetch if sold in the open market on the valuation date. The sub-section speaks of the market value of the asset and not the net income or the net price received by the assessee. This is not a case where a fiction is created by parliament. It is only a case of prescribing the basis of determination of market value. On the same reasoning, it must be held that no other amounts like provision for taxation, provident fund and gratuity etc. can be deducted. The contention of the learned counsel for the assessee is, therefore, wholly unacceptable. "

(3.)Based on the above principle laid down in Singhania's case (supra) , revenue contended that in view of the fiction created by the statute, there is no question of making any deduction from the market value of the property under any possible head; be it a payment to be made under a taxing statute or otherwise while determining the value of the estate for the levy of wealth-tax. Therefore, the revenue contends, assuming that there is a possibility of any demand being made on the estate for the payment of estate duty, the same cannot be deducted from the actual market value of the property while assessing the property for wealth-tax. The High Court in the course of the order impugned in these appeals, has distinguished this judgment of the Supreme court on facts and has placed reliance on another judgment of this Court which, according to the High Court, covers the facts involved in the case before it i. e. the case of Commissioner of Wealthtax, a. P. v. Trustees of H. E. H. Nizam's family (Remainder Wealth) Trust.

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