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PETITIONER: COMMISSIONER OF WEALTH-TAX, MADRAS

       Vs.

RESPONDENT: SMT. MUTHUKRISHNA AMMAL

DATE OF JUDGMENT: 06/09/1968

BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. GROVER, A.N.

CITATION:  1969 AIR  740            1969 SCR  (2)   1  CITATOR INFO :  R          1991 SC1866  (13,15,16)

ACT: Wealth-tax  Act s.  2(e)(v)-"Asset"-Definition  of-Unexpired period  of  lease in excess of six years-Terminable  in  any year  by  notice  from  either party-If  an  "asset"  to  be included in computation of wealth.

HEADNOTE: By  two agreements of January 1, 1943  and January 1,  1945, the  respondent  obtained  on  lease  from  the   Government certain salt pans. Each lease was to endure for 25 years but was liable to be determined by notice on either side at  the close  of  any  salt manufacturing  season.  The  respondent sublet  the rights under one lease for Rs. 15,000  per  year and under the other lease for Rs. 18,000 per year.  In   the course of the respondent’s assessment to. wealth-tax for the assessment year 1959-.60, the Wealth-tax Officer  calculated the value of the respondent’s interest in the salt pans  for the  unexpired period o.f the two leases and included it  in the computation of her net wealth.  His order was  confirmed by   the Appellate Assistant Commissioner but the  Tribunal, in  appeal, held that the interest of the respondent in  the salt  pans  was  not an "asset", within the  meaning  of  s. 2(e)(v), and could not be  included in the respondent’s  net wealth.   The  High Court, upon a reference,  confirmed  the view taken by the Tribunal. On appeal to this Court, HELD: Dismissing the appeal, Interest in property which is available to the tax-payer for a period not exceeding six years from the valuation date. is not  an  asset within the meaning of s. 2(e) and  the  value thereof cannot be included in the net wealth of the assessee for  the financial year relevant to the valuation date.  The interest  of the lessee under each lease was precarious:  it was liable to be determined by notice by the  Government  at the  expiry  of  any manufacturing  season.   The  leasehold interest in the salt pans was therefore not available to the assessee for a period exceeding six years from the valuation date. [4 C; 6 A] There was no force in the contention that the expression "is

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available  to  an  assessee  for  a  period   not  exceeding the  six  years" in clause  2(e) (v) means is and  has  been available to an assessee for the period of six years  before the  date  of  valuation and that if  interest  in  property though  revocable has remained unrevoked for more  than  six years  before the valuation date, the interest would  be  an asset within the meaning of s. 2(e). [4 E-F] The  terms,  of  the clause ’from  the  date   the  interest vests   in  the assessee" added after  the  expression  "six years" in clause 2(e)(v) by the Wealth-tax (Amendment)  Act, 1964   do. not show that the amendment was intended to be  a parliamentary  exposition  of the meaning  if  the  original clause. [5 G]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1922  of 1967. 2 Appeal  from the judgment and order dated September 4,  1964 of the Madras High Court in T.C. No. 237 of 1962  (Reference No. 132 of 1962). B. Sen, R.N. Sachthey and B.D. Sharma, for the appellant. T.A. Ramachandran, for the respondent. The Judgment of the Court was delivered by Shah,  J.  By two agreements dated respectively  January  1, 1943 and January 1, 1945, the respondent Muthukrishna  Ammal obtained from the Government of India on lease certain  salt pans. Each lease was to endure for twenty-five years  unless otherwise determined under the covenants  of the  indenture. The   right  under  the  first  lease  was  sublet  by   the respondent  to  one K. Nadax in consideration of  an  annual payment  of Rs. 15,000 and the right under the second  lease was  sublet to Mettur Chemicals Ltd. in consideration of  an annual payment. of Rs. 18,000. The respondent made a return for the assessment year 1959-60 under the Wealth-tax Act of net wealth of Rs. 3,000 in India and  Rs.  2,64,500  in foreign  countries.   The  Wealth-tax Officer  held  that  the  value  of  the  interest  of   the respondent in the salt pans for the unexpired periods of the two  leases was liable to be included in the computation  of her  net  wealth.  Valuing  the  leasehold interest  in  the salt  pans at the average rate of income received  from  the last  three years, for the unexpired terms,  the  Wealth-tax Officer  brought  to  tax  in addition  to  the  net  wealth returned  by  the  respondent an  aggregate  amount  of  Rs. 1,89,330.    The  order  was  confirmed  by  the   Appellate Assistant  Commissioner.   But   the  Income-tax   Appellate Tribunal  held  that the interest of the respondent  in  the salt  pans  was  not an "asset" within  the  meaning  of  s. 2(e)(v), for the interest of the respondent in the land  was not available to her for a period exceeding six years.   The Tribunal   accordingly  directed  that  the  value  of   the leasehold  interest  in  the salt pans  be  deleted  in  the computation of the net wealth of the respondent. The  Tribunal referred the following question  to the   High Court of Madras for determination:               "Whether   the  leasehold  interest   of   the               assessee in the salt pans is an "asset" within               the  meaning of s. 2(e) (v) of the Wealth  Tax               Act, 1957, and its value is includable in  the               net wealth of the assessee ?" The High Court of Madras held that the leasehold interest of the  respondent in the salt pans was not an  "asset"  within

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the  meaning  of s. 2(e) (v) of the Act and  its  value  was accordingly  not liable to be included in the net wealth  of the respondent.  The Commis- 3 sioner  of  Wealth-tax  has  appealed  to  this  Court  with certificate granted by the High Court. The provisions of the Wealth-tax Act, 1957, in force at  the relevant time may first be noticed.  Section 3 provides:               "Subject to the other provisions contained  in               this  Act, there shall  be charged  for  every               financial  year  commencing on  and  from  the               first  day of April, 1957, a tax  (hereinafter               referred  to as wealth-tax) in respect of  the               net wealth on the corresponding valuation date               of  every individual, Hindu  undivided  family               and company at the rate or rates specified  in               the Schedule." "Net wealth" is defined in s. 2(m) as meaning "the amount by which  the aggregate value computed in accordance  with  the provisions of this Act of all the assets, wherever  located, belonging  to the assessee on the valuation date,  including assets   required  to be included in this net wealth  as  on that  date  ,under this Act, is in excess of  the  aggregate value  of  all  the debts, owed by  the  assessee   on   the valuation  date,  other  than,   .....   "   The  expression "assets"  occurring  in the definition of  "net  wealth"  is defined in cl. (e) of s. 2.  It "includes property of  every description,   movable   or   immovable,   but   does    not include--   ....   (v) any interest in  property  where  the interest  is  available  to  an. assessee for a  period  not exceeding six years".     The covenants of the two leases are in terms  identical. The  following  clauses  in  the  leases  are  relevant   in considering  whether  the interest of the respondent  is  an "asset" within the meaning of the Wealth Tax Act:          "1.  The  lease shall be for a  period  of  twenty- five.. years commencing from the 1st of January one thousand nine  hundred  and forty-three provided that the  lessor  or lessee  shall  be  at  liberty to  determine  the  lease  on giving  to   the  other of them notice in  writing  at  the, close of the salt manufacturing season  ......          2.  On  the  expiry  of the  lease  or  its  sooner determination  as  provided in clause 1 supra or  clause  23 infra  the lessee shall leave the demised premises  such  in order  as  it  is consistent with the  due   performance  of this lease  .....         23. The lessee shall abide by the decision of   the. Collector  in  case  of any dispute  arising  between   the, lessor and the lessee or of any difference of opinion as  to the  interpretation  of  the terms of this  lease   of   the obligations thereunder and such decision shall be final’ and binding on the lessee. 4                     24. Subject to the foregoing  conditions               the lessee shall continue to enjoy the  leased               land  undisturbed for a said term  of  twenty-               five years.  In  case,  however, there is  any               breach  of any of the above conditions or  the               lessee  delays payment of any sum due  to  the               lessor  for over two months from the  date  of               its falling due or in case the licence granted               under clause 9 above is cancelled or forfeited               for  breach of any condition of  such  licence               the lessor may determine the lease forthwith." Each  lease was liable to be determined by notice on  either

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side at the close of any manufacturing season.  The interest of the lessee under each lease was precarious: it was liable to  be determined by notice by the Government at the  expiry of any manufacturing season.  The leasehold interest in  the salt   pans  was therefore not available to the assessee for a  period  exceeding six years from the valuation  date.   A lessee’s  interest  in land is undoubtedly  an  interest  in immovable  property and would normally be an  asset,  unless within the meaning of s. 2(e)(v) of the Act, the interest in the  property is available to the assessee for a period  not exceeding six years.     It  was urged by counsel for the Revenue that since  the respondent  had  enjoyed the rights under one lease  for  16 years  and  in  the  other lease for 14  years  and  on  the valuation date both the leases were outstanding, the  rights were  "assets"  within the meaning of  the  Wealth-tax  Act. Counsel  submitted that the expression "is available to.  an assessee for a period not exceeding six years" in cl. (v) of s.  2(e) means is and has been available to an assessee  for the  period  of  six years .before the  date  of  valuation. Counsel  says that if interest in property though  revocable has   remained unrevoked for more than six years before  the valuation  date, the interest would be an asset  within  the meaning  of  s.  2(e).  We are unable to.  agree  with  that contention.   The expression used by the Parliament  is  "is available  to  an assessee for a period  not  exceeding  six years",  and  it must mean that the assessee though  he  has interest in property at the valuation date the interest will remain  available for a period not exceeding six years.   If it  is  to remain available for six years or for  a  shorter period the interest will fall within the exception: if it is to remain available for a period exceeding six years it will fall  within  the  definition  of "as.sets"  and  its  value will  be  liable  to be included in the net  wealth  of  the assessee.     The terms of s. 4 of the Wealth-tax Act also throw  some light  on  the  problem.  That  section  prescribes  certain classes of assets which are liable to be included in the net wealth of an assessee. The section, before it was amended by the Wealth Tax (Amendment) Act, 1964, provided: 5                      "(  1 ) In computing the net wealth  of               an  individual,  there shall be  included,  as               belonging to him--                      (5) The value of any assets transferred               under   an  irrevocable   transfer  shall   be               liable  to  be included in computing  the  net               wealth of the transferor as and when the power               to revoke arises to him.                      Explanation.--For the purposes of  this               section the expression "transfer" includes any               disposition,   trust, covenant,  agreement  or               arrangement,  and   an  irrevocable  transfer"               includes  a transfer of assets which,  by  the               terms  of the instrument effecting it, is  not               revocable for a period exceeding six years  or               during the life-time of the transferee." If any assets are held under an irrevocable transfer,  i.e., under  a  transfer  which  is not  revocable  for  a  period exceeding   six  years  or  during  the  life-time  of   the transferee, the assets are  liable to be included in the net wealth  of the transferor.  It is implicit in sub-s. (5)  of s.  4  that if an asset is held under a  transfer  which  is revocable  before the expiry of six years, the  interest  of the  holder in the asset shall be included in the wealth  of

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the  transferor.   If  the transaction  of  lease   in   the present   case   was between a private  individual  and  the respondent,  evidently  by virtue of s.  4(5)  the  interest under the lease would have been liable to be included in the net wealth of the transferor. We see no reason to, hold that because the transferor is the Government, any different rule will  apply in the case of inclusion of lands held  under  a revocable transfer by the respondent from the Government.     Counsel  for  the Revenue invited our attention  to  the amendment  made  in the Act by the Wealth  Tax   (Amendment) Act, 1964, in the definition of the word "assets" in s. 2(e) of  the Act. Relying upon the clause added by  the  Amending Act "from the date the interest vests in the assessee" after the   expression   "six  years"  in  cl.  2(e)(v),   counsel contended  that  this  was intended to  be  a  parliamentary exposition of the meaning of the original clause.  We do not think  that  any such intention .appears from the  terms  of that  clause.   Assuming  that the exception  m  respect  of interest in property which is available to an assessee for a period  not exceeding six years from the date  the  interest vests   in the assessee is only to. apply after the date  of the amendment by the Wealth Tax (Amendment) Act, 1964,  that clause has no application and the terms of the section  must be  interpreted as they stood at the  appropriate  valuation date  which  crystallized the charge of wealth-tax  for  the appropriate assessment year.  It is unnecessary to refer  to the amendment made by the same Amending Act in 6 the Explanation to s. 4 of the Act.  We are of the view that interest in property which is available to the tax-payer for a period not exceeding six years from the valuation date  is not  an asset within the meaning of s. 2 (e ) and the  value thereof  cannot  be  included  in the   net  wealth  of  the assessee  for  the financial yea relevant to  the  valuation date.       The appeal therefore fails and is dismissed with R.K.P.S.                                  Appeal dismissed. 7