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PETITIONER: COMMISSIONER OF WEALTH TAX, MYSORE

       Vs.

RESPONDENT: HER HIGHNESS VIJAYABA, DOWGER MAHARANI SAHEB OF BHAVNAGARPAL

DATE OF JUDGMENT09/03/1979

BENCH: UNTWALIA, N.L. BENCH: UNTWALIA, N.L. PATHAK, R.S.

CITATION:  1979 AIR  982            1979 SCR  (3) 545  1979 SCC  (2) 213

ACT:      Wealth Tax  Act, 1957-S.  2(m)-By a  family arrangement assessee agreed  to pay  certain sum  to her younger son-The sum agreed  to pay-If  a debt owed under s. 2(m)-Whether the undertaking  to   pay   the   sum   an   agreement   without consideration.

HEADNOTE:      The respondent’s  wealth was  assessed  to  Wealth  Tax under the  Wealth Tax  Act, 1957  for three assessment years 1960-61, 1961-62  and 1962-63  the  corresponding  valuation dates being  31-12-1959, 31-12-1960  and 31-12-1961. On 14th May, 1953  the assessee  wrote a  letter to  her younger son stating that his late father expressed the wish that he (the second son)  should be  paid Rs.  50 lakhs out of the family properties and  that to  keep his  promise and  also to  get peace of  mind, if  his elder brother did not pay the sum of Rs. 50  lakhs, she  would  pay  such  balance  that  remains unpaid. The  elder brother  paid Rs.  20 lakhs.  The balance liability of  Rs. 19  lakhs remained due and continued to be due on  all the  three aforesaid  valuation  dates.  It  was finally  wiped  off  in  February,  1962.  On  the  question "whether, while  assessing the  net wealth of the respondent within section 2(m) of the Wealth Tax Act, the sum of Rs. 19 lakhs was  to be  deducted" as  debt owed by her, the Wealth Tax Tribunal  held in  favour of  the respondent.  The  High Court held  that the  sum of Rs. 19 lakhs constituted a debt owed by the assessee and was deductible under the Wealth Tax Act from the value of the total assets as on 31-12-1959.      On appeal  to this Court, the appellant argued (i) that the  letter   dated  14-5-1953   created  no   debt  as  the undertaking given  by the respondent to her son on his elder brother’s failure  to pay  any portion  of the  sum  was  an agreement without  consideration and  hence it  was void and therefore it  was not  enforceable at  law  on  any  of  the valuation dates  and could  not be  deducted; (ii)  that the undertaking given  by the respondent in her letter dated 14- 5-1953 was  a contingent  contract  within  the  meaning  of section 31 of the Contract Act.      Dismissing the appeal, ^      HELD: (1) Taking the totality of facts it was a case of

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family settlement or family arrangement which was binding on the parties. The respondent agreed to purchase peace for the family and  to pay  to her younger son the amount which fell short of  Rs. 50  lakhs if  her elder  son did  not pay  any portion  thereof.   It  is  well  established  that  such  a consideration  is   good  consideration   which  brings   an enforceable agreement  between the parties and is not hit by section 25.  Even if  it be held that the letter dated 14-5- 1953 had  not  the  effect  of  bringing  about  the  family arrangement or  any binding  arrangemen bewteen the parties, their subsequent  conduct upto 12th September 1959 brought a concluded family  arrangement. The  respondent paid  Rs.  11 lakhs and  reiterated her  obligation to  pay the balance in the shape of ornaments. 546 That was not honoured by reason of which the younger son had a right  to  enforce  the  family  arrangement  against  his mother. The  respondent would  have been  bound to  pay  the balance if  a suit  had been  filed against  her as  he  had refrained from going to the law court against his brother on her bringing about the family arrangement. [548 C-G]      (2) Assuming  that it  was a contingent contract within the meaning  of s.  31 of  the Contract act, such a contract under section 32 of the Contract Act, becomes enforceably by law when  the future  event contemplated  in the  contingent contract had  happened. The contingency in this case was the liability of the mother to pay a certain sum of money on the failure by  the elder  son to  pay Rs.  50 lakhs or any part thereof. In  that view,  the liability  of the mother became enforceable by  law on  the latter date, if not earlier.[548 G-H, 549]      Kesoram   Industries   and   Cotton   Mills   Ltd.   v. Commissioner of  Wealth Tax  (Central), Calcutta,  59 I.T.R. 767; Standard  Mills Co. Ltd. v. Commissioner of Wealth Tax, Bombay, 63  I.T.R., 470; and Bombay Dyeing and Manufacturing Co. Lt.  v. Commissioner  of Wealth  Tax, Bombay  City-I, 93 I.T.R., 603, distinguished and held inapplicable.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal Nos. 2170- 2172 of 1972      Appeals by  Special Leave  from the  Judgment and Order dated 22-7-1971 of the Mysore High Court in T.R.C. Nos. 3, 4 and 5 of 1967.      B. B. Ahuja and Miss A. Subhashini for the Appellant.      S. T.  Desai, I.  N. Shroff  and H.  S. Parihar for the Respondents.      The Judgment of the Court was delivered by      UNTWALIA J.-These  are three  appeals by  special leave filed by  the Commissioner  of Wealth  Tax, Mysore  from the Judgment of  the Mysore  (now  Karnataka)  High  Court.  The assessee is  the Dowger Maharani of Gondal. Her husband, His Highness Bhojjrajji Maharaja Saheb of Gondal, died intestate on 31.7.1952  leaving considerable  moveable and  immoveable properties. Certain disputes and differences arose after his death between his two sons namely Maharaja Vikramsinghji and his younger  brother Shivaraj  Singhji  in  respect  of  the assets left  by the late Maharaja Saheb. The younger brother was  contemplating   legal  proceedings  against  his  elder brother. Their  mother intervened.  The idea  of litigation, thereupon, was  dropped because  the assessee  gave a letter dated 14.5.1953 to Shivaraj Singhji stating therein:-           "Your father had expressed in the presence of many

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    people that  he will  give you  rupees fifty  lakhs. To      keep up  his words  and promise  and also that I should      get peace  of mind  I am  writing to  you that  if your      brother Vikramsinghji  Maharaja of Gondal does not give      you the full amount, then you 547      must get  the balance  of amount  from me.  That is  my      sincere desire.  I will  also  press  Vikram  that  the      should give you the amount of Rs. fifty lakhs.      Vikram Singhji  paid only  Rs.  20,00,000/-to  Shivaraj Singhji. The  latter, therefore,  claimed the balance amount of Rs.  30,00,000/-from the  assessee on  the basis  of  her letter dated  14.5.1953. On  or about 12.9.1959, pursuant to her commitment  made in  the letter  aforesaid, the assessee transferred War  Stock valued at Rs. 11,00,000/- to Shivaraj Singhji and  also agreed  to hand  over certain ornaments in full settlement of his claim. The ornaments were however not given. That  led to  disputes between the mother and the son but eventually  they were  also settled  on 22.2.1962  which settlement was  evidenced by  a document setting out all the relevant facts  of the  history of the dispute. By virtue of this settlement  a sum  of Rs.  10,00,000/- was  paid by the assessee to Shivaraj Singhji.      The assessee’s  wealth was assessed to wealth-tax under the Wealth  Tax Act,  1957 for the three assessment years in question   viz.    1960-61,   1961-62   and   1962-63.   The corresponding valuation  dates of  the said assessment years are 31.12.1959,  31.12.1960  and  31.12.1961.  It  would  be noticed that  the assessee, under the arrangement arrived at between the parties, became liable to pay the balance of the amount   of    Rs.   30,00,000/-to   Shivaraj   Singhji   as vikramsinghji, out of the sum of Rs. 50,00,000/-mentioned in the letter  dated 14.5.1953,  paid only  Rs. 20,00,000/- The assessee succeeded in wiping off her liability to the extent of Rs.  11,00,000/- on  12.9.1959 by  transfer of War Stock. The balance  of the liability, i.e., Rs. 19,00,000/-remained due and continued to be due on all the three valuation dates aforesaid. It  could be  wiped off  by a  further settlement only in  February, 1962.  In respect of the three assessment years in  question, however,  a question arose as to whether while assessing  the net  wealth of  the assessee within the meaning of clause (m) of section 2 of the Wealth-Tax Act the said sum  of Rs. 19,00,000/- was to be deducted. The Wealth- tax Tribunal held in favour of the assessee. At the instance of the  Revenue for all the three years a common question of law was  referred to  the High  Court for  its opinion.  The questions being in identical terms it would suffice to quote the question with respect to the assessment year 1960-61. It reads as follows:-           "Whether on  the facts  and circumstances  of  the      case, the  sum of  Rs. 19 lakhs could constitute a debt      owed by  the assessee  and deductible under the Wealth-      Tax Act  from the  value of  the  total  assets  as  on      31.12.1959?" 548      The  High  Court  has  answered  the  question  in  the affirmative, in  favour of  the  assessee  and  against  the department. Hence this appeal.      Mr. Ahuja  appearing in support of the appeal contended that by  the letter  dated 14.5.1953  no debt was created as the undertaking given by the assessee to her son agreeing to pay the  deficit in  respect of Rs. 50,00,000/- on his elder brother’s failure  to pay  any portion  of the  sum  was  an agreement without  consideration and  hence under section 25 of the  Contract Act it was void and was not saved by any of

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the exceptions  mentioned therein.  He, therefore, contended that it  was not  an enforceable  liability on  any  of  the valuation dates and could not be deducted from the valuation of the assessee’s wealth. In our opinion the argument is not sound. Taking  the totality  of the  facts as  found by  the Tribunal and  mentioned in the impugned judgment of the High Court  it   was  a  case  of  family  settlement  or  family arrangement which  is binding  on the parties concerned. The assessee agreed to purchase peace for the family, and to pay to her son the amount which fell short of Rs. 50,00,000/- if her elder  son did  not pay  any portion thereof. It is well established  that   such   a   consideration   is   a   good consideration which  brings, about  an enforceable agreement between the parties. Section 25 of the Contract Act does not hit this.      It may  be further  pointed out that even if it be held that the  letter dated  14.5.1953  had  not  the  effect  of bringing  about  the  family  arrangement  and  any  binding agreement between the parties, their subsequent conduct upto 12.9.1959 brought  about  a  concluded  family  arrangement. Vikramsinghji paid  Rs. 20,00,000/-.  Out of  the balance of Rs. 30,00,000/-  the assessee  discharged her liabilities to the extent  of Rs. 11,00,000/- and reiterated her obligation to pay  the balance  of Rs.  19,00,000/-  in  the  shape  of ornaments. That  was not  honoured. Shivaraj  Singhji had  a right to  enforce the family arrangement against his mother, as arrived  at  partly  in  writing  and  partly  orally  as evidenced by  the conduct of the parties. The assessee would have been  bound to  pay Rs.  19,00,000/- if a suit had been filed against  her by  Sivaraj Singhji  as he  had refrained going to  the law  court from  against his  brother  on  her bringing about the family arrangement.      Mr. Ahuja  then submitted  that at best the undertaking given by  the assessee  in her  letter dated 14.5.1953 was a contingent contract  within the meaning of section 31 of the Contract Act.  Even so,  under section  32 such  a  contract becomes enforceable  by law when future even contemplated in the contingent  contract has  happened.  In  this  case  the cotingency was  the liability of the mother to pay a certain sum of money 549 on the  failure by  her elder  son to pay Rs. 50,00,000/- or any  part   there  of.  This  did  happen  sometime  between 14.5.1953 and  12.9.1959. In that view of the matter, if not earlier the  liability of  the mother  became enforceable by law on the latter date.      Learned counsel for the appellant cited three decisions of  this   Court  to   support  his   argument  viz.-Kesoram Industries and  Cotton Mills Ltd. v. Commissioner of Wealth- Tax  (Central)  Calcutta;(1)  Standard  Mills  Co.  Ltd.  v. Commissioner of  Wealth-Tax, Bombay(2) and Bombay Dyeing and Manufacturing Co. Ltd. v. Commissioner of Wealth-Tax, Bombay City-I(3). None  of them  is quite  apposite on the point at issue before  us. In  the case  of Kesoram Industries it was held that  "debt owed" within the meaning of section 2(m) of the Wealth-tax  Act, 1957  could be defined as the liability to pay  in praesenti  or in  futuro an  ascertainable sum of money. It  was held that a liability to pay income-tax was a present liability though the tax became payable after it was quantified in  accordance with ascertainable data. Subba Rao J., as  he then was, delivering the majority opinion said at page 780 :-           "The said decisions also accept the legal position      that a  liability depending upon a contingency is not a      debt in  praesenti or  in futuro  till the  contingency

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    happened. But  if there  is a  debt the  fact that  the      amount is  to be  a-scertained does not make it any the      less a  debt if  the  liability  is  certain  and  what      remains is  only the  quantification of  the amount. In      short, a  debt owed  within the meaning of section 2(m)      of the  Wealth-tax Act can be defined as a liability to      pay in  praesenti or  in futuro an ascertainable sum of      money.      The other  two decisions  of this  Court were concerned with the  question  as  to  whether  the  liability  of  the assessee to  pay gratuity  to its employees on determination of employment  was a  mere contingent  liability which arose only when  the employment  of the employee was determined by death, incapacity,  retirement or resignation and whether it could be  deducted as  a debt in computing the net wealth of the assessee.  The answer given was against the assessee. In the present  case we  have held  that the  liability of  the assessee was  created by  the family  arrangement arrived at between  the  parties  and  even  if  it  was  a  contingent liability the contingency did happen and the assessee became liable 550 to pay  the amount  as a  debt before  12.9.1959,  which  is anterior to  the relevant  valuation dates.  The sum  of Rs. 19,00,000/- was  a subsisting  debt on  the  said  valuation dates.      For the  reasons stated above, we hold that there is no merit in  this appeal.  It  is  accordingly  dismissed  with costs. N.K.A                                      Appeal dismissed. 551