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Purshottam N. Amarsay And Another v. Commr Of Wealth Tax, Bombay .
Factual and Procedural Background
The appeals arise out of a reference made to the Bombay High Court under Section 27 of the Wealth-Tax Act, 1957. The assessee had created a trust whose income was to be applied for his and his wife’s support, maintenance and enjoyment. The Wealth-tax Officer sought to include the assessee’s interest in that trust in his net wealth. The Tribunal held that the interest constituted a purely personal estate incapable of sale on the open market and therefore had “no value”. On reference, the Bombay High Court disagreed and ruled that the interest must nevertheless be valued under the Act. The assessee appealed to the Supreme Court.
Two sets of appeals reached the Court: (i) Civil Appeals Nos. 1429-1430 of 1971, filed after special leave was granted, and (ii) Civil Appeals Nos. 2385-2386 of 1969, filed on a certificate that was subsequently found defective. The Court therefore proceeded only with Appeals Nos. 1429-1430.
Legal Issues Presented
- Whether, on the facts and terms of the trust deed, the assessee’s interest under the trust could be said to have “no value” for the purpose of wealth-tax assessment.
- Whether, notwithstanding the interest being a personal estate and not saleable in an actual open market, the Wealth-tax Officer is obliged to assign it a value under Sections 2(e), 2(m) and 7(1) of the Wealth-Tax Act, 1957.
Arguments of the Parties
Appellants’ Arguments (Assessees)
- Relied on the Tribunal’s finding that the trust interest was a personal estate incapable of transfer and therefore valueless.
- Contended, through counsel Mr M.C. Chagla, that in Ahmed G.H. Ariff this Court had not examined the possibility of an asset having no value whatsoever, and that such a possibility should be recognised here.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ahmed G.H. Ariff v. Commissioner of Wealth-tax, Calcutta | The term “assets” in Sections 2(e) and 2(m) is comprehensive; even non-transferable personal estates must be valued under the Act. | Relied on as directly covering the present issue; the Court followed it to reject the assessee’s contention that the interest could be treated as valueless. |
| Commissioner of Wealth-tax v. Purshottam N. Amarsay (Bombay H.C.) | All property, movable or immovable, is included in “net wealth” unless expressly excluded. | Cited with approval as the Bombay decision under appeal that had adopted the wide meaning of “assets.” |
| Commissioners of Inland Revenue v. Crossman (U.K. H.L.) | For valuation, the statute assumes a hypothetical open market sale even where no actual market exists. | Quoted to support the proposition that absence of an actual market does not preclude valuation under Section 7(1). |
Court's Reasoning and Analysis
The Court reaffirmed that Sections 2(e), 2(m) and 3 of the Wealth-Tax Act impose a charge on the “net wealth” of an assessee, encompassing every form of property not expressly excluded. Relying on Ahmed G.H. Ariff, the Court held that:
- The assessee’s interest, though personal and non-transferable, is nevertheless an “asset” within the statutory definitions.
- Section 7(1) requires valuation on the assumption of a hypothetical open market; actual marketability is irrelevant.
- The Tribunal’s finding that the interest had “no value” contradicts the statutory mandate and the principles laid down in earlier authority.
The Court rejected counsel’s submission that the prior decision left open the possibility of a genuinely valueless asset; it interpreted Ahmed G.H. Ariff as foreclosing that argument.
Holding and Implications
DISMISSED – Civil Appeals Nos. 1429 and 1430 of 1971 were dismissed with costs; Civil Appeals Nos. 2385 and 2386 of 1969 were dismissed as non-maintainable without costs.
Implications: The ruling confirms that interests in trusts earmarked for personal maintenance are nonetheless assets for wealth-tax purposes and must be assigned a value, even if no actual market exists. The decision applies existing precedent rather than creating new law, but it underscores the comprehensive reach of the Wealth-Tax Act and curtails attempts to claim a “nil” valuation for non-transferable personal estates.
K.S Hegde, J.— Civil Appeals Nos. 1429 and 1430 of 1971 are by special leave and Civil Appeals Nos. 2385 and 2386 of 1969 are by certificate. The latter appeals have become infructuous as the certificates by which they have been brought are not supported by any reason. Hence the appellants had to apply and obtain special leave from this Court for appealing against the judgment of the High Court. Civil Appeals Nos. 1429 and 1430 have been brought on the strength of the special leave granted by this Court. These are the appeals which we have to consider now.
2. All these appeals arise from the decision of the Bombay High Court in a reference under Section 27 of the Wealth Tax Act, 1957. The question referred to the High Court reads:
“Whether on the facts and in the circumstances of the case, and having regard to the terms of Annexure ‘A’ the Tribunal was justified in holding that the interest of the assessee under the Trust had no value?”
3. The relevant portion of the Trust deed which came up for consideration by the Tribunal as well as the High Court reads thus:
“2. The Trustees shall hold and stand possessed of the Trust FUND UPON TRUST:
(a) * * *
(b) To apply the balance of such interest, dividends, profits and income of the Trust Fund (hereinafter for brevity's sake referred to as ‘the net income’) for the support, maintenance and advancement in life and otherwise for the benefit of the Settlor and his wife (provided such wife is born before the date of these presents) in such manner as to enable the Settlor to live as far as possible with the same comforts and to enjoy life in the same manner as he is accustomed to do and in case of any surplus income at the end of any year to accumulate the same for a period of eighteen years from the date hereof and to add the same to the corpus of the Trust Fund and after the expiration of the said period of eighteen years in case of any surplus income at the end of any year to hand over the same to the Settlor provided further that in applying the net income as aforesaid the Trustees shall not be entitled to take into account any other income from any other source that the Settlor may be received at the time and it is hereby expressly agreed and declared that the Trustees shall not be liable or accountable to any one for any act bona fide done by them or for any payment bona fide made by them in pursuance of the provisions of this clause and in particular they shall not be accountable or responsible for the amounts expended or applied by them or the manner in which or the purpose for which the same shall be applied and all moneys so expended or applied by the Trustees in their absolute discretion shall not be questioned by any party in any Court of Law or otherwise howsoever.”
4. The Tribunal came to the conclusion that the Estate conferred under the above mentioned clause is a personal estate, the same is incapable of being sold in the open market and therefore it should be held that that Estate has no value. The High Court differing from the view taken by the Tribunal came to the conclusion that even though the Estate conferred is a personal estate and it is not possible to sell that estate in an open market yet under the law the same has to be valued on the basis of the principles enunciated in the Wealth Tax Act. The decision in appeal was considered and approved by this Court in Ahmed G.H Arjf v. Commissioner of Wealth-tax, Calcutta. In that decision it was observed:
“The only direct case on the point under consideration is a decision of the Bombay High Court in Commissioner of Wealth Tax v. Purshottam N. Amarsay (the decision under appeal). There the deed of settlement provided that the trustee shall apply the net income from the fund for the support, maintenance and advancement in life and otherwise for the benefit of the Settlor and his wife etc. It was held that the definition of “assets” in Section 2(e) and that of ‘net wealth’ in Section 2(m) were comprehensive provisions and all assets were included in the net wealth by the very definition. Therefore, when Section 3 imposed the charge of wealth-tax on the net wealth it necessarily included in it every description of property of the assessee, movable and immovable, barring the exceptions stated in Section 2(e) and other provisions of the Act. We are in entire concurrence with that view. There is no reason or justification to give any restricted meaning to the word ‘asset’ as defined by Section 2(e) of the Act when the language employed shows that it was intended to include property of every description. On a proper construction of the relevant clauses in the wakf deed we are not satisfied that the aliquot share of the income provided for the beneficiaries was meant merely for their maintenance and support .…”
“Mr Sen has laid emphasis on the language of Section 7(1) of the Act and has contended that the right to a share in the income is not capable of any valuation and the price which it would fetch, if sold in the open market, could not possibly be ascertained. Such an argument was fully examined in the Bombay case in which the High Court referred to the provisions of the English statutes, which were in pari materia, as also decisions given by the English Courts including the one by the House of Lords in Commissioners of Inland Revenue v. Crossman. It has been rightly observed by the High Court that when the statute uses the words ‘if sold in the open market’ it does not contemplate actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market and, on that basis the value has to be found out. It is a hypothetical case which is contemplated and the Tax Officer must assume that there is an open market in which the asset can be sold.”
5. Mr Chagla, learned counsel for the assessees contended that in that case this Court did not consider the possibility of an asset not having any value whatsoever. We are unable to accede to that contention. What this Court ruled in Ahmed G.H Ariff case was that even if the property in question is incapable of being sold in the open market, being a personal estate in that event also the interest of the assessee has to be valued by the Wealth Tax Officer. In our opinion, the decision of this Court in Ahmed G.H Ariff case completely covers the issue under discussion.
6. For the reasons mentioned above Civil Appeals Nos. 1429 and 1430 of 1971 fail and the same are dismissed with costs.
7. Civil Appeals Nos. 2385 and 2386 of 1969 by certificates are dismissed as not being maintainable. No costs.
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