V.K. Singhal, J.@mdashThe Income Tax Appellate Tribunal has referred the following question of law arising out of its order dated March 7, 1981, in respect of the assessment years 1972-73 to 1974-75 u/s 27(1) of the Wealth-tax Act, 1957 :
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the finding of the Appellate Assistant Commissioner that the assessee was entitled to exemption of Rs. 1,50,000 u/s 5(3) of the Wealth-tax Act, 1957 ?"
2. The brief facts of the case are that the assessee made a gift of Rs. 3 lakhs to his minor son, Rajesh Kumar. The Wealth-tax Officer included this amount in the assessment of the assessee but allowed the exemption to the extent of Rs. 1,50,000 in accordance with the provisions of Section 5(3) of the Wealth-tax Act. Subsequently, the assessment order was reopened and it was held that the assessee is not entitled to the exemption in respect of the deposit held by the minor son because the provisions of Section 5(3) were amended with effect from April 1, 1975, i.e., for the assessment year 1975-76, when the words "held by him" were substituted by the words "owned by him". According to the Wealth-tax Officer, these provisions were applicable from 1975-76 and, therefore, the exemption of Rs. 1,50,000 was wrongly granted in the original assessment order.
3. It is not in dispute that the assessee was holding the bank account in the name of his minor son for the entire amount of Rs. 3 lakhs. The submission of learned counsel for the Revenue is that since the assessee was not the owner of it, the exemption u/s 5(3) of the Act could not be given.
4. The Orissa High Court in the case of
5. Sub-section (3) of Section 4 was substituted by the Finance Act 25 of 1975, with effect from April 1, 1975, and after its amendment it was mentioned that where the value of any asset is to be included in the net wealth of the assessee in accordance with Clause (a) of Sub-section (1), there shall be deducted from such value any debts owing on the valuation date by the transferee mentioned in that clause in so far as such debts are referable to such assets and the provisions of Section 5 shall apply in relation to such assets as if such assets were assets belonging to the assessee. Section 4(3)(b) makes it clear that the provisions of Section 5 shall apply in relation to such assets as if such assets were "belonging to the assessee". The words "belonging to the assessee" creates a deeming fiction and, therefore, if the assets are to be included in the net wealth by a deeming fiction, then the exemption u/s 5 has to be allowed by the deeming fiction. As such the exemption to the extent of Rs. 1,50,000 has to be allowed to the assessee. In
6. The provisions of Section 2(m) provide that net wealth includes all assets belonging to the assessee on the valuation date including assets required to be included in his net wealth on that date under this Act. Section 3 creates a charge on the net wealth. u/s 5(3), the words "held by him" were substituted by the words "owned by him" by the Finance Act, 1975 (25 of 1975), with effect from April 1, 1975. The words "by the assessee" were interpreted by the Gujarat High Court to mean that deposit should be in his own name or the investments were registered in his name in
7. As explained above in accordance with the provisions of Section 4, a legal fiction has been created by which, in computing the net wealth of an individual the value of the assets of the spouse of such individual and minor child have to be included. The logical conclusion of this legal fiction is that, if the value of the asset of the spouse or minor child is to be included then the exemption attached to such asset has also to be given. The provisions of Section 5(1) at the relevant time provided for an exemption to the extent of Rs. 1,50,000 in respect of "bank deposits". The exemption was not related to the person, but was related to the "bank deposit" subject to certain conditions being fulfilled. Since there is no dispute with regard to the other conditions, the exemption which was available to the minor child will be applicable to the assessee, who by the deeming fiction is considered as an owner. Under the provisions of Section 4 of the Act, in computing the net wealth of an individual, assets which are transferred by an individual to his minor child have been considered as belonging to the individual. The amendment made in Section 5(3) which has used the words "owned by him", therefore, has to be read along with Section 4(1)(a)(ii) and Section 4(3) and if a particular asset, even if it is owned by the minor child, it is deemed to be as belonging to the individual and, therefore, the amendment made in 1975 would be considered as clarificatory in nature.
8. In view of this position, we are of the view that the Income Tax Appellate Tribunal was justified in coming to the conclusion that the assessee was entitled to exemption of Rs. 1,50,000 u/s 5(3) of the Wealth-tax Act. Accordingly, the reference is answered in favour of the assessee and against the Revenue.
