COMMISSIONER OF WEALTH TAX, HYDERABAD versus TRUSTEES OF HEH

Citation: [2003] 3 S.C.R. 662 · Decided: 16-04-2003 · Supreme Court of India · Bench: V.N. KHARE · Disposal: Dismissed

Judgment (excerpt)

A 
COMMISSIONER OF WEAL TH TAX, HYDERABAD 
V. 
TRUSTEES OF HEH 
APRIL 16, 2003 
B 
[V.N. KHARE CJ., R.C. LAHOTI, B.N. AGRAWAL, S.B. SINHA AND 
DR. AR. LAKSHMANAN, JJ.] 
Wealth Tax, /9j7-Sections 21(1) and (4)-Estate Duty Act, /9j3-
C Section 74(2)-Valuation of property-Determination of-Deemed death of 
life tenant-Property-jewel/eries subject matter of trust not in possession of 
remaindermen, the ultimate beneficiaries-Estate duty payable, if relevant 
factor-Held: Risk or hazard of e«n'.~ duty liability has a direct impact on the 
• 
purchaser of remainder interest thus, a relevant factor for determination of 
valuation of interest held by remainderman-Further, charge created thereupon 
D in terms of Section 74(2) to be taken into consideration. 
Assessees-beneficiaries of the Jewellery Trust returned the value of 
their interest in the Trust properties on the basis of the valuer's report. 
Also the jewellieries, subject matter of trust are not in possession of the 
remainderman, the ultimate beneficiaries. Revenue Department held that 
E the valuation was incorrect as the Estate Duty payable on the death of the 
life tenant was wrongly deducted. Tribunal held that the accepted method 
of valuing the remainderman's interest included a deduction of the Estate 
Duty. High Court on reference held that Tribunal is correct in law in 
holding that the probable Estate Duty payable on the death of the life tenant 
p 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 
remainderman. On appeal, Division Bench of this Court referred to the 
earlier decisions of this Court-Bharat Hari Singhania's case* and Nizam's 
Family Trust case**, judgments of three Judge Benches. In Bharat Hari 
Singhania 's case it is held that where the statute creates a legal fiction for 
G determination of market value, no amount like provision for taxation, PF 
and Gratuity etc. can be deducted from the market value of the estate while 
evaluating the estate for the levy of wealth tax, which is in conflict with 
the Nizam 's Family Trust case. Therefore, the matter is referred this Bench. 
H 
The question which arose for consideration in these appeals is whether 
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COM MR. OF WEAL TH TAX v. TRUSTEES OF HEH 
663 
the amount of estate duty payable on the deemed death of the life tenant A 
would be a relevant factor in determining the valuation of the property. 
Appellant-revenue contended that the High Court erred in 
interpreting Sections 21(1) and 21(4) of the Wealth Tax, 1957 as it failed 
to appropriately apply the legal fiction created thereunder; that the same 
principles of valuation would apply in relation to the jewelleries held by B 
rcmaindermen despite the fact that the persons having life interest in the 
trust are alive; and that the High Court should have followed Bharat Hari 
Singhania 's case. 
Respondent-assessee contended that the valuation of the jewelleries C 
will have to be assessed having regard to what a willing and informed buyer 
would offer therefor, and then in determining the value the estate duty 
liability would be a relevant factor. 
Dismissing the appeals, the Court 
D 
HELD: I.I. As arrears of the estate duty would be a charge on the 
property, the same being 'encumbrance', the potential estate duty liability 
shall be a relevant factor while determining the market value of the 
jewelleries. Whenever there is a charge or encumbrance in the property, 
the right of a seller to sell the same would be subject to such charge. The E 
restrictions and disadvantages attached to the right of the assessee would 
indisputably diminish the value of the property to the said extent. 
1669-E, Fl 
1.2. The effect of a legal fiction created by a statute is no longer res 
integra. Once the legal fiction under the Act is taken to its logical corollary, F 
the conclusion is inescapable that while assessing the net wealth of the 
jewelleries in question, the charge created thereupon in terms of Section 
74(2) of the Estate Duty Act, 1953 will have to be taken into consideration. 
1674-B, CJ 
1.3. The question regarding capital gains liability will not affect the G 
value of the shares or land inasmuch the same is incurred by the seller. In 
. such an event, therefore, the price which the buyer would be prepared to 
offer would not be affected by the seller's capital gains liability or any of 
the expenses which may be incurred by him. On the 

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