COMMISSIONER OF WEALTH TAX versus PRINCE MUFFAKHAM JAH BAHADUR CHAMLIJAN

Citation: [2000] SUPP. 5 S.C.R. 518 · Decided: 12-12-2000 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
B 
COMMISSIONER OF WEALTH TAX 
v. 
PRINCE MUFFAKHAM JAH BAHADUR CHAMLIJAN 
DECEMBER 12, 2000 
[S.P. BHARUCHA, N. SANTOSH HEGDE AND 
Y.K. SABHARWAL, JJ.] 
Wealth Tax Act, 1957---Sections 2(e), 2(m) and 7-Right of beneficiary 
C to live in a house duri'1g his lifetime free of rent--Held, it is a life interest 
and therefore an asset-Wealth Tax Rules, 1957-Rule JB. 
Respondent-assessee was a member of late Nizam's family who 
established several trusts. The assessee was a beneficiary of one of the trusts. 
U oder the terms of the trust deed, the trustees constructed a house and the 
D assessee had the right to live in the house during his lifetime without payment 
of rent. In his wealth tax returns for the assessment years 1969-70 to 1977-
78, the assessee did not include the said value of life interest in his wealth. 
The Wealth-Tax Officer added the value of the life interest in the assessee's 
wealth, applying the provisions of Rule 1B of the Wealth Tax Rules. The 
appellate authority held to the contrary with which the Tribunal agreed. On a 
E reference, the High Court held that the said interest was in the nature of a 
licence and that the value of the assessee's life interest could not be included 
in his wealth. 
In appeal to this Court, Revenue contended that the right to live in a 
house free of rent is an asset and its value must be included in assessee's net 
F wealth. 
The assessee contended that the said life interest is not an asset because 
it only conferred a personal, inalienable right to reside on the assessee and 
that it was only a licence and not an asset. The assessee further contended 
G that on application of Rule 1 B of the Wealth Tax Rules, the value of the life 
interest is zero. 
Allowing the appeals, the Court 
HELD : 1.1. The assessee has, by reason of the life interest, a right to 
H reside in the house in question for the duration of his life. Such a right to 
518 
COMMR OF WEALTH TAX v PRINCE MliFFAKHAM JAH BAHADUR CHAMLIJAN [liHARVCHA. J] 5 J 9 
reside, though personal and inalienable, is property, which would have a A 
market in an assumed market place. (523-8) 
1.2. Rule 18 of the Wealth Tax Rules indicates how a life interest is to 
be valued. Rule 18 is not workable in the present case as it is applicable only 
to an income yielding life interest. Even if Rule 18 is not applicable, the said 
life interest, if an asset, had still to be valued and be included in the wealth of B 
the assessee, which is what Section 7 required. In the absence of a rule which 
can apply to the valuation of a particular asset, that asset must be valued in 
the ordinary way, by determining what it would fetch if it were sold in an 
assumed market; the value being what an assumed willing purchaser would 
pay for it. This is how the said life interest must be assessed, upon the C 
assumption that the assessee's personal right to reside in the property during 
his lifetime is saleable. [523-G, H; 524-A) 
Ahmed G.H. Arif! & Ors. v. Commissionr of Wealth-Tax, Calcutta, (1970) 
76 I.T.R. 471 and Purshottam N. Amarsay & Anr. v. Commissioner of Wealth-
Tax, Bombay City II, (1973) 88 ITR 417, relied on. 
D 
Commissioner of Wealth-tax v. Prince Mujjakkam Jah Bahadur; 186 ITR 
421, overruled. 
Commissioner of Wealth-tax, Bombay City II v. Purshottam N. Amersey 
and Am:, (1967) 71 l.T.R., 180, referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2388-2394 of 
1994. 
From the Judgment and Order dated 31.1.89 of the Andhra Pradesh High 
Court in C.R. No. 84 of 1984. 
WITH 
Civil Appeal No. 3603of1997. 
From the Judgment and Order dated 10.7.95 of the Andhra Pradesh High 
Court in S.C.L.P. No. 3/94 in R.C. No. 27of1985. 
E 
F 
S. Ganesh, Ranbir Chandra, S.K. Dwivedi, Ms. Sushma Suri, G 
P. Murlikrishnan, B.A. Ranganathan and J.B. Dadachanji for JBD & Co. for 
the appearing parties. 
The Judgment of the Court was delivered by 
BHARUCHA, J. These are appeals that relate to the same assessee, H 
520 
SUPREME COURT REPORTS [2000] SUPP. 5 S.C.R. 
A Prince Muffakham Jah; they are in respect of the Assessment years 1969-70 
to 1975-76 and 1977-78. They raise the same question. That question was 
referred on the application of the Revenue by the Income Tax Appellate 
Tribunal to the Andhra Pradesh High Court under Section 27(1) of the Wealth 
Tax Act. The question reads thus : 
B 
c 
"Whether on the facts and in the circumstances of the case the 
Appellate Tribunal was right in law in upholding the Commissioner of
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