Holding

The right to receive compensation for land acquired by the State is an asset and must be included in net wealth, but only its present value as of the valuation date, not the full estimated compensation, should be assessed.

Summary

The Commissioner of Wealth Tax assessed wealth tax on Smt. Anjamli Khan for three assessment years, estimating compensation payable for agricultural lands acquired by the State under the West Bengal Estates Acquisition Act, 1953. Khan contended that the right to receive such compensation was not an "asset" under Section 2(e) of the Wealth Tax Act, 1957 and appealed. The Appellate Assistant Commissioner and the Tribunal rejected her claim, but the Calcutta High Court reversed them, holding no asset existed. The Supreme Court held that the right to receive compensation is indeed an asset and must be included in the assessee's net wealth, though only its present value as of the valuation date—not the full estimated amount—should be taken. The Court set aside the High Court decision and allowed the appeals, directing the Tribunal to determine the appropriate present value.

Issues considered

The right to receive compensation under the West Bengal Estates Acquisition Act, 1953 is an "asset" within the meaning of Section 2(e) of the Wealth Tax Act, 1957.
Whether the amounts estimated by the Wealth‑Tax Officer can be directly included in net wealth, or only the present value of the compensation right.
Whether the West Bengal Act is materially different from the Bihar Land Reforms Act for the purpose of applying the precedent in Pandit Lakshmi Kant Jha.

Legislation cited

Bihar Land Reforms Act, 1950
Wealth Tax Act, 1957s. 2(e)
West Bengal Estates Acquisition Act, 1953s. 16, s. 17(1), s. 23

Subjects

wealth taxcompensationasset definitionvaluationWest Bengal Estates Acquisition Actpresent valuetax assessmentprecedent

Judgment

'
COMMISSIONER OF.WEALTII TAX, CALfUTIA A
v.
SMf. ANJAMLI KHAN

NOVEMBER 6, 1990
...
•
[K.N. SINGH AND S. RANGANATHAN, JJ.] B

Wealth Tax Act, 1957: Section 2(e)-Compensation receivable
on acquisition of Estate-Whether 'asset' includible in the net wealth.

West Bengal Estates Acquisition Act, 1953: Section 17( ])-Com-
pensation receivable on acquisition-Whether an 'asset' liable to Wealth C
Tax. ·

The Respondent-assessee owned vasf agricultural properties
which came to be vested in the State Government by virtue of the
provisions of the West Bengal Estates Acquisition Act, 1953. The asses-
see was entitled to receive compensation in respect of those lands. For D
the assessment years 1957-58, 1958-59 and 1959-60, the Wealth Tax
Officer required the assessee to furnish particulars of the compensation
due from the Government. The assessee was unable to give the particu-
lars, but stated that his agricultural income from the lands used to be
assessed at Rs.1,00,000 per annum and that the taxes thereon amounted
to Rs.20,000 per annum. Taking the net agricultural income at E
Rs;80,000 and applying the provisions of Section 17(1) of the Acquisi-
tion Act the Wealth Tax Officer estimated the compensation payable to
the assessee at Rs.3,40,000. Deducting the interim compensation
received by the assessee, he estimated the amount of compensation at
Rs.3,25,000 for the assessment year 1957-58 and at Rs.3,00,000 each
for the assessment years 1958-59 and 1959-60. F

The assessee preferred appeals to the Appellate Assistant Com-
missioner on the ground that the compensation receivable was not an
'asset' under the Wealth Tax Act. The appeal was dismissed. Aggrie-
ved, the assessee appealed to the Tribunal. The Tribunal allowed the
appeals. On a request from the Revenue, the Tribunal referred the G
question of includibility of the estimated compensation amounts in the
net wealth of the assessee. The High Court answered the question in
favour of the assessee.

Against the said decision of the High Court the Revenue has pre-
ferred these appeals claiming that the decision of this Court in Pandir H

563
564 SUPREME COURT REPORTS [1990] Supp. 2 S.C.R.

A Lakshmi Kant Jha v. CWT Bihar & Orissa, [1973] 90 ITR squarelJ
governs the issue.

Allowing the appeals, this Court,

HELD: I. I. The right to receive compensation in respect of the
B lands acquired under the West Bengal Estates Acquisi1tion Act, 1953 is
an asset which should he included in the net wealth of the assessee.
There is no difference in principle between the Bihar Land Reforms Act,
1950 and the West Bengal Estates Acquisition Act, 1953. The High
Court and the Tribunal erred in holding that there was no asset the
value of which could be included in the net wealth of the assessee by
C reference to the lands of the assessee which vested in the State
Government.

1.2. The reference to the High Court not only raised the question
whether there was any asset capable of inclusion in the net wealth but
also the question as to whether the sums estimated by the Wealth Tax
D Officer on this account can be included in the net wealth of the assessee
as on the relevant dates. Neither the Tribunal nor the High court have
touched upon this aspect in view of their conclusion that there was no
'asset' at all capable of inclusion in the estate.
\
Pandit Lakshmi Kant Jha v. Commissioner of Wealth Tax, Bihar
E & Orissa, [1973] 90 ITR 97; Mrs. Khorshed Shapoor Chenai v.
Assistant Controller of Esw1e Duty, [1980] 122 ITR 21; Jogindcr Singh
& Ors. v. Swte of Punjab & Anr., [1985] 1SCC231; relied on.

Commissioner of Weailh Tax v. 0.C. Mahatab. [1970] 78 ITR
214; referred to.
F
2. It would not be necessary to determine the question whether
the valuation of the said asset at the figures taken by the wealth-tax
officer is correct or not. This is a question which will have to be con-
sidered and decided by the Tribunal while disposing of the matter in
conformity with this judgment. The Wealth Tax Officer has included in
G the net wealth the entire amount of the compensation that would
eventually become payable to the assessee without making any allo-
wance, as was done in Pandi1 Lakshmi Kant Jha's case, for the cir-
cumstance that the compensation was payable at a future date. It is
clear that, where the compensation is to be determined and is payable at
a date much later then the valuation date, the value of the assessee'•
H right to receive the compensation can only be the present value (i.e. the
C.W.T. v. SMT. A. KHAN [RANGANATHAN, J.] 565

value as on the valuation date) of the amount that may be determined
and paid as compensation in future. It cannot be equal to the amount of A
compensation payable under the Act. The present value of the future
compensation will, therefore, have to be determined on a consideration
of all relevant aspects that may be put forward before the Tribunal.

Pandit Lakshmi Kant Jha v. Commissioner of Wealth Tax, Bihor B
& Orissa, [1973] 90 ITR 97, referred to.

3. In the instant case, the Tribunal ought to have held that the
value of the assessee's right to receive compensation under the pr0> ision
of the West Bengal Estates Acquisition Act, as on the relevant valuation
dates, had to be included in the assessee's net wealth for the assessment
years 1957-58, 1958-59 and 1959-60. However, the amounts of compen- c
sation determined by the Wealth Tax Officer cannot be included in the
net wealth; but only the value, as on the relevant valuation dates, of the
assessee's right to receive compensation estimated in accordance with
proper principles can be included in the net wealth of the assessee,
What such estimated value should be will have to be decided by the D
Tribunal after giving both the parties an opportunity to put forward
their respective contentions.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 804-
866 (NT) of 1976.
E
Appeals by Certificate from the Judgment and Order dated
c.8.1974 of the Calcutta High Court in Matter No. 695 of 1967.

J. Ramamurthy, S. Rajappa and Ms. A. Subhashini for the
Appellant.
F
·Dr. Shankar Ghosh. Rathin Das and P.K. Mukherjee (NPJ for
the Respondent.

The Judgment of the Court was delivered by

RANGANATHAN, J. These three appeals arise out of the G
assessments to wealth tax of Kumar Amarendra Lal Khan (since
deceased) for the assessment years 1957-58, 1958-59 and 1959-60. Shri
Khan (hereinafter referred to as the "assessee") owned vast agri-
cultural properties which, by virtue of the provisions of the West
Bengal Estates Acquisition Act, 1953 (hereinafter referred to as the
·'Act"), came to vest in the State of West Bengal. Under the Act, the H
566 SUPREME COURT REPORTS [1990] Supp. 2 S.C.R.

assessee was entitled to receive compensation in respect of the lands.
A The mode of determination and payment of compensation has been
prescribed under sections 16 and 17 read with section 23 of the Act. In
completing the assessments of the assessee to wealth tax for the assess-
ment years above mentioned (in respect of which the relevant valua-
tion dates were 14.4.1957, 14.4.1958 and 14.4.1959 respectively), the
B Wealth Tax Officer required the assessee to furnish particulars of the
compensation due from the Government. The assessee was unable to
furnish such particulars but stated that his agricultural income from the
lands used to be assessed at Rs.1,00,000 per annum and that the taxes
thereon amounted to Rs.20,000 per annum. Taking the net agricul-
tural income at Rs.80,000 and applying the provisions of section 17( !)
of the Act, the Wealth Tax Officer estimated the compensation pay-
c able to the assessee at Rs.3,40,000. Deducting there from the interim
compensation already received by the assessee, the amount of com-
pensation due to him was estimated at Rs.3,25,000 as on 14.4, 1957,
Rs.3,00,000 as on 14.4.1958 and Rs.3,00,000 as on 14.4.1959.

D The assessee preferred appeals to the Appellate Assistant Com-
missioner contending that the compensation receivable from the West
Bengal Government was not an 'asset' which could be included in the
net wealth of the assessee under the Wealth Tax Act. The Appellate
Assistant Commissioner negatived this contention and affirmed the
assessments. The assessee preferred further appeals to the Tribunal.
E The Tribunal, following an earlier decision dated 29.4.1963 in WTA
Nos. 302 to 304 of 1961-62 accepted the contention put forward by the
assessee. In that decision, the Tribunal had discussed the provisions of
the Act and concluded:

"It is clear, therefore, that the assessee had no right to
F receive any compensation on the respective valuation dates
mush Jess from the date of the vesting, as the departmental
representative contends. If the assessee had any right at all,
it was at the best, an imperfect right which has no market
value whatever. But our considered view is that the asses-
see had no right whatever perfect or imperfect on the
G respective valuation dates to receive any compensation for
the acquisition of his estates by the State Government."

Following this decision, the Tribunal excluded tlie aforesaid sums of
Rs.3,25,000, Rs.3,00,000 and Rs.3,00,000 respectively from the computa-
tion of the net wealth of the assessee for the assessment years in
H question.
C.W.T. v. SMT .. A. KHAN [RANGANATHAN, J.) 567

On the request of the Commissioner of Wealth Tax, the Tribunal
referred the following question to the High Court at Calcutta for its A
" opinion:

"Whether, on the facts and in the circumstances of the
case, the Tribunal was right in holding that the sum of
Rs.3,25,000, Rs.3,00,000 and Rs.3,00,000 estimated by the B
Wealth-tax Officer as the amounts of compensation due to
the assessee under the provisions of the West Bengal
Estate Acquisition Act, 1953 as on the relevant valuation
dates for the assessment years 1957-58, 1958-59 and 1959-
60 respectively could not be included in the assessee's net
wealth as computed under the provisions of the Wealth-tax
Act, 1957?" c
The above reference was heard by a Bench of Calcutta High
Court (Sabyasachi Mukherji J. and Janan J.). The High Court dis-
posed of the reference in favour of the assessee followin~ its earlier
decision in the case of Commissioner of Wea/th Tax v. O.C. Mahatab, D
[ 1970) 78 !TR 214. On behalf of the department, the attention of the
court had been drawn to the decision of this Court in the case of Pandit
Lakshmi Kant Jha v. Commissioner of Wea/ch Tax, Bihar & Orissa,
[ 1973) 90 !TR 97. The Court, however, observed that the said decision
of the Supreme Court had been concerned with the Bihar Act, and
that it had been pointed out in the decision of the Calcutta High Court E
in Mahatab's case (supra) that the provisions of the Bihar Act were
different materially on this aspe'ct from the provisions of the Bengal
Act. The Court, therefore, concluded that the decision of the Calcutta
High Court in Mahatab's case should be followed. Accordingly the
High Court answered the question referred to it in the affirmative and
in favour of the assessee. Aggrieved by the order of the High Court, F
the Commissioner of Wealth-tax has preferred these appeals.

On behalf of the appellant, it is. submitted that the decision of
this Court in Pandit Lakshmi Kant Jha's case (supra) squarely governs
the issue in the present case. In that case, the assessee was the former
Maharajadhiraja of Darbhanga. For the assessment year 1957-58, the 0
relevant valuation date for which was 31.3.1957, the Wealth-tax Of-
ficer took the view that the value of· the compensation, which the
assessee had received in respect of its estate which had been acquired
by the Government under the Bihar Land Reforms Act (Bihar Act
XXX of 1950), should be included as part of the net wealth of the
assessee; The amount of compensation payable to the assessee by the H
568 SUPREME COURT REPORTS [1990] Supp. 2 S.C.R.

Government of Bihar for the acquisition of the estate had been de-
A termined. at Rs.36,87,419 but the determination by the appropriate
compensation officer was much later than the relevant valuation date.
Under the provisions of the Bihar Act, the amount of compensation,
in terms of the compensation assessment roll is finally published, was
payable in cash or in bonds or partly in cash and partly in bonds. The
B bonds could be either negotiable or non-negotiable and non-transfer-
able and were payable in forty equal annual instalments to the person
named therein and carried interest at two and a half per cent per annum
with effect from the date ·of issue. It was contended on behalf of the
assessee that, as the compensation had not been determined on the
valuation date and further as the amount of compensation was not
payable immediately but was spread over a period of forty years, no
c amount could be included as part of the net wealth of the assessee by
reference to the compensation payable in respect of the lands acquired
by the assessee. The Wealth-tax Officer rejected this contention. He
held that the right to receive compensation represented a valuable
asset and had to be included in the net wealth of the assessee. How-
D ever, as whole of the compensation had not been paid on the date of
valuation, the Wealth-tax Officer took the present value of the com-
pensation to be 75 per cent of its face value. This assessment was
affirmed by the Appellate Assistant Commissioner as well as the
Appellate Tribunal though, so far as the valuation was concerned, the
Tribunal reduced the value of the asset included on this account to 65
E per cent of the face value as against 50 per cent, contended for by the
assessee. At the instancy of the assessee a reference was thereafter
made to the High Court of Patna which answered the question in
favour of the Revenue. The assessee preferred a further appeal to the
Supreme Court. Two contentions were advanced before the Supreme
Court on behalf of the appellant in regard to this question. It was
F argued, in the first instance, that the compensation payable to the
assessee under the Bihar Land Reforms Act did not constitute an asset
as can he taken into account in computing the total wealth of the
assessee. In the alternative, it was urged that, in computing the value
of compensation, the Tribunal should have taken the value to be 50
per cent and not 65 per cent of the amount of compensation. This
G Court held that neither of these contentions was well founded. After
setting out the provisions of Bihar Ac, the Court concluded:

"The assessee, in our opinion, was vested with a right to
get compensation immediately his land was vested in the
State. Section 2(e) of the Act <!efines "assets" to include
H property of every description, movable or immovable, but
C.W.T. v. SMT. A. KHAN [RANGANATHAN, J.l 569

does not include certain categories of property with which
we are not concerned. The word "property", as mentioned A
by this Court in the case of Ahmed G.H. Ariffv. Commis-
sioner of Wealth Tax, [ 1970] 76 !TR 471 is a term of the
widest import and, subject to any limitation which the con-
text may require, it signifies every possible interest which a
person can clearly hold and enjoy. The definition of the B
"assets" as given in section 2(e) of the Act, though not
exhaustive, shows its wide implitude and we see no reason
as to why the right to receive compensation cannot be
included amongst the assets of an assessee."

The Court then dealt with the arguments that the amount of compen-
sation payable to the assessee had not been determined by the com- C
pensation officer by the valuation date and that, in any event, as the
amo;.mt of compensation was not payable immediately it could not be
included in the assets of the assessee. Repelling this contention, the
Court-0bserved:
D
"Assuming for the sake of argument that the amount of
compensation payable to the assessee had not been deter-
mined by the Compensation Officer by the valuation date,
that fact would not jusrify the exclusion of the compensa-
tion payable from the assets of the assessee. The right to
receive compensation became vested in the assessee the E
moment he was divested of his estate and the same got
vested in the State in pursuance of the provisions of the
Bihar Land Reforms Act. As the estate of the assessee
which vested in the State was known and as the formula
fixing the amount of compensation was prescribed by the
statute, the amount of compensation was to all intents and F
purposes a matter of calculation. The fact that the neces-
sary calculation had not been made and the amount of
compensation had consequently not been qualified (sic) by
the valuation date would not take compensation payable to
the assessee but of the definition of assets or make it cease
to be property. The right to receive compensation from the G
State is a valuable right, more so when it is based upon
statute and the liability to pay is not denied by the State. It
is no doubt true that the compensation is not payable
immediately and its payment might be spread over a period
of 40 years, but that fact would be relevant only for the
purpose of evaluating the right to compensation. It would H
570 SUPREME COURT REPORTS [1990] Supp. 2 S.C.R.

not detract from the proposition that the right to receive
A
compensation, even though the date of payment is defer-
red, is property and constitutes asset for the purpose of the
Wealth-tax Act."

The Court further pointed out that a number of High Courts had held
B that the compensation payable on the abolition of estates or acquisi-
tion of lands can be taken into account for purposes of the wealth-tax
Act.

Learned counsel for the appellant submits that this decision
directly covers the present case. He also submits that the principle
enunciated in the above decision has been re-affirmed in Mrs.
c Khorshed Shapoor Chenai v. Assistant Controller of Estate Duty,
[ 1980] 122 ITR 21 where Pandit Lakshmi Narain Jha's case (supra) has
been specifically followed and also in Joginder Singh & Ors. v. State of
Punjab & Anr., [ 1935] l SCC 231. .

D We are of the opinion that the contention of the appellant is well
founded. In our opinion, the decision in Pandit Lakshmi Narain Jha's
case (supra) clearly covers the principal issue in the present case as to
whether the value of the right possessed by the assessee to receive
compensation for the acquisition of his lands is an asset which has to be
evaluated and included in his net wealth as on the relevant valuation
E dates. Only two grounds have been urged before us to distinguish the
earlier decision in Pandit Lakshmi Narain Jha's case (supra). The first
is the one referred to by us earlier which has also been touched upon
by the High Court. The High Court both in the present case and in
Manatab's case (supra), which has been followed therein, has taken
the view that the provisions of the West Bengal Estates Acquisition
p Act and the Bihar Land Reforms Act were not similar. We have gone
through the provisions of the two Acts. We consider it unnecessary to
encumber this judgment by extracting the relevant provisions. Broadly
speaking, the scheme under both the Acts is the same and we are
unable to see any material distinction so far as the present question is
concerned between the provisions of West Bengal Act and those of the
G Bihar Act. It has been pointed out by this Court in Pandit Lakshmi
Kant Jha's case (supra) that the moment an assessee's land is acquired
or otherwise vests in the State, he becomes entitled to compensation.
This is both by virtue of the statutory provisions in question as well as
by virtue of the fundamental right guaranteed under Article 31 of the
Constitution as it then stood. Naturally, the amount of compensation ;.--;
I-{ could not be determined immediately. The provisions of the two Act'
- C.W.T. v. SMT. A. KHAN [RANGANATHAN, J.[ 571

in question set out the elaborate procedure for this quantification. The
preparation of the compensation roll, the determination of the precise A
amounts due and a decision as to the mode of payment of the amounts.
are all matters to be sorted out in course of time but all this, as pointed
out in Pandit Lakshmi Kant Jha's case (supra), does not alter the
position that, as on the date on which the estate vested in the Govern-
ment, a right to receive compensation had accrued in favour of the B
assessee and that right is a valuable asset which is includible in the net
wealth of the assessee. The second point o[ distinction sought to be
made is that, in Jha's case (supra), the amount of compensation had
been determined (though after some time) whereas, in the present
case, even till today the compensation rolls have not been published
and the amount of compensation has not been determined. This again
is only a point of difference but not one which would justify a distinc- c
tion in principle. It has been pointed out in Pandit Lakshmi Kanr Jha's
case (supra) that, by the mere fact that the quantification of compensa-
tion or its payment is deferred, the right to receive compensation does
not cease to be an asset includible for the purpose of wealth tax.
D
We are, therefore, of the opinion that there is no difference in
principle between the Bihar Act and the West Bengal Act. The High
Court and the Tribunal erred in holding, that there was no asset the
value of which could be included in the net wealth of the assessee by
reference to the lands of the assessee which vested in the State
Government. E

The question referred in the present case to the High Court,
which has been extracted earlier, was, however, of much wider amp-
litude. It not only raised the question whether there was any asset
capable of inclusion in the net wealth but also the question as to
whether the sums estimated by the Wealth-tax Officer on this acount f
can be included in the net wealth of the assessee as on the relevant
dates. Neither the Tribunal nor the High Court have touched upon this
aspect in view of their conclusion that there was no 'asset' at all cap-
able of inclusion in the estate. Since we have come to the conclusion
that the right to receive compensation in respect of the acquired lands
is an asset which should be included in the net wealth, it will now G
become necessary to determine the second question whether the valu-
ation of this asset at the figures taken by the Wealth-tax Officer is
correct or not. This is a question which will have to be ·considered and
decided by the Tribunal while disposing of the matter conformably to
--=--....__. this judgment. We express no opinion on this question but would
clarify an important aspect thereof which the assessee had urged H
572 SUPREME COURT REPORTS [1990) Supp. 2 S.C.R. -
before the Tribunal and which the Tribunal should keep in mind while
A
disposing of the matter finally. As we have mentioned earlier. the
Wealth Tax Officer has included in the net wealth the entire amount of
the compensation that would eventually become payable to the asses-
see without making any allowance, as was done in Jha's case (supra),
for the circumstance that the compensation was payable at a future
B date. It is clear that, where the compensation, as here, is to be de-
termined and is payable at a date much later than the valuation date,
the value of the assessee's right to receive the compensation can only
be the 'present' value (i.e., the value as on the valuation date of the
amount) that may be determined and paid as compensation in future.
It cannot be equal to the amount of compensation payable under the
Act. The present value of the future compensation will, therefore,
c have to be determind on a consideration of all relevant aspects that
may be put forward before the Tribunal.

For the above reasons, we allow these appeals set aside the order
of the High Court and answer the question referred to the High Court
D by the Tribunal in the following manner:

"The Tribunal ·ought to have held that the value of the
asscssee's right to receive compensation under the provi~
sions of the West Bengal Estates Acquisition Act as on the
relevant valuation dates had to be included in the assessee's
E net wealth for the assessment years 1957-58. 1958-59 and
1959-60. However. for the reasons stated above, the
amounts of compensation determined by the Wealth tax
Officer ai Rs.3,r ,000, Rs.3,00,000 and Rs.3,00,000 res-
pectively cannot be included in the net wealth; but only the
value, as en-therelevant valuation dates, of the assessee's
F right to receive compensation estimated in accordance with
proper principles can be included in the net wealth of the
assessee. What such estimated value should be will have to
be decided by the Tribunal while disposing of the matter
conformably to our judgment. In doing so, the Tribunal
should give both parties an opportunity to put forward
G their respective contentions."

The appeals are disposed of accordingly. In the circumstances,
however, we make no order as to costs.

G.N. Appeals allowed.