Income Tax Appellate Tribunal - Hyderabad
Nb Jaffar Ali Khan vs Assistant Commissioner Of Wealth-Tax on 20 September, 2002
Equivalent citations: [2003]87ITD359(HYD)
ORDER 1. There are twenty appeals, in all, in this bunch. Out of them, eleven appeals are filed by the assessees and the remaining nine by the Revenue. Fourteen of these are cross-appeals, a pair of each of which are directed against common impugned orders. Thus, there are seven orders impugned in these fourteen appeals, whereas there are six orders impugned in the remaining six appeals. Hence, these twenty appeals are directed against thirteen separate, but similar, orders of the first appellate authorities. The issues involved in these appeals, concerning 11 assessees are common and the assessment years involved in these appeals are between 1989-90 and 1992-93 besides one appeal i.e. No. 194/Hyd./98 relating to Taqhia Begum for assessment year 1984-85 which involves reopening of the assessment under Section 17. Considering the common features involved in these appeals, these appeals are being disposed of by this common order for the sake of convenience. 2. The assessees concerned in these appeals are the beneficiaries of the HEH the Nizam's Jewellery Trust. H.E.H. Nawab Mir Osman Ali Khan created the said Trust on 29-3-1951, by transferring 107 items (115 pieces) of jewellery specified in the 1st Schedule to the deed and Govt. Securities specified in 2nd Schedule thereof for the benefit of his family members. Item Nos. 94 & 95 consisted of 5 pieces. Thus the total items of jewellery of the Trust originally consisted of 115 pieces, Out of them, 24 items were directly given to a beneficiary in terms of the trust deed and two items were transferred to another trust by the settler himself and the balance 89 pieces/items constituted the corpus of the Jewellery Trust. What is involved in these appeals is mainly the valuation of these 89 items on the relevant valuation dates. The assessees have also claimed for their exemption in terms of Section 5(1)(xii) of the Wealth-tax Act as "Works of Art" and validity of this claim is also to be examined. 3. All these assessees concerned in these appeals are the children and relatives of the Settler and are entitled to the corpus of the Trust. The trust deed has created life tenancies and also, after the death of the life tenants, remainder interests. The assessees before us are the ultimate beneficiaries or the remaindermen. As the life tenants did not. derive any income from the trust in terms of the Rules of valuation laid down under the Wealth-tax Act, there was no assessable wealth in the hands of the life tenants and so assessments were made only on the ultimate beneficiaries who, as already mentioned, are the appellants before us. The assessments have been made directly on the beneficiaries in terms of Section 21(2) of the Wealth-tax Act. The valuation of the beneficial interest of the remaindermen involves two steps : (i) Determining the value of the corpus; (ii) The Actuarial valuation of such corpus. The dispute in these appeals is restricted to the first step. 4. The Jewellery in question i.e. the 89 items, were purchased/acquired by the Government of India in terms of agreement dated 13/14-2-1989 and the purchase price/compensation was the subject-matter of arbitration through arbitrators and, subsequently, of an award by an Umpire and the said award was also sanctioned by the Apex Court on 20-10-1994. We shall refer, hereinafter, to the details of the proceedings which led up to the purchase/acquisition of the Jewellery by the Government of India and the payment of compensation/purchase price to the trustees on 12-1-1995. Suffice it to say at this stage that the Assessing Office completed the assessments adopting the value of Jewellery on different valuation dates relevant for the assessment years in question based on the compensation sanctioned by the Hon'ble Supreme Court in its order dated 20-10-1994. He worked out the relevant values on the relevant valuation dates by backward calculation applying the cost of inflation index relevant to capital gains under the Income-tax Act, 1961 to the said compensation. He rejected the claim of the assessee that the values of She jewellery have to be determined on the basis of the report of the Departmental Valuation Officer. He also rejected the claim of the assessee that, as the sale of the jewellery involved certain risks and hazards, certain discount has to be allowed from the value determined by the Valuation Officer. He also rejected the claim of the assessee for exemption of items of jewellery under Section 5(1)(xii) of the Wealth-tax Act. He did not exempt any of the items. He also levied interest under Section 17B for the delay in the filing of the returns by the asscssees before us. 4.1 On appeal the Commissioner of Wealth-tax (Appeals)-I rejected the claim of the assessee that the value determined by the Departmental Valuation Officer for the assessment year 1989-90 should be adopted for the subsequent four assessment years in terms of Rule 19 of Schedule III of the Wealth-tax Act subject to the adjustments specified in the said Rule. He, however, upheld the claim of the assessee that the value of the jewellery has to be determined on the basis of the report of the Valuation Officer in terms of Schedule III to the Wealth-tax Act and not with reference to the compensation ultimately sanctioned by the Apex Court. He held that the value for the assessment year 1989-90 should be adopted as per the report of the Valuation Officer dated 1-8-1995 determining the value as on 31-3-1989 i.e. valuation date for the relevant assessment year 1989-90 and that this value should be adopted in terms of Rule 19 of the Schedule III for the subsequent four assessment years subject to specified adjustments in terms of the said Rule. The Commissioner (Appeals) rejected the claim of the assessee for discount at the rate of 90% on the value determined by the Valuation Officer for the risks and hazards and uncertainties involved in the sale process. He, however, allowed the said claim for discount at 15% of the value determined by the Valuation Officer. He rejected the claim of the assessee for exemption under Section 5(1)(xii) of the Wealth-tax Act of all the items of Jewellery. 4.2 At this stage, we may mention that there are two different sets of orders, one by Shri Lahiri, Commissioner of Wealth-tax (Appeals)-I with which we are concerned in the present appeals and another by Shri B.L. Rao, Commissioner of Wealth-tax (Appeals)-II in the context of certain direct assessments made on the trustees of same Trust. The Commissioner of Wealth-tax (Appeals)-II upheld the action of the Assessing Officer bringing to tax the assessable wealth of the beneficiaries on the basis of the award of the Umpire sanctioned by the Apex Court. He also held that the assessees were not entitled for any exemption in respect of any of the items of the jewellery. We shall refer in more detail to the order of the Commissioner of Wealth-tax (Appeals)-II also hereinafter. 4.3 Regarding interest levied under Section 17B, the Commissioner of Wealth-tax (Appeals)-I took into consideration the fact that the trustees filed returns in representative capacity though the beneficiaries did not file any return and so held that the levy of interest should be restricted up to the date on which the trustees filed the returns. 4.4 The Department is in appeal against the order of the Commissioner of Wealth-tax (Appeals)-I objecting to the relief's granted by him in respect of the following : (a) Valuation of jewellery with reference to the report of the Valuation Officer and not the award of the Umpire as sanctioned by the Supreme Court. (b) Discount of 15% given from the value determined by the Valuation Officer; (c) Restriction of Interest levied under Section 17B only up to the date of the filing of the return by the trustees. The assessees are in appeal on the following issues : (a) Valuation of jewellery with reference to report of the Valuation Officer determining the value as on 31-3-1989 for the assessment year 1989-90 and subsequent years and not with reference to report of the Valuation Officer determining the value as on 31-3-1988; (b) Restriction of discount to 15% on the value determined by the Valuation Officer as against 90% claimed by the assessee. (c) Denial of exemption under Section 5(1)(xii) to some or all the 89 items. (d) Levy of interest under Section 17B up to the date of filing of returns by the trustees. That is how these appeals and cross-appeals have arisen. These issues are common to all the appeals before us except appeal No. 194/Hyd./98 in the case of Taqliia Begum for the assessment year 1984-85 where the issue is altogether different. In this appeal, the issue, is already mentioned, relates to the validity of the reopening of the assessment. We shall deal separately with this appeal and the rest of the discussion in this order is common for all the other appeals. 5. So the common issues that arise for consideration in all these appeals except appeal No. 194/Hyd./98 are as under : 1. (i) Whether the value of the corpus of the Trust for the assessment year 1988-89 and subsequent years should be worked out on the basis of the compensation amount received by the Trust as done by the Assessing Officer, or whether it should be done on the basis of the valuation report of the Departmental Valuation Officer in terms of Schedule-III of the Wealth-tax Act. (ii) In the latter case, whether the report of the Valuation Officer as on 31st March, 1988 relevant for the assessment year 1988-89 should be the basis for the assessment year 1989-90 and the subsequent three assessment years, as claimed by the assessee, or whether it should be the report as on 31st March, 1989 relevant for the assessment year 1989-90 that should constitute the basis for the assessment year 1989-90 and subsequent four years. 2. Whether any discount has to be granted on the value of the jewellery, whether worked out on the basis of the compensation amount received or on the basis of the report of the Valuation Officer? If so, what is the extent thereof? 3. Whether any of the items of jewellery is entitled for exemption under Section 5(1)(xii) of the Wealth-tax Act and if so, whether such exemption should be extended to all items, or restricted to some items only. If to be restricted, the number of items to which such exemption should be extended? 4. Whether levy of interest under Section 17B is justified? And, if so, up to what date? 6. At this stage, it may be mentioned that HEH Nawab Mir Osman Ali Khan Bahadur created on 27th January, 1952, another Trust, a supplementary Trust, in respect of 90 more items of jewellery. In both the trusts, i.e., in the main jewellery Trust and in the Supplementary Trust, a representative of the Union Government, like the Additional Secretary in the Finance Ministry was at all times a trustee. 6.1 We are not concerned in the present appeals with the valuation of the corpus of the Supplementary Jewellery Trust. We have referred to this Trust only because some proceedings mentioned by us hereinafter relate to both the trusts and the Union Government has finally purchased/ acquired the jewellery of both the Trusts. 7. The Nizam died on July 24,1967 and his eldest son also died on October 9,1970. As per the terms of the Trust Deed, the jewellery of the main trust has to be sold after the death of the eldest son of the Settler. Consequently, the trustees started making efforts to sell the jewellery soon after the death of the eldest son. In July 1972, the Trustees made an offer of sale to the Government of India by way of a memorial submitted to the then Prime Minister, Smt. Indira Gandhi. A copy of the Memorial may be seen at page 30 of the assessees's paper-book volume - V. As the Memorial gives a flavour of the past and of the intentions of the Trustees and as the said Memorial ultimately culminated in the purchase/acquisition of the jewellery by the Union Government, we deem it fit to reproduce it hereunder : Memorial Submitted to Shrimati Indira Gandhi, Prime Minister of India. By The Trustees of H.E.H., the Nizam's Trusts. His late Exalted Highness, Nawab Mir Oman Ali Khan Bahadur, the Nizam of Hyderabad, had created, among others, the following three jewellery Trusts : 1. H.E.H. the Nizam's Jewellery Trust (created on the 29th March, 1951). 2. H.E.H. the Nizam's Jewellery for Family Trust. (created on the 27th January, 1952). 3. H.E.H. the Nizam's Supplemental Jewellery Trust (created on the 28th February, 1952). Copies of the relevant Trust Deeds are annexed to this Memorial for ready reference. A copy of the Validation Act, 1950, Act No. XXIV of 1950 is also enclosed. The Trustees of these Trusts feel that if these articles of jewellery are sold in the open market in India or elsewhere, they will pass into the hands of people who are interested only in their money value and that both those collections and the articles themselves will not remain intact as a national heritage. The Trustees feel that some of these articles are of great historic and cultural value, being examples of a beautiful and disappearing traditional art of India, while other are unique pieces of jewellery and that these would be eminently suitable for preservation and display. The trustees will, therefore, greatly appreciate it if they are advised as to how, while protecting the interest of the beneficiaries, they could maintain the worthwhile part of the collection as a museum open to the public. An incidental attraction of such a development would be the great appeal such a collection would have for foreign visitors and the consequent revenue of net in substantial sums of foreign exchange which would be earned for the Nation. The Trustees, therefore, would be most grateful to hear at an early date as to whether the Government might be interested in discussing these ideas and in offering their guidance and advice, in which case the Trustees would like to try to formulate schemes for consideration. The Trustees received the price/compensation for the jewellery from the Central Government after a long-drawn process of negotiations, arbitration and court decisions, that spanned over more than two decades, on 12-1-1995. One of the main questions posed in these appeals is the question of valuation of the jewellery and the claim for discount from the value determined by the Valuation Officer for risks and hazards that beset the Trust in the course of the attempts of the trustees to sell the jewellery and to distribute the sale proceeds among the beneficiaries. For deciding the issue whether a discount diserves to be given, as claimed by the assessees, it is necessary to narrate the main events that have a bearing on the sale process during the two decades. 7.1 Most of these events have been noticed by the Apex Court in their judgment dated October 20, 1994 in IA No. 10 of 1993 in writ petition No. 1429 of 1979 reported at 1994 (4) SCALE 566. 8. The Antiquities Act, 1972 came into force after the above mentioned memorial was submitted by the Trustees to the then Prime Minister. Pursuant to the request made by the Trustees to the highest office, different expert committees have been constituted at different points of time by the Central Government to examine jewellery of the Main Trust from the angle of (a) antiquities; and (b) 'art treasures' in the light of the said enactment. Out of the 89 items, 23 items were finally declared as antiquities and 7 items were declared as 'art treasures'. 8.1 In August, 1973, the Ministry of Education and Social Welfare, Government of India set up an Expert Committee to assess and value the jewellery, which could be taken over by the Union of India keeping in view the provisions of the Antiquities Act. The jewellery was examined in the presence of the Deputy Secretary, Ministry of Education and, in August, 1975, the Government of India conveyed to the Trustees its intention to acquire 18 selected pieces of jewellery, at a mutually negotiated price. In August, 1977, a decision was taken by the Government of India to set up a Gems and Jewellery museum and another Expert Committee was constituted for making fresh selection of the jewellery. In November, 1977, the Committee inspected the jewellery and selected 41 items and classified them into three grades, approximately valued at about Rs. 16 crores. On 22-2-1978, the Director General, Archaeological Survey of India inspected the Jewellery and granted a non-antiquity certificate in respect of 65 items of jewellery out of the 89 items of jewellery inspected by him. Out of the remaining 24 items, the Director General declared 23 items as antiquities within the meaning of Section 2(1)(a) of the Antiquities Act and required some more information with regard to the most valuable items of the collections, i.e., Jacob Diamond. The Ministry of Finance sent a communication indicating therein that the Government of India was not interested in the purchase of jewellery and the Trustees were free to sell the same keeping in view the legal provisions. In other words, they were left free to sell the items, which were not declared as antiquities. 8.2 Even though the clearance of the Government of India became available in respect of. at least, some of the items, efforts of the Trustees to sell the jewellery were halted on account of a case filed by one of the many beneficiaries of the Trust, namely, Princess Fatima Fouzia, hereinafter referred to as the Princess, who threw a spanner into the sale process by filing an original petition being No. 141 /78 in the Court of Chief Judge, City Civil Court, Hyderabad, for removal of the Trustees under Section 74 of the Indian Trusts Act. The princess also sought interim relief to restrain the Trustees from selling the jewellery or finalisation of any tender in respect thereof. 8.3 On 14-3-1978, the Chief Judge passed an ex parte ad interiminjunction restraining the Trustees from finalizing any tender. On 27-3-1978, after hearing both the sides, the application for interim relief was dismissed. The order of dismissal was taken up in appeal by the Princess to the High Court of Andhra Pradesh in Civil Miscellaneous Appeal No. 147 of 1978, the High Court directed status quo to be maintained by the parties in respect of the 37 items of jewellery sought to be sold. Eventually, the High Court granted permission to one of the buyers to purchase the said 37 items for Rs. 20.25 crores, but the order of the High Court was challenged in the Supreme Court by another prospective buyer, by way of C.A. No. 1105/78. The Trustees also filed C.A. No. 1269/78, while a different buyer filed an SLP No. 3649/78. On 31 -8-1979, the Apex Court disposed of all the cases pending before it and directed that the jewellery be sold by auction to be conducted in the Supreme Court premises itself. Shri R.N. Malhotra, the then Finance Secretary, was asked to act as the Officer of the Court and to advertise the sale of the jewellery. On 20-9-1979, the Union of India filed an application before the Supreme Court seeking stay of the auction in order to enable it to take a decision whether it would allow the export of jewellery. On 21-9-1979, the Apex Court was informed by the Solicitor General that the Cabinet Committee on Political Affairs had decided that the jewellery of the Nizam were 'art treasures' and, in national interest, they should not be allowed to be taken out of the country. 8.4 On 24-10-1979, the Cabinet also decided to amend the Rules of the Antiquities Act to provide for a Committee to be set up to examine the jewellery items from the angle of 'art treasures' and, accordingly, Rule 2A was amended and also an expert committee was constituted to examine the 37 items of jewellery from the angle of 'art treasures'. This decision of the Government of India was challenged by Prince Muffakham Jah in Writ Petition No. 1429 of 1979 before the Apex Court and also by the Princess through Writ Petition No. 1185 of 1979. The Petitioners sought that the Government of India be directed to withdraw and cancel its decision dated 24-10-1979 and the Trustees be directed to give possession of 37 items of jewellery to the highest bidder in an auction of the jewellery and, if necessary, the highest bidder be also permitted to export the jewellery. The vires and validity of the Antiquities Act was also put in issue in the writ petition. Since, in the meantime, the non-antiquity certificate issued by the Director General was expiring, the Apex Court extended the period of such certificate till further orders. 8.5 On 13-2-1981, another committee headed by Smt. Pupul Jayakar was set up by the Government of India, to examine the 37 items of jewellery. The said committee recommended seven items out of the 37 to be acquired as 'art treasures'. On 17-9-1984, on an application filed by the Additional Solicitor General, the Apex Court authorized the Government to take action under Sections 19 and 20 of the Antiquities Act for acquisition of some more items of jewellery in addition to the seven items declared as 'art treasures'. 8.6 On 12-10-1984, a notification for compulsory acquisition of seven items identified as 'art treasures' was issued under Section 19(1) of the Antiquities Act. Accordingly, a notice was issued on 31-1-1986 inviting objections within a period of 30 days by the Collector, City of Bombay, who was the competent authority. On 25-8-1986, the competent authority confirmed the acquisition of the seven items as 'art treasures' under Section 19(4) of the Antiquities Act. On the strength of this order, the Director General, Archaeological Survey of India confirmed the acquisition of the seven items, vide his order dated 30-5-1986. The Trustees, thereupon, filed an application in the Apex Court seeking setting aside of the Order of the Government made under Section 19(4) of the Antiquities Act. 8.7 The said 23 items declared as antiquities were ordered to be acquired under Clause (a)(1)(iii) of Sub-section (1) of Section 2 of the Antiquities Act by Government of India, Ministry of Human Resources Development, Department of Culture's order No. 1/23/76-ANT dated 30-9-1986, which may be seen at pages 26 to 28 of the assessee's paper-book Vol. XIV. This order was confirmed by order of even number of the same Department dated 26-4-1987 and may be seen at pages 29 to 31 of the assessees' paper-book. 8.8 In the meantime, the Government of India set up another committee, under the chairmanship of Shri Sharada Prasad, which recommended that, instead of limiting the acquisition to the items which have been declared as 'art treasures', all the items of jewellery belonging to the principal Trust, along with the 84 items of jewellery belonging to the Supplementary Trust, be acquired by the Government of India, as the collection was of historic interest. Based on the report of Sharada Prasad Committee, negotiations were conducted with the Trusts for the purchase of all the 173 items of jewellery belonging to both the Trusts. As a result of the said negotiations, the Union Government and the Trustees entered into a compromise agreement, which was filed in the Apex Court on 14-2-1989. The Court was informed that the parties had agreed to settle as a package deal all the issues, relating to the jewellery of the late Nizam, which was held in the two Trusts. The parties agreed to have the disputes resolved through arbitration. 9. The compromise agreement dated 14-2-1989 referred to above between the Trustees of the Jewellery Trust and the Union of India is crucial for deciding the issues raised in these appeals. Hence the said agreement, filed at pages 27 to 29 of the assessees' paper-book Vol.-V, is reproduced below : H.E.H. The Nizam's Jewellery Trust Agreement to be filed before the Supreme Court Pending final disposal of WP No. 1429 of 1979 in the matter of Prince Muffakham Jah & Others v. Union of India, it is considered expedient by the petitioner and the respondent to reach an agreement for the purpose of settling as a 'package deal' the issues connected with the Jewellery Trusts created by the Late Nizam. Now therefore this agreement witnesseth as under : 1. This agreement shall extend to all the 89 items of Jewellery of HEH the Nizam's Jewellery Trust, 84 items of Jewellery in HEH the Nizam's Supplemental Jewellery Trust. 2. The Central Government has agreed to purchase/acquire all the items of Jewellery referred to above and the Trustees of the above Trusts have agreed to sell/dispose of the Jewellery on the understanding that a just and fair price/compensation is fixed taking into consideration all the relevant factors including the incidence of tax and is settled within three months from the date of appointment of Arbitrators. 3. It is agreed by both the parties that Arbitrators be appointed to determine finally all the pending issues relating to items of Jewellery of the aforesaid Trusts as 'package deal' encompassing all the items, price to be paid for each item and other related matters of these trusts. 4. It is hereby agreed that two Arbitrators are to be appointed, each Party nominating his own Arbitrator. The two Arbitrators shall appoint an Umpire by mutual consent at the time of entering upon this reference. However, the matter shall be referred to the Umpire only if there is a difference of opinion between the two Arbitrators. The remuneration payable to the Arbitrators and/or the Umpire and all other incidental expenses of the Arbitration shall initially by borne by both the parties in equal shares. 5. It is hereby agreed that the terms of reference for the Arbitrators be: (a) the Arbitrators shall have regard to the principles and factors prescribed under Section 20 of the Antiquities and 'art treasures' Act, 1972, in the matter of determination of price/compensation for the items agreed to be taken over by the Central Government, (b) In the event of the Central Government not acquiring all the items as agreed then, the items to be acquired by the Central Government shall be decided upon by mutual consent failing which the differences shall be referred to the Arbitrators whose decision shall be final and binding on both the parties. It is further agreed that the Trustees of the above Trusts shall have the right to export for sale all the items not acquired by the Central Government at that time, subject to the existing laws relating thereto and that the Arbitrators shall give appropriate directions to the concerned authorities for this purpose. (c) The Arbitrators shall decide the apportionment of the fees and expenses, which may be incurred in respect of the Arbitration and the Award, (d) The Arbitrators shall decide on all the issues specified in Clauses 1, 2, 3 and 5 above in accordance with law. The parties shall implement the Award of the Arbitrators within three months from the date of the Award. Both parties shall take all reasonable steps to implement the Award expeditiously. 6. The Central Government shall record necessary permits and facilities for the purpose of facilitating the various procedures under Clause (c) of Section 20(1) of Antiquities and Art Treasures Act, 1972. 7. The Arbitrators shall report the Award to this Hon'ble Court for appropriate orders and also for adjudication of any disputes relating to the Award under the Arbitration Act, 1940. (Sd) J.B. Dadachanji (Sd) Laxrni P. Sihare14/2/89 13/2/89 Director General Advocate National Museum New Delhi Janpath, New Delhi. 9.1 On 25-4-1989, the Apex Court accepted the above compromise agreement and directed the Writ Petitions pending to be disposed off in terms of the said agreement. The said order of the Apex Court dated 25-4-1989 reads as under: IN THE SUPRPEME COURT OF INDIA CIVIL ORIGINAL/APPELLATE JURISDICTION WRIT PETITION NOS. 1429, 1185 OF 1979 & CIVIL APPEAL NOS. 1105, 1245 & 1269 OF 1978 Prince Muffakham Jah & Ors. M/s. Shanti Vijay & Co. Appellants Versus Union of India & Ors. Princess Fatima Fransis & Ors. Respondents ORDER This group of writ petitions and civil appeals has been settled between the parties and an application for compromise duly signed by appellants and respondents and their case has been filed. We direct the writ petitions and the Civil appeals to be disposed of in terms of the compromise and the petition of compromise shall form part of the Order. Advocate for Fatima Fransia states that she has disputes pending before the suit is recorded. Counsel for the parties in these matters have explained that the lady is one of the several beneficiaries in respect of the trust assets and it would be open to represent her stand before the Board of Arbitrators to be appointed under the terms of settlement. We are satisfy this group of cases should be disposed of on the basis of the terms and Princess Fatima Fransia who is not a party to these proceedings should remain content with the right of the representation before the Arbitrators as far as these cases are concerned. (Ranganath Misra), CJ.
New Delhi April 25, 1989 (M.N. Venkatachalaiah), J.
10. In terms of the above compromise agreement, after about five months, the Government of India, appointed Justice H.C. Goel, Judge, of the Delhi High Court, as its arbitrator and the Trustees appointed Justice V. Khalid, Retired Judge, Supreme Court as their Arbitrator. Both the Arbitrators entered upon the reference on 20th September, 1989. There was difference of opinion between the two Arbitrators and so, in terms of Compromise Agreement, certain questions on which there was divergence of opinion between the two arbitrators were referred to the Umpire, Mr. Justice A.N. Sen, retired Judge of the Supreme Court. After the award of the Umpire on the questions referred to him was received and the matter was reported to the Supreme Court, the Hon'ble Supreme Court directed that the entire matter disputed by the parties should be dealt with by the Umpire and accordingly, the entire matter was referred to the Umpire for being dealt with by him. The principal question which fell for determination of the Umpire was the fixation of a just and fair price of the jewellery agreed to be sold by the Trusts and purchased by the Union of India in accordance with the provisions contained in the Clause (2) of the Agreement. In determining the just and fair price, the other relevant provisions contained in the agreement were required to be kept in view by the Umpire. After the matter was remitted to him, the Umpire directed the Trusts as well as the Union of India to file the statement of valuation. During the pendency of the proceedings before the Umpire, an application was made by the Union of India questioning the ownership of the jewellery by the Nizam and seeking orders to the effect that the scope of arbitration proceedings be limited to the items of jewellery which were the Trust's property and not to include those which were the State's property. The application was based on the plea that some of the items of the jewellery comprised in the Principal trust and the Supplemental Trust did not belong to the Nizam but vested in the nation after the merger of the Hyderabad State with the Union of India and therefore, the Nizam had no right to execute any Trust in respect of those items of jewellery and, therefore, the Trust could not claim any compensation for the said items of jewellery. The said application was dismissed by the Apex Court as withdrawn.
10.1 However, the same pleas were raised again before the Umpire. The Umpire gave his award on 27-7-1991 and a copy of the Award may be seen at Vol.-VI of the assessees' naper-book. This volume consists of 66 pages, which is exclusively the award. On the ownership of the jewellery and the Nizam's right to create the Trust in question, the Umpire held as under :-
In my opinion, there is considerable force in the contentions raised on behalf of the Trust and this application before me at this stage cannot be entertained. Apart from the conduct of the parties and particularly of the Union of India on which very justifiable emphasis has been laid on behalf of the Trust, the Order of dismissal by the Supreme Court of the application making more or less the same prayer, to my mind, concludes the question. The newspaper report containing the alleged observation of the Chief Justice referred to and relied on by the Union of India cannot be taken into consideration and I have to proceed on the basis of the Orders formally passed and recorded by the Supreme Court. The Orders passed by the Supreme Court the original one and the subsequently modified on which have been quoted earlier do not give any liberty or authority to the Union to move such application before me. The first Order passed by the Supreme Court indicates that such an application could not be entertained at this stage and was accordingly dismissed. Though this Order at the request of the Union was subsequently modified and the Order finally passed recorded "that the application was dismissed as withdrawn", this does not, in my opinion, improve the matter in any way. Dismissal of the application as withdrawn without any liberty being given the Union of India to renew the said prayer does not entitle the Union of India to move the application afresh before the Court or before me as the Umpire and the dismissal of the application becomes final and conclusive. I am in any event in this reference bound by the terms of the arbitration agreement between the parties and Umpire does not have any power or jurisdiction to limit or modify the scope of the arbitration agreement to which the parties have entered. The arbitration agreement proceeds clearly on the basis that all the items of jewellery comprised in the said two Trusts belong to the said two Trusts and the Umpire must proceed on the basis of this arbitration agreement. The Umpire derives his jurisdiction, authority and power on the basis of the arbitration agreement entered into by the parties and the Order passed by the Court and the Umpire cannot sit in judgment over the same and cannot pass any Order which will have the effect of modifying or altering or interfering with the arbitration agreement and the Order passed by the Supreme Court on the basis thereof. Accordingly, I hold that this application on behalf of the Union of India is not maintainable and must therefore be dismissed.
Regarding the valuation of the jewellery, the Trustees filed before the Umpire a statement of claim, relying on a valuation made by Sothebys', an International Auctioneer and claimed at Rs. 1192.32 crores. They also relied on a similar valuation given by another International Auctioneers, 'Christies' and an Indian Valuer, Shri Vithaldas. Union of India, on the other hand, relied on the report given by Jayant Chowlera, Valuation Officer of the Income-tax department and assessed the value at Rs. 65.25 crores. The extent of difference between the rival claims was, of course, phenomenal.
10.2 The Umpire rejected the claim of the Trustees based upon the valuations of Sothebys and Christies, as applicable only to the international market, which was not available to the Trustees. He determined the value of the 173 items of jewellery of both the trusts at Rs. 225.35 crores and the relevant observations of the Umpire and the other terms of the award are as under :
It is of interest to note that there is a wide gulf of difference in the valuation of the items of valuers on behalf of the Trusts, there is considerable divergence. This is indeed interesting that in respect of certain items of jewellery the Valuation made by the Union of India is higher than the valuation made by the valuers on behalf of the Trusts. Valuation has been made by the valuers on the behalf of the Trusts. Valuation has been made by the valuers on the basis of their own expertise, skill and experiences. Though sought to be based on objectivity on the basis of special skill and experience, yet there is and, naturally bound to be, an element of subjective reaction. Christies's have vast experience and enjoy international reputation as valuers and questioners. The oral evidence of Mr. Curlel in support of the valuation made by Christie's is also straight forward. It is however to be noted that Christie's valuation proceeds mainly on the basis of international market and the price the various items of jewellery are likely to fetch if sold in an international auction freely without any kind of condition regarding export and possession. Christie's valuation also includes certain percentage by way of premium in respect of the very many items, According to Mr. Curiel, Nizam is a Legendary figure Outside India and the fact that the collection, which apart from being fare and unique, had belonged to the Nizam was likely to boost the price in a free sale in an international auction. Christie's valuation has been manifestly influenced by the consideration of free sale of the items of jewellery in an international auction and also by the fact that the collection belonged to the Nizam of Hyderabad. Christie's in valuing has not taken into consideration the provisions of the Antiquities and art treasures Act, 1972 and/or the various other restriction imposed by Law in the matter of trading in jewellery and exporting items of jewellery. The valuation made by Vithaldas is also clearly influenced by the consideration of free sale in an international market and is further influenced by his taking into consideration the high value of Parab diamonds in Arab markets while determining the valuation of items of jewellery with Parab diamonds set in them. It has also to be borne in mind that the price fetched at an international auction does not necessarily represent just and fair price and indeed may often by fancy price.
The valuation made by Chowlera on behalf of the Union of India was on the basis of the value of these items of jewellery for wealth tax purposes. Mr. Chowlera himself has admitted that his valuation which was accepted by the parties for wealth tax purposes was only for wealth tax purposes and was therefore on the law side. In source of his evidence, he has also admitted that there are errors in the valuation made by him and as the valuation was for wealth tax purposes he had also not considered a particular item to be real alexandrite but an imitation one and if it were real alexandrite the value would be much more as real alexandrite is vary rate and valuable it appears that the Union of India itself has considered the valuation made by Mr. Chowlera as rather law and has itself added to the said valuation 20% more on account of aesthetiction in price. The addition of 20% on account of aesthetic value and the further addition of 20% for escalation in price appear to be arbitrary. There is a huge quantity of gold in many items of jewellery. The hike in the price of gold is indeed huge. The escalation in price should further he considered after taking into consideration the increased valuation on account of aesthetic value. The valuation made for wealth tax purposes cannot therefore determine the fair and just value of these items of jewellery. I may also add that the wealth tax paid on the basis of valuation made was in discharge of a legal obligation and the wealth tax so paid on the basis of the valuation so made cannot be claimed back from the Union. Payment of wealth tax is a legal liability. It does not appear that the delay in disposal of the jewellery is entirely due to defect or latches on the part of the Governments. Payment of tax lawfully imposed in discharge of a legal liability cannot be recovered normally and not in any events in the facts and circumstances of this case. Tax that may be payable in respect of my particular item may not be claimed to be added to the price in determining the just and fair value of the item concerned.
From amongst these materials it becomes my duty to determine the just and fair value of these items of jewellery bearing in mind the provisions of the agreement entered into by the parties and the Order passed by the Supreme Court.
I have given very anxious consideration to all the materials which have been placed before me, namely, the statement of claim and counter-statement, the various charts showing the valuation of the items of jewellery, the comments and counter-comments of the parties thereon, the affidavit filed, the oral evidence adduced on behalf of the parties and also the documentary evidence produced and the submissions made on behalf of the parties-oral and in writing. I have also carefully noted and borne in mind the arbitration agreement between the parties which enjoins me : (1) to fix the just and fair price/compensation taking into consideration all the relevant factors including the includense of taxes : (2) to determine finally all the pending issued xelpting to the items of jewellery as "package deals" encompassing all the items. Price to be paid for each item and other related matters of the Trust" : (3) to have regard to the principles and factors prescribed under Section 20 of the Antiquities and Art-treasure Act, 1972 in the matter of determination of price/compensation for the items.
Considering all the materials on record and bearing in mind the provisions of the arbitration agreement I am of the opinion that the value of 173 items of jewellery comprised in the two trusts, is Rs. 225,37,33,959-00 as a Package deal and the price to be paid for each item is shown in the Schedule hereto annexed. The Schedule contains the price of all the 173 items and the respective price fixed for each item and the total sum of Rs. 225,37,33,959-00.
Bearing in mind the terms of the Arbitration agreement and taking into consideration every aspect of the matter I make the following Award :-
The Central Government will pay to the Trusts the sum of Rs. 225,37,33,959.00 which is fixed as the just and fair price/ compensation of the 173 items of jewellery within (eight) weeks from the date of the Award :
1. On receipt of the said sum of Rs. 225,37,33,959-00, the trustees will make over possession of the said 173 items of jewellery to the Central Government which will then becomes the owner of the said 173 items of jewellery.
2. If the Central Government be not willing or agreeable to purchase/ acquire all the 173 items of jewellery by paying the said sum of Rs. 225,37,33,959-00 as just and fair price/compensation within the stipulated period of 8(eight) weeks and the Central Government intends to exercise its option of acquiring some of the items on terms of the option given to the Central Government under Clause 5(b) of the Agreement, the Central Government within 6(six) weeks from the date of the Award will inforce the Trustees accordingly and the Central Government will intimate to the Trustees the Particular items the Central Government wishes to purchases/acquire.
3. In the event of the Central Government intimating to the trustees the items of jewellery the Central Government wishes to purchase/acquire in terms of the option under Clause 5(b) the matter may be decided by mutual consent as contemplated in the Agreement and such decision by mutual consent is to be arrived at within 2(two) weeks thereafter.
4. If the matter be not decided by mutual consent within the said period of 2(two) weeks the difference between the parties shall be referred to arbitration in terms of Clause 5(b) of the Agreement.
5. In the event of the Central Government not purchasing/acquiring all the 173 items of jewellery in terms of the Award and exercising its option with regard to some of the items of jewellery, the other items in respect of which no such option is exercised by the Central Government will be available to the Trustees for sale and the Trustees shall have the right to export for sale of the items not acquired/purchased by the Central Government at the time.
6. With regard to items the Central Government chooses to acquire by exercising its option in terms of Clause 5(b) and with regard to which dispute may be raised for lack of mutual agreement, such disputes will be resolved by arbitration in terms of Clause 5(b) of the Agreement and appropriate Orders or Awards may be filed in the arbitration with regard to these items which however will not be available to the Trustees for sale till the disputes are resolved. Excepting these items which may form the subject-matter of any dispute between the parties in terms of Clause 5(b), the Trustees will be free to sell all the other items and will also have the right to export them for sale.
7. In the event of Trustees exporting for sale any or all the items not acquired by the Central Government the appropriate authorities will give all necessary facilities to the Trustees to export such items subject to existing laws. All appropriate authorities concerned including the Central Government. The Reserve Bank of India, the Customs and Tax authorities are accordingly so directed.
8. In the event of the Central Government exercising its option under Clause 5(b) and any dispute arising inconsequence thereof the dispute will be referred to arbitration within 10(ten) weeks from the date of the Award and the dispute will be decided in terms of Clause 5(b).
9. In the event of the Central Government acquiring/purchasing all the 173 items of jewellery in terms of this Award each party will pay and bear its own costs and all costs and charges including the remuneration paid to the Arbitrator/Umpire and other incidental expenses of the arbitration shall be borne by the parties in equal share.
10. In the event of the Central Government not acquiring all the 173 items of jewellery in terms of this Award the Central Government will pay to the Trustees a sum of Rs. 1,50,000-00 only towards the cost of the arbitration proceeding. This Order for costs is made in view of the fact that the Union in course of the proceeding has reiterated that the Union intends to buy the entire lot and the reference has continued for determination of the just and fair value of the 173 items of jewellery.
10.3 The above award dated 27th July, 1991 was filed in the Supreme Court. The Trustees did not have a smooth sail, even after the award. Firstly, there was an arithmetical error to the tune of Rs. 45 crores in the compensation/price of Rs. 225.35 crores awarded by the Umpire and so, the price/compensation to be paid was scaled down to Rs. 180.37 crores. Secondly, the legitimacy and the ownership of the jewellery by the Nizam haunted the trustees even after the Award. There was an intervention application in public interest, being IA No. 10 of 1991 in writ petition No. 1429 of 1979. The interveners which included Dr. L.P. Sihare, a retired Director General of National Museum sought to-
(i) restrain the Union of India from making any payment of the amount of Rs. 180 crores to the Nizam of Hyderabad for the purchase of the Jacob Diamond and priceless jewels which, according to him, are State property;
(ii) in the alternative to direct the recipients of the said sum of Rs. 180 crores to deposit in a separate Bank account or in fixed deposit;
(iii) to appoint a Commissioner to investigate into the true ownership of the Jacob Diamond and the other priceless jewels claimed to be the private property of the Nizam of Hyderabad and if found to be State property the Union of India should acquire and take possession of the same without any payment whatsoever;
(iv) declare the Jacob Diamond as private property of Nizam of Hyderabad, as State property;
(v) declare the priceless jewels as Regalia and antiquities and 'art treasures.
It was not simply the said interveners that sought to stall the implementation of the award. The Union of India also filed 1A No. 8 of 1991 on 29-8-1991, being a petition under Section 15/16 of the Arbitration Act, questioning the validity and correctness of the Award of the Umpire, with the following prayer :
(i) Set aside the Award of the Ld. Umpire dated 27th July, 1991 and remit the same back to him for a fresh determination of the values;
(ii) Stay the operation of the Award of the Ld. Umpire till the disposal of this petition.
The Trustees have also filed a petition under Section 15/16 of the Arbitration Act, 1940, being IA No. 9 of 1991 on 6-9-1991 praying, inter alia, to Remit the Award of the Hon'ble Umpire dated 27th July, 1991 for reconsideration under Section 16 of the Arbitration Act on the grounds submitted herein;
The Apex Court dismissed IA No. 10 of 1993 filed by Dr. L.P. Sihare and others vide its order dated 10-2-1994 and gave reasons therefor vide its judgment dated 20-10-1994 [1994 (4) SCALE 566] and it may be seen at pages 139 to 149 of the assessee's paper-book, Vol. I. The Apex Court held that the applicants had no locus standi to seek intervention and that too at the belated stage and also that there was no public interest involved and also that Dr. L.P. Sihare the intervener participated throughout the arbitration proceedings and also that the ownership of the jewellery stood settled in a white paper on the Indian States brought out by the Government of India.
10.4 It is the claim of the assessee before us that till the above orders of the Apex Court dated 10-2-1994 and 20-10-1994 came to be passed, the entire question relating to the ownership of the jewellery was in doubt and so the entire matter was subject to grave risks and hazards.
10.5 In terms of the compromise agreement mentioned hereinbefore, the terms of reference to arbitration required the award of the Umpire to be reported to the Supreme Court for appropriate orders. The Supreme Court passed the appropriate orders on the award, finally, vide its judgment dated 20-10-1994, 1994(4) SCALE 571, in which it also disposed off the IA Nos. 8 and 9 of 1993 in WP No. 1429 of 1979. The Court observed that the arbitration award given by the Umpire in the instant case was required to be honoured and accepted by the parties, as the essence of the private arbitration was to honour the decision of the chosen nominees of the parties and abide by their decision. However, the award could not become operative immediately on its making, pending its report to the Supreme Court and the orders of the Supreme Court thereon. So, the Supreme Court rejected the plea of the Trustees that the Government of India lost its right to purchase the jewellery in terms of the award because of the undue delay on its part. The relevant observations of the Apex Court in this context are as under :
15. The arbitration Award given by the Umpire in the instant case was required to be honoured and accepted by the parties. The award however, could not become operative immediately on the making of the award or even within the period of 8 weeks as stipulated in Clause (1) of the Award, because of the stipulation in Clause (7) of the agreement, by which the disputes had been referred for arbitration to the Umpire. Clause (7) of the agreement provided :
The Arbitrators shall report the Award to this Hon'ble Court for appropriate orders and also for adjudication of any disputes relating to the Award under the Arbitration Act, 1940;
The above Clause of the agreement/terms of reference required the Award to be reported to this Court for appropriate orders and also for adjudication of the disputes relating to the Award if any under the Arbitration Act, 1940. The 'Award' could therefore, become capable of implementation only after appropriate orders were made by this Court. Since, I.A. 8 and I.A. 9 filed by the parties were pending adjudication in this Court, the Award could not become enforceable till the same were adjudicated and appropriate orders made by this Court. The prescription of the period of 8 weeks in Clause (1) of the Award has, of necessity, to be read as subject to Clause (7) of the agreement. Since, the validity and correctness of the award was an issue wide open before this Court after the Award came to be reported to this Court for appropriate orders, the Award had remained almost in the state of suspended animation. We, therefore, cannot accept the submission of Mr. Sanghi that on account of the failure of the Union of India to purchase 173 items of jewellery within the period of 8 weeks as prescribed by Clause (1) of the Award, Clauses (6) and (8) of the Award had become operative and that the Central Government had lost the option to purchase 173 items of jewellery for the price determined by the Umpire. The submission of Mr. Sanghi that the Union of India could not avoid compliance with the Award by merely filing LA. 8/91 in this Court overlooks the fact that it was not only the Union of India which had questioned the correctness of the Award but also the Trusts which had filed LA. 9/91 seeking remission of the Award. The enforceability of the Award was, in view of Clause (7) of the agreement contingent upon the orders of this Court on those applications. We, therefore, hold that Clauses (6) and (8) of the Award did not come into operation, after the expiry of the period prescribed under Clause (1) of the Award, automatically and that till the adjudication of LA. 8 and LA. 9, the Award could not be said to be capable of implementation and enforceable.
The question of purchase/acquisition of jewellery has been pending since 1972 when the Trustees made their first offer to the Prime Minister of India to purchase the items of jewellery. More than two decades have gone by. This Court directed the resolution of the disputes through arbitration to avoid the proverbial law's delays through litigation. The parties had also agreed to settle all issues relating to the jewellery through arbitration. The provision for further arbitration would frustrate the objective which was sought to be achieved by the parties and sanctioned by this Court. The matter having reached us again after protracted proceedings before the arbitrators and the Umpire needs to be given a quietus and finality now. In our opinion, the Central Government should have the right of partial purchase of the jewellery, at the price as determined for each item by the Umpire in the schedule of the Award. The Central Government may exercise the option of partial purchase, on the determined price, by intimatiig to the Trustees, the identified items of jewellery which the Central Government wishes to purchase within a period of one month from the date of this order. On such an intimation being given to the Trustees the other items of jewellery in respect of which the Central Government does not exercise the option to purchase, shall become available to the Trustees and they shall be free to sell the same and if necessary even export the same for sale, subject to the provisions for the existing law. After exercising the option within the period of the one month from the date of this order, the Central Government will pay to the Trustees the total price of the selected items of jewellery at the determined price, in lump-sum, by 31-12-1994. The Award, therefore, needs to be modified accordingly.
** ** **
22. Clause (10) of the Award also requires to be modified to include the partial purchase of the items of jewellery.
23. However, in all other respects we accept the Award and place on record our deep sense of appreciation to the learned Arbitrators and the Umpire for assisting this Court in resolving the controversy.
24. With the modifications as discussed above the Award of the Umpire shall now read as follows :
1. The Central Government will pay to the Trusts the sum of Rs. 180,37,33,959.00 which is fixed as the just and fair price/ compensation of the 173 items of jewellery till 31-12-1994.
2. On receipt of the said sum of Rs. 180,37,33,959.00, the Trustees will make over possession of the said 173 items of jewellery to the Central Government which will then become the owner of the said 173 items of jewellery.
3. If the Central Government be not willing or agreeable to purchase/ acquire all the 173 items of jewellery by paying the said sum of Rs. 180,37,33,959.00 as just and fair price/compensation till 31-12-1994 and the Central Government intends to exercise its option of acquiring, some of the items in terms of the option given to the Central Government under Clause 5(b) of the Agreement, the Central Government shall within one month from the date of the order of this Court inform the Trustees accordingly and the Central Government will intimate to the Trustees the particular items of jewellery which the Central Government wishes to purchase/acquire.
4. On the intimation by the Central Government of the selected items of jewellery within one month of the date of the order of this Court, the remaining items of jewellery in respect of which the option has not been exercised by the Central Government, shall be available to the Trustees for sale and if necessary by export also subject to the existing law.
5. The Central Government shall pay to the Trustee the price calculated for each item selected by it for purchase, on the basis of the price determined for those items in the schedule to the Award of the Umpire on or before 31-12-1994.
6. In the event of Trustees exporting for sale any or all the items not acquired by the Central Government the appropriate authorities will give all necessary facilities to the Trustees to export such items subject to existing laws. All appropriate authorities concerned including the Central Government, the Reserve Bank of India, the Customs and Tax authorities are accordingly so directed.
7. In the event of the Central Government acquiring/purchasing all or the selected items out of the 173 items of jewellery each party will pay and bear its own costs and all costs and charges including the remuneration paid to the Arbitrator/Umpire and other incidental expenses of the arbitration shall be borne by the parties in equal shares.
8. In the event of the Central Government not acquiring all the 173 items of jewellery in terms of the Award the Central Government will pay to the Trustees a sum of Rs. 1,50,000.00 only towards the cost of the arbitration proceeding. This Order for costs is made in view of the fact that the Union in course of the proceedings before the Umpire has reiterated that the Union intends to buy the entire lot and the reference has continued for determination of the just and fair value of the 173 items of jewellery.
25. Before parting with the order, we would also like to clarify that in the event the items of jewellery, all or selected items, are not purchased by the Central Government as per the modified Award made by us, the rights in the items of jewellery shall stand crystallised in favour of the Trustees and they shall be entitled to deal with the jewellery in any manner they should choose, subject, however, to the provisions of the existing law/laws.
11. Consequent to the above award, the assessees received an amount of Rs. 180.37 crores for the jewellery of both the Trusts taken over by the Central Government. The amount relatable to the jewellery of the main Trust with which we are concerned was Rs. 171 crores.
11.1 The award created problems for the assessees concerned in these appeals inasmuch as the Assessing Officer sought to value the beneficial interests of these assessees in the trust, with reference to the awarded amount, ignoring their plea that the beneficial interest should be worked out in terms of Schedule-III of the Wealth-tax Act.
11.2 The Department referred to the claims made by the assessees before the Umpire in the course of the hearing before the Tribunal in the context of appeals for the assessment years 1982-83 to 1986-87, in the case reported at WTO v. Trustees of H.E.H. the Nizam's Jewellery Trust[1995] 35 ITD 402 (Hyd.). However, the reference was made after the hearing was over and the Tribunal in the said decision rejected the plea of the Department with the following remarks :
76. These group cases relating to the H.E.H. Nizam's Trust were posted for final hearing before us on the 8th day of February, 1990. After the hearing was concluded, the learned D.R. brought to our notice an article said to have been reported in "India Today" issue dated 15th February, 1990. The article was captioned "The Nizam's Jewels Treasure Hunt - Waiting to encash a legacy". A xerox copy of the same was filed before us. Since it was placed before us when the hearing was concluded we decline to comment on the same.
12. For all the years up to assessment year 1986-87, assessments were made with reference to the value of the corpus of the Trust as determined by the Departmental Valuation Officer, Shri Chowlera. The valuation made by the said Valuation Officer for the assessment years 1980-81 to 1986-87 were as under :
Wealth-tax assessment Value of jewellery year (Rs. in crores) 1980-81 32.43 1981-82 32.43 1982-83 33.30 1983-84 34.18 1984-85 35.24 1985-86 35.24 1986-87 35.24 Similar was the valuation adopted for the wealth-tax assessments for the assessment years 1987-88 and 1988-89. They were as under :
1987-88 37 89 crores 1988-89 41.72 crores
For the assessment year 1989-90, in a report given after the completion of the assessment, the Valuation Officer fixed the value at Rs. 56 crores. We shall indicate the position for assessment year 1989-90 hereinafter.
13. After the receipt of the compensation amount as per the modified award, the Assessing Officer sought to reopen the assessments for the assessment years 1984-85 to 1989-90 on the ground that the corpus of the Trust in question had to be valued as per the compensation amount received and that as the assessments had been completed with reference to the relevant reports of the Valuation Officer, there was under-assess-ment of wealth.
13.1 The matter was then taken to the Hon'ble A.P. High Court under its writ jurisdiction and the judgment of the Hon'ble High Court on this issue is reported as HEH Nizam's Jewellery Trust v. Asstt. CWT [1997] 226 ITR 111 (AP). The Hon'ble High Court observed, as per the relevant portion of the head-note, as under :
A reading of Section 16A of the Wealth-tax Act, 1957, shows that the entire procedure of valuation after enquiry, which was earlier done by the Wealth-tax Officer was transferred to the exclusive jurisdiction of the Valuation Officer. In other words a part of the assessment which was the valuation of the asset, which was being done by the Assessing Officer, was transferred to the exclusive jurisdiction of the Valuation Officer because under Sub-section (6) of Section 16A the assessment has to be completed in conformity with the valuation of the Valuation Officer. The valuation made by the Valuation Officer is binding on him and that part of the assessment which was in conformity with the Valuation Officer's estimate, cannot be revised by the Wealth-tax Officer. A harmonious reading of Section 16A and Section 17 shows that the matter of valuation of an asset is within the exclusive jurisdiction of the Valuation Officer subject only to appeal by the assessee and, therefore, cannot be the subject of reassessment under Section 17.
It is evident from the above decision of the Hon'ble A.P. High Court that for wealth-tax purposes, the beneficial interest of the assessees herein have to be determined as per Schedule-III of the Wealth-tax Act and also that the valuation given by the Valuation Officer is binding on the Assessing Officer. We have to keep this aspect of the matter in mind while examining the rival claims of the parties before us.
14. It may also be noticed that the facts relating the various litigations given by us hereinabove have been noticed largely either by the Tribunal in its order reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) or by the Hon'ble A.P. High Court in the decision reported at H.E.H. Nizam's Jewellery Trust's case (supra) in the above mentioned decisions or as already mentioned by the Apex Court in its judgment dated 20-10-1994 (supra).
15. As we have already mentioned, for the assessment years in question before us, assessments have been made directly on the beneficiaries and their beneficial interest in the jewellery trust has been determined, not on the basis of the report of the valuation officer, as required under Schedule III of the Wealth-tax Act, but with reference to the compensation amount of Rs. 171 crores received on 12th January, 1995. Actually, no reference to the valuation officer was made by the Assessing Officer while completing the assessments for the assessment years 1989-90 to 1992-93. Such reference was made only after the Trustees received the compensation in 1995.
16. For the wealth-tax assessment year 1989-90, some of the appeals arise out of the re-assessments made by the Assessing Officer consequent upon the order of the CIT(A) setting aside the original assessments. The other appeals arise out of the first assessments. In the original assessments, which were set aside by the CWT(A), the interest of the beneficiaries in the Trust was adopted by the Assessing Officer provisionally based on the value determined for the wealth-tax assessment year 1988-89 by the valuation officer and the actuary. In a typical case, i.e. in the case of Nawab Mir Jaffar Ali Khan, in his order dated 31-3-1992, the Assessing Officer included the beneficial interest in the jewellery trust with the following remarks :
1. Proportionate share of corpus in Family Trust through father is provisionally ado-
pted subject to revi-
sion later on Rs. 3,00,000
2. Reminder interest
in Family Trust through
mother provisionally
adopted subject to revi-
sion later on Rs. 50,000
3 ...
4 ...
5 ...
6. Proportionate share
of corpus in Jewellery
Trust is provisionally
adopted subject to Rev-
ision later on Rs. 16,30,426
Rs. 25,14,971
It appears that the above amount of Rs. 16,30,426 had been arrived at on the basis of the report of the Valuation Officer for the assessment year 1988-89 and when the Assessing Officer adopted the said interest provisionally, what he meant was that it was subject to revision on receipt of the actuary's report which is the second step in the valuation of beneficial interest referred to by us hereinbefore. In other words, the valuation of the corpus which was the first step in the valuation of the beneficial interest was not provisional. This is evident from the remarks of the Assessing Officer in his order of reassessment dated 30-3-1995 in the same case, to which we shall refer presently.
16.1 On appeal, the CWT(A) act aside the order of the Assessing Officer dated 31-3-1992, vide his order dated 19-3-1993, in one of the assessees case with the following remarks :
2. The appellant has raised a ground that the additions made by the Assessing Officer are provisional and they are subject to revision lateron. The appellant's authorized representative submitted that the Assessing Officer is not correct in adopting provisional figures. In view of this the Assessing Officer is directed to adopt correct figures after giving an opportunity to the appellant. He may also consider the objections of the appellant raised before me.
It may be observed that the CWT(A) did not give any particular directions as to how the correct value of the interest should be arrived at.
16.2 In the orders passed by the Assessing Officer to give effect to the order of the CWT(A), as in all other cases where the assessments are made for the first time, the Assessing Officer worked out the value of the beneficial interest on the basis of the compensation awarded by the Umpire vide his award dated 27-7-1991, which was ultimately approved, with some modifications, by the Supreme Court vide its order dated 20-10-1994. The Assessing Officer completed the re-assessments in the typical case of Nb. Jaffaar Ali Khan, vide his order dated 30-3-1995, with the following remarks :
Asst. was completed on 31-3-1992 adopting the assessee's proportionate share of corpus in the Jewellery trust at Rs. 16,30,426 provisionally subject to revision on receipt of Actuary's report. In appeal the CWT(A) directed the Assessing Officer to adopt the correct figures after giving an opportunity to the assessee.
In response to opportunity afforded, Sri C. Ravindra A.R. appeared. For the reasons discussion in the annexure to the asst. order the assessee's proportionate share of corpus in the Jewellery Trust is adopted at Rs. 54,37,338 Value of assessee's proportionate share of Corpus in Jewellery Trust as above Rs. 54,37,338 We shall presently refer to the contents of the annexure noted above, which is common to all the cases for the assessment year 1989-90. It is sufficient to note at this stage that the assessees seem to have lost substantially by filing an appeal before the CWT(A). Even though the figure of Rs. 16,13,426 adopted by the Assessing Officer in the original assessment in the above case was only a provisional figure, it was subject only to some minor modification on the basis of the Actuary's report. When there was no dispute about the valuation of the corpus, the modification to be effected on the basis of the Actuary's report for the concerned assessment year could only be of minor nature. Such modification can never result in enhancement of the interest to the extent of Rs. 54,37,338 adopted by the Assessing Officer in the re-assessment. The re-assessment resulted in such enhancement because the Assessing Officer proceeded on the basis of compensation received and not on the basis of the report of the Valuation Officer in terms of Schedule III to the Wealth-tax Act. So it appears that the assessee had much to loose by filing an appeal against the original assessment before the CWT(A). Even though the CWT(A) did not purport to make any enhancement as such and his direction was only to adopt the correct value.
16.3 It may be noticed that in all the re-assessments and the first assessments which gave rise to the present appeals before us, the beneficial interest was not worked out in terms of the schedule III of the Wealth-tax Act and it was based only on the award of the Umpire, as mentioned hereinbefore.
16.4 For the wealth-tax assessment years 1990-91 and 1992-93, the orders were passed by the Assessing Officer adopting the beneficial interest of the assessees on the basis of the compensation received. For all the years, the Assessing Officer rejected the claim of the assessee that, on the relevant valuation dates, the award was only a remote possibility and so cannot be the basis for arriving at the assessable wealth on the relevant valuation dates. The Assessing Officer gave detailed reasons for all the years from 1989-90 to 1992-93, in separate annexures to the assessment orders, which may be seen at the pages 179 to 197 of the assessees' paper-book Volume-I. A specimen of such annexures for assessment year 1989-90 is reproduced below for ready reference :
ANNEXURE TO THE ASSESSMENT ORDER WEALTH-TAX ASSESSMENT YEAR 1989-90 BENEFICIAL INTEREST IN HEH THE NIZAM'S JEWELLERY TRUST The value of the principal fund of the Jewellery trust has been returned at Rs. 20.86 crores in the returns filed by the trustees in their representative capacity. The trustees have discounted the value of the Jewellery by 50%. During the course of the proceedings, it has been claimed that the various contentions raised in the letter dated 17-3-1995 filed by the trustees in connection with assessments for subsequent assessment years should be taken into consideration and the value of the items of the Jewellery of the Jewellery trust should be taken as Nil.
It was contended in the said letter :
that the facts and circumstances prevailing on the valuation date have been explained by way of a detailed note forming part of the return and also that the problems and uncertainties have been copiously and extensively recorded in the Order of the Income-tax Appellate Tribunal dated 12th June, 1990 reported in 35 ITD 402 passed for the Wealth-tax assessment years 1980-81 to 1986-87 and that the Hon'ble Tribunal followed the order reported in 35 ITD 402 for the subsequent assessment years as there was virtually no change in the facts and circumstances of the case.
that the trustees were not even in a position to open the lockers of the Hong Kong & Shanghai Banking Corporation, Bombay, wherein the items of Jewellery were kept for safe Custody and that the finance secretary, GOI, who was the chairman of the trust at the relevant time, was holding the key to the lockers. In addition, the trustees did not have access to the Jewellery in view of the prohibitory orders issued by the Tax Department. It was therefore contended that the trustees were not in a position to sell any of the items of the Jewellery on the valuation date relevant for this assessment year.
that Sri Jayant N. Chowlera the Departmental Valuer fixed the values of the Jewellery of the Jewellery trust as on 31-3-1988 at Rs. 41,72,02,575 and that the matter of valuation of the items of the Jewellery of the trust for the subsequent assessment years was not referred till recently under Section 16A of the Wealth-tax Act, 1957. It has been further contended that Sri Jayant N. Chowlera filed an affidavit before the umpire on 16-4-1991 in which he affirmed that he had submitted a Valuation report for the Wealth Tax assessment year 1989-90 valuing the items of HEH the Nizam's Jewellery Trust and HEH the Nizam's Supplemental Jewellery trust at Rs. 46.00 crores and that he estimated 20% enhancement over Rs. 46.00 crores for appreciation in price and another 20% over Rs. 46.00 crores for aesthetic and artistic value of all these items. While determining the total valuation of Rs. 65.25 crores, of 173 items of Jewellery as the fair and just price as on the 16th April, 1991 and that the valuation made by the Valuation Officer appointed under Section 16A of the Wealth-tax Act, 1957 was final and binding on the Assessing Officer for the purpose of making assessments under the provisions of the Wealth-tax Act, 1957.
that, as pointed by the Departmental Valuer, Mr. Jayant N. Chowlera, in his affidavit, the trustees have neither questioned his competence to value the items of the Jewellery for the purpose of wealth-tax nor questioned his estimation on the value in the absolute terms, but that their grievance has always been that the risks, hazards, uncertainties, clogs and other relevant factors have to be taken into consideration for the purpose of the levy of tax under the provisions of the Wealth-tax Act, 1957, which had been accepted by the Hon'ble Tribunal.
that the valuation report of Mr. Jay ant N. Chowlera for the wealth-tax assessment year 1988-89 was subject-matter of appeal in connection with the evaluation of interest in HEH the Nizam's Jewellery Trust and that the Hon'ble Tribunal upheld the valuation made by Mr. Jayant N. Chowlera and allowed 50% discount taking into consideration the risks, hazards and uncertainties which were prevailing on the valuation date, i.e., 31st March, 1988 relevant for the assessment year 1988-89. The Hon'ble Tribunal has further reduced the assessable wealth by granting statuary exemption under Section 5(1)(xii) in respect of 7 items of jewellery.
that in view of the facts narrated above, there was total uncertainty on the question of ownership of the Trust to the item of Jewellery which is the subject-matter of valuation for wealth-tax purposes as on the valuation date relevant for the assessment year 1989-90 and that therefore the discount of 50% allowed by the Hon'ble Tribunal for the preceding assessment years is totally inadequate and that the Assessing Officer should take 'Nil value towards the items of Jewellery of the Trust taking into consideration the risks, hazards and uncertainties which were already existing, that the valuation of the items of the Jewellery of the trust is of academic value taking into consideration the fact that the items of the Jewellery of the Trust are in the nature of 'antiquities' and 'art treasures' and constitutes an 'art collection' which is exempt under Section 5(1)(xii) of the Wealth-tax Act, 1957.
that the ownership of the Trust was in doubt till the matter was finally decided by the Hon'ble Supreme Court by its order dated 20th October, 1994 in I.A. No. 10/1993.
that the delay that occurred caused serious prejudice to the interests of the beneficiaries and the trusts. Had the question of ownership been decided by the Hon'ble Supreme Court against the trusts, the trustees would have been saddled with huge liabilities in the form of tax liabilities and the expenditure already incurred. In view of this grave risk and uncertain situation created by the Central Government itself, the value of the entire collection should be taken at 'Nit.
that the fact that the Hon'ble Supreme Court confirmed the award of the Umpire, Mr. Justice A.N. Sen dated 27th July, 1991 subject to arithmetical error of Rs. 45.00 crores and determined at Rs. 180.37 crores should not prejudice the mind of the Assessing Officer in objectively assessing the risks, uncertainties and hazards which were prevailing on each of the valuation dates relevant for the above assessment year.
It is of utmost importance and great significance to note that the Hon'ble Supreme Court had passed another order on October 20, 1994 in LA. No. 10 of 1993 in W.P. (C) No. 1429 of 1979 reported in 1994(4) SCALE 566 upholding the ownership of the Trust to the items of the Jewellery of HEH the Nizam's Jewellery Trust and that the question of ownership of the Trust to the items of Jewellery was challenged both by the Government and also by some public spirited citizens. Till the order on the ownership was passed by the Orders of the Supreme Court on 20-10-1994, the whole question of receiving compensation was a total uncertainty, because the government questioned the ownership of the jewellery before the Umpire and also before the Hon'ble Supreme Court. These applications were pending in some form or the other as on the valuation dates right from the assessment year 1990-91 till the matter was decided by the Hon'ble Supreme Court on 20th October, 1994. Most of the beneficiaries were in total distress and they were willing to sell their interest in HEH the Nizam's Jewellery Trust for whatever be the consideration in order to salvage the situation. This helpless condition of the beneficiaries and unending agony due to abnormal delay and uncertainties forced the trustees to withdraw their objections and settle amicably.
It has been contended that the references for valuation of the Jewellery was not made while the matter was pending before the arbitration proceedings and the Hon'ble Supreme Court.
It has also been contended that if subsequent developments are to be taken into consideration, there must be proximity of time and that on the facts and circumstances of the case, there is no proximity of time. It was however contended that without prejudice to this contention, it was of utmost importance to note that the Department of Culture, Ministry of Human Resources Development, Government of India have acquired all the items of Jewellery as an 'art collection' as the items arc in the nature of 'antiques' and 'art treasures'. It was therefore claimed that the assessee is entitled to exemption under Section 5(1)(xii) of the Wealth-tax Act.
After careful consideration, the contentions raised in the letter filed by the Secretary, HEH the Nizam's trusts, are found liable to be rejected. The claim that the trustees were not in possession of the Jewellery does not state a fresh fact. The custody of the Jewellery has all along been with the same bank at Bombay.
Certain Contentions raised, to the effect that the government did not adhere to the time schedule after the compromise agreement dated 25-4-1989 etc., are found to be not relevant inasmuch as these have little bearing on the question of the value of the Jewellery as on 31-3-1989. Similarly the contention that the ownership of the Jewellery itself was in doubt till the Supreme Court decided the matter in LA. No. 10/ 1993, is also not relevant for the valuation date 31-3-1989.
As regards the contention that the award of the Umpire could not become operative immediately on expiry of the stipulated period, it should be noted that the enforceability of the award was a matter between the parties to the compromise. As held by the Karnataka High Court in 125 ITR 665, the best evidence in regard to the market value would be the value of the property itself if it has been the subject-matter of purchase. In this case the purchase value agreed by the purchaser i.e., the Government of India is available. The decision of the Income Tax Appellate Tribunal reported in 35 ITD 402 has not been accepted by the department and accordingly, the discounting of the value cannot be allowed. The decision of the ITAT in allowing exemption under Section 5(1)(xii) of the WT Act for the seven items of Jewellery is also not accepted and references are pending. The trustees have not fulfilled all the conditions laid down in Section 5(1)(xii). The decision in the case of Rajendra Kumar Sethia, 194 ITR 218, clearly lays down this proposition.
The contention that the Departmental Valuer has stated that he has valued the jewellery for the wealth-tax assessment year 1989-90 is factually incorrect. The Departmental Valuer as furnished his report for the valuation date 31-3-1988 and as such, the provisions of Rule 19 of the Schedule III are not applicable. Thus the contentions raised, to the effect that the value of the Jewellery should be adopted at 'NIL' cannot be accepted.
A reference has been made to the department value for furnishing a report on the value of the Jewellery of the Jewellery Trust. The Departmental Valuer has yet to furnish his report. The assessment is to be completed in view of the limitation. The value of the Jewellery is adopted at 138.34 Crores by applying the relevant cost inflation index as per the notification No. SO 595(E), dated 5-8-1992 to the value of Rs. 171 Crores upheld by the Hon'ble Supreme Court as on 27-7-1991. Accordingly, the wealth assessable for the valuation date 31-3-1989 is adopted on the basis of the value of Rs. 138.346 crores and by applying the factors of the actuarial valuation, subject to revision on receipt of the report of the Departmental actuary.
Sd/- (V. Siva Kumar) Asst. Commissioner of Wealth-tax Circle-1(3), Hyderabad
17. As already mentioned, the assessments for the asst, years 1980-81 to 1986-87, were made on the beneficiaries of the Jewellery Trust, taking the value of the corpus on the basis of the relevant report of the valuation officer. The valuation given by the valuation officer was not disputed by the Trustees. However, they claimed that the Valuation Officer did not take into account certain hazards and risks on the relevant valuation dates and so, a further reduction towards those hazards and risks should be allowed from the value of the corpus worked out by the valuation officer, on the relevant valuation dates. This contention was upheld by the Tribunal, which allowed a reduction of 50% by its decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra). For the subsequent two assessment years 1987-88 and 1988-89 the Assessing Officer did not allow the claim of 50% reduction but it was allowed at the level of the Tribunal following this earlier decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra).
17.1 In the present set of appeals, the CWT(A)-I (Shri Lahiri) passed detailed orders in some cases and followed them in the others. As already mentioned, the CWT(A) allowed the contention that the value of the corpus of the jewellery Trust should not be determined on the basis of the award of the Umpire, as was done by the Assessing Officer. He held that the value of the corpus should be determined only on the basis of the mode of valuation laid down in Schedule-III of the Wealth-tax Act. He, however, rejected the contention of the assessee that the report of the Valuation Officer for the assessment year 1988-89 should be taken as the basis for the subsequent four years in the light of Rule 19 of Schedule-III of the W.T. Act. He held that the report for the assessment year 1989-90 should be adopted for the assessment year 1989-90 and further subsequent four years in the light of the said Rule 19 even though the said report for the assessment year 1989-90 became available only after the completion of the assessments, i.e., during the course of the hearing before CWT(A). He also allowed the contention of the assessee that, in principle, a reduction from the value of the corpus determined by the Valuation Officer had to be allowed, in view of the risks and hazards that beset the sale process mentioned hereinabove. He, however, rejected the contention of the assessee that such adjustment for reduction was to be of the order of 90% of the value of the corpus determined by the Valuation Officer. He restricted the said reduction to 1596 of the value as against 50% allowed by the Tribunal in its decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) for earlier years. He also rejected the contention of the assessees that all the items of jewellery were entitled for exemption under Section 5(1)(xii) of the Wealth-tax Act, as they were acquired/purchased by the Government of India as works of art. He differed from the earlier order of the Tribunal for the assessment years 1981-82 to 1986-87 reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) wherein such exemption was allowed for seven items of jewellery, declared by the Government as 'art treasures' and held that even the seven items of jewellery were not entitled for exemption as they were all along intended for sale and so one of the conditions stipulated in Section 5(l)(xii) was not satisfied. The Commissioner referred to the claim of the assessee for the exemption of all the items but discussed the position only in respect of the seven items declared as 'art treasures'. He did not give a specific finding on the claim of the assessee in respect of the other items. In other words, the order does not specify the particular reasons that weighed with the Commissioner for rejection of the claim in respect of the items other than the said seven items.
17.2 On the question of levy of interest for delayed filing of the returns, as already mentioned herein before, he held that, in principle, interest is leviable for the delay, but directed that it should be worked out with reference to the date of filing of the returns by the Trustees in their representative capacity.
17.3 As already mentioned, there are another set of orders passed by another CWT(A) viz., CWT(A)-II, Shri B.L. Rao, in the context of direct assessments made on the Trustees, wherein he upheld the action of the Assessing Officer, bringing to tax the assessable wealth of the beneficiaries on the basis of the award of the Umpire. The CWT(A)-II also held that the assessees were not entitled for any exemption in respect of any of the items of jewellery and as such he also differed from the earlier order of the Tribunal reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) wherein seven items declared as 'art treasures' by the Union Government, were held to be eligible for exemption under Section 5(1)(xii). One of the orders of the CWT(A)-II for the assessment year 1990-91 in the case of Trustees of HEH the Nizam's Jewellery Trust (supra) : Rep. Pr. Moazzam Jah Fund, dated 18-1-1996 is at pages 19 to 73 of the Department's first paper-book and a similar order in the case of the Trustees representing Pr. Moazzam Jah Fund, dated 30-1-1996 for the assessment year 1989-90 is at pages 75 to 85 of the Department's same paper-book. It appears that, in the case of one of the beneficiaries, viz., Nb. Mir Muazzam Ali Khan, Hyderabad, even the CWT(A)-I (Shri S. Lahiri) by his order dated 18-11-1996 for the assessment year 1989-90, followed the order of CWT(A)-II (Shri B.L. Rao) dated 30-1-1996 noted above. A copy of the said order of the CWT(A)-I is furnished at pages 87 to 92 of the Department's paper-book. He [CWT(A)-L Shri Lahiri], however, seems to have had a change of mind while passing the orders impugned in the present appeals, as by that time, the decision of the jurisdictional High Court reported at H.E.H. Nizam's Jewellery Trust's case (supra) become available and he took guidance from it. It may be mentioned that CWT(A)-II (Shri B.L. Rao), while passing the orders noted above, did not have the benefit of the decision of the jurisdictional High Court in H.E.H. Nizam's Jewellery Trust's case (supra).
18. Before us, the learned counsel for the assessees filed as many as fifteen paper-books running into hundreds of pages. The paper-books contain relevant orders of the Tribunal, A.P. High Court and Supreme Court passed at different stages of litigation referred to hereinabove and they also contained the submissions made by the assessees at different stages before the Assessing Officer, the CWT (A)-I, CWT(A)-II and the Tribunal. There are different Departmental Representatives at different points of time and they have also filed paper-books. The learned counsel for the assessees has filed written submissions before us, apart from those filed by him before the Revenue authorities. The department has also filed two sets of written submissions - one by the earlier Departmental Representative and the other by the Departmental Representative who argued before us, viz. Shri Deb Jyothi Das.
19. We shall now deal with the four issues mentioned herein before-
Issue No. 1 : Valuation of Jewellery:
Whether the value of the corpus of the trust for the assessment year 1988-89 and subsequent years should be worked out on the basis of the compensation amount received by the trust as done by the Assessing Officer, or whether it should be done on the basis of the valuation report of the Departmental Valuation Officer in terms of Schedule-III of the W.T. Act.
In the latter case, whether the report of the Valuation Officer as on 31st March, 1988 relevant for the asst. year 1988-89 should be the basis for the subsequent four assessment years, as claimed by the assessee, or whether it should be the report as on 31 st March, 1989 relevant for the assessment year 1989-90 that should constitute basis for the asst. year 1989-90 and subsequent years.
19.1 On this issue, the main plank of the argument of the learned counsel for the assessees is that the action of the Assessing Officer in basing the valuation on the award given by the Umpire is totally contrary to the specific provisions contained in Section 7 read with Rules 18 and 19 of Schedule-III of the Weaith-tax Act and also the decision of the jurisdic-tional High Court reported at H.E.H. Nizam's Jewellery Trust's case (supra). It is contended that the award of the Umpire was not enforceable and it was in suspended animation till the receipt of the compensation, even after the decision of the Hon'ble Supreme Court dated 20-10-1994. The Assessing Officer himself ignored the award, while completing the assessments prior to January, 1995. It is only after the receipt of the compensation, that the Department wanted to ignore the valuation report and started laying undue emphasis on the award of the Umpire and the compensation awarded by him. He contended that there is a vital difference between the valuation for the purposes of annual levy of tax, like wealth-tax and valuation for the purposes of acquisition of the property. In this context, he invited our attention to the following remarks of Justice Dixon in Commissioner of Succession Duties v. Executor Trustee & Agency Co. of South Australia 74 CLR 358:
I should like, however, to add for myself that there is some difference of purpose in valuing properly for revenue cases and in compensation cases. In the second, the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In case of compensation, doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate.
The above remarks were approvingly quoted by the jurisdiclional High Court in the decision reported at H.E.H. Nizam's Jewellery Trust's case (supra). It is further pleaded that the action of the Assessing Officer in working out the assessable wealth with reference to the compensation awarded by the Hon'ble Supreme Court in October, 1994, is directly in conflict with the views expressed by the Hon'ble Calcutta High Court in Jogat Mohan Kapur v. WTO [1995] 211 ITR 721 : 82 Taxman 1 and in CWT v. Niranjan Kumar Hirjee [1993] 201 ITR 183 : 68 Taxman 284. It is pleaded that the receipt of compensation on 12-1-1995 has to be insulated and viewed as a fortuitous event that took place in remote future and it had no bearing on the valuations made under the provisions of the Wealth-tax Act, for the assessment years 1989-90 to 1992-93. The Valuation Report for the wealth-tax assessment year 1989-90 was obtained only after the receipt of the compensation on 12-1-1995 and so, the Valuation Officer was aware of the amount awarded by the Umpire and if he still gave a different valuation as on 31-3-1989, that value must be regarded as correct, in terms of the relevant provisions of the W.T. Act, like Section 16A and Schedule-III and there is no justification for ignoring the said valuation given by the Department's own valuer and for proceeding on the basis of the backward indexation of the compensation awarded by the Hon'ble Supreme Court, which procedure is contrary to the above decisions of the Hon'ble Calcutta High Court.
19.2 When a procedure is statutorily laid down for arriving at the value of an asset, it is contended that it is quite illegal to ignore the said procedure and to go by an arbitrary estimate of the Assessing Officer, even though the said estimate is based upon the award of the Supreme Court. In this context, reliance is placed upon the decision of the Apex Court in the case of Bharat Hari Singhania v. CWT [1994] 207 ITR 1 : 73 Taxman 3 wherein it has been held in the context of Section 7(1) of the Act defining the expression "value of the asset" that the said value is "the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date", but the said price is made expressly subject to Rules made in that behalf. In other words, the said market value has to be determined in terms of the relevant statutory Rule and the Apex Court proceeded to hold in that case that the value of the unquoted equity shares had to be determined on the basis of break-up value method prescribed in Rule 1D. On analogous reasoning, it is stated that the value of the jewellery in question in the case of the assessees before us, has to be determined by the Valuation Officer in terms of Schedule-III of the W.T. Act and such valuation is binding on the Revenue authorities and they cannot by-pass a statutorily prescribed procedure and invoke an award, even though approved by the Apex Court, which was not existing on the relevant valuation dates.
19.3 It is also claimed that Schedule-III of the W.T. Act, which was introduced with effect from 1-4-1989 has retrospective operation, in the light of the decision of the Apex Court in the case of CWT v. Sharvan Kumar Swarup & Sons [1994] 210 ITR 886 : 76 Taxman 620, wherein analogous provisions of Rule 1BB of the W.T. Rules were held to be procedural and not substantive and so applicable to all pending proceedings as on 1st April, 1989 when the Rule came into operation. It is claimed that the ratio of this decision is applicable even in the context of Schedule III as has been held, on the basis of the said judgment of the Apex Court, by so many High Courts like the following:
(1) CWT v. P.M. Itoop [2000] 243 ITR 232 (Mad.) (2) Dy. CIT v. Hajee Abdul Sattar Sait [2001] 251 ITR 113 : 119 Taxman 678 (Kar.) (3) CWT v. Bhanwar Lal Gupta [1997] 228 ITR 650 (Raj.) (4) Smt. Radha Gajapathi Raju v. District Valuation Officer [1999] 239 ITR 704 : 102 Taxman 27 (Mad.) (5) CWT v. Sunderlal Gupta [1997] 225 ITR 729 : [1996] 88 Taxman 15 (Raj.) It is claimed that, in terms of Rule 19 of Schedule-III, where for any assessment year, the value of the jewellery has been determined in accordance with Rule 18 of the said Schedule, i.e. on the basis of a report of the Departmental Valuation Officer, the said value shall be adopted subject to specified adjustments, for the subsequent four assessment years. In terms of this Rule, it is claimed that the assessee is entitled for the benefit of the report of the Valuation Officer for the assessment year 1988-89 being adopted for the subsequent four assessment years, which covers all the years under appeal up to assessment year 1992-93. It is also claimed that this position has become final, by virtue of the decision of the Hon'blc A.P. High Court reported at H.E.H. Nizam's Jewellery Trust's case (supra), wherein it was observed as under:
...Since all the assessments were made only on the basis of valuation made under Section 16A and for the assessment year 1989-90 though no reference was made under Section 16A, the earlier years' valuation prevailed because of the Departmental circular as well as Rule 19 of Schedule-III , such valuation was outside the scope of Section 17 and the Wealth-tax Officer has no jurisdiction to revalue the same under Section 17. The impugned notices are, therefore, quashed and the writ petitions allowed. No costs. [Emphasis by us].
The said circular bears No. 646 and is dated 15th March, 1993 and reads as under:
Subject: Requirement of obtaining report of a registered valuer for value of jewellery exceeding Rs. 5 lakhs - Rule 18 of Schedule III to the Wealth-tax Act Under the Wealth-tax Act, 1957, value of any asset on the valuation date has to be determined in the manner laid down in Schedule III. Valuation of jewellery is to be made as per Rules 18 and 19 contained in Part G of this Schedule. For values of jewellery exceeding Rs. 5 lakhs, the assessees are required to obtain a report of a Registered Valuer in the prescribed form and furnish the same along with his return of net wealth.
2. It has been represented that the requirement of obtaining a report of a Registered Valuer, every year, in cases where the value of jewellery exceeds Rs. 5 lakhs is causing uncalled for hardship to the assessees.
3. The matter has been considered by the Board. It has been decided that the report of the Registered Valuer obtained for one assessment year can also be used in subsequent four assessment years subject to the following adjustments, namely:-
(a) where the jewellery includes gold or silver or any alloy containing gold or silver, the value of such gold or silver or such alloy as on the valuation date relevant to the concerned subsequent assessment year shall be substituted for the value of such gold or silver or alloy on the valuation date relevant to the first assessment year.
(b) where any jewellery or part of jewellery is sold or otherwise disposed of by the assessee, or any jewellery or part of the jewellery is acquired by him, on or before the valuation date relevant to the concerned subsequent year, the value of the jewellery determined for the first assessment year shall be reduced or increased, as the case may be and the value as so reduced or increased shall be the value of the jewellery for such subsequent assessment years.
4. In such subsequent four assessment years, the requirement of Rule 18(2)(ii) can be taken to have been complied with if the report of the registered valuer for the initial assessment year along with a chart showing adjustments made as above are enclosed along with the return of the net wealth furnished by the assessee.
(Sd.) M.N. Dikshit Director (OT) Central Board of Direct Taxes [F. No. 328/12/91-WT] As the Hon'ble High Court has held that for the assessment year 1989-90, the earlier valuation prevailed and similar is the position for the subsequent years under appeal, it is claimed that the CWT(A)-I erred in the impugned orders in holding that for the assessment year 1989-90 and subsequent years involved herein, the report of the Valuation Officer for the assessment year 1989-90 should form the basis for the valuation of the jewellery. It is claimed that, in view of the above decision of the jurisdic-tional High Court, the maximum value that could be adopted for the assessment years 1989-90 to 1992-93 is the value fixed for the wealth-tax assessment year 1988-89, of course, subject to specified adjustments and as the issue is decided by the jurisdictional High Court, it is now not open for the Department to argue that the compensation amount awarded by the Hon'ble Supreme Court should be taken as the basis for the wealth- tax assessments for the years under appeal or that the report of the Valuation Officer for the assessment year 1989-90 should be the basis.
19.4 It is also pointed out that the CWT(A) laboured under an erroneous impression that the Hon'ble A.P. High Court was under the impression that no report of the Valuation Officer for the assessment year 1989-90 was available. Our attention in this context was invited to the following remarks of the CWT(A)-I:
The Hon'ble High Court of Andhra Pradesh, while dealing with WP No. 8612 and 1643/96 seems to have been under the impression that no valuation report from the Valuation Officer of the Department was available in respect of the assessment year 1989-90.
The learned counsel for the assessees pointed out that the above remark of the CWT(A) is erroneous inasmuch as the Hon'ble High Court was very much aware of the valuation report for the wealth-tax assessment year 1989-90, as is evident from the following remarks of the Hon'ble High Court contained at the bottom of H.E.H. Nizam's Jewellery Trust's case (supra) :
He pointed out that even according to the valuer who had fully participated in the arbitration proceedings, the value of the jewellery was taken at a lesser figure even after the arbitration award, as in his report dated August 1, 1995, he has taken the value for 1989-90 - Rs. 56.06 crores.
In the light of the above remarks of the Hon'ble High Court, it is claimed that the jurisdictional High Court was fully aware and conscious of the fact that the valuation report for the wealth-tax assessment year 1989-90 was received in August, 1995 from the Valuation Officer after the receipt of the compensation. It is claimed that, even then, the Hon'ble High Court thought it fit to adopt the valuation report for the assessment year 1988-89 as the basis for application of Rule 19 for the four subsequent assessment years, viz., 1989-90 to 1992-93, i.e., the years under appeal herein. So it is urged that the decision of the jurisdictional High Court has to be followed.
19.5 To put it briefly, the main contention of the learned counsel for the assessee is that the value of the jewellery in question should be determined on the basis of the report of the Valuation Officer for the assessment year 1988-89 for all the years from assessment years 1989-90 to 1992-93 and not on the basis of the award of the Umpire received in 1994, as held by the Assessing Officer and CWT(A)-II in his decision dated 18-1-1996, or even as per the valuation report for the assessment year 1989-90, as held by the CWT(A)-I, in the impugned order.
19.6 We have already mentioned that this report of the Valuation Officer for the assessment year 1989-90 has been received after the award of the Umpire, as modified by the Apex Court, but even in this report, the Valuation Officer determined the value of the jewellery in question only at Rs. 56.06 crores, which is in line with the values determined by him for the earlier years and does not reach upto the level of the compensation awarded by the Umpire, as modified by the Hon'ble Supreme Court.
20. The learned Departmental Representative, Shri Deb Jyothi Das, on the other hand, strongly pressed for adopting the compensation awarded by the Umpire, as modified by the Hon'ble Supreme Court on 20-10-1994, as the basis for arriving at the assessable wealth of the assessees for the years under appeal, as adopted by the Assessing Officer. Firstly, it is claimed that the question of determining the assessable wealth on the basis of the award for the concerned years was not considered by the Tribunal in its decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra). Similarly, it is claimed that the decision of the Hon'ble A.P. High Court reported at H.E.H. Nizam's Jewellery Trust's case (supra) has no application because it dealt with the question of reopening of the assessments, which is not the question involved in the present appeals before us. Further, it is mentioned that there is a substantial change in the attending facts and circumstances for the valuation dates from 31-3-1989 to 31-3-1992, which were not existing on the valuation dates for the assessment years considered by the Tribunal or even the Hon'ble A.P. High Court. In this context, the main plank of the argument of the learned Departmental Representative is that the compromise agreement entered into between the Trustees of the Jewellery Trust and the Government of India, on 14-2-1989 which we have extracted hereinabove, makes all the difference for the assessment years under appeal. This agreement is very close to the valuation date, i.e., 31-3-1989, relevant for the assessment year 1989-90 and according to the learned Departmental Representative, full impact of the compromise agreement, which removed all risks and hazards and uncertainties for the Trustees, should be reflected in the valuation of the jewellery as on 31-3-1989. In other words, according to the learned Departmental Representative, the full significance of the compromise agreement will be so reflected only if the compensation awarded by the Supreme Court is taken as the basis for the valuation of the jewellery. It is claimed that, for determining the fair market value, actual sale on the valuation date is not required, but only a hypothetical market with a willing buyer and willing seller is contemplated and the fair market value is the reasonable value that a willing seller can expect from a willing buyer and in this context, reliance is placed on the following decisions :
(a) Debi Prosad Poddar v. CWT [1977] 109 ITR 760 (Cal.)
(b) Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471 (SC)
(c) CIT v. P.I. George [1988] 171 ITR 620 : 39 Taxman 148 (Ker.) It is claimed that by virtue of the compromise agreement dated 14-2-1989 entered into by the Trustees and the Union Government, a willing buyer and a willing seller came into existence and it is the amount awarded by the Supreme Court in pursuance of the said agreement that reflects the fair market value, as the judgment of the Supreme Court dated 20-10- 1994 is very close to the respective valuation dates involved in these appeals before us. It is further acclaimed that the Valuation Officer himself has admitted before the Umpire that he committed many errors and the values determined by him were an under-statement of the real values and so, it is claimed that the report given by him either for the assessment year 1988-89 or for the assessment year 1989-90 is nowhere near the fair market value of the jewellery in question and the only basis for arriving at the fair market value is the compensation determined by the highest court of the land as on 20-10-1994.
20.1 It is also claimed that while various judicial authorities inclusive of the Apex Court in the case of Bharat Hari Singhania (supra) have held that the Valuation Officer's report is binding on the Assessing Officer, it is nowhere laid down that the Valuation Officer's report is binding on the appellate authorities also. It is mentioned that the appellate authorities are entitled to examine the issue, without the fetters placed on the Assessing Officer by way of the binding nature of the report of the Valuation Officer. It is also contended that it is the duty of the appellate authorities to take cognizance of the attendant facts and consequently to reject the report of the Valuation Officer, if so required. In this context, reliance is placed upon certain decisions, like that of the Apex Court in 56 ITR 710 (sic) and the Hon'ble Gauhati High Court in CWT v. Dilip Kumar Singhania [1997] 226 ITR 16 : 93 Taxman 680. As the Valuation Officer himself admitted to have committed certain errors before the Umpire. It is claimed that the reports of the Valuation Officer deserve to be jettisoned. In this context, our attention was invited to the following remarks contained at page-33 of the award of the Umpire, which is contained in Vol. VI of the assessees' paper-books.
The valuation made by Chowlera on behalf of the Union of India was on the basis of the value of these items of jewellery for wealth tax purposes. Mr. Chowlera himself has admitted that his valuation which was accepted by the parties for wealth tax purposes was only for wealth tax purposes and was therefore on the low side. In course of his evidence, he has also admitted that there are errors in the valuation made by him and as the valuation was for wealth tax purposes he had also not considered a particular item to be real alexandrite, but an imitation one and if it were real alexandrite the value would be much more as real alexandrite is very rare and valuable. It appears that the Union of India itself has considered the valuation made by Mr. Chowlera as rather law and has itself added to the said valuation 20% more on account of aesthetic value of items of jewellery and 20% more on account of escalation in price. The addition of 20% on account of aesthetic value and the further addition of 20% for escalation in price appear to be arbitrary. There is a huge quantity of gold in many items of jewellery. The hike in the price of gold is indeed huge. The escalation in price should further be considered after taking; into consideration the increased valuation on account of aesthetic value. The valuation made for wealth tax purposes cannot therefore determine the fair and just value of these items of jewellery. I may also add that the wealth tax paid on the basis of valuation made was in discharge of a legal obligation and the wealth tax so paid on the basis of the valuation so made cannot be claimed back from the Union. Payment of wealth tax is a legal liability. It does not appear that the delay in disposal of the jewellery is entirely due to default or latches on the part of the Government. Payment of tax lawfully imposed in discharge of a legal liability cannot be recovered normally and not in any event in the facts and circumstances of this case. Tax that may be payable in respect any particular item may not be claimed to be added to the price in determining the just and fair value of the item concerned.
20.2 In his written submissions, the learned Departmental Representative has also taken the stand that the Assessing Officer was not bound by the report of the Valuation Officer, as the report was not available. And on this basis, he sought to distinguish the present cases from the case before the A.P. High Court reported at H.E.H. Nizam's Jewellery Trust's case (supra). Contentions of the learned Departmental Representative, in the written submissions in this behalf, read as under :
The decision of the A.P. High Court in 226 ITR 111 (Ref. APB, Vol. 7 Pg. 29) does not help the assessee's case for assessment year 1989-90 and onwards. For in the relevant assessment year before the A.P. High Court, the Assessing Officer had finalised the assessments by depending on the Valuation Report of the Valuation Officer. Later the Assessing Officer sought to reopen the assessment, by holding that Valuation of Valuation Officer already adopted as incorrect. The High Court held that the Valuation adopted by Valuation Officer was statutorily binding on the Assessing Officer and he had no grounds to object the same. Moreover, it amounted to change of opinion and no re-assessment was possible on change of opinion. Here the facts are vastly different. The Assessing Officer has not adopted the Valuation Officer's estimate, as on 31-3-1990 because it was not available at the time of assessment order. He was therefore not bound to it. In the present case, it not the case that the Assessing Officer has refused to adopt a valid valuation report, and/or that the Assessing Officer is appealing against correctness of the Valuation Report.
20.3 The learned Departmental Representative has also sought to take the entire issue out of the purview of Schedule III of the W.T. Act, by stating that, on the relevant valuation dates, the asset to be valued is not the jewellery, but the compensation receivable. In this context, his written submissions read as under:-
Alternative submissions:
Without prejudice to whatever is stated above, it is submitted that as regards valuation of jewellery in the assessee's hands as on 31-3-1989 for subsequent valuation dates, the jewellery was no longer in the assessee's hand on 31-3-1989, but "sold" by the assessee. In this regard, kind reference may be made to the compromise agreement (APB Vol. 5 Pg. 27) which speaks of the jewellery "sold" otherwise disposed of.
As per Sale of Goods Act, Section 20 (DPB Vol. 2, Pg. 27) read with the compromise agreement (APB Vol. 1, Pg. 27) and with the Arbitration Act, the factum of sale is complete in this case, on the date of signing of the agreement. The irrevocability of the arbitration proceedings has been discussed by the S.C. in its Order at APB Vol. I, pg. 167, para 14.
Therefore assessee no longer is in constructive possession of the goods as on 31-3-1989 or thereafter. What the assessee does have is a right to fair price, as per terms of compromise agreement. This arbitration agreement is recorded by Supreme Court and no further tinkering about the valuation is permissble. Only the fair price arising out of arbitration agreement is receivable; it is this which is the asset in the hands of the assessee and it is this which must be valued.
Even following the decision of 226 ITR 111 (A.P.), even if we apply the principles of Schedule-II, Rule I9(b) the assets were "sold" or "otherwise disposed of" and the value of jewellery in the assessee's hands is Nil What only exists is the right to compensation, which has already been discussed earlier. Rules 18 and 19 are not applicable to and asset being the right to compensation.
20.4 The learned Departmental Representative also pleaded that if at all the valuation report is to be held as binding valuation on the relevant valuation dates, it is the report for the assessment year 1989-90 that should be the basis as held by CWT(A)-I and not the report for the assessment year 1988-89 as claimed by the assessee before us. In this context, his written submissions read as under :
Assuming without conceding, that the Valuation Officer's Report is to be held by Hon'ble ITAT as the binding valuation, the question arises :
Which valuation is to be considered for valuation for assessment year 1989-90-the valuation as on 31-3-1989 or as on 31-3-1988 ? The CIT(A) adopted the valuation report relevant for 31-3-1989, by stating that the 226 ITR 111 Order indicated that AP High Court was possibly not aware that valuation report for 31-3-1989 was available.
The assessee has sought to impress on the Bench that the valuation dated 31-3-1988 would apply for assessment year 1989-90. Following Schedule, Rule 19, it would also apply for the Valuation for assessment years 1990-91, 1991-92 and 1992-93. Reliance has been placed by the assessee on the decision of the A.P. High Court in 226 ITR 111.
The Revenue submits two objections to the assessee's claim Firstly : The Writ Petition before the A.P. High Court related to assessment year 1984-85 to assessment year 1988-89 and not to assessment year 1989-90 or later assessment year (APB. Vol. 7, the first paragraph and also at Pg. 8. of the Order). Moreover, apparently, it is also indicated that the A.P. High Court was not aware of the reference under Section 16A (APB Vol. 7 of page 47).
Therefore the issue of valuation for assessment year 1989-90 cannot, possibly be said to have been argued before the Hon'ble A.P. High Court. It has been held by the Supreme Court. It has been held by the Supreme Court that an issue that is not argued cannot be said to have been decided. [188 ITR 402 (SC), at page 428, (last paragraph)]. The issue before the High Court was regarding validity of reopening of assessments up to the assessment year 1988-89 by way of change of opinion on the Valuation. The issue of quantum of valuation for 1989-90 was never before the High Court. The solitary sentence in the Order relied upon by assessee (APB, Vol. 5, pg. 27) cannot be pulled out of context. The revenue has not had the opportunity to labour the point of applicability of valuation for assessment year 1988-89 to subsequent years before the High Court. Hence the remark of the High Court at best is a passing remark and no dicta arises from it, especially in view of its other remarks at APB, V, A7, Pg. 47. Hence it cannot be said that the High Court has heard and decided on the matter as to whether the 31-3-1988 valuation has to be applied to assessment year 1989-90 and subsequent years by operation of Rule 19 of Schedule III].
Secondly : Schedule-III Rule-18 was introduced with effect from 1-4-1989. The earliest year to which, Rule 18 applies is therefore assessment year 1989-90. As per Schedule-III, the value of the asset should first be determined in accordance with Rule 18, Rule 19 states that the valuation as determined by Rule 18 has to be applied for the next 4 years. The valuation under Rule 18 is therefore a necessary precursor to applying Rule 19. Since Rule 18 cannot be applied for valuation as on 31-3-1988, the question of applying Rule 19 and extending the valuation as on 31-3-1988 to the subsequent years does not naturally arise.
At best therefore, the valuation of 31-3-1989 has to be adopted under Rule 18 and applying Rule 19, this valuation must be adopted for assessment years 1990-91, 1991-92 and 1992-93.
21. On the question of valuation on discussed above, we are of the view that the assessee deserves to succeed. In one sense, the issue is already covered in favour of the assessee by the decision of the Tribunal in the case of one of the beneficiaries, viz. Mir Saghafat Ali Khan, Hyderabad (WTA No. 309/Hyd./96) for the assessment year 1992-93, rendered on 2-3 1999. The said order, being a short one, we deem it fit to reproduce the same and it reads as under :-
ORDER S. Ananda Reddy, Judicial Member
1. This appeal by the assessee is directed against the order of the CIT(A) dated 24-9-1996 for the assessment year 1992-93.
2. The only dispute relates to the valuation of the assessee's interest in HEH the Nizam's Jewellery Trust. At the time of hearing it is represented by both the sides that the same issue was considered in the case of other beneficiaries of the same trust and this Tribunal decided that the interest of the beneficiaries in the trust should be taken at 50% of the value fixed by the Departmental Valuer. The said decision is also reported in 35 ITD 402. Same view was also taken by this Tribunal in WTA Nos. 297 and 298/Hyd./93 dated 23-6-1995 in the case of Nb. Mir Mumtazali Khan. In the light of the earlier decisions, we set aside the order of the CIT(A) and direct the Assessing Officer to adopt the assessee's interest at 50% of the value fixed by the Departmental Valuer. Accordingly the appeal is allowed.
We shall, however, deal with the contentions raised before us.
21.1 For examining the validity of the respective contentions, it is necessary to read the relevant provisions of the Wealth-tax Act.
Section 7(1), as it stood during the relevant period reads as under:-
7(1) Subject to the provisions of Sub-section (2), the value of any asset, other than cash, for the purposes of this Act shall be its value as on the valuation date determined in the manner laid down in Schedule-III.
(2)....
Section 16A, involving reference to Valuation Officer, to the extent relevant for our purposes, reads as under:-
16A(1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this Section) under this Act, where under the provisions of Section 7 read with the Rules made under this Act or, as the case may be, the Rules in Schedule III, the market value of any asset is to be taken into account in such assessment, the Assessing Officer may refer the valuation of any asset to a Valuation Officer :-
(a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so returned is less than its fair market value;
(b) in any other case, if the Assessing Officer is of opinion :-
(i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf; or
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary to do so.
(2) to (5) ** ** ** (6) On receipt of the order under Sub-section (3) or Sub-section (5) from the Valuation Officer, the Assessing Officer shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer.
21.2 Rule 18 of Schedule-III to the Wealth-tax Act, before its substitution by the Finance Act, 1990, with effect from 1-4-1990 read as under:-
18. Valuation of jewellery - The value of jewellery shall be:-
(a) where the value declared by the assessee in the return of net wealth does not exceed Rs. five lakhs and the return is supported by a statement in the prescribed form, the value so declared in the return;
(b) in any other case, subject to Rule 19, the price which in the opinion of the Valuation Officer, on a reference made to him under Section 16A, the jewellery would fetch if sold in the open market on the valuation date.
The same Rule, after its substitution by the Finance Act, 1990, with effect from 1-4-1990, reads as under:-
18(1) The value of the jewellery shall be estimated to be the price which it would fetch if sold in the open market on the valuation date (hereafter in this Rule referred to as fair market value).
(2) The return of net wealth furnished by the assessee shall be supported by:-
(i) a statement in the prescribed form, where the value of the jewellery on the valuation date does not exceed rupees five lakhs;
(ii) a report of a Registered Valuer in the prescribed form, where the value of the jewellery on the valuation date exceeds rupees five lakhs.
(3) Notwithstanding anything mentioned in Sub-rule (2), the Assessing Officer may, if he is of opinion, that the value of the jewellery declared in the return:-
(a) is less than its fair market value by such percentage or such amount as is prescribed under Sub-clause (i) of Clause (b) of subSection (1) of Section 16A;
(b) is less than its fair market value as referred to in Clause (a) of Sub-section (a) of Section 16A, he may refer the valuation of such jewellery to a Valuation Officer under Sub-section (1) of the said Section and the value of such jewellery shall be the fair market value as estimated by the Valuation Officer.
The form mentioned in the above Rule, viz- 18(2)(i) is prescribed by Rule 13(c) of the Wealth-tax Rules and the said Form 0-8A reads as under-
FORM 0.8A
(See Rule 18 of Schedule III)
Statement of Valuation of Jewellery
SI. Description Gross Net Weight Description Value of Total value
No. of item Weight of precious and weight each of the item
metal of precious precious of jewellery
or semi- or semi-
precious precious
metal stone and
decide value
of such
stones
(1) (2) (3) (4) (5) (6) (7)
I hereby declare that the information furnished above is true and correct to the best of my knowledge and belief.
Date :
Place : Signature of the assessee 21.3 Rule 3(b) of Wealth-tax Rules prescribing the conditions for reference to the Valuation Officer reads as under:-
3B. The percentage of the value of the asset as returned and the amount referred to in Sub-clause (i) of Clause (b) Sub-section (10) of Section 16A shall, respectively, be 33i per cent and Rs. 50,000.
21.4 Rule 19 of Schedule-III to Wealth-tax Act as it stood originally prior to 1-4-1990, read as under:-
19. The value of any jewellery determined in accordance with Clause (b) of Rule 18 for any assessment year (hereinafter referred to as the first assessment year), shall be taken to be the value of such jewellery for the subsequent four assessment years, subject to the following adjustments, namely:-
(a) where the jewellery includes gold or silver or any alloy containing gold or silver, the value of such gold or silver or such alloy as on the valuation date relevant to the concerned subsequent assessment year shall be substituted for the value of such gold or silver or alloy on the valuation date relevant to the first assessment year;
(b) where any jewellery or part of is sold or otherwise disposed of by the assessee, or any jewellery or part of jewellery is acquired by him, on or before the valuation date relevant to the concerned subsequent year, the value of the jewellery determined for the first assessment year shall be reduced or increased as the case may be and the value as so reduced or increased shall be the value of the jewellery for such subsequent assessment year.
Consistent with the amended provisions of Rule 18 of Schedule-III, by the Finance Act, 1990 with effect from 1-4-1990, Rule 19 was also amended, whereby the words 'Sub-rule (3) of Rule 18' were inserted in the above provision for the words 'Clause (b)'.
22. It may be observed that, in terms of Section 7, the value of an asset like jewellery has necessarily to be determined in the manner laid down in Schedule-III to Wealth-tax Act. The word used in Section 7 is "shall" indicating the mandatory nature of the provision. In terms of Rule 18 of Schedule-III, as it stood before 1-4-1990, a return has to be supported by a statement in Form 08A, where the net wealth did not exceed Rs. 5 lakhs and where it is so supported, the value of the jewellery returned by the assessee cannot be disturbed by the Assessing Officer and it has to be accepted. In any other case, i.e. where the value declared exceeded Rs. 5 lakhs; as in the cases of the assessees concerned in these appeals, or where the statement in the prescribed form is not given, the value of the jewellery shall be taken to be the value determined by the Valuation Officer.
22.1 For the assessment year 1989-90, the assessees returned the value of the jewellery on the basis of the report of the Valuation Officer for the assessment year 1988-89, which is the immediately preceding assessment year. As the wealth exceeded Rs. 5 lakhs, their cases have to be considered under Rule 18(b). If the Assessing Officer wanted to disturb the said valuation, in terms of Rule 18(b), he had necessarily to refer the matter to the Valuation Officer. It appears to us that on the clear language of Rule 18 of Schedule-III, as it stood before 1-4-1990, there was no option to the Assessing Officer except to refer the matter to the valuation cell, if he wanted to disturb the values returned by the assessees.
22.2 Now, let us examine the position after 1-4-1990 in terms of Rule 18. After 1-4-1990, if the value of the jewellery returned did not exceed Rs. 5 lakhs, it has to be accompanied by statement in the prescribed form, i.e. Form 08A. If it exceeded Rs. 5 lakhs, it has to be accompanied by a report of a Registered Valuer (not Valuation Officer). If the declared value of the jewellery is supported by a report of a registered valuer and the Assessing Officer is of the opinion that the declared value is less than its fair market value, he 'may' refer the valuation of the jewellery to the valuation officer under Section 16A(1)(a) of the Wealth-tax Act. Similarly, if the fair market value, in the opinion of the Assessing Officer, exceeds the declared value by more than the prescribed percentage of the declared value of asset or the amount specified in Rule 3B, i.e. by 33 1/3% of the returned value or Rs. 50,000, he "may" refer the matter in terms of Section 16A(1)(b) to the Valuation Officer. In the case of the assessees before us, the value of the jewellery exceeded Rs. 5 lakhs and so, they have to be considered in terms of Rule 18(2)(ii) and not Rule 18(2)(z).
22.3 The assessees, herein, adopted for the assessment year 1989-90, the valuation given by the Valuation Officer for the assessment year 1988-89. This is in accordance with the terms of the Rule 19 which stipulates that the value determined for an assessment year under Rule 18 is to be adopted for the subsequent four assessment years. Similarly, for the assessment years 1990-91 to 1992-93, the returns were filed adopting the valuation given by the valuation officer for the assessment year 1988-89, apparently availing the benefits conferred on the assessee by Rule 19 of Schedule-III of the W.T. Act. For all these years involved, the Assessing Officer disturbed the returned values of the jewellery and as already mentioned, worked out the beneficial interest on the basis of the award given by the Umpire as approved by the Apex Court.
22.4 Admittedly, the procedure prescribed under Schedule-III of the W.T. Act, which came into effect from 1-4-1989, was applicable for the assessment year 1989-90 and onwards for subsequent years. It was also applicable for assessments for earlier years pending on 1-4-1989 as we shall see presently. So the question is whether, in the circumstances, the Assessing Officer was justified in jettisoning the procedure prescribed in Schedule-III for determining the value of the beneficial interests of the assessees.
22.5 Admittedly, the returns were filed by the assessees in question adopting the values determined by the Valuation Officer for the assessment year 1988-89 and the returns were not accompanied by the reports of the Registered Valuer as required under Rule 18(2)(ii) of the III Schedule from the assessment year 1990-91 onwards. So does this lapse, if it is one, give a handle to the WTO to ignore the procedure laid down in Schedule III read with Section 16A of the W.T. Act ? We are of the view that it does not. This is because of two reasons. Firstly, the Valuation Officer is a Departmental Officer and his report has greater validity from the angle of the revenue than that of the Registered Valuer who may entertain a bias in favour of the assessee. So, when the returns are based on the value determined by the Valuation Officer, it appears it should, in equity, be held that they are as good as being accompanied by a report of the registered Valuer for the purpose of Rule 18(2)(ii). Secondly, the assessees adopted the report of the Valuation Officer for the assessment year 1988-89 for the subsequent years in terms of Rule 19 of the IIIrd Schedule and it appears that they are justified in doing so as we shall indicate hereinafter.
22.6 Even though the word used in Section 16A(1) is 'may' as distinct from the word 'shall', the import of the word 'may' has been judicially interpreted as implying mandatory nature. In this context, reference may be made to the decision of the Punjab & Haryana High Court in the case of Raj Paul Oswal v. CWT [1988] 171 ITR 489 : 35 Taxman 509. The head note of this decision reads as under-
If the legislative intent had been to accord total discretion to the Wealth-tax Officer to make a reference to the Valuation Officer or not in cases which were covered by Clauses (a) and (b) of Sub-section (1) of Section 16A of the Wealth-tax Act, 1957, that is, where the difference between the value of assets returned and the fair market value of assets as estimated by the Wealth-tax Officer is more than the limit prescribed under Rule 3B of the Wealth-tax Rules, 1957, then where was no necessity of providing the guidelines in Clause (a) or in Sub-clauses (i) and (ii) of Clause (b) of Sub-section (1) of Section 16A. The legislative by prescribing the contingencies, in which, by implication, it would not be necessary to make a reference, must again, by necessary implication, be taken to have intended that the reference to the Valuation Officer was a must if the given contingencies did not exist.
If the provision of Section 16A is to be interpreted in such a way that it vests a discretion in the Wealth-tax Officer to make a reference to the Valuation Officer or not even when the case is covered by Clause (a) or (b) of Sub-section (1) of Section 16A of the Act, then it would invest the provision with the vice of arbitrariness and thus render it ultra vires the provision of Article 14 of the Constitution of India.
Therefore, the provisions of Section 16A(1), Clause (b), when read with Rule 3B of the Wealth-tax Rules, 1957, mandatorily require the Wealth-tax Officer to make a reference to the Valuation Officer even when the difference in the value of assets returned by the assessee and the fair market value of the assets as estimated by the Wealth-tax Officer is more than the limit prescribed under Rule 3B. The Wealth-tax Officer is not required to convey his estimated value to the assessee and wait for a request from the assessee to make a reference. It would be a different matter if the assessee, on coming to know about the estimated value whether as result of the communication from the Wealth-tax Officer or on his own, accepts in writing the estimated value to be the correct value.
The same principle applies in respect of the word 'may' as distinct from the word 'shall' used in Rule 18(3) of the Third Schedule, in the context of the reference of the valuation of the jewellery to the Valuation Officer by the Assessing Officer. That the valuation of the jewellery has to be done in terms of Schedule-III emerges from, as urged by the learned counsel of the assessee before us, the decision of the Apex Court in the case of Bharat Hari Singhania (supra). So, we find that when the Assessing Officer wanted to disturb the returned values of the jewellery, he had necessarily to resort to the mode of referring the valuation to the Valuation Officer and he could not have done it suo motu. This is also the principle laid down by the jurisdictional High Court in the case reported at H.E.H. Nizam's Jewellery Trust's case (supra), the relevant portion of the head note of which has already been extracted by us hereinabove.
23. We find no merit in the contention of the learned Departmental Representative that because there was no reference to the valuation officer for any of the years before the assessments were made, the Assessing Officer was free to resort to his own estimate of the value and as such, he was justified in working out the value with reference to the award of the Umpire, as approved by the Apex Court. This amounts to Revenue taking advantage of its own lapse. The question is not whether the award deserves to be respected because it has been approved by the highest Court of the land, but the question simply is whether the award which was in the womb of future on the valuation dates relevant for the year under appeal, could replace a statutorily laid procedure for arriving at the values on the relevant valuation dates. The statutorily laid procedure is that the valuation has to be done by the Valuation Officer. The question is whether such a mandatory reference to the Valuation Officer can be substituted by the award of the Umpire, which was not available on the relevant valuation dates. If we accede to the plea of the learned Departmental Representative in this behalf, the Assessing Officer would be free to resort to his own estimate of the value in all cases without being bound by a reference to the Valuation Officer. This would negate the procedure laid down in Section 16A and Schedule-III.
23.1 The contention of the learned Departmental Representative before us that, while the report of the Valuation Officer is binding on the Assessing Officer, it is not so binding at all on the appellate authorities, is also not acceptable and seems to be misconceived. It is true that the appellate authorities can make adjustments to the value determined by the Valuation Officer. That does not, however, mean that the appellate authorities can dispense with the statutorily laid down procedure of referring the valuation of an asset to the Valuation Officer and substitute their own estimate for the report of the Valuation Officer. The report of the Valuation Officer is the benchmark from which downward adjustments can be made by the appellate authorities. It does not mean that reference to Valuation Officer can be dispensed with to the prejudice of the assessees. The Valuation Officer is also like the Assessing Officer in one respect. Both are Departmental Officers with specified roles in assessment as clarified by the Central Board of Direct Taxes in the memorandum explaining the provisions of the Taxation Law Amendment Act, 1972. The board explained as under:-
With the introduction of the new procedure and appointment of Valuation Officers who are experts in their respective fields, the job of valuation is entrusted to the experts instead of being left to the Wealth-tax Officer who is layman. The procedure outlined creates wheels within wheels. The work of the assessment is thereby divided into two distinct limbs. The valuation of the assets is to be done by the Valuation Officer in case and circumstances outlined in the Section. The Wealth-tax Officer has to complete the assessment adopting the value of such asset as determined by the Valuation Officer. The valuation report is to be defended by the Valuation Officer and not by the Wealth-tax Officer in the appellate proceeding.
The above remarks of the Board have been approvingly referred to by the jurisdictional High Court at pages 123-124 of its decision in H.E.H. Nizam's Jewellery Trust's case (supra). The Tribunal cannot determine the total value of an assessee at a figure higher than that arrived by the WTO. Similar is the position, in the light of the above remarks of the Board, with regard to the report of the Valuation Officer. Upward adjustments to the report of the Valuation Officer are not possible unless powers of enhancement are statutorily granted as in the case of CWT appeals under Section 23(5) of W.T. Act. Even when such powers are granted, enhancement cannot possibly fly in the face of a statutory procedures as laid down in Schedule-III.
23.2 Mere fact that there is a big difference between the values fixed by the Valuation Officer for the assessment year 1988-89 and the award given by the Umpire as approved by the Apex Court, does not warrant replacement of the procedure laid down in Schedule-III by the estimate of the Assessing Officer based on the award as approved by the Apex Court. In all cases where there is a statutorily prescribed procedure for determining the value, the result may not coincide with the market value as perceived by the layman. This can be seen even in those cases where market value is fixed on the basis of Rule 1BB of the W.T. Act. Simply because there is such difference, it does not mean that the Rule can be ignored or jettisoned for the benefit of the Revenue. Possibly, the Rule is framed to give a certain kind of uniformity in valuation and it is not for us to go into the intent or efficacy or the desirability of the Rule.
23.3 The CWT(A)-II in his separate order did not go into the binding nature of the procedure laid down in Section 16A of Schedule-III. He was influenced by the fact that the agreement entered into between the Trustees and the Government of India on 14-2-1989 changed the scenario and the change, according to the CWT(A) was so much in favour of the Trustees, that according to him, the earlier decision of the Tribunal reported in Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) had no application for the assessment years 1989-90 and onwards. We shall presently see the impact of the said agreement and examine the question whether it really removed all hazards and risks for the Trustees.
23.4 At this stage, it is enough to state that to our mind, the procedure laid down under Section 16A and Schedule-III of the W.T. Act stipulating a reference to Valuation Officer cannot be ignored irrespective of the impact of the compromise agreement dated 14-2-1989 or the subsequent events.
23.5 The learned Departmental Representative, as already mentioned, pleaded that the Valuation Officer, Shri Chowlera, participated in the arbitration process and even admitted having committed certain errors, which resulted in low valuation of the jewellery in the reports for the earlier years. If that was so, the Department was free to have opted for another Valuation Officer. The Hon'ble A.P. High Court in their judgment reported at H.E.H. the Nizam's Jewellery Trust's case (supra) referred to above, have noted that the Government of India must have found the Valuation Officer pliable to their requirements. We need not go into this aspect of the matter. As already mentioned, the Department could have changed the Valuation Officer if so required, but to totally ignored the procedure laid down in Section 16A and Schedule-III is totally untenable.
24. Now the question is whether the report for the assessment year 1989-90 could be adopted by the CIT(A) for the assessment year 1989-90 and subsequent years, as was done by him. Admittedly, the report for the assessment year 1989-90 was obtained only after the compensation was received by the Trustees on 12-1-1995. The issue that arises in this context is whether the CWT(A) could invoke the provisions of Section 16A or Schedule-III and direct the adoption of a report of the Valuation Officer for the purposes of determining the valuation of the jewellery, when such reference was not made by the Assessing Officer himself, before the assessment was made. There is a cleavage of judicial opinion on this question. This issue is discussed by the learned Author, Chaturvedi & Pithisaria at pages 26-27 in Vol. VIII of their commentary on 'Income-tax Law' (Fourth Edition). In this volume, the learned authors dealt with the wealth-tax law. The relevant portion of their commentary on this aspect, reads as under:-
Appellate authority not competent to direct WTO to make a reference under Section 16A: From a perusal of the provisions of Section 16A(1) and Sub-sections (4) and (5) of Section 23, it is clear that the discretion as to whether the matter of valuation should or should not be referred to the Valuation Officer vests in the Wealth-tax Officer. The question as to whether the question of valuation should or should not be referred to the Valuation Officer has to be decided in each case by the Wealth-tax Officer on the formation of the opinion that the value returned by the assessee is less than its fair market value. But in the absence of the formation of an opinion by the Wealth-tax Officer as provided by Section 16A(1), no reference to the Valuation Officer can be made by the Wealth-tax Officer. Now, it is well-settled that while framing an order of assessment under a taxation law, the assessing authority exercises quasi-judicial functions. Where discretion is conferred on an authority exercising quasi-judicial functions, that authority cannot be directed by the appellate authority to exercise or not to exercise that discretion. For the purposes of making a reference to the valuation officer under Section 16A(1), the Wealth-tax Officer has to form the requisite opinion as required by Section 16(1). That he should form such an opinion cannot be dictated to him by the appellate authority. [M.V. Kibe v. CWT [1987] 168 ITR 82, 85-86 (MP). Also see M.V. Kibe v. CWT [1988] 169 ITR 40 (MP), CWT v. A.A. Patel [1990] 181 ITR 543, 546 (MP)].
However, dissenting from the above view, the Calcutta High Court has held that the Tribunal was justified in remanding the matter to the officer concerned to enable him to make a reference to the Valuation Officer under Section 16A [Raja Baldeodas Birla Santatikosh v. CWT [1991] 189 ITR 613, 616-17 (Cal). Also see CWT v. Smt. Manorama Devi Birla [1993] 199 ITR 250, 256, 257 (Cal.)].
24.1 It may be observed that there is a difference of opinion between the Hon'ble M.P. High Court and the Hon'ble Calcutta High Court. Neither of the decisions of these two High Courts is binding on this Bench of the Tribunal, as they are not of the jurisdictional High Court. We may, in this context, refer to the decision of the Hon'ble Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd. wherein it has been observed as under:-
...(d) The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other states or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect....
In terms of Section 16A, a reference has to be made only by the Assessing Officer. The language of Section 16A may be contrasted with that of for example Section 18(1) wherein different functionaries have been empowered to levy a penalty for failure to furnish a return, to comply with notices and for concealment, etc. In other words, there is no such reference to different functionaries in Section 16A. So, it appears that the reference has to be made only by the Assessing Officer and it cannot be made by the CWT(A). The Assessing Officer cannot make the reference after the assessment is completed and if the CWT(A) is held to be justified in directing the adoption of a report of the Valuation Officer obtained after the completion of the assessment, it means that the CWT(A) is indirectly enabling the Assessing Officer to do what he is legally not permitted to do, i.e. making a reference after the assessment is completed. So, it is arguable that the CWT(A) or the Tribunal cannot direct making of a reference or the adoption of a report after the event, i.e. completion of assessment, as has been done in the cases before us by CWT(A)-I. This is, however, as already noted, a debatable issue, into which, for the purpose of disposal of these appeals, we need not go, for the reasons we shall presently mention.
24.2 The assessees herein have admitted the values of the jewellery for the assessment years 1989-90 to 1992-93, based of the report of the Valuation Officer for the assessment year 1988-89. This they have done apparently on the basis of the provisions of Rule 19 of Schedule-III of the W.T. Act. The question is whether they are entitled to avail the benefit of provision of Rule 19 of Schedule-III. The plea taken by the learned Departmental Representative before us, as evident from the written submissions, which we have reproduced hereinabove, is that Rule 18 was not on the statute book for the assessment year 1988-89 and as Rule 19 is applicable only in a case where value of the jewellery is determined in accordance with Rule 18 for any assessment year, the report of the Valuation Officer obtained for the assessment year 1988-89 cannot be adopted as the basis for the assessment years 1989-90 and onwards. We are of the view that this plea, though appears attractive at the first blush, has really no merit. Firstly, Schedule-III has to be held to be retrospective in its applicability and it is applicable for the pending assessments of earlier years also. We have already referred to the case-law relied upon by the learned counsel for the assessee, for this proposition. What would have been the position, if the assessments for the earlier years were completed after 1-4-1989, when Schedule-III came on the statute book ? If the assessment for the assessment year 1988-89 was completed after 1-4-1989, clearly the reference to the Valuation Officer would have been made under the provision of Rule 18 of Schedule-III. Actually in the cases of the assessee before us the assessments for assessment year 1988-89 and the reference to the Valuation Officer for that year, was made after 1-4-1989, which means that the Assessing Officer had invoked the provisions of Rule 18 of Schedule-III for the assessment year 1988-89. So, the plea of the learned Departmental Representative that Rule 18 was not there on the statute book when valuation was made for the assessment year 1988-89 and so, the assessee cannot get the benefit of Rule 19 is devoid of merit and it cannot be accepted. Even otherwise, what is relevant for the purpose of the present appeals, is reference to the Valuation Officer under Rule 18 and determining the value on the basis of the report of the Valuation Officer upon such reference. Whether such reference is made in terms of Schedule-III or only under Section 16A of the Act as it stood before 1-4-1989, does not make any material difference for the purpose of invoking the provisions of Rule 19 of Schedule-III. Rule 19 lays down that report of the Valuation Officer obtained for the earlier year holds good for the subsequent four years, with the specified adjustments. The assessee has not disputed the adjustments specified in Rule 19. So, we see no reason to reject the claim of learned counsel for the assessee that the benefit of Rule 19 should be given to the assessees herein and the report of the Valuation Officer for assessment year 1988-89 should be the basis for working out the value of the jewellery for the subsequent four years, of course, subject to specified adjustments.
24.3 At any rate, the issue whether the assessees herein can be given the benefit of Rule 19 in the manner mentioned above, is to our minds, concluded by the decision of the Hon'ble A.P. High Court reported at H.E.H. the Nizam' s Jewellery Trust's case (supra). The relevant comments of the Hon'ble High Court in this context are reproduced below:-
In the present context, it is not, in dispute that for each assessment year the assessee took as the basis the valuation of the Department's Valuation Officer for the earlier year. Further, according to a Circular of the Central Board of Direct Taxes No. 646 (see [1993] 200 ITR (St.) 228), dated March 15, 1993, as well as Rule 19 of Schedule III the value of jewellery assessed in one year holds good for four successive assessment years. Therefore, in view of the clarification given by the Central Board of Direct Taxes in the Press Note dated May 27, 1968 as the Press Note dated May 27, 1968, there was no concealment of any particulars by the assessee inasmuch as the valuation shown in the return was bona fide and was based upon the Department's own valuation for the earlier years. It follows that there was no omission to disclose correct particulars.
24.4 The plea taken by the learned Departmental Representative before us that the above remarks of the High Court did not conclude the issue in favour of the assessees herein, is to our mind, without any merit. It is mentioned by the learned Departmental Representative that the writ petition considered by the Hon'ble A.P. High Court in the above judgment does not cover the assessment year 1989-90. We find that this statement is factually incorrect and the said Writ Petitions did involve the question of reopening of the assessment for the assessment year 1989-90 also along with earlier years. So, we do not see why the above remarks of the Hon'ble High Court should not be taken as conclusive of the issue on hand.
24.5 We also do not find merit in the other alternative plea taken by the learned Departmental Representative that what is assessable on the relevant valuation dates is the compensation receivable in terms of the Compromise Agreement dated 4-2-1989 and not the value of the jewellery. Firstly, it is nobody's case that what is assessable is not the value of the jewellery and such a plea is taken for the first time before this Tribunal. When neither the Assessing Officer nor the CWT(A) considered the matter from such an angle, in our view, the learned Departmental Representative cannot take such an altogether new and different stand. Further, under the compromise Agreement, which we have already extracted above, the Union Government has clearly got the option to acquire/purchase or not to acquire/purchase any of the items. When such a wide open option lies with the Union Government, it is futile to think that the title in the jewellery passed to the Union Government and so, what was receivable in return was only the compensation. Further, the award given by the Umpire in terms of the compromise agreement did not become binding, till it was approved by the Supreme Court on 20-10-1994 and so, no compensation was receivable on the valuation dates involved in these appeals. For all these reasons, this alternative plea taken by the learned Departmental Representative has to be rejected. We reject the same accordingly.
24.6 In the circumstances, we hold that the report for the assessment year 1988-89 should constitute the basis for working out the value of the jewellery for the assessment years involved in these appeals, except for the assessment year 1984-85, the appeal for which stands on a different footing.
Issue No. II: Discount for risks and hazards :
25. The Valuation Officer of the Department, Shri Jayant Chowlera by his report dated 16-3-1989 valued all the items of the jewellery of the Main Trust as on 31-3-1988 at Rs. 41.72 crores. The Trustees declared the value of the corpus of the trust for the assessment year 1989-90 on the basis of this report and while doing so, they claimed 50% discount for the risks, hazards and uncertainties involved in the process of sale of the jewellery and thus returned the value of the corpus at Rs. 20.86 crores being half of the amount determined by Shri Chowlera as on 31-3-1988, for all the years involved in these appeals. As already mentioned, the Assessing Officer ignored this report and went by the award of the Umpire, as approved by the Hon'ble Supreme Court for all the years referred to above.
25.1 While the assessees returned the value of the corpus, claiming discount only at 50% of the value determined by Shri Chowlera as on 31-3-1988, they also claimed by way of a note 90% discount as under :
(i) As per the terms of Agreement, the Central Government had agreed to purchase/acquire all the items of jewellery and the Trustees have no right of sale till the matter is finally decided.
(ii) In view of the fact the Central Government had agreed to purchase/acquire all the items of jewellery, the exemption under Section 5(1)(xii) of the Wealth-tax Act, 1957 should be granted for all the items of jewellery.
(iii) The Union of India after entering into the compromise has filed a petition before the Supreme Court questioning the ownership of the items of jewellery for the first time. Considering this risk and hazard, the value of the jewellery can at best be fixed at not more than 10% of the value estimated by the Departmental Valuer.
(iv) The award passed by the Hon'ble Umpire, Mr. Justice A.N. Sen on 27th July, 1991 has no relevance to the question of determination of value of the items of jewellery under the Wealth-tax Act, 1957. The award passed by the Hon'ble Umpire Mr. Justice A.N. Sen was challenged by the Union of India and no finality could be reached till date.
It may be seen that the assessees have claimed 90% discount and as such claimed to be taxed only on 10% of the value determined by the Valuation Officer.
The Trustees have also claimed exemption for all the items under Section 5 of the Wealth-tax Act. Exemption has been claimed, in the above note, for all the items of jewellery under Section 5(1)(xii). But in the course of hearing before us, the claim for exemption is made under Section 5(1)(xii) of the Wealth-tax Act and not under Section 5(1)(viii).
25.2 To revert to the discussion of discount on hand, the Assessing Officer, as already mentioned, ignored the report of the Valuation Officer and determined the assessable wealth of each of the beneficiaries on the basis of the backward indexation applied to the award of the Umpire as approved by the Hon'ble Supreme Court. He also did not give any discount for risks and hazards. On the question of risks and hazards, the CWT(A) mentioned that the compromise agreement was not being implemented within a period of six months as stipulated therein and the Union of India tried to go back on agreement, by contending before the Umpire and also before the Supreme Court that the jewels were part of the Regalia and had been acquired by the Nizam out of the public funds and therefore, such jewels should be handed back to the Union of India, without any price or compensation. He also noted that public interest petitions were filed before the Supreme Court by Dr. L.P. Sihare and others, disputing the ownership of the jewels by the Nizam; and that even Union of India claimed at one point of time that the compromise agreement had been entered into under a misconceived notion that the Nizam was the real owner of the jewellery. He noted that the Supreme Court's final orders deciding the question of ownership in favour of the Trustees came as late as 20-10-1994. With multiplicity of beneficiaries, numbering as many as 180, sometime working at cross-purposes and with huge tax burden to be borne by the beneficiaries; and when the Union was not willing to pay the compensation in one lump-sum, but in instalments, the CWT(A) was of the view that there was substantial element of risks, hazards and there were uncertainties in the sale process and receipt of compensation by the trustees. In this context, the CWT(A) observed as under:
Therefore, I fail to see eye to eye with the view of the Assessing Officer that after the execution of the Compromise Agreement, the risks, hazards and uncertainties as portrayed by the Appellant's counsel were nothing but figments of imagination. One has to step into the shoes of the Trustees and the beneficiaries to appreciate the agony resulting from protracted litigations.
25.3 After the above remarks, the CWT(A) referred to the decisions of the Apex Court in CWT v. Maharaja Kumar Kamal Singh [1984] 146 ITR 202 : 16 Taxman 9 of the Calcutta High Court in CWT v. Sampatrai Bhutoria & Sons [1982] 137 ITR 868 : [1981] 7 Taxman 114 and of the A.P. High Court in CWT v. Amatul Kareem [1981] 127 ITR 549 wherein certain deductions were allowed considering the pending litigations and such other factors and held that, in principle, a deduction for risks and hazards was allowable. He, however, was of the view that the claim for 90% deduction made by the assessee was high-pitched. He accordingly restricted the deduction to 15%. The CWT(A)-II in his order dated 18-1-1996, on the other hand, held that after the agreement dated 14-2-1989, the matter was clear and there was no more uncertainty about the sale process and so, he held that no deduction for risks and hazards was allowable. His remarks in this regard are as under :
...This would mean that the different factors put forth in the appeal proceedings before the ITAT in regard to the earlier assessment years which were taken due cognizance of by the ITAT while confirming the 50% discount so given by the first appellate authority vis-a-vis the different factors of risks, hazards, disputed ownership, litigation, etc., were no more existing inasmuch as the agreement was already arrived at much before the relevant valuation dates pertaining to the assessment years 1989-90 onwards and by virtue of which there was already a buyer to go in for different items of jewellery owned by the appellant trust and as a corollary thereto, the factum of there being a continuing uncertainty, risks, hazards, etc., was a more travesty of facts and could not have been given any cognizance to inasmuch as these different factors were given a go-by virtue of the agreement so arrived at between the trustees of the Trust and the Government of India prior to the relevant valuation dates for the assessment years 1989-90 onwards....
According to the CWT(A)-II, the agreement dated 14-2-1989 made all the difference to the position of the Trustees and so, the decision of the Tribunal for the earlier years Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) was no longer applicable for the assessment year 1989-90 and thereafter.
26. The learned counsel for the assessee, before us, firstly relied upon the decision of the Tribunal reported in Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) in support of his plea that a discount for hazards and risks at a minimum of 50% should be given. He mentioned that all the relevant facts including the compromise agreement dated 14-2-1989 up to the date of the decision of the Tribunal, viz-, 12th June, 1990 were considered by the Tribunal in its decision. He also pleaded that the Hon'ble A.P. High Court in its decision reported at H.E.H. the Nizam's Jewellery Trust's case (supra) also noticed the various hazards being faced by the assessee in the sale process. So, according to him, there was no reason for the Assessing Officer to have denied deduction at the minimum of 50% allowed by the Tribunal for the earlier years. He also pleaded that during the years under consideration, the risk factors had increased because the Trustees had surrendered their right to sell the jewellery in the international market and even their right to sell in the local market to any party other than Union of India. Further, the very basis of the Trust was put to doubt during these years, as the question of ownership of the jewellery was raised not only by the Union of India, but also by the public interest litigants. According to him, the discount to be allowed should even be 90% and in this context the relevant portion of the written submissions read as under :
5.11 In the matter of quantification of discount, there is an element of judgment and subjectivity. However, such judgment should be based on objective considerations. In the present case, the relevant factors have been copiously stated in the preceding paragraphs and an honest attempt is made with regard to quantification based on the objective considerations detailed below :
(i) The Hon'ble Tribunal allowed discount of 50% for the risks, hazards and uncertainties prevailing on each of the valuation dates following the various pronouncements on the subject including the decision of the Andhra Pradesh High Court in CWT v. Amatul Kareem reported in 127 ITR 549. For the risk of litigation and court process, the Hon'ble High Court held that 50% discount is reasonable. The risk of litigation is continuing for all the assessment years 1989-90 to 1992-93. Therefore, 50% is the minimum discount to be allowed for this factor alone.
(ii) There was total uncertainty on receipt of the compensation and in fact there was considerable time lag. The compensation was actually paid on 12-1-1995. Therefore, it was paid after a period of about six years from the valuation date 31-3-1989 relevant for the assessment year 1989-90, five years for the assessment year 1990-91, four years for the assessment year 1991-92 and three years for the assessment year 1992-93. On an average, the time lag is about four and half years. At the relevant time the interest rates were high. Assuming the interest rate even at 10%, the discount on account of the time lag would be around 45%.
(iii) Incidence of tax is one of the relevant factors as held by the Hon'ble Tribunal in 35 ITD 402. Out of the total compensation of Rs. 171 crores, Rs. 30 crores was paid to the Department. Therefore, one can easily quantify this risk at 30/171 which is equal to about 17.5%.
(iv) The risk of ownership is one of the most depressing factors. One has to place himself in the shoes of willing buyer when the entire issue of ownership was in dispute. Nobody offers more than 10% of the intrinsic value for such grave risk. Only speculators enter this arena. Therefore, discount for this factor alone should be 90%.
(v) What is sought to be assessed is the alleged beneficial interest of the ultimate beneficiary in this Trust. Even for a mere factum of joint ownership, the Karnataka High Court has granted 10% discount from the value of the asset in 156 ITR 484 (Kar.). In the instant case of the ultimate beneficial interest, the discount has to be anywhere between 20% to 40%.
The total discount on all the factors works out to more than 100% which clearly demonstrates that the willing buyers could only be of the category of gamblers. Therefore, no one would have offered any amount more than 5% of the ultimately determined and awarded compensation of Rs. 171 crores as on the valuation dates relevant for the assessment years under consideration and the 90% discount sought by the appellant on the value determined in Para 4 supra for all the risks, hazards and uncertainties is fair and reasonable based on the above objective analysis.
26.1 The learned Departmental Representative, on the other hand pleaded that there is no statutory basis for allowing any discount from the value determined by the Valuation Officer. Alternatively, it is pleaded that if any discount is to be allowed, it has to be allowed only from the amount worked out by the Assessing Officer, with reference to the award of the Umpire, as approved by the Supreme Court. He also mentioned that the decision of the Tribunal in Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) is not applicable for the years under consideration, as all uncertainties had been removed by the compromise agreement dated 14-2-1989, as held by the CWT(A)-II. He also mentioned that the proximity of the dates between 31-3-1989, i.e., the valuation date for the assessment years 1989-90 and 27-7-1991 i.e., the date of award given by the Umpire and the massive difference between the two valuations proved that the valuation of the jewellery by the Valuation Officer was grossly below the fair market value and so, no further discount was to be granted from the valuation of the Valuation Officer. He also pleaded that the risks had not increased due to compromise agreement, but rather substantially decreased. It is pleaded that after the agreement, the only uncertainty was about the quantum of compensation and so, overall uncertainty decreased after the said agreement.
27. We are of the view that a discount from the value determined by the Valuation Officer can, in principle, be given if the circumstances warrant. There may be no separate statutory provision for allowing such discount but that is inherent in the process of ascertaining the fair market value of the asset. Two identical assets may have different market values if one of them suffers from clogs like co-ownership or litigation about ownership and the other does not. Admittedly, the Valuation Officer in the present case has determined the market value of the jewellery on the respective valuation dates and has not taken into consideration the reduction in value due to litigation, acquisition proceedings, etc. What he determined was the market value on the respective valuation dates without reference to the other clogs. So a discount for such factors, in principle, has to be allowed.
27.1 At any rate, the issue is covered by the decision of the Tribunal reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra). While the claim of the assessee for discount at 90% is high-pitched, there is also no reason to reduce the discount from 50% allowed by the Tribunal in the above decision for earlier years to 15% as done by the CWT(A). We may initially mention as to why we feel that the claim of discount of 90% is over-pitched or too high. It may be observed that in the written submissions, the learned counsel for the assessee has claimed discount at 45% because the compensation was actually paid on 12-1-1995 and assuming an interest rate of 10%, a discount would work out to 35%. We are not going by the compensation received by the Trustees, but by the report of the Valuation Officer as on the particular valuation date, in terms of Section 16A and Schedule-III of the W.T. Act and so this contention to our mind, is not acceptable. Similarly, it is claimed that because of the existence of tax, the assessee is entitled to a discount of 17.5% and in this context, reliance was placed on the decision of the Tribunal reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra). For this proposition, the CWT(A) in his impugned order has placed reliance on the decision of the Apex Court in Maharaja Kumar Kamal Singh's case (supra).
27.2 We find that the Tribunal in the decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra), has made the following observation :
97. We have discussed in detail the rival submissions in respect of cumulative tax liability. In our opinion, if there is any asset, which is subjected to the liability of tax the incidence of unpaid tax liability indeed influences the valuation of the asset and ought to be treated as a depressing factor.
It is not clear whether, while making the above observation, the Tribunal had in mind the tax liability of the vendor, i.e., the Trustees or the buyer of jewellery. So, the remark does not really give much guidance in the matter. The decision of the Apex Court in the case of Maharaja Kumar Kamal Singh (supra) is altogether on a different issue. In that case, the Apex Court was interpreting a statutory provision, viz., Section 4(c) of the Bihar Land Reforms Act, 1950 in terms of which arrears of agricultural income-tax of the owner of the land has to be reduced from the compensation payable to him on the acquisition of the land. It is because of the said statutory provision that the Apex Court has found a hazard, clog or jeopardy which detracts from the value of the asset and would influence all buyers. There is no analogous statutory provision, which would work as a clog or hazard on the marketability of the jewellery in the present cases before us. We do not see how the tax payable by the trustees on behalf of the beneficiaries would be a factor to be taken into consideration by the potential buyers.
27.3 We have already extracted herein before the relevant portions of the remarks of the Umpire negativing the claim of the Trustees before him, that the wealth-tax paid on the compensation should be reimbursed. We are in respectful agreement with the remarks of the Umpire and we are of the view that the taxes to be paid by the Trustees is not a factor to be considered, as it has no relevance for ascertaining the market price of the jewellery. So, it does not enhance the discount to be allowed to the assessces before us.
27.4 That does not, however, mean that the discount to be allowed would work out to less than 50% granted by the Tribunal for earlier years in the decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra). The learned Departmental Representative has mainly relied upon the agreement dated 14-2-1989 in support of his plea that no discount has to be allowed from the value of the jewellery because the said agreement, according to him, eliminated all risk factors and ensured the receipt of compensation determined by the Umpire. To examine the validity of this agreement, we have to turn to the provisions of the said agreement.
27.5 We have already reproduced the said agreement dated 14-2-1989 hereinbefore. As already mentioned, under the compromise agreement, the Central Government had the option of acquiring or not acquiring all or any of the items. Further, Clause 5(b) of the agreement stipulates that in case the Central Government does not acquire any of the items, the Trustees have the right "to export for sale all the items not acquired by the Central Government....subject to the existing laws relating thereto". It is important to note the expression 'subject to the existing laws relating thereto' figuring in Clause 5(b) of the agreement. So, if the Union Government does not acquire any of the items, what is the right vested in the trustees under the agreement ? They are back to square one, i.e., their right to export is again subject to existing laws, which include the Antiquities Act and any Act relating to foreign exchange regulations, etc. Even if the Union Government does not acquire any of the items in terms of the Compromise Agreement, the Trustees do not get the absolute right to sell in the international market or even in the local market, without again going through the procedure laid down under the Antiquities Act. So, it appears to us that it is too much to state that the compromise agreement has removed all the uncertainties and hazards in the sale process and what was thereafter was only for the trustees to receive the compensation determined by the Umpire. It also requires to be mentioned that the Compromise Agreement itself did not acquire any sanctity till 25-1-1989, when the Hon'blc Supreme Court passed its Order approving the compromise. So, at least for the assessment year 1989-90, the compromise agreement had no value, as it was not applicable for the concerned valuation date, viz., 31-3-1988 and for the subsequent valuation dates, so many factors had intervened, like the questions raised both by the Union Government and the other interveners in public interest questioning the very ownership of the Nizam over the jewellery and so on. When the very ownership was questioned, we cannot say that the transaction/possession was risk-free.
27.6 The Hon'ble A.P. High Court in its decision reported in H.E.H. the Nizam's Jewellery Trust's case (supra) at pages 133-134 summarised the depressing factors that existed after the compromise agreement dated 14-2-1989, in the following terms :
This indicates that what was determined in the arbitration proceedings was the fair price that should be paid by the Government for acquisition of the jewellery as on December 31, 1994. The fact that the petitioner received a sum of Rs. 180 crores as on that date could never be a primary fact for disclosure for valuation of jewellery on the valuation dates March 31, 1984, to March 31, 1989, which were long prior to that event. What the Government was acquiring was the jewellery free from all encumbrances. On the other hand, as on the earlier date of valuation the Valuation Officer had to estimate the value on a hypothetical market subject to various restrictions such as, sale within India, objections of the beneficiaries, dispute as to title by the Government, threat of acquisition by the Government and lack of possession inasmuch as it was under attachment and in the custody of the Government, etc. in a hypothetical market with all these depressing factors, no willing buyer would have paid what the Government ultimately paid for acquiring the jewellery free from all encumbrances.
27.7 As pleaded by the learned counsel for the assessee before us, the A.P. High Court in Amatul Kareem's case (supra) held that 50% discount is reasonable for the risk of litigation. The risk of litigation in all these cases was continuing all through the years under appeal. Further, the Hon'ble Karnataka High Court in its decision in CWT v. K.N. Nagabhushana Setty [1985] 156 ITR 484 : 20 Taxman 428 had granted 1096 discount from the value of the asset for joint ownership. In the case of Trustees of H.E.H. the Nizam's Jewellery Trust (supra), it is not a simple case of three or four joint owners. The trust has as many as 180 beneficiaries and we have already referred to the litigation launched by one of the beneficiaries, viz., Princess Fatima Fouzia, for the removal of the Trustees and the stoppage of sale process. The threat of such litigation by any of the 180 beneficiaries was always there. For these reasons, we find that there is no reason to reduce the discount of 50% allowed by the Tribunal in earlier years up to 1988-89 Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra). While some depressing factors might have reduced, others like the questioning of the very ownership over the jewellery, cropped up in the years under appeal. On a balance, we are of the view that the same discount of 50% can be allowed even for the years subsequent to 1988-89.
Issue-III: Whether any of the items of jewellery are entitled for exemption under Section 5(1)(xii) of the Wealth-tax Act and if so, whether such exemption should be extended to all items or restricted to some items only ? If so, the items to which such exemption should be given ?
28. We have already covered the ground relating to the litigation involved in the sale of jewellery. Some of the important events may be recapitulated for the purpose of examining the claim for exemption under Section 5(1)(xii) of the Act.
28.1 Out of the 89 items of the main trust, 23 items were declared as Antiquities by the Director of Archaeological Survey of India, as early as in February 1978 and 65 items were declared as non-antiquities and one important item viz. Jacob Diamond, was left undecided. When the Trustees sought to put up the 37 items out of the 65 items declared as non-antiquities for sale, the Government of India intervened and objected to the sale in the course of certain proceedings before the Supreme Court. The Government of India brought some amendment to the Antiquities Act, by way of insertion of Rule 2A providing for reference to a committee for report as to the aesthetic and artistic value of any work of art and Rule 2B providing for notice to ascertain whether the author of the work of art is alive, and, on the basis of the report of a committee headed by Smt. Pupul Jayakar, it declared 7 out of the 37 items sought to be sold as 'Art Treasures' under the Antiquities Act. The Supreme Court was also informed on 17-9-1984, by way of an affidavit filed before them, that the said seven items were declared as art treasures vide Gazette Notification No. GSR-336(E) dated 9-3-1984. A copy of the affidavit may be seen at pages 90 to 104 of the Paper-book Volume III filed by the learned counsel for the assessees. The Collector, Bombay issued on 31-1-1986 a notice under Section 19(2) of the Antiquities Act, calling upon the Trustees to file their objections against the acquisition of the seven pieces as art treasures. On the strength of the order of the CCollector dated 28-5-1986, th Director General, Archaeological Survey of India confirmed the acquisition proceedings of the seven items notified as art treasures, by his order dated 30-5-1986. The relevant portion of this order, a copy of which may be seen at page-133 of the paper-book Vol. I reads as under :
No. 1/23/76-ANT Government of India Archaeological Survey of India Janpath New Delhi, the 30th May, 1986 ORDER Whereas the Government of India, vide its order No. 1/23/76-ANT dated the 12th October, 1984, has, in exercise of the powers conferred upon it by Sub-section (1) of Section 19 of the Antiquities and Art Treasures Act, 1972, ordered that the following 7 items of jewellery belonging to the Nizam's Jewellery Trust, whichhadbeen declared, videits notification No. G.S.R. 336(E) dated 9th May, 1984, as art treasures, be compulsorily acquired :
** ** ** Whereas the Central Government vide its Order No. 1/23/76-ANT dated 29-1-1986 in exercise of the powers conferred under Sub-section (4) of Section 19 of the aforesaid Act, 1972, authorized the Collector, City of Bombay and B.S.D., Old Customs House, Fort, Bombay, to ascertain the representations of the owners of 7 art treasures and after giving to the owners the opportunity of being heard in the matter within a period of 90 days from the date of receipt of the representations and forwarded the representations with the findings thereon;
Whereas the Collector, Bombay issued notices to the owners of jewellery, vide No. GSC/SCL/Nizam Jewellery dated 31st January 1986, directing them to make representation to him under Sub-sections (2) and (3) of Section 19 of the aforesaid Act and held an enquiry on behalf of Government of India and after hearing to their objections in the matter; concluded that the Trust had failed to make a good case for the rescisation of the order No. 1/23/76-ANT. dated 12-10-1984 and, therefore, recommended that the said order be confirmed as provided in Section 19(4) of the aforesaid Act, vide his letter No. GEN/SCL/A&ATA dated 28-5-1986.
We, therefore, the Central Government, in exercise of the powers conferred upon it under Sub-section (4) of Section 19 of the aforesaid Act, hereby confirm the letter No. 1/23/76-ANT. issued on 12-10-1984.
Sd/-
(M.S. Nagaraja Rao) Director General & Ex-officio Joint Secretary Archaeological Survey of India 28.2 The Director General, Archaeological Survey of India, passed an order dated 30th September, 1986 for acquisition of the 23 items declared as antiquities in February 1978 under Section 19(1) of the Antiquities Act. Relevant portion of the said order passed under Section 19(1) read with Section 2(1)(a)(I)(iii) of the Antiquities Act, a copy of which is filed at page 26 of the paper-book Vol. XIV filed by the learned counsel for the assessee reads as under:
No. 1/23/76-ANT.
Government of India Archaeological Survey of India Janpath New Delhi, the ORDER Whereas the Director General, Archaeological Survey of India, in exercise of powers conferred under Section 24 of the Antiquities and Art Treasures Act, 1972, has declared the following 23 items of jewellery belonging to Nizam's Jewellery Trust, as antiquities under Clause (a)(iii) of Sub-section (1) of Section 2 of the Antiquities and Art Treasures Act, 1972 :
** ** ** Whereas the Government of India is of the opinion that it is desirable to preserve the said antiquities in the custody of the National Museum, Janpath, New Delhi, till such time a decision is taken regarding the creation of a Gem and Jewellery Museum;
Now, therefore, the Government of India hereby orders that the above mentioned 23 items of jewellery be compulsorily acquired under the provisions of the Section 19(1) of the Antiquities and Art Treasures Act, 1972.
Sd/-
(Y.S. Das) Secretary to the Government of India Ministry of Human Resource Development Department of Culture 13 Sept. 1986 The said order for compulsory acquisition is confirmed under Section 19(4) of the Antiquities Act, vide order of the Department of Culture dated 26th April, 1987. A copy of the said order may be seen at page 29 of the assessees' paper-book volume No. XIV and the relevant portion of the same reads as under :
No. 1/23/76-ANT.
Government of India Archaeological Survey of India Janpath New Delhi, the ORDER Whereas the Government of India, vide the order No. 1/23/76-ANT dated the 30th September, 1986, has, in exercise of the powers conferred upon it by Sub-section (1) of Section 19 of the Antiquities and Art Treasures Act, 1972 (52 of 1972) hereinafter referred to as the said Act, ordered that the following 23 items of jewellery belonging to Nizam's Jewellery Trust, which had been declared as antiquities under Clause (a)(I)(iii) of Sub-section (1) of Section 2 of the said Act, be compulsorily acquired.
** ** ** Whereas the Central Government, vide its order No. 1/23/76-ANT dated the 14th November, 1986, in exercise of the powers conferred upon it under Sub-section (4) of Section 19 of the said Act, authorized the Collector, City of Bombay & B.S.D., Old Customs House, Fort, Bombay, to entertain the representation of the owners of 23 items of jewellery declared as antiquities and after giving to the owners the opportunity of being heard in the matter within a period of 90 days from the date of receipt of the representations and forward the representations with his findings thereon;
Whereas the Collector, Bombay issued notice to the owner of jewellery, vide his No. GSC/SCL/Nizam Jewellery dated the 3rd December, 1986, directing him to make representation to him under Sub-sections (2) and (3) of Section 19 of the said Act and held an enquiry on behalf of the Government of India and after hearing his objections in the matter, concluded that the Trust had failed to make a good case for the rescission of the order No. 1/23/76-ANT dated the 30th September, 1986 and, therefore, recommended that the said order be confirmed as provided in Sub-section (4) of Section 19 of the said Act, vide his No. GEN/SCL/Nizam Jewellery/2100 dated the 10th April, 1987.
Now, therefore, the Central Government, in exercise of the powers conferred upon it under Sub-section (4) of Section 19 of the said Act, hereby confirms the order No. 1/23/76-ANT issued on the 30th September, 1986.
Sd/-
(M. Varadarajan) Secretary to the Government of India Ministry of Human Resource Development Department of Culture 28 April, 1987 In the light of the above orders, the following position emerged :Total No. of Items of Jewellery 89
Declared as Art treasures 7 Declared as Antiquities 23 Not declared as Antiquities or as Art treasures 58 Jacob Diamond which is not decided either as Antiquity or as Art Treasure 1 Total 89
The claim of the assessee is that the entire lot of 89 items are works of art and so, eligible for exemption under Section 5(1)(xii) of the Wealth-tax Act. Alternatively, it is claimed that at least the 30 items, (23 + 7) declared as antiquities and art treasures are eligible for exemption under Section 5(1)(xii) as works of art. As a third alternative, it is claimed that, at least, the seven items declared as art treasures deserve to be exempted under Section 5(1)(xii). The revenue resists all the claims.
29. The Assessing Officer declined to follow the order of the Tribunal in Trustees of H.E.H. the Nizam's Jewellery Trust'scase (supra) on the ground that the decision of the Tribunal was not accepted by the Department and that jewellery does not count as works of art or even as art collections in terms of the decision of the Hon'ble Calcutta High Court in Rajendra Kumar Sethia v. CWT [1992] 194 ITR 218 : [1993] 66 Taxman 529.
29.1 On appeal, both the Commissioners (A) declined to allow the claims for exemption under Section 5(1)(xii) in respect of all the items of the jewellery on the ground that there was intention to sell the jewellery and so, one of the conditions stipulated in Section 5(1)(xii) was not fulfilled. The CWT(A)-I specifically rejected the claim in respect of the seven items declared as art treasures and impliedly declined the claim in respect of rest of the jewellery. The CWT(A)-II rejected the claim inter alia with the following remarks :
The contention in regard to treating the items of jewellery as Antiquities/Art Treasures appears to be a travesty of facts inasmuch as in the sale proceedings even as late as 1993, the Trustees argued in the counter affidavit filed before the Supreme Court that none of the items of jewellery were of any excellence and cannot be termed as Antiquities and Art Treasures if this is taken into account. The fallacious nature of the appellant's argument becomes crystal clear and in reality, appellant had tried to blow hot and cold in the same breath which otherwise is an impossibility and this is evident from the fact that on one hand, it has claimed the items of jewellery as 'Antiquities and Art Treasures' and on the other hand, it has questioned the same as per the contents of the counter affidavit filed before the Supreme Court. If it is so, it is not an acceptable proposition at all that the different items of jewellery were liable to be considered as Antiquities and Art Treasures.
He observed that the trustees were all along contesting the restrictions put in by the concerned authorities of the Government of India with regard to the export of jewellery for the purposes of sale and so, there was always intention of selling the jewellery in their mind. In this context, he also referred to the agreement entered into with the Trustees by the Union of India on 12-2-1989 and observed as under :
That apart, a perusal of the agreement arrived at by the trustees through their representative with the Government of India and referred to earlier, indicates that the agreement so arrived at was in respect of all the 89 items of jewellery of HEH the Nizam Jewellery Trust. 84 items of jewellery in HEH the Nizam Supplemental Jewellery Trust and the 7 items of the nature of Antiquities and Art Treasures were also forming a part and parcel of the items of jewellery for which such an agreement was arrived at through the representative with the Government of India. The Government of India was to take all such items of jewellery by way of Package Deal and no exception was made to exclude these 7 items of jewellery from the ambit of the Package Deal and the matter in regard to determination of value of all these items referred to the Arbitrator was also with reference to all the items inclusive of these 7 items. This would mean that appellant had an intention to sell all the items of jewellery inclusive of those 7 items which otherwise were categorized as 'Antiquities and Art Treasures' and it is because of such an intention that the agreement was arrived at and which was also of binding nature because of the reference to the Arbitrator as referred to earlier. It is also clear from Clause 5(a) of the agreement which inter alia provides that the Arbitrators shall have regard to the principles and factors prescribed under Rule 20 of the Antiquities and Art Treasures Act, 1972 in the matter of determination of price/compensation for the items agreed to be taken over by the Central Government. The very mention for determination for price/ compensation for the items would indicate that the amount on account of price/compensation for these 7 items was to be determined according to the agreement by the Arbitrators and whatever compensation/price was payable would have reflected the fair market value as on the relevant valuation dates taking into account the acquisition order and, therefore, it cannot be said that there was no intention to sell these 7 items though contended for. If the said agreement is taken into account, the argument of the appellant of there being no intention to sell in respect of these 7 items is nothing but a defeat to its own logic. It is also seen that as per Clause 6 of the said agreement, appellant required from the Central Government according of necessary permits and facilities for the purpose of facilitating the various procedures under Clause 'C of Section 20(1) of Antiquities and Art Treasures Act, 1972 and this would equally show that there had been an intention on the part of the appellant all through to sell all the items of jewellery inclusive of these 7 items and, therefore, even if these 7 items were classified as Antiquities and Art Treasures by virtue of the order of the competent authority, the other pre-condition referred to in Section 5(1)(xii) of there being no intention to sell remains not met with and accordingly appellant appears to be not eligible for the exemption so envisaged in the said action.
30. The learned counsel for the assessees, in support of the claim, referred us to the Memorial submitted to Smt. Indira Gandhi, the then Prime Minister in 1972, which we have already extracted. He also referred to the interim application filed by the Government of India in Writ Petition No. 1429, which can be seen at pages 90 to 105 of the assessees' paper-book No. III, wherein referring to the terms of merger of Hyderabad State with Union of India, the following averment is made:
(g) The Rulers were to set up trusts in respect of the temples and religious funds and were also to preserve for the nation objects of historical importance, which even though were to be treated as private property, were to be preserved in museums inside the state concerned.
In the light of the averment, it is claimed that the jewellery in question deserves to be ranked as works of art or at least art collection because it has to be preserved in Museums in terms of the Merger Document. He also referred to the report of the Sharda Prasad Committee, which is mentioned in the above-mentioned interim application in Writ Petition No. 1429 of 1979 according to which "in view of the historical importance of the collection, it should be acquired in its entirety in the national and public interest, so that the selected items could be displayed in the National Museum and others". This averment may be seen at page 98 of the assessees' paper-book Vol. III.
30.1 Next, reference is made to the averments made by the Director General of National Museum in another Interim Application dated 23-4-1991 filed before the Umpire, Mr. Justice A.N. Sen, in which it was stated as under:
(15) There is another aspect of the 173 items as well. Irrefutable documents establish beyond the shadow of doubt that almost all these items fall under the categories of antiquities and art treasures under the Antiquities and Art Treasures Act, 1972. Therefore these cannot be exported out of India.
** ** ** When the Jacob Diamond itself has become 100 years old, it is obvious that all the remaining 106 items included in that list are also antiquities.
** ** ** Therefore, most of these items cannot be exported out of India. Their valuation has, therefore, to be determined with reference to the Indian market and with the attached conditions that the heirloom and antiquity items would be kept substantially in original shape (i.e., these cannot be dismantled and reset for making new jewellery), that these shall be open for periodical inspection; and that they are accessible to scholars for research. As an art historian, I am of the firm belief that these measures will bring the price of these items - which as per the valuation submitted by the Nizam side is Rs. 1192 crores plus taxes and expenses, etc. - considerably down and even the parties interested to purchase these items of jewellery will be limited to a few. Regalia items, indeed, belong to the Nation.
In the light of the above, it is claimed that even according to the Director General of National Museum, almost all the 173 items i.e., the jewellery of both the trusts in question, fell within the categories of antiquities and art treasures under the Antiquities Act and so, so far as the main trust is concerned, all the 89 items deserve to be treated as works of art or art collections, qualifying for exemption under Section 5(1)(xii).
30.2 Next, reference is made to the Affidavit dated 16-4-1991 of Shri Jayant Chowlera, Department's Valuation Officer before the Umpire, a copy of which may be seen at pages 138 to 143 of the assessees' paper-book, wherein at page-141 it has been mentioned as under:
4. The collection of Nizam Jewellery in the two Trusts is associated with the name of Nizam of Hyderabad and is quite old. Apparently, most of the items belong to the 19th century and/or even earlier period and are, therefore, antiquities. Looking at the intricacies and fineness of making of enamel work and setting, cutting of gems and jewels will support the inference beyond doubt that most of these items are art treasures apart from being antiquities in terms of Antiquities and Art Treasures Act, 1972. While making this statement, I have kept in mind the style and other relevant comparative factors of jewellery items with the States of Jaipur, Gwalior, Mysore, Dogra etc. which belong to the similar periods and which I have had occasion to examine closely.
As most of these items are art treasures and antiquities, their valuation has to be determined in the context of Indian market. In fact, some of these items have already been declared antiquities and art treasures and, therefore, cannot be exported out of India under the Antiquities and Art Treasures Act, 1972. Similar would be the case with the remaining ones. Therefore, their valuation has to be confined to Indian market.
30.3 Next, the learned counsel invited our attention to the letter dated 26-12-1994 of the Joint Secretary, Ministry of Human Resource Development, Department of Culture, Government of India addressed to the Secretary, HEH the Nizam's Trusts, a copy of which is filed at page-20 of the assessees' paper-book Volume-XIV, which reads as under:
With reference to your letter No. JT/5/94 dated 26-12-1994, it is confirmed that the Government of India, in accordance with the orders of the Supreme Court of India is acquiring 173 items of the Art Collection comprising 89 items of HEH Nizam's Jewellery Trust and 84 items of HEH's the Nizam's Supplemental Jewellery Trust. The Jewellery items are being acquired for the purpose of display in one of the important museums of India as works of art for public viewing.
Attention is also invited to the letter written by Director General of National Museum and Joint Secretary, Department of Culture, addressed to the Secretary of the Nizam's Jewellery Trust, dated February 1, 1996, a copy of which is filed at page-21 of the assessees' paper-book Volume-XIV. The said letter reads as under:
With reference to your letter No. JT/5/94 dated 1-2-1996, it is confirmed that the Government of India, in accordance with the orders of the Supreme Court of India is acquiring 173 items of the Art Collection comprising 89 items of HEH Nizam's Jewellery Trust and 84 items of HEH's the Nizam's Supplemental Jewellery Trust. The jewellery items have been acquired for the purpose of display in the National Museum, New Delhi as works of art for public viewing.
In the light of the above letter, it is claimed that the Jewellery items have been acquired by the Government of India, as works of art or art collection, for display in the National Museum and so, it is too much for the Income-tax Department now to seek to deny exemption under Section 5(1)(xii) of the Wealth-tax Act. It is claimed that the Government of India cannot have it both ways, i.e., as works of art or art collections for the purpose of granting compensation and not so, when it comes to the question of levy of wealth-tax. Having denied access to the international market on the ground that the jewellery in question is of the nature of antiquity or art treasure, it is claimed that the Department cannot seek to deny exemption when it comes to the question of levy of tax.
30.4 The learned counsel for the assessees then relied on the answer to the unstarred question No. 1781 given in the Parliament by the Deputy Minister for Education, to Shri I.K. Gujral, a copy of which may be seen at page-23 of the assessees' paper-book Vol. XIV. It reads as under :
RAJYA SABHA UNSTARRED QUESTION NO. 1781 TO BE ANSWERED ON 24TH MARCH, 1995 CHAITARA 3, 1917 (SAKA) PURCHASE OF NIZAM'S JEWELLERY 1781. SHRIINDER KUMAR GUJRAL:
Will the Minister for Human Resource Development be pleased to state:
(a) Whether it is a fact that the Government have recently purchased Nizam's Jewellery collection at a cost of about Rs. 217 crores;
(b) If so, what are the details thereof and the reasons that have prompted Government to go in for purchase; and
(c) Whether Government propose to establish a special museum for display of jewellery and other valuable items in Delhi and Hyderabad?
ANSWER THE DEPUTY MINISTER FOR EDUCATION AND CULTURE IN THE MINISTRY OF HUMAN RESOURCE DEVELOPMENT (KUM. SELJA)
(a) Yes, Sir.
(b) The Supreme Court in its order dated 20-10-1994, gave option to the Central Government for purchase of 173 jewellery items by making payment in lump-sum by 31-12-1994 and subsequently in their order dated 29-12-1994 extended the time up to 16-1-1995. The Government has acquired 173 items of Jewellery belonging to the two trusts of the erstwhile Nizam of Hyderabad. A sum of Rs. 1,80,37,33,959 and 6% interest thereon from 27-7-1991 to 10-1-1995 was paid to the trusts. The Government decided that the jewels/jewellery of the Nizam being art treasures and heritage items should not be allowed to be taken out of the country and they should be acquired by the Government for public view.
(c) There is already a jewellery gallery established in National Museum, New Delhi. These items of jewellery are being kept for display in that Museum for public view.
In the light of the above, it is claimed that the entire jewellery was acquired by the Government as heritage items and art treasures and so, they are eligible for exemption under Section 5(1)(xii) of the Wealth-tax Act.
30.5 Next, reference is made to a letter dated 10-9-1987 of the Department of Culture, Government of India, addressed to the Secretary of the Trust, a copy of which is filed at page-22 of the assessees; paper-book Vol. XIV. The said letter reads as under:
Please refer to your letter No. 555/97 dated 21st July, 1997 regarding the display of Nizam Jewellery acquired by Government of India (Deptt. of Culture) in pursuance of orders of Hon'ble Supreme Court.
Your request for issue of another letter from Secretary, Deptt. of Culture in this regard has been considered. However, it has been felt that since Shri Ashok Vajpeyi, Joint Secretary in the Deptt. of Culture has already written two letters in this regard, there is no need for the Secretary, Deptt. of Culture to write again.
In the light of the above letter, it is pleaded that it was the confirmed position of the Department of Culture that the entire jewellery in question was acquired as works of art or art collection, within the meaning of Section 5(1)(xii) of the Wealth-tax Act.
30.6 Next, reliance is placed on the order of the Assistant Commissioner of Income-tax in Income-tax Proceedings for the assessment year 1995-96, wherein the value of the 23 items declared as antiquities and 7 items declared as art treasures and the Jacob Diamond were exempted from the levy of tax on capital gains, as works of art/art collection under Section 47(ix) of the Income-tax Act. A copy of this Order may be seen at pages 2 to 16 of the paper-book Vol. XII. Relevant portion of this Order reads as under:
E. At this juncture, The only questions of material importance the present proceedings are I. How many items of jewellery qualify for exemption under Section 47(ix) of the Income-tax Act, 1961? And II. Whether the amount received as interest by the Trustees on 12-1-1995 is taxable or not?
To qualify for exemption under Section 47(ix), any item has to be a work of art, archaeological, scientific or art collection etc. No Definition is available in the Income-tax Act for the terms 'work of art'. The assessee did not produce any cogent evidence to prove all the items as works of art. Therefore efforts were made to look into existing record and other documents to find out certain parameters against which any item can be termed as work of Art. The Encyclopaedia of World Art, Vol. [published by Me Graw Hill Book Company was looked into to understand the meaning, of work of Art. At page Nos. 802 to 810 of the above book, there is some discussion of the nature of work of art and upon going through the same, it is felt any work of art has to be evaluated against the following parameters :
(i) Production of replicas, lascimlies, etc. : To qualify as work of art, the item should a motto for replication by the society. For example, the painting of Mona Lisa has been replicated by several painters throughout the world.
(ii) Art production, Customs etc. : The artistic activity related to a work of art may influence a vast series of social phenomenon and may shape the taste and style of an epoch.
(iii) Dealing and Collection: Society tends not only to assimilate and utilize the values of art but also tends to take permanent possession of the works themselves.
(iv) Preservation of Art heritage: The community in its various forms like Church, State and City has always been profoundly interested in art and has generally accepted it to make, manifest. Or to clarify by means of symbols, allegories or historical representation.
(v) Teaching: A work of art can be and object for teaching also and lastly.
(vi) Art Criticism: A work of art has to be an object of criticism and above all art history.
G. Several attempts were made to evaluate the items of jewellery of the Trust, against the above yard sticks and it is found there is no reported criticism or teaching on the jewellery. The jewellery was also not any model for replication. Neither did it influence any series of social phenomena. It was only a private collection of the settler meant for the purpose of sale. Infact, the settler himself stated that it can be re-set, or re-made for the purpose of realization of better value.
Therefore, in the eyes of the settler and the society it was another item of jewellery, of course belonging to the Nizam. Hence, to state that all the items are works of art is not correct. The only point which is weight is after detailed examination of the jewellery items several times, the expert committees constituted by Government of India declared 23 items as antiquities and 7 items as art treasures. The Government of India passed acquisition orders in respect of the same. In fact, the Pupul Jayakar Committee after examination of 37 items on 13-2-1981 declared only 7 items deserve to be acquired and passed the following comments. "Majority of these ornaments in spite of their charming appearance contains somewhat mechanical treatment. Of them, the following seven, however, are specimens of high degree of perfection and workmanship which deserve to be declared "as art Treasures". Regarding the 7 items the committee opined that "in view of the notable design, superb quality of gems, rare patterns the above noted items of jewellery belonging to HEH, Nizam's Trust should not be allowed to be exported because these deserve to be declared as art treasures". Regarding the rest of the items it was opined by the committee that "they should be allowed to be sold and exported". These recommendations of the committee clearly prove the fact that out of 37 items only 7 items will fall under the category of works of art and the rest are ordinary jewellery.
It is worthwhile to mention here that the Trustees themselves argued vehemently before the acquisition authorities that all the items are ordinary jewellery without any extraordinary. Workmanship, however, the opinion of the expert committee being on a correct footing has to be taken into consideration.
H. There is a difference for an item to be work of art or of historical interest. All the items of jewellery may be of historical interest being the jewellery of Nizam. However, they cannot be termed as works of art unless they qualify the criteria described above. For example. The photograph of a national leader may be of historical interest or an "heritage item" to a nation but it cannot be automatically termed as work of art. It is only the skill of the photographer, type of equipment used etc., that makes it a work of art. On a crude piane, the stone used by Jack, the Repper to hill people may be of "historical interest" the remember the misery caused by him. But the one may perhaps agreed to the fact that the stone is a work of art.
I. Upon careful consideration of the evidence on record it is noticed that only 23 items are declared as antiquities and 7 items as art treasures. Therefore, it will be in the fitness of things to assume that these 30 items are works of art. In addition, after going through the documents obtained from Archaeological Survey of India, It is felt that the Jacob Diamond also deserves to be termed as work of art. There is certain evidence available on the nature of this diamond from the communication issued by Mr. L.K. Srinivasan, Director (Antiquities), Archaeological Survey of India to Dr. L.P. Shihare, Director General, National Museum, New Delhi in F. No. 1/23/76-AWT dated 17-3-1988.
From Levantine jew named Jacob to the Nizam and the author of a book entitled "Fabulous Mogul" by name F.D. Karaka met Nizam, the VIIth and gave a detailed description of how and when this Diamond was purchased by the Nizam. As evident from the above referred communication, the purchase was made by the Nizam in 1898 and some books in Urdu also confirm this fact. It is also evident from the communication that the officials of Archaeological Survey of India were of the opinion that an English cut does not imply that it is of modern origin. Though a decision was not taken by the Archaeological Survey of India in case of this diamond and though the assessee himself argued before Archaeological Survey of India that it is not an antique, considering the evidence on record and also considering the fact that the diamond is famous for its name, it is felt that the same can be termed as a work of art.
Therefore, in total 31 items can be treated as works of art and the rest of the items fail to qualify as works of art and hence not eligible for exemption under Section 47(ix) of the Income-tax Act. They are also not part of any archaeological of art collection because as already discussed above, all the jewellery items were kept by members and if necessary they were to be re-set or re-made for realisation of better price. Therefore, none of the items were part of a collection maintained for preservation of art or art heritage.
With the above remarks, the Assessing Officer exempted the seven items notified as art treasures and 23 items declared as antiquities and Jacob Diamond, from the levy of capital gains tax.
30.7 The learned counsel for the assessees further contended that the agreement dated 12-2-1989 only provided for the determination of the fair price/compensation in accordance with the principles and practice prescribed under Section 20 of the Antiquities Act and so, the Government of India paid only the acquisition price and not the price which could have been fetched in the international market. He claimed that the words 'not intended for sale' figuring in Section 5(1)(xii) of the Wealth-tax Act, have no application to the situation wherein the assessees had to virtually surrender the right to sell and enter into the agreement dated 12-2-1989, conceding the powers of acquisition to the Government of India under the Antiquities Act in respect of the jewellery. As the trustees had foregone substantial amounts on account of not selling in the international market, wealth-tax exemption under Section 5(1)(xii) should be granted, as the entire jewellery was acquired by Government of India as works of art or art collection for display in the National Museum. So, it is claimed that all the conditions specified in Section 5(1)(xii) are fulfilled and so, all the items of jewellery should be exempted and no value is assessable.
30.8 In this context, in support of his plea, he has sought to file before us, a copy of the written submissions made on behalf of the Union of India before the Umpire to the effect that the entire collection was exempt from both the levy of tax on capital gains in terms of Section 47(ix) of the Income-tax Act and Wealth-tax in terms of Section 5(1)(xii) of the Wealth-tax Act. The learned Departmental Representative resisted the admission of these written submissions, as according to him, they constituted additional evidence, as they were not filed before the Revenue authorities. It is, however, mentioned by the learned counsel for the assessee that they were filed before the revenue authorities in the Income-tax Proceedings and by oversight, the same were not filed before the Revenue authorities in Wealth-tax Proceedings. We see no reason for not admitting this evidence, as it represented only the submissions made on behalf of the Union of India and as such it is part of record before the Umpire and is not something made out now on behalf of the assessee. The learned counsel for the assessees, relied on the following averments made in these written submissions, figuring at p. 45 of the written submissions:
18. Another aspect of the matter of valuation would be the incidence of tax in case goods are acquired by the Central Government for purposes of National Museum as it would be entitled to exemption under Section 47(ix) of the Income-tax Act. Taking an example of the computation of capital gains, if we assume the figure given by Christies, i.e., 145 million, converted into Indian rupees, taking the conversion value at Rs. 20, will work out to Rs. 290 crores, out of which they would be entitled to a set off value as on 1-3-1974, which has been determined now at Rs. 32 crores, which leaves a balance of Rs. 255 crores, on which they would have to pay capital gains tax and assuming a rate of 50 per cent, the amount of Rs. 127.5 crores would be payable as capital gains component. The Union of India submits that this should be taken as a discount from the value to be fixed by the Ld. Umpire. The only other option would be that the Trustees would have to invest the entire sale consideration in Government bonds for a period of three years, which would mean blocking the funds and defeating the very purpose of this agreement was entered into and the purpose for which the trustees are intending to sell these jewels, i.e., for the beneficiaries interests as they were in dire financial need.
In the light of the above, it is claimed that the Union of India had all along and right from the proceedings before the Umpire, pleaded that the assessee would be eligible for reliefs under Section 47(ix) of the Income-tax Act and under Section 5(1)(xii) of the Wealth-tax Act. So it is pleaded that the Department cannot now take a contrary stand.
31. As already mentioned, on an alternative basis, the learned counsel for the assessee restricted the claim to either the 30 items or, at least, the seven items declared as art treasures. In this context, reliance is placed on the decision of the Tribunal reported at 35 ITD 402.
31.1 The learned counsel for the assessees also pleaded that the decision of the Hon'ble Calcutta High Court in Rajendra Kumar Sethia's case (supra) relied on by the Assessing Officer actually supports the case of the assessee, or at least is distinguishable and in this context, he invited our attention to the concluding remarks of the Hon'ble Calcutta High Court in the said judgment, which read as under;
In our view, jewellery having been considered separately, it will not come within the purview of "work of art" and comes within the purview of Section 5(1)(xii), it cannot be an ordinary piece of jewellery which is meant for personal use and which, by its very nature, is liable to be sold whenever such occasion arises.
31.2 In the light of the above remarks, it is claimed that the jewellery of the Nizam Jewellery Trust, having been acquired by the Government of India, as heritage items and art treasures and works of art/art collections, the same cannot be regarded as ordinary pieces of jewellery, which are meant for personal use. So, it is claimed that the decision of the Calcutta High Court, in fact, supports the case of the assessee.
31.3 He further referred to the report of the Collector, Bombay in the context of the compulsory acquisition of the seven items, as art treasures and mentioned that the following logic of the Collector, Bombay, which may be seen at pages 91 to 135 of the Paper-book Vol. I, should be applied to judge the issue whether the 99 items are works of art or art collection within the meaning of Section 5(1)(xii) of the Wealth-tax Act:
7.3 The argument that the law on the subject makes a distinction between work of art and works of craftsmanship and deliberately excludes the latter from the definition of art treasure, thus removing therefrom is also not acceptable. According to the Concise Oxford Dictionary (Seventh Edition), art means "skill, especially human skill as opposed to nature" and crafts means "skill". As commonly used, therefrom, both the words have the same meaning. There is, thus, no basis for the view that works of art and works of craftsmanship are two very different things. In fact, every work of art involves craftsmanship, without which no aesthetic concept can be transformed into a concrete object and every work of craftsmanship involves art, even if superficially. It is because of this that critics speak of painter Michael-Angelo's immaculate craftsmanship and dress-designer Pierre Cardin's artistry. It is also wrong to distinguish between works of art and works of craftsmanship on the basis whether they are immaterial and non-utilitarian or otherwise. If paintings, which are material and adorn space, can be regarded as works of art, there is no reason why Jewellery which is just as material and adorns the human person cannot be so regarded, specially when paintings are as much repositories of wealth today as Jewellery is.
In the light of the above observations of the Collector, Bombay, it is mentioned that the jewellery can also be works of art or art collections, as even pieces of good craftsmanship should be regarded as works of art. He also mentioned that as per the definition of the term 'art treasure' given in Section 2 of the Antiquities Act, an 'art treasure' has to be notified as such by the Government of India, but as per the definition of the term 'antiquity' given in the same Section, no such notification by the Government is required. So, it is claimed that all the pieces of jewellery irrespective of any Government notification covering them, have to be regarded as works of art or art collection within the meaning of Section 5(1)(xii) of the Wealth-tax Act. It is also explained that an art treasure is a higher category of work of art and as such, a work of art need not qualify as an art treasure. It is also claimed that an antiquity includes a works of art if the same has been in existence for hundred years in terms of Section 2 of the Antiquities Act and so, antiquities declared as such under the said Act, should be regarded as works of art, so as to be eligible for exemption under Section 5(1)(xii) of the Wealth-tax Act. It is also claimed that the statutory orders declaring the 23 items as antiquities and 7 items as art treasures, were never withdrawn and hence notwithstanding the compromise agreement dated 14-2-1989, it has to be held that the acquisition proceedings under the Antiquities Act were continuing till the entire collection of jewellery has been acquired by the Government and as such the intention to sell them is Ruled out because of the pending acquisition as held by the Tribunal in 35 ITD 402.
32. The learned Departmental Representative, on the other hand, invited our attention to the relevant provisions of the Trust Deed in terms of which the items of jewellery in question were intended for sale and mentioned that all along the trustees were seeking to sell the jewellery, since the day they had submitted the Memorial to the then Prime Minister, Smt. Indira Gandhi in 1972. So, it is too much to say that the jewellery can be exempted under Section 5(1)(xii), which would not be applicable if there was any intention of sale. It is also mentioned that that the decision of the Tribunal in 35 ITD 402 holding that the intention to sell cannot be transcend the limit of law imposed by the acquisition proceedings in respect of the seven items declared as art treasures, is no longer applicable after the compromise agreement dated 14-2-1989. It is pointed out that after the compromise agreement, there was no limitation of law constraining the sale of the jewellery, as the Government of India entered the field as a willing buyer of the entire collection of jewellery. It is mentioned that there was intention to sell and agreement to sell and there was also approval of the Supreme Court for the same, as the said compromise agreement was ordered by the Supreme Court on 25-4-1989. It is pleaded that the entire collection of jewellery was actually purchased by the Union Government and was not acquired and it is also mentioned that all orders passed under the Antiquities Act in respect of both the 23 items declared as antiquities and seven items declared as art treasures, must be regarded to have lapsed after the compromise agreement dated 14-2-1989. It is also claimed that, whatever be the position about the seven items declared as art treasures, a bare look at the definition of the term 'antiquity' given in the Antiquities Act Rules out any scope for considering the 23 items declared as antiquities as works of art eligible for exemption under Section 5(1)(xii) of the Wealth-tax Act. It is mentioned that 'Antiquities' are only of historical interest and they cannot be regarded as works of art. Referring to the comments of the learned counsel for the assessees about the logic of the Collector of Bombay in his Order mentioned hereinabove, it is contended that the said logic was given in the context of the notification of the seven items as art treasures and cannot be extended to the other items of jewellery, as notification is a pre-requisite for acquiring art treasures and no such notification is necessary for antiquities or other items. Referring to the letters given by the Joint Secretary, Ministry of Culture, stating that the entire art collection was acquired as works of art for display in the museum, it is stated that the said functionary had used the expression 'works of art' in a loose fashion, without regard to the legal implications. It is contended that too much should not be read into the said expression in that communication. It is also claimed that the Deputy Minister for Culture in his reply to the Parliament, which is extracted hereinabove, clearly mentioned that the items had been acquired as art treasures and heritage items and so the entire collection, except the seven items declared as art treasures, were acquired only because of the historical interest. It is also claimed that the claim that all the items were exempt was never made in the return of income and it is not a pure question of law and so, it cannot be entertained for the first time, by the ITAT.
33. We are of the view that the assessee deserves to succeed in its claim for the exemption of the seven items declared as art treasures and the 23 items declared as antiquities and the assessees do not deserve to succeed in relation to the rest of the 59 items, which include the Jacob Diamond.
33.1 For examining the issue, it is necessary to consider the relevant provisions of the Wealth-tax Act, as well as the Antiquities Act.
Section 5(1)(xii) of the Wealth-tax Act reads as under :
Exemptions in respect of certain assets.
Wealth-tax shall not be payable by an assessee in respect of the following assets and such assets shall not be included in the net wealth of the assessee:
** ** **
(xii) any works of art, archaeological, scientific or art collections, books or manuscripts belonging to the assessee and not intended for sale.
It may be observed that for an asset to be eligible for exemption under Section 5(1)(xii), it must satisfy simultaneously two conditions. They are (1) it should belong to the specified category like works of art or art collection and (2) it should not be intended for sale.
33.2 At this stage, we may also reproduce the corresponding provisions of Section 47(ix) of the Income-tax Act, sanctioning exemption from capital gains tax. The said provision reads as under:
Transactions not regarded as transfer.
47. Nothing contained in Section 45 shall apply to the following transfers:
(ix) any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notified by the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States.
Explanation. - For the purposes of this Clause, "University" means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under Section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.
33.3 Now, we may refer to the provisions of Section 2 of the Antiquities Act, which define the terms 'Art treasure' and 'Antiquity'.
2. Definitions.-(1) In this Act, unless the context otherwise requires-
(a)antiquity" includes-
(I) (i) any coin, sculpture, painting, epigraph or other work of art or craftsmanship.
(ii) any article, object or thing detached from a building or cave;
(iii) any article, object or thing illustrative of science, art crafts, literature, religion, customs, morals or polities in bygone ages;
(iv) any article, object or thing of historical interest;
(v) any article, object or thing declared by the Central Government by notification in the Official Gazette, to be an antiquity for the purposes of this Act, which has been in existence for not less than one hundred years; and (II) any manuscript, record or other document which is of scientific, historical, literary or aesthetic value and which has been in existence for not less than seventy-five years.
(b)"art treasure" means any human work of art, not being an antiquity, declared by the Central Government by notification in the Official Gazette, to be an art treasure for the purposes of this Act having regard to its artistic or aesthetic value :
Provided that no declaration under the Clause shall be made in respect of any such work of art so long as the author thereof is alive.
The other salient provisions of the Antiquities Act, read as under :
'19. Power of Central Government to compulsorily acquire antiquities and art treasures.-(1) If the Central Government is of opinion that it is desirable to preserve any antiquity or art treasure in a public place, that Government may make an order for the compulsory acquisition of such antiquity or art treasure.
(2) On the making of an order under Sub-section (1) the Collector of the district in which such antiquity or art treasure is kept shall give notice to the owner thereof intimating him of the decision of the Central Government to acquire the same and it shall be lawful for the collector to take possession of such antiquity or art treasure, for which purpose the Collector may use such force as may be necessary.
(3) Where the owner of any antiquity or art treasure, the possession of which has been taken over by the Collector under Sub-section (2), objects to the taking over of such possession, he may, within a period of thirty days from the date on which such possession was taken over, make a representation to the Central Government putting forth his objection.
(4) On receipt of any representation under Sub-section (3), the Central Government, after making such inquiry as it deems fit and after giving to the objector an opportunity of being heard in the matter, shall, within a period of ninety days from the date of receipt of the representation, either rescind or confirm the order made by it under Sub-section (1).
(5) Where any order made by the Central Government under subSection (1) is rescinded under Sub-section (4) the antiquity or art treasure, shall be returned to the owner thereof without delay and at the expenses of the Central Government.
(6) Where the order make by the Central Government under subSection (1) is confirmed under Sub-section (4) the antiquity or art treasure shall vest in the Central Government with effect from the date on which the possession thereof has been taken over by the Collector under Sub-section (2).
(7) The power of compulsory acquisition conferred by this Section shall not extend to any object, being an antiquity or art treasure used for bona fide religious observance.
Explanation.-In this Section "public place" means any place which is open to the use of the public, whether on payment of fees or not, or whether it is actually used by the public or not.
20. Payment of compensation for antiquities and art treasures compulsorily, acquired under Section 19.-(1) Where any antiquity or art treasure is compulsorily acquired under Section 19, there shall be paid compensation, the amount of which shall be determined in the manner and in accordance with the principles hereinafter set out, that is to say,-
(a) where the amount of compensation can be fixed by agreement, it shall be paid in accordance with such agreement;
(b) where no such agreement can be reached, the Central Government shall appoint as arbitrator a person who is, or has been, or is qualified for appointment as, a Judge of a High Court;
(c) the Central Government may, in any particular case, nominate a person having expert knowledge as to be the nature of antiquity or art treasure compulsorily acquired to assist the arbitrator and where such nomination is made, the person to be compensated may also nominate an assessor for the same purpose.
(d) at the commencement of the proceeding before the arbitrator, the Central Government and the person to be compensated shall state what, in their respective opinion, is a fair amount of compensation;
(e) the arbitrator shall, after hearing the dispute, make an award determining the amount of compensation which appears to him to be just and specifying the person or persons to whom such compensation shall be paid and in making the award he shall have regard to the circumstances of each case and the provision of Sub-section (2);
(f) where there is any dispute as to the person or persons who are entitled to the compensation, the arbitrator shall decide such dispute and if the arbitrator finds that more persons than one are entitled to compensation he shall apportion the amount thereof amongst such person;
(g) nothing in the Arbitration Act, 1940 shall apply to arbitration under this Section.
(2) While determining the compensation under Sub-section (1), the arbitrator shall have regard to the following factors, namely:-
(i) the date or the period to which the antiquity or art treasure belongs;
(ii) the artistic, aesthetic, historical, architectural, archaeological or anthropological importance of the antiquity or art treasure;
(iii) the rarity of the antiquity or art treasure;
(iv) such other matters as are relevant to the dispute.
(3) The arbitrator appointed under Sub-section (1), while holding arbitration proceedings under this Section, shall have all the powers of a civil court, while trying a suit, under the Code of Civil Procedure, 1908, in respect of the following matters, namely:-
(a) summoning an enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of any document;
(c) reception of evidence on affidavits;
(d) requisitioning any public record from any Court or office;
(e) issuing commissions for the examination of witnesses.
** ** **
22. Appeals against awards of arbitrators.-Any person aggrieved by an award of the arbitrator made under Section 20 may, within thirty days from the date on which the award is communicated to him, prefer an appeal to the High Court within whose jurisdiction he resides :
Provided that the High Court may entertain the appeal after the expiry of the said period of thirty days if it is satisfied that the appellant was prevented by a sufficient cause from filing the appeal in time.
34. At the outset, we may mention that the learned Departmental Representative is not correct in mentioning that the claim for exemption of all the items of jewellery, was made for the first time only before the Tribunal. It was made even before the Assessing Officer or at least, before the CWT(A) and so, we have no reason not to consider this claim.
34.1 For being eligible for exemption under Section 5(1)(xii), as already mentioned, two conditions are to be satisfied simultaneously, viz., (a) the items should be works of art or art collections or other specified items; and (b) they should not be intended for sale. The closest category into which the jewellery in question can fall in terms of Section 5(1)(xii) is either works of art or art collection: The jewellery cannot fall under any other categories specified in Section 5(1)(xii). Similar is the position under Section 47 (ix) of the Income-tax Act. The jewellery in question is described in the first Schedule to the Trust Deed dated 29th March, 1959. A copy of it may be seen in Vol. XIV of the assessees' paper-book. The jewellery is referred to in the preamble of the Trust Deed, "as precious gems, jewels, ornaments and other articles of jewellery and antique pieces specified in first schedule". It may be observed that there is no reference to works of art or art collections in the Trust Deed in the context of description of the jewellery. So, normally, in the context of the Wealth-tax Act, jewellery cannot be regarded as works of art or art collection, in the light of the ratio of the decision of the Hon'ble Calcutta High Court in the case of Rajendra Kumar Sethia (supra), relied on by the Assessing Officer. However, the said decision towards its end refers to the possibility of certain pieces of jewellery being works of art, under certain extraordinary circumstance like when the item is not an ordinary piece of jewellery which is meant for personal use and which by its very nature is liable to be sold whenever such occasion arise. We are of the view that the seven pieces declared as art treasures fall within the exceptional category visualized by the Hon'ble Calcutta High Court in the said decision. When there is a statutory order declaring certain items as art treasures and such a declaration has been made after an expert committee, as stipulated in Rules 2A and 2B of the Antiquities Act, considered the matter, there can be no doubt that the said items fall under 'works of art' or 'art collections' specified in Section 5(1)(xii) of the Act. It may also be noticed that the definition of the term 'art treasure' in Section 2 of the Antiquities Act refer to the artistic and aesthetic value of the item. A status conferred by a statute cannot be taken away. At any rate, the issue of exemption in respect of seven items declared as art treasures stands concluded by the decision of the Tribunal reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) and we see no reason to take a different view.
34.2 Now, the question is about the status of 23 items declared as antiquities, in relation to the claim for exemption under Section 5(1)(xii) of the Wealth-tax Act. It is true that the assessee did not make this claim when the matter was considered by the Tribunal in the decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra). That should not, however, debar the assessee from making a claim, if he is otherwise eligible for it. The 23 items in question may fall into any of the categories referred to in Section 2(1)(a)(I)(iii) of the Antiquities Act. There is a category which may be referred to as objects illustrative of art crafts. While Section 2(1)(a)(I)(i) refers to 'works of art' or 'craftsmanship', Clause (iii) of Section 2(1)(a)(I) refers to 'objects illustrative of art crafts' in bygone ages. In the light of the two letters of the Joint Secretary, Department of Culture, dated 26-12-1994 and 1-2-1996 in which it has been mentioned that the entire collection had been acquired as works of art for display in the National Museum, it is difficult not to assume that, when the Director General Archaeological Survey of India declared 23 items as antiquities, he did not consider them as objects illustrative of art crafts in bygone ages and that he took them as simple objects illustrative of, say, customs in bygone ages. Now, the question is whether 'objects illustrative of art crafts in bygone ages' can be equated to art collections referred to in Section 5(1)(xii) of the Wealth-tax Act. We are of the view that the line of distinction between objects of art crafts and art collection, which are the only effective words to be interpreted for our present purpose is too thin and making any such distinction between these two categories would amount to an exercise in hair-splitting. We are not deciding the issue on our own appreciation of the aesthetic value of the Jewellery in question. We are going by the statutory definition of the terms 'antiquity' and 'art treasure' given in the Antiquities Act. We are considering whether the items so declared as art treasures and antiquities under the Antiquities Act can be considered as eligible for exemption from wealth-tax under Section 5(1)(xii) of the Wealth-tax Act. We may mention that Section 2(1)(a)(I)(i) refers to a work of art or works of craftsmanship, whereas the effective term figuring in Section 2(1)(a)(I)(iii) under which the 23 items were declared as antiquities, is 'objects illustrative of art crafts' in bygone ages. We are of the view that the term 'work of art' is a higher category than simple art collection. The term 'art collection' can include pieces of art, which may not rank as 'work of art'. Similarly, objects of art-crafts may not also rank as works of art. We are of the view that, as already mentioned, there is not much difference between the 'objects of art crafts' referred to in Section 2(1)(a)(I)(iii) of the Antiquities Act and the 'art collection' referred to in Section 5(1)(xii) of the Wealth-tax Act. The two terms, to our mind, are almost synonymous, particularly when the expression 'objects of art crafts' is judged in the light of the letter of Joint Secretary, Culture, who is also Director of National Museum, wherein it is stated that all the 89 items were acquired as art collection. It is true that the letters of Joint Secretary, Culture, have no statutory force, as contended by the learned Departmental Representative. It is also true that the Deputy Minister has stated in the Parliament that the 89 pieces were acquired as works of art and heritage items. We do not see much contradiction between the statement of the Deputy Minister in the Parliament and the letter of the Secretary, Culture. It is not that the 23 items were not heritage items. They were heritage items having been in existence for more than hundred years, as otherwise, they would not have been declared as antiquities in terms of Section 2 of the Antiquities Act. At the same time, they fall into the category of 'objects illustrative of art crafts' in bygone ages and as such they constitute art collection, whether or not they rank as works of art. We are arriving at this conclusion on our interpretation of the words 'objects illustrative of art crafts' in bygone ages and not simply by the contents of the letter of the Joint Secretary, Culture. So, we are of the view that the 23 items declared as antiquities, besides the seven items declared as art treasures, qualify for exemption under Section 5(1)(xii) of the Wealth-tax Act.
34.3 Now, the question is whether the second limb of Section 5(1)(xii) is also satisfied for conferring exemption under Section 5(1)(xii) in respect of these thirty items (seven art treasures and 23 antiquities), viz. whether they are not intended for sale. Commenting on this aspect of the matter in respect of seven items declared as art treasures and claimed as exempt under Section 5(1)(xii), the Tribunal in its decision reported at Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) remarked as under :-
...106. Coming now to the exemption as contemp ated under Section 5(1)(xii) of the Act, we find that seven items have been declared as "art treasures". The trust is prohibited to sell any of these items. Since the sale of these items was restricted by the provision of the statute, it is obvious that intention of the person cannot transgress the limits of law. The condition precedent for enabling exemption is that the article must not be intended for sale. In our opinion, the intention is presumed to cause that which is the natural consequence of something consciously done or omitted. The intention of a party ought to be subservient to or in accordance with the laws, not. the laws to the intention. This idea is inculcated in a well known legal dictum.
Intentio inser vire legiens dehet non leges intentioni. [Black's Law Dictionary (Fifth Edition), page 727]. Having regard to the facts of the case and after considering the various aspects, we are of the opinion that seven items declared as "art treasures" could be considered to be the work of art belonging to the assessee and not intended for sale. Therefore, these seven items qualify all the conditions precedent for enabling exemption under Section 5(1)(xii) of the Act....
34.4 Now the question is whether the above observations of the logic ceases to be applicable for the years in question because of the compromise agreement dated 14-2-1989, as pleaded by the learned Departmental Representative.
34.5 We have already reproduced the said compromise agreement herein above. It may be observed that the agreement mentions that the Government has agreed to purchase/acquire all the items of Jewellery and the Trustees have agreed to sell/dispose off the Jewellery, on the understanding that a just and fair price/compensation is fixed. It is further to be noted that the orders passed under the Antiquities Act in respect of both the seven items declared as art treasures and 23 items declared as antiquities have not been withdrawn. In the circumstances, as the compromise agreement uses a twin set of expressions like (a) purchase and acquire; (b) sale and dispose off; and (c) price and compensation, it must be held that the acquisition proceedings have not been superseded by the said compromise agreement. As already mentioned under Clause 5(b), the Central Government has the option to acquire or not to acquire any or all the items of Jewellery and in case they do not acquire any of the items, the Trustees get the right to export or sell all such items not acquired but subject to the existing laws, which include Antiquities Act and so, the Trustees would be reverted back to their original position that obtained before the agreement. So, it cannot be held that the said agreement dated 14-2-1989 superseded all pending proceedings under the Antiquities Act. So, we are of the view that the intent to sell remained subservient to the legal position as held by the Tribunal in Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) in respect of the seven items declared as art treasures and the logic would also apply to the 23 items declared as antiquities. But the contention of the learned Departmental Representative that there was intention to sell holds good in respect of the rest of the 59 items including the Jacob Diamond, which were not the subject of acquisition proceedings under the Antiquities Act. So, we see no reason for not extending the benefit of exemption to the seven items declared as art treasures as held by the Tribunal in its decision in Trustees of H.E.H. the Nizam's Jewellery Trust's case (supra) of the 23 items declared as antiquities which stand on par with the seven art treasures so far as acquisition is concerned.
35. So far as the 59 items inclusive of Jacob Diamond are concerned, they have not been declared as either 'antiquities' or as 'art treasures' under the Antiquities Act. They were all examined from the angle of 'antiquities' but were not so declared. Further, 30 (out of 37) of the 59 items were examined from the angle of 'art treasures' but were not so declared. The rest of 29 items were not examined from the angle of 'art treasures'. So far as the Jacob Diamond is concerned, it was examined from the angle of 'art treasures' but its status was undecided. As already mentioned 'art treasures' is a superior category and even if an item does not qualify as "art treasures', it may still constitute an item of 'art collection' and so qualify for exemption under Section 5(1)(xii) of the Wealth-tax Act. But to succeed in the claim for exemption, the onus lies on the assessee to prove that the item in question is an item of 'art collection'. So far as these 59 items are concerned, such onus has not been discharged as there are not statutory orders declaring them as either 'art treasures' or as 'antiquities' under the Antiquities Act.
35.1 The learned counsel for the assessee has, of course, relied on the letters of Joint Secretary, Department of Culture referred to hereinabove wherein he mentioned that all the 89 items in question were acquired as 'works of art' for display in the National Museum. But these letters are from a functionary who has no statutory status to comment on the nature of the items and so is not decisive of the matter. Further, the Deputy Minister in his reply in Parliament has mentioned that they were acquired as 'works of art' and heritage items and so the 59 items under consideration may qualify only as heritage items and not as 'work of art' or 'art collection'. The reliance placed by the learned counsel for the assessee on the submissions of the Union Government before the Umpire to the effect that all the 89 items were exempt from levy of capital gains under Section 47(ix) of the Income-tax Act is also not of much help to the assessee. It is only a plea taken by a party in a dispute and is not conclusive of the matter. Similar pleas were taken by the assessee before the Collector, Bombay to the effect that even the seven items were not 'art treasure' and we cannot hold that plea against the assessee and deny exemption under Section 5(1)(xii) of the Wealth-tax Act to the said seven items. Mere pleas do not bind either party and do not conclude the matter either for or against either party.
35.2 As per their description in the Trust Deed, the 19 items constitute simply precious stones, antiques and jewellery and so they have only property value and not value as 'art collection'. So they appear to be hit by the ratio of the decision of the Hon'ble Calcutta High Court in the case of Rajendra Kumar Sethia (supra) as per which jewellery will not normally come, in terms of the Wealth-tax Act, qualify as 'work of art' or 'art collection'. As there are no exceptional circumstances like the statutory orders in respect of the 23 items declared as 'antiquities' and the 7 items declared as 'art treasure' considered hereinabove, we are of the view that the exemption under Section 5(1)(xii) cannot be granted for the 59 items which includes the Jacob Diamond. We, however, need not give a firm finding as to whether the 59 items in question constitute 'Art Collections' within the meaning of Section 5(1)(xii) of the Wealth-tax Act. Whether they so constitute or not, the 59 items in question cannot qualify for exemption under Section 5(1)(xii) of the Wealth-tax Act for the simple reason that they have all along been intended for sale. As per the terms of the Trust Deed, these items were meant to be sold after the death of the eldest son of the Settler in 1970 and the Trustees have all along been trying to effect their sale, There are no statutory orders of acquisition which render the trustees' intent of sale subservient to the provisions of law, as in the case of the 23 items declared as 'Antiquities' and 7 items declared as 'art treasures'. As we have already mentioned, the compromise agreement entered into by the trustees with the Union Government on 24-2-1989 is a package deal and it used the twin expressions of acquire/ purchase and so, in respect of these 59 items, the agreement remains only an agreement of sale. For these reasons, we are of the view that the assessee is not entitled for exemption of the 59 items inclusive of 'Jacob Diamond' under Section 5(1)(xii) of the Wealth-tax Act.
35.3 Before we close matter, we may mention that the Assessing Officer has granted exemption under Section 47(ix) of the Income-tax Act in respect of capital gains for 31 items which included 23 items declared as 'antiquities' and 7 items declared as 'art treasures' and Jacob Diamond. We have also held that the assessee is eligible for exemption under Section 5(1)(xii) of the Wealth-tax Act for the 7 items declared as 'art treasures' and the 23 items declared as 'antiquities' but we are not granting exemption for the Jacob Diamond. We do not feel persuaded by the reasoning of the Assessing Officer in the income-tax proceedings in respect of the exemption allowed by him to Jacob Diamond. We have also reproduced hereinabove the relevant portion of his assessment order. It may be noticed that he has set out the criteria for judging an item as 'work of art' and, on that basis, arrived at the conclusion that the 7 items declared as 'art treasures' alone qualify as 'works of art'. He gave the example of the stone used by Jack the Ripper and mentioned that antiques are not works of art. But, surprisingly, he ended up exempting 31 items inclusive of the Jacob Diamond the reason given for exempting the Jacob Diamond is that it is famous for its name. We are not convinced that a diamond can be classified as a work of art or as a part of art collection simply because of its name. As we find no reason for exempting the Jacob Diamond, we are differing to this extent from his order. Further, we may also mention that while the provisions of Section 5(1)(xii) of the Wealth-tax Act are analogous to those of 47(ix) of the Income-tax Act, they are not identical and so we do not feel hesitant to differ from his order. If an exemption has been grarited erroneously by the Assessing Officer in income-tax proceedings, it does not follow that it is a ground for allowing relief in wealth-tax proceedings.
35.4 In view of the above, we hold that the 59 items including the 'Jacob Diamond' are not entitled for exemption under Section 5(1)(xii) of the Wealth-tax Act.
Issue IV: Levy of interest under Section 17B:
36. The last issue relates to the levy of interest under Section 17B of the Wealth-tax Act. Detailed submissions filed on behalf of the assessee on this issue are contained in Vol. 13 filed before us. The Trustees of H.E.H. the Nizam's Jewellery Trust filed returns in their representative character under Sub-section (1) of Section 21 of the Wealth-tax Act declaring the ultimate beneficial interest of the various beneficiaries. The Trustees did not file the returns before the date and there was some delay. The Assessing Officer did not complete the assessments in the hands of the Trustees but had exercised his option to make a direct assessment in the hands of the concerned beneficiary under Sub-section (2) of Section 21 of the Act. The ultimate beneficiaries are the appellants before us. The Assessing Officer had levied interest under Section 17B of the Act for the delay in filing the returns by the Trustees in the assessments made in the hands of the ultimate beneficiaries. The Commissioner of Wealth-tax (Appeals) held that the liability of the beneficiary to file return of wealth in respect of his beneficial interest in the trust would stand abrogated only if the trustees had filed return of wealth on his behalf on or before the due date. Therefore, in the view of the Commissioner of Income-tax (Appeals), interest under Section 17B would be leviable only from the date of on which the return of wealth fell due to the actual date when the Trustees filed the return in their representative capacity. It is against these decisions of the Commissioner of Wealth-tax (Appeals), the assessee is in appeal before us.
36.1 The counsel for the assessee submitted that there was no obligation on the part of the beneficiary to file a return in terms of Section 14(1) of the Wealth-tax Act and the said Section casts such an obligation only on the trustee. It is his plea that as there is no obligation on the part of the beneficiary to file the return and an assessment in his hands came to be made only because of the option exercised by the Assessing Officer under Section 21(2) of the Wealth-tax Act, there is no justification for the levy of interest in the hands of the beneficiary. He has also contended that the Commissioner of Wealth-tax (Appeals) erred in holding that an obligation to file return in terms of Section 14 is cast upon both the beneficiary and the trustee. It is contended that there cannot be two separate obligations to declare the same wealth under the provisions of the Act. Even when the beneficiary files a return, it is in respect of his separate wealth and not in respect of the beneficial interest held in trust. He has also claimed that a beneficiary does not know the particulars of wealth held in trust and such knowledge of the affairs of the Trust is available only with the Trustees and so it cannot be held that there is an obligation on the part of the beneficiary to file a return under Section 21(2) of the Wealth-tax Act. For the proposition that it is only the Trustee who has to file return in terms of Section 14, he has relied on the decision of H.E.H. the Nizam's Jewellery Trust v. Asstt. CWT [1997] 227 ITR 52 (AP) and also the decision of the Apex Court in the case of CWT v. Trustees of H.E.H. the Nizam's Family Trust [1977] 108 ITR 555. He has also relied on the order of the Hon'ble A.P. High Court in WPMP No. 27677/96 in WP No. 22410/96 in which it was held as under:
Prima facie we are satisfied that it is a fit case for granting interim order. The levy is prima facie illegal inasmuch as there is no obligation on the beneficiary to file the return and the interest is imposed for default in filing the return. In the circumstances there shall be interim direction as prayed for.
It is claimed that, even though above order passed by the Hon'ble High Court was an interim order, the finding of the Hon'ble High Court on the absence of obligation on the part of the beneficiary to file return of wealth is final and binding especially in view of the judgment of the Hon'ble High Court reported in H.E.H. the Nizam's Jewellery Trusts's case (supra).
36.2 The learned Departmental Representative on the other hand submitted that there is an obligation on the beneficiary to file his return of wealth declaring his beneficial interest in the Trust under Section 14 of the Wealth-tax Act, he also pleaded that the fact that the trustees have filed returns of wealth in their representative capacity on behalf of the beneficiary would not absolve the beneficiary from payment of compensatory interest under Section 17B arising out of the violation of the statutory provisions, viz., the delay in filing the returns of wealth. He further submitted, in the alternative, that the Commissioner (Appeals) had correctly directed for calculation of interest from the date of filing the return up to the actual date of filing of the return by the trustees.
36.3 For deciding the issue, the provisions of Section 14 may be adverted to Section 14 reads as follows :
14. (1) Every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date exceeded the maximum amount which is not chargeable to wealth-tax shall, on or before the due date, furnish a return of his net wealth or the net wealth of such other person as on that valuation date in the prescribed form and verified in the prescribed manner setting forth particulars of such net wealth and such other particulars as may be prescribed.
Explanation.-In this Sub-section, "due date" in relation to an assessee under this Act shall be the same date as that applicable to an assessee under the Income-tax Act under the Explanation to Sub-section (1) of Section 139 of the Income-tax Act.
(2) Notwithstanding anything contained in any other provision of this Act, a return of net wealth which shows that net wealth below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished:
Provided that this Sub-section shall not apply to return furnished in response to a notice under Section 17.
36.4 Commenting on the analogous provisions of Section 139 of the Income-tax Act, the learned authors Sampath Iyengar observed as under:
Total income of any other persons:-While the 1922 Act imposed an obligation on a person to file a return only where the total income of such person exceeded the maximum not chargeable to tax, this Act also imposes an obligation on a person to file a return showing the total income of another person in respect of which he is assessable, if such total income exceeds the limit in question. This has to be done independently of the return showing his own total income; it does not at all mean that the two total incomes could or should be clubbed in one return or one assessment. These words are perhaps intended to cover cases of representative assessees and legal representatives who are under a liability to be assessed on income beneficially belonging to other persons under Sections 159 to 168. There is a difficulty here, for, it is not necessary that in such cases the representative assessee will be liable to be assessed in respect of the total income of the beneficiary. To give some examples, in the case of a receiver or trustee, he may be assessable only in respect of some income of the beneficiary, the other income of the beneficiary being assessable in the hands of some other trustee or receiver or even directly as the income of the beneficiary. Again, the agent of a non-resident is assessable only in respect of income of the non-resident falling under Section 9(1) and the non-resident may have other assessable income. If the intention of the Act is to lay an obligation on such a person to file a return of the total income of the beneficiary, that may be difficult, if not impractical, in cases like the above. On the other hand, if the intention is that such a representative assessee should file a return showing such income as he receives or is entitled to receive on behalf of a beneficiary that will not be a return of total income. The precise scope of the obligation would therefore seem to need further statutory clarification.
('Law of Income-tax' Eighth Edition, Volume 4 Page 4003).
Section 14 of the Wealth-tax Act casts an obligation on every person to file return of his net wealth "if his net wealth or the net wealth of any other person in respect of which he has is assessable under this Act on the valuation date exceeded the maximum amount which is not chargeable to wealth-tax". In terms of the Section, it appears that a trustee is a person who is assessable in respect of the wealth of any other person. He has to file the return in his representative capacity in respect of the wealth of the beneficiary. He may have to file a separate return in respect of his own wealth which is altogether a different matter. So the beneficiary who has no wealth outside the trust does not have to file a return as this obligation to file return in respect of the wealth held under trust is cast upon the trustee. It cannot be that such an obligation to file the return of wealth, is cast both on the trustee and the beneficiary in respect of the same wealth i.e. wealth held under trust. The beneficiary may have to file return independently if he has separate wealth i.e. wealth outside the Trust. He may have to include the particulars of the beneficial interest also in such a separate return. That is also a separate matter. At any rate, the Hon'ble A.P. High Court has held, in WPMP No. 27677/1996 in W.P. No. 22410/ 1996 that there is no obligation on the beneficiary to file return of wealth and we are bound by it. When the Assessing Officer exercised the option to make a direct assessment on the beneficiary in terms of Section 21(2), it appears that he cannot levy interest under Section 17B as there is no obligation in the first instance on the part of the beneficiary to file the return. There are separate incidents of tax like the applicable tax rate depending on whether the assessment is made on the trustee or directly on the beneficiary. One such incident of making an assessment on the beneficiary appears to be his immunity from interest under Section 17B. This is applicable only when the beneficiary has no separate wealth and so is not under an obligation to file a return. If on the other hand, the beneficiary has separate wealth and so falls in the category of a person assessable on his wealth in terms of Section 14(1) of the Wealth-tax Act, naturally he has to file a return and he is liable to be visited with interest under Section 17B for the delayed filing of the return. We are informed that the assessees before us have nor other wealth and so they were under no obligation to file the returns. Accordingly, we delete the interests levied under Section 17B in respect of all these assessees. However, the Assessing Officer may verify whether the assessees in question have any other wealth and, as such whether they are under obligation to file returns in respect of the separate wealth and we clarify that, if they are under such an obligation, the levy of interest need not be cancelled. Subject to verification and the above remarks, the interest levied in all these cases are hereby deleted.
36.5 In view of the above, the Assessing Officer may modify the assessments adopting the values of the corpus as per the report of the Valuation Officer for the assessment year 1988-89 subject to modifications mentioned in Rule 19 of the Illrd Schedule to the Wealth-tax Act and allow 50% discount thereon and exempt the 7 items declared as 'art treasures' and 23 items declared as antiquities and subject the result to actuarial valuation about which there is no dispute before us. Interest under Section 17B may be recalculated as per above directions.
36.6 The appeals are partly allowed.
W.T.A No. 194/Hyd./98
37. The grounds taken by the Revenue in this appeal are different from those considered in the above appeals. The gist of the grounds taken is that the Commissioner of Wealth-tax (Appeals) should have upheld the reopening of the assessment under Section 17. It is mentioned in the grounds that the Commissioner of Wealth-tax (Appeals) ought to have held the re-opening to be valid because no reference was made to the Valuation Officer under Section 16A before completion of the original assessment and order passed subsequently by the Valuation Officer cannot be binding on the Department. We are afraid that the above grounds have no merit because the Assessing Officer in the impugned order did mention as under:
The assessee is an ultimate beneficiary holding remainderman's interest in HEH, the Nizam's Jewellery Trust. In this case, the original assessment has been completed on 27-1-1989 determining the total gross wealth at Rs. 8,32,752 at the time of assessment proceedings, the matter of valuation of jewellery belonging to HEH, the Nizam's Jewellery Trust was referred to the Departmental Valuer and the assessment was completed on the basis of the valuation fixed by him. However, after completion of the assessment it came to the notice of the Department that the valuation done by the Departmental Valuer is on a lower side as admitted by him in his depositions before the Umpire in the arbitration proceedings for the sale of the jewellery.
In the light of the above remarks of the Assessing Officer, it appears that the contention that no reference was made to the Valuation Officer before completion of the original assessment is factually wrong. The issue is covered against the Department, as held by the learned Commissioner of Wealth-tax (Appeals) by the decision of the jurisdictional High Court in the case of H.E.H. the Nizam's Jewellery Trust v. Asstt. Commissioner of Wealth-tax in which it was held that the re-assessment proceeding taken in the case of other beneficiaries of the Nizam's Trust for the assessment years 1984-85 to 1989-90 were invalid. In the circumstances, we uphold the order of the Commissioner of Wealth-tax (Appeals.).
37.1 The appeal is dismissed.
37.2 In the result, appeal No. 194/Hyd./97 is dismissed and all other appeals are partly allowed.