ORDER
A.V. Balasubramanyam, Judicial Member
1. These appeals by various assessees were amalgamated for a common hearing as the issues involved are identical.
2. The assessees are S.A. Colaco, C.F. Colaco, K.J.M. Colaco, C. Colaco and E.S. Colaco. They are all partners in the firm by name M/s. E.S. Colaco & Co. The firm owns a coffee estate by name Huigere Estate. The proceedings relate to wealth-tax assessments of these partners relating to 1981-82 and 1982-83 and, in addition, wealth-tax assessment for 1980-81 in the case of K.J.M. Colaco, C. Colaco and E.S. Colaco. The valuation date is the 31st March of the related calendar year.
3. The interest of the partners of the firm M/s. E.S. Colaco & Co. was evaluated bearing in mind the Circular of the Central Board of Direct Taxes No. 357, dated 26-3-1983, insofar as the coffee garden is concerned. There is no dispute in regard to this. The firm had pooled coffee to the Coffee Board as required under law every year. Coffee points had been declared by the Coffee Board. The Coffee Board was required to make payments which are normally called ‘dividends’ in respect of the coffee pooled by the grower. Dividend will not be declared at one stage and it will be spread over in three or four years depending upon several factors. So far as the dividend declared by the Coffee Board prior to the relevant valuation date, the same had reflected in the balance-sheet of the firm. Consequently, that had gone into making of the total taxable wealth.
4. Coffee Board was likely to declare dividends after the valuation date in respect of the coffee pooled before the valuation date. In respect of that the Wealth-tax Officer made an addition. He valued the coffee pool dividend receivable by the assessees and which had not appeared in the balance-sheet. It is a fact that the assessees had not included the value of the coffee points in so far as the dividends which were to be declared after the relevant valuation date. According to the partners, it was not an assessable wealth at all since Coffee Board had not declared any dividend and there was no certainty about any further dividend being declared. It so happend that Coffee Board had in fact declared some dividends after the valuation date in respect of the coffee pooled before the valuation date. The actual amount, it was submitted, declared after the valuation date was taken as the market value of the coffee points and the same was added to the net wealth. It is here that the controversy has arisen.
5. The Appellate Asstt. Commissioner has passed identical orders in the case of all partners. According to him, coffee point is an actionable claim owned by the firm and that the firm was likely to derive dividend in respect of those points. Since the same had not been shown in the balance-sheet of the firm, an addition was made under Rule 2C(d) of the Wealth-tax Rules. Reliance has been placed upon the decision of the Mysore High Court in the case of G.M. Gopalkrishna v. WTO [1964] 51 ITR 575. The addition came to be sustained by the Appellate Asstt. Commissioner in all the impugned assessments.
6. The partners have, in these appeals, been reiterating their plea. According to submission made by Shri Venkatesan, the learned representative for the assessee, a point relevant to the controversy had not been urged in the case of G.M. Gopalkrishna (supra) and that the same should be considered by us. Referring to various provisions of the Coffee Act (VII of 1942), he contended that there was no right owned by the firm in respect of the coffee points to treat it as an asset for being included in the net wealth of the firm. Coffee grown by a grower is required to be delivered to the Coffee Board and the moment it is delivered the grower retains no right in respect of such coffee. His only right is to receive payments referred to in Section 34 of the Coffee Act. The Coffee Board would maintain two separate funds, General Fund and Pool Fund; vide Section 30. The General Fund is mainly in regard to administration. The Coffee Board sell coffee and the sums realised by the Coffee Board are credited to Pool Fund; vide Section 32. Section 34(1) reads:
The Board shall at such times as it thinks fit make to registered owners who have delivered coffee for inclusion in the surplus pool such payments out of the Pool funds as it may think proper.
It is not of the Pool Fund so credited that the growers would be paid consideration for the coffee pooled.
7. Points are awarded for the coffee pooled which are known as coffee points for which a scale of valuation is maintained. Depending upon the grade of coffee, points are determined. Thus a grower would get, at the end of the crop year, coffee points awarded in respect of the coffee pooled by him. On the basis of those points dividends would be declared. Payments by the Coffee Board are generally made in instalments which may span even three or four years.
8. The dividends declared by the Coffee Board in respect of the coffee points before the valuation date, as already mentioned, is reflected in,the balance-sheet of the firm. But there was expectancy of further dividends being declared after the valuation date. The Wealth-tax Officer proceeded to value that right treating coffee points as capital asset of the firm. The Mysore High Court has in the case of G.M. Gopalkrishna (supra) considered this aspect of the controversy in great detail and held that the right to get dividends as and when declared by the Coffee Board is a valuable right, both enforceable and transferable. It has been held to be an actionable claim, and, as such, an asset as defined in the Wealth-tax Act. Normally, the point raised before us should have been straightaway decided against the assessees relying on the decision of the Mysore High Court in the case of G.M. Gopalkrishna (supra). Shri Venkatesan contended that the Coffee Board has a discretion to declare or not to declare any dividend and that till dividend is declared, the grower has no right to insist upon payment. It was also contended that there is no certainty as to what would be the dividend declared and when since the Coffee Board may, with the previous sanction of the Central Government, transfer whole or any part of the excess Pool Fund into General Fund. His argument was that there may not be any amount in Pool Fund at all to declare dividends to growers. According to him, coffee dividends yet to be declared by the Coffee Board is something like a dividend which a shareholder of a company is likely to get and that the shareholder has no right in respect of the profits earned by the company till dividend is actually declared. In sum, Shri Venkatesan’s contention was the so-called right of the grower to receive future dividends is wholly dependent upon the sweet-will of the Coffee Board and that such a right is chimerical than real.
9. We must note the above arguments only for the purpose of record. The Coffee Board is under statutory duty to sell coffee in a manner advantageous to growers and distribute the receipts. Though the Coffee Board is expected to declare dividends, it is not as though the Coffee Board can sit pretty and leave the growers high and dry. It is also not that the Coffee Board may make a pittance of payment and retain the whole Pool Fund either undistributed or transfer it to the General Fund. First, there is no scope to assume that the Coffee Board would act in a wholly unreasonable manner. The Coffee Board is constituted under Section 4(1) of the Coffee Act (VII of 1942) and even the growers have sufficient representation in it. This is only to ensure that the growers would have a proper deal. It may be that at a certain point of time one cannot be in a position to predicate what dividend a grower would get in respect of coffee point declared. This may be little relevant while valuing the asset, but, however, there is absolutely no difficulty in reaching a conclusion that the coffee point owned by a grower is an asset includible in the net wealth. Therefore, we reject the first point raised on behalf of the assessees.
10. The second point urged by Shri Venkatesan was in regard to valuation. We must mention here that there is no specific ground in this behalf, but the appellants have stated in their memorandum that the Tribunal should consider such other points that may be urged at the time of hearing. In the interest of justice we are of the view that this second point requires our consideration and we have heard either side on this issue.
11. We have already stated that the Wealth-tax Officer has, in each case, while valuing the coffee points, taken the amount actually declared after the valuation date. The adjustment has been done under Rule 2C(d). The Rules provide that the interest of a partner in a firm has to be in accordance with Rule 2. Certain adjustments are required to be made in respect of an asset not declared in the balance-sheet. The value of coffee points has not been disclosed in the balance-sheet of the firm and, therefore, resort to Rule 2C was proper. We are clear that this is an asset falling under Clause (d). Shri Venkatesan addressed some arguments that coffee point insofar as amounts realisable in respect of the same, as and when declared by the Coffee Board, is a debt. This question has been considered by the Mysore High Court in the case of G.M. Gopalkrishna (supra) and there is no need to elaborate the same. The learned departmental representative conceded that the Wealth-tax Officer has adopted the same figure as the amount actually received by the grower after the valuation date. This, we are clear, was not correct.
12. Since this asset has not figured in the balance-sheet adjustment as per Rule 2C(d) was proper. As the provision itself says, this asset has to be valued on the basis of the market value as on the valuation date. The Wealth-tax Officer has blindly adopted the figure which is equivalent to the amount actually declared after the valuation dale. If this asset (right to receive dividend in respect of the coffee point as and when declared) is to be sold on the valuation date, a willing purchaser would naturally take into consideration various factors. One would not be in a position to know when the Coffee Board is likely to declare dividend and what amount. To a great extent this is a matter of guess. In this connection, it would be pertinent to extract the observations of their Lordships in the case of G.M. Gopalkrishna (supra) (at p. 581) which read :
…No restrictions are placed by the Coffee Act on the rights of the owners recognised by the laws of the land. Till final ‘dividends’ are declared ‘coffee points’ have to be valued on the basis of expectations. This is nothing new. It is a conception well known to markets. But the valuation fixed may not be exact. So long as the valuation fixed by the Wealth-tax Officer is a reasonable valuation, it is not open to question. [Emphasis supplied]
The valuation has to be reasonable. It may not exactly be the same as what is declared after the valuation date. Due regard must be had for two factors : the uncertainty of the point of time at which dividend is likely to be declared and the exact amount. Further, a purchaser of a right like this would not be willing to pay the same amount which he would be expecting to be paid by the Coffee Board at an unknown future point of time. Therefore, an estimation at a discounted rate would be very much reasonable and eminently justified. When it is a question of estimation, one has to only hazard a reasonable estimation and in our view a discount by 40% is reasonable by all standards.
13. In the result, we direct that the value of the right to receive coffee pool dividends may be taken at 60% of the amount actually declared after the valuation date. The Wealth-tax Officer shall accordingly recompute the net wealth of the firm bearing in mind the above direction.
14. In the result, the appeals shall be treated as allowed in part.