Smt. Sarda Devi Singhania vs Assistant Commissioner Of Wealth ...
1995 Latest Caselaw 849 Del

ORDER

M. A. BAKSHI, J.M. :

Appeal of the assessee relating to asst. yr. 1984-85 is directed against the order dt. 20th March, 1990 of CIT(A), New Delhi. Rival contentions have been heard and records perused. The first ground of appeal reads as under :

"On the facts and in the circumstances of the case, the learned CWT(A)-IX New Delhi, erred both on facts and in law in holding that the credit balance of Rs. 31,402 being the balance standing to the credit of the assessee in her compulsory deposit account on the valuation date as it represents a right to receive annuity and hence, does not constitute an asset under s. 2(e) of the WT Act."

2. The issue as to whether the compulsory deposit is an asset assessable to wealth-tax is covered against the assessee by the following decisions :

(i) Smt. Sunanda Devi Singhania vs. CIT (1993) 204 ITR 642 (Cal);

(ii) CWT vs. Vidur V. Patel (1995) 215 ITR 30 (Bom); and

(iii) CWT vs. Mst. Ashutosh Kumar Mahadevia (1995) 215 ITR 200 (Bom).

This ground of appeal is accordingly dimissed.

3. Ground No. 2 reads as under :

"On the facts and the circumstances of the case, the learned CWT(A) IX, New Delhi erred on facts and in law in confirming the action of the AO in respect of an addition made by him of Rs. 7,919 on account of interest on compensation which was granted on 5th April, 1984 to the assessee and which was not an asset due to or belonging to the assessee on the valuation date."

4. For asst. yr. 1983-84 similar issue was decided against the assessee. The assessee has accepted the decision on this point. For the year under appeal the CIT(A) has followed his decision for asst. yr. 1983-84. Moreover similar issue had also been decided against the assessee by the Tribunal in asst. yr. 1982-83, WTA No. 1165/Del/1987. We, therefore, uphold the finding of the CIT(A) that assessee having become entitled to interest from 13th August, 1983, the AO was justified in making the addition of Rs. 7,919 to the net wealth of the assessee.

5. The third ground of appeal is relating to the claim of debt to the extent of Rs. 10 lakhs which has been disallowed by the Revenue authorities. The relevant fact relating to this issue are that assessee in the preceding year had purchased capital investment bonds for a sum of Rs. 10 lakhs. For making the said investment the assessee borrowed money on overdrafts from two banks, namely, Grindlays Bank and Bank of Tokyo. In the preceding year the AO did not allow the liability of Rs. 10 lakhs as the debt was in relation to an asset which was exempt from wealth-tax. The law was uphold by the Tribunal. During the year under appeal the assessee has gifted the capital bonds and accordingly they are no more the assets of the assessee. Assessee has borrowed loans in order to liquidate the overdraft facilities drawn from Grindlays Bank and Bank of Tokyo. Whereas the capital bonds are no longer the assets of the assessee, the debt incurred in order to purchase such bonds has remained the debt of the assessee. Assessee had relied upon the decision of the Madras Bench of the Tribunal in the case of R. Ratnam vs. WTO (1988) 24 ITD 42 (Mad), where under similar circumstances the Tribunal held that the debt being no longer related to the exempted assets was allowable as a deduction in computing the net wealth of the assessee. The learned CIT(A) IX New Delhi, has declined to follow the decision of the Tribunal as according to him any debt related to an asset which does not fall part of the taxable net wealth either in the year under consideration or in earlier year is not allowable as a deduction. The decision of the Madras High Court in the case of CIT vs. K. S. Vaidyanathan (1985) 153 ITR 11 (Mad) (FB) has been relied upon by the first appellate authority in support of the finding. The learned counsel for the assessee contended that the decision of the CIT(A) deserves to be set aside as the same is contrary to the decision of the Tribunal in the case of R. Ratnam (supra). The learned counsel also relied upon the decision of the Allahabad High Court in the case of CWT vs. Sri Krishan Gopal Gupta (1993) 202 ITR 952 (All) in support of the contention that since the exempted assets was no longer the asset of the assessee the debit in question could not be said to be related to the exempted assets and as such deduction was permissible to the assessee, it was contended.

6. The learned Departmental Representative on the other hand, relied upon the orders of the Revenue authorities.

7. We have given our careful consideration to the rival contentions. In our view, the assessee deserves to succeed. Sec. 2(m) of the WT Act, 1957 defines net wealth to mean the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets wherever located belonging to the assessee on the valuation date including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee other than the debts which under s. 6 are not to be taken into account or debts which are secured on, or which had been incurred in relation to any property in respect of which wealth-tax is not chargeable under this Act and ... Expln. 2 to s. 2(m) reads as under :

"Explanation 2 - Where a debt falling under sub-cl. (ii) is secured on, or has been incurred in relation to, any asset which is not to be included wholly or partly in the net wealth by virtue of the provisions of sub-s. (1A) of s. 5, the amount of such debt shall, for the purposes of the said sub-clause, be limited to the value of the said asset which is not includible in the net wealth under sub-s. (1A) of s. 5."

Sec. 2(m) has been amended by the Finance Act, 1992 w.e.f. 1st April, 1993 and it is provided that all the debts owed by the assessee on the valuation date which have been incurred in relation to the assets included in the net wealth alone are to be excluded. If the amended provisions of s. 2(m) are taken into account then the assessee (sic) debt. However, as already observed the said amendment has been incorporated w.e.f. 1st April, 1993. Since the decision of the Tribunal in the case of R. Ratnam (supra) and the decision of the Allahabad High Court in the case of Sri Krishan Gopal Gupta (supra) is on the basis of the pre-amended s. 2(m) of the WT Act, 1957, we, respectfully following the same, hold that assessee is entitled to deduction in respect of sum of Rs. 10 lakhs incurred by the assessee in respect of an asset which no longer belongs to the assessee. This ground of appeal is accordingly allowed.

8. The last ground of appeal is relating to disallowance of deduction on account of tax liability to the extent of Rs. 10,836. The AO has allowed deduction of Rs. 2,15,000 on account of tax liability for asst. yr. 1984-85. According to the learned counsel after appeal effects the final tax demand for asst. yr. 1984-85 is Rs. 2,25,836 and accordingly the same was allowable as a deduction.

9. In our view, the claim of the assessee is acceptable subject to verification. Let the AO verify as to what is the actual income-tax liability of the assessee as finally assessed for asst. yr. 1984-85 and allow a deduction to the assessee accordingly.

10. The appeal of the assessee is partly allowed.