Punj Sons (P) Ltd. vs Dy. Cit
2001 Latest Caselaw 292 Del

ORDER

Sikander Khan, A.M.

This is an appeal by the assessed which is a private limited company engaged in the business of manufacture and sale of Lloyd wool and other allied products. It also derived income from dividend, rent, commission, etc.

2. Ground No. 1 is directed against the disallowance of the claim of deduction amounting to Rs. 1,55,820 paid in pursuance to section 40 of the Finance Act, 1981. The assessing officer disallowed the claim on the ground that such deduction was prohibited by section 40(a)(iia) of the Act.

2. Ground No. 1 is directed against the disallowance of the claim of deduction amounting to Rs. 1,55,820 paid in pursuance to section 40 of the Finance Act, 1981. The assessing officer disallowed the claim on the ground that such deduction was prohibited by section 40(a)(iia) of the Act.

3. In the first appeal, it was submitted on behalf of the assessed that the claim was allowable in view of the Supreme Court's decision in Associated Cement Companies Ltd. v. Director of Inspection Customs & Central Excise case reported in (1985) 46 CTR (SC) 163 : (1985) 153 ITR 322 (SC). The learned Commissioner (Appeals) did not accept the assessed's contention. He observed that the wealth-tax in question paid in pursuance to section 40 of the Finance Act, 1983 was wealth-tax and was covered by the provisions of section 40(a)(iia) of the Act, and, therefore, it was not admissible for deduction.

3. In the first appeal, it was submitted on behalf of the assessed that the claim was allowable in view of the Supreme Court's decision in Associated Cement Companies Ltd. v. Director of Inspection Customs & Central Excise case reported in (1985) 46 CTR (SC) 163 : (1985) 153 ITR 322 (SC). The learned Commissioner (Appeals) did not accept the assessed's contention. He observed that the wealth-tax in question paid in pursuance to section 40 of the Finance Act, 1983 was wealth-tax and was covered by the provisions of section 40(a)(iia) of the Act, and, therefore, it was not admissible for deduction.

4. Aggrieved further, the assessed has come up in second appeal before this Tribunal.

4. Aggrieved further, the assessed has come up in second appeal before this Tribunal.

5. The learned authorised representative of the assessed submitted that the assessing officer and the learned Commissioner (Appeals) had not correctly appreciated the provisions of section 40 of the Finance Act, 1983. He added that under section 40 of the Finance Act, 1983, wealth-tax was leviable on specific assets and not on total wealth of the assessed and, therefore, this wealth-tax was not covered under the provisions of section 40(a)(iia) of the Act. He relied on the Supreme Court decision in the case of Associated Cement Companies Ltd. (supra) and Delhi High Court decision Associated Cement Companies Ltd. v. Director of Inspection, Customs & Central Excise (1972) 84 ITR 811 (Del).

5. The learned authorised representative of the assessed submitted that the assessing officer and the learned Commissioner (Appeals) had not correctly appreciated the provisions of section 40 of the Finance Act, 1983. He added that under section 40 of the Finance Act, 1983, wealth-tax was leviable on specific assets and not on total wealth of the assessed and, therefore, this wealth-tax was not covered under the provisions of section 40(a)(iia) of the Act. He relied on the Supreme Court decision in the case of Associated Cement Companies Ltd. (supra) and Delhi High Court decision Associated Cement Companies Ltd. v. Director of Inspection, Customs & Central Excise (1972) 84 ITR 811 (Del).

6. The learned Departmental Representative, on the other hand, supported the orders of the assessing officer and the learned Commissioner (Appeals).

6. The learned Departmental Representative, on the other hand, supported the orders of the assessing officer and the learned Commissioner (Appeals).

7. We have considered the rival submissions and the materials on the file. We are of the view that the issue in the present case is covered by the Supreme Court decision in the case of Associated Cement Companies Ltd. (supra). Section 40(a)(iia) prohibits deduction of "any sum paid on account of wealth-tax". However, Explanation to section 40(a)(iia) provides as under :

7. We have considered the rival submissions and the materials on the file. We are of the view that the issue in the present case is covered by the Supreme Court decision in the case of Associated Cement Companies Ltd. (supra). Section 40(a)(iia) prohibits deduction of "any sum paid on account of wealth-tax". However, Explanation to section 40(a)(iia) provides as under :

"Section 40(a)(iia) :

ExplanationFor the purpose of this sub-clause, "wealth-tax" means wealth-tax chargeable under the Wealth Tax Act, 1957 (27 of 1957), or any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in a business or profession carried on by the assessed whether or not the debts of the business or profession are allowed as deduction in computing the amount with reference to which such tax is charged, but does not include any tax chargeable with reference to the value of any particular asset of business or profession."

ExplanationFor the purpose of this sub-clause, "wealth-tax" means wealth-tax chargeable under the Wealth Tax Act, 1957 (27 of 1957), or any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in a business or profession carried on by the assessed whether or not the debts of the business or profession are allowed as deduction in computing the amount with reference to which such tax is charged, but does not include any tax chargeable with reference to the value of any particular asset of business or profession."

In view of the Supreme Court decision in Associated Cement Companies Ltd. case (supra), last part of the Explanation, i.e., "but does not include any tax chargeable with reference to the value of any particular asset of the business or profession" has to be read as in continuation of the beginning part of the Explanation, i.e., "for the purpose of this sub-clause wealth-tax means wealth-tax chargeable under the Wealth Tax Act, 1957 (27 of 1957)". Thus, these two parts of the Explanation put together would read as under :

"For the purpose of this sub-clause, wealth-tax means wealth-tax chargeable under the Wealth Tax Act, 1957 (27 of 1957), but does not include any tax chargeable with reference to the value of any particular asset of the business or profession".

8. Accordingly, the wealth-tax chargeable with reference to the value of anly particular asset of the business or profession will not be covered by the prohibition clause of section 40(a)(iia) of the Income Tax Act, 1961, and as such wealth-tax could be admissible for deduction. Admittedly, the wealth-tax paid in pursuance to section 40 of the Finance Act, 1983, was with reference to the value of particular asset of the business of the assessed. Under section 40 of the Finance Act, 1983, total wealth of the company was not chargeable to wealth-tax. It was only the assets specified under sub-section (3) of section 40 of the Finance Act, 1983, which was chargeable to wealth-tax. Therefore, the exception part of Explanation to section 40(a)(iia) of the Act referred to above became applicable in the present case and the wealth-tax amounting to Rs, 1,55,820 paid by the assessed in pursuance to section 40 of the Finance Act, 1983, was admissible for deduction.

8. Accordingly, the wealth-tax chargeable with reference to the value of anly particular asset of the business or profession will not be covered by the prohibition clause of section 40(a)(iia) of the Income Tax Act, 1961, and as such wealth-tax could be admissible for deduction. Admittedly, the wealth-tax paid in pursuance to section 40 of the Finance Act, 1983, was with reference to the value of particular asset of the business of the assessed. Under section 40 of the Finance Act, 1983, total wealth of the company was not chargeable to wealth-tax. It was only the assets specified under sub-section (3) of section 40 of the Finance Act, 1983, which was chargeable to wealth-tax. Therefore, the exception part of Explanation to section 40(a)(iia) of the Act referred to above became applicable in the present case and the wealth-tax amounting to Rs, 1,55,820 paid by the assessed in pursuance to section 40 of the Finance Act, 1983, was admissible for deduction.

9. In the above view of the matter, we direct the assessing officer to allow deduction of Rs. 1,55,820.

9. In the above view of the matter, we direct the assessing officer to allow deduction of Rs. 1,55,820.

10. Grounds No. 2 and 3 were not pressed by the assessed.

10. Grounds No. 2 and 3 were not pressed by the assessed.

11. In the result, the appeal is partly allowed.

11. In the result, the appeal is partly allowed.