2006 (1) TMI 537 - AT - Wealth-tax

Summary

Issues: Disallowance of debt claimed on account of funds availed from overdraft account for purchasing motor cars under Wealth-tax Act.

Analysis:
The appeals were filed against the orders of the CWT(A) for the assessment years 2001-02 and 2002-03, regarding the disallowance of debt claimed by the assessee on account of funds availed from an overdraft account of a bank for purchasing motor cars. The Assessing Officer disallowed the claim stating that the overdraft facility was for business purposes and not a liability against the value of the cars. The CWT(A) upheld this disallowance, citing a lack of direct nexus between the purchase of motor cars and the amount withdrawn from the overdraft account. The assessee contended that the amount was paid directly from the overdraft account and argued that the overdraft facility should be considered a debt to be reduced while computing taxable wealth. The Tribunal reviewed the case laws cited and examined the documents presented. It noted that cheques were issued from the overdraft account for purchasing the cars, leading to an increase in the assessee's liability. The Tribunal emphasized the legal position that wealth tax is charged on net wealth, which includes the aggregate value of assets minus debts owed. It found that the overdraft was used for business purposes, including acquiring the motor cars for business use. The Tribunal disagreed with the Assessing Officer's view that the overdraft was solely for business purposes, emphasizing that the overdraft liability had a direct connection to the purchase of the cars. It concluded that the overdraft amount should be reduced from the value of assets for computing net wealth under the Wealth-tax Act.

The Tribunal held that the lower authorities were unjustified in not reducing the overdraft facility amount from the value of assets, as it was directly linked to the purchase of the motor cars. Consequently, the Tribunal allowed both appeals of the assessee, directing the Assessing Officer to reduce the overdraft amount availed for acquiring the motor cars while computing net wealth under the Wealth-tax Act.