2002 (7) TMI 58 - HC - Wealth-tax

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Assessing Officer to allow the sum of Rs. 50 lakhs received as advance sale consideration in terms of the agreement dated September 22, 1986, as debt owed in computing the net wealth under section 40(2) of the Finance Act, 1983? - On the basis of the undisputed facts and the circumstances of the case and on a plain reading of the relevant provisions of law, namely, section 40(2) of the Finance Act, 1983, and also the provisions under section 55(6)(b) of the Transfer of Property Act, I think the learned Tribunal did not go wrong in law and the conclusion of the learned Tribunal should also be accepted. The only question referred to us in this reference, is, therefore, answered in the affirmative and in favour of the assessee.

Issues Involved:
1. Whether the Tribunal was justified in directing the Assessing Officer to allow the sum of Rs. 50 lakhs received as advance sale consideration as debt owed in computing the net wealth under section 40(2) of the Finance Act, 1983.

Detailed Analysis:

1. Facts of the Case:
The assessee, a private limited company, owned a property at 3, Alipore Road, Calcutta. An agreement for sale of this property was entered into on September 22, 1986, with Satyam Properties and Finance Private Limited for Rs. 3 crores. Rs. 50 lakhs was paid as an advance during the year ending March 31, 1987. The purchaser took possession of the land for constructing a multi-storied building, although the conveyance was not executed. The assessment year in question is 1987-88, with the relevant valuation date being March 31, 1987.

2. Assessing Officer's Decision:
The Assessing Officer rejected the assessee's claim to deduct Rs. 50 lakhs from the property value, stating it was part of the sale consideration and not a liability against the property value. Therefore, it was not allowable as "liabilities debts in terms of the provision of subsection (2) of section 40 of the Finance Act, 1983, nor under the provisions of section 2(m) of the Wealth-tax Act, 1957."

3. Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) affirmed the Assessing Officer's order, holding that the Rs. 50 lakhs received as advance did not form part of the net wealth computed in terms of section 40(3) of the Finance Act, 1983, and thus no deduction could be allowed. The Commissioner further stated that the Rs. 50 lakhs was not a debt owed by the appellant in relation to the property.

4. Tribunal's Decision:
The Tribunal accepted the assessee's contention, allowing the Rs. 50 lakhs as a deduction from the property value and directed the Assessing Officer to deduct this amount when computing the net wealth of the assessee.

5. Revenue's Contention:
The Revenue argued that the Tribunal's decision was incorrect in law and fact, relying on the decision in Bai Dosabai v. Mathurdas Govinddas, AIR 1980 SC 1334, which they claimed was not applicable. They also referred to CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC), arguing that the sale was complete for practical purposes and that the Rs. 50 lakhs was part of the sale consideration, not a debt.

6. Assessee's Contention:
The assessee argued that the Rs. 50 lakhs was a liability secured on or incurred in relation to the property. They cited section 55(6)(b) of the Transfer of Property Act, 1882, which provides that advance payment by the buyer is a charge on the property. They contended that the Rs. 50 lakhs should be deducted from the property's value as it was a liability that would have to be discharged if the sale did not materialize.

7. Court's Analysis:
The court noted that section 40(2) of the Finance Act, 1983, allows for deductions of debts owed by the company secured on or incurred in relation to the assets. The court found that the Rs. 50 lakhs paid by the purchaser was indeed a charge on the property under section 55(6)(b) of the Transfer of Property Act, 1882. The court rejected the Revenue's arguments, including the reliance on CIT v. Podar Cement Pvt. Ltd., as irrelevant to the issue of wealth-tax assessment.

8. Conclusion:
The court held that the Tribunal was justified in directing the Assessing Officer to deduct Rs. 50 lakhs in computing the net wealth of the assessee. The question referred was answered in the affirmative and in favor of the assessee.

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