2014 (7) TMI 1206 - AT - Wealth-tax

Assets mortgaged to bank - inclusion in net wealth of the assessee - Held that - The properties mortgaged to the bank cannot be held as assets belonging to the assessee u/s.2(m) of the W.T. Act. We, therefore, set-aside the order of the CWT(A) and direct the Assessing Officer to delete the assets mortgaged to the bank from the net wealth of the assessee. See CIT Vs. Thressiamma Abraham 1996 (12) TMI 25 - KERALA High Court - Decided in favour of assessee

Issues Involved:
1. Validity of the return filed under section 17 of the Wealth Tax Act.
2. Deduction under section 2(m) of the Wealth Tax Act for debts owed.
3. Valuation of immovable properties for wealth tax purposes.
4. Ownership and inclusion of mortgaged properties in the net wealth of the assessee.

Detailed Analysis:

1. Validity of the Return Filed Under Section 17 of the Wealth Tax Act:
The assessee initially filed a return of net wealth in response to a notice under section 17 of the Wealth Tax Act, declaring net wealth of Rs. 68,75,500/-. Subsequently, another return was filed declaring net wealth of Rs. 22,32,400/-. The Assessing Officer treated the latter return as nonest since it was not filed under section 14 of the Wealth Tax Act. However, the information from the second return was considered during the assessment proceedings.

2. Deduction Under Section 2(m) of the Wealth Tax Act for Debts Owed:
The Assessing Officer noted that the assessee claimed a deduction under section 2(m) for debts owed, which were not directly owed by the assessee but were provided as security for loans of a company where the assessee was a director/shareholder. The Assessing Officer rejected this deduction, stating that the debts were not owed by the assessee directly and that even if the mortgaged property was used for recovery, the company would need to reimburse the assessee. Thus, the claim of debts owed amounting to Rs. 1,55,91,656/- was deemed untenable.

3. Valuation of Immovable Properties for Wealth Tax Purposes:
The Assessing Officer added Rs. 73,01,746/- to the net wealth due to differences in valuation of certain properties based on the valuation report of UCO Bank. Additionally, for properties not mortgaged to the bank, an addition of Rs. 2,60,53,598/- was made based on previous valuation reports accepted by the assessee for obtaining loans. The net wealth was thus determined at Rs. 5,06,60,544/- against the declared net wealth of Rs. 1,73,05,200/-.

4. Ownership and Inclusion of Mortgaged Properties in the Net Wealth of the Assessee:
The Tribunal had to decide whether properties mortgaged to the bank could be considered as assets belonging to the assessee under section 2(m) of the Wealth Tax Act. The CWT(A) initially upheld the Assessing Officer's action but did not adjudicate on whether the mortgaged properties belonged to the assessee. Upon remand, the CWT(A) maintained that the properties belonged to the assessee and not the bank, rejecting the assessee's contention that the mortgaged properties should not be included in the net wealth.

The Tribunal, however, noted that the properties were indeed mortgaged to the bank, and following the precedent set by the Hon'ble Kerala High Court in the case of CIT Vs. Thressiamma Abraham, held that the properties mortgaged to the bank could not be considered as assets belonging to the assessee under section 2(m) of the Wealth Tax Act. Consequently, the Tribunal set aside the CWT(A)'s order and directed the Assessing Officer to exclude the mortgaged properties from the net wealth of the assessee.

Conclusion:
The appeals filed by the assessee were allowed, and the properties mortgaged to the bank were directed to be excluded from the net wealth of the assessee. The Tribunal's decision was based on the interpretation that mortgaged properties do not belong to the assessee for the purposes of wealth tax under section 2(m). Other grounds raised by the assessee were deemed academic and were not adjudicated.

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