1982 (4) TMI 34 - HC - Wealth-tax

Summary

Issues Involved:
1. Inclusion of half the value of properties owned by the association of persons in the assessee's wealth.
2. Deduction of the entire income-tax liabilities outstanding against the HUF of M/s. Kishori Lal Mukundi Lal.
3. Applicability of section 2(m)(iii) of the Wealth-tax Act on the assessee's claim for deduction of income-tax demands.
4. Deduction of half the amount payable under a decree against the assessee's branch and Mohan Lal's branch.
5. Deduction of 1/5th of the amount payable under decrees against the HUF of M/s. Kishori Lal Mukundi Lal.
6. Correct valuation of ascertained decrees pending in the execution court on the date of valuation for wealth-tax purposes.

Detailed Analysis:

Issue 1: Inclusion of Half the Value of Properties Owned by the Association of Persons in the Assessee's Wealth
The Tribunal held that half the value of the properties owned by the association of persons (AOP) consisting of the assessee and her son should be included in the assessee's wealth. The assessee argued that since the properties belonged to the AOP, no part should be included in her wealth. The court disagreed, stating that an AOP is not a legal entity, and therefore, the properties continued to be owned by the assessee and her son. As the gift deed did not specify their shares, it was presumed that the properties were owned equally. Consequently, the Revenue authorities were justified in including half the value of the properties in the assessee's net wealth. The court answered this question in the affirmative, in favor of the Revenue, and against the assessee.

Issue 2: Deduction of the Entire Income-tax Liabilities Outstanding Against the HUF of M/s. Kishori Lal Mukundi Lal
The assessee claimed that the entire income-tax liability of Rs. 1,93,367 against the HUF should be deducted while computing her net wealth. The WTO and AAC rejected this claim, stating that the liability had been outstanding for more than twelve months on the valuation dates. The Tribunal agreed but allowed a deduction of 1/5th of the total demand, considering it a joint and several liability. However, it held that the claim was hit by section 2(m)(iii) of the Act, disallowing any deduction. The court upheld this view, emphasizing that section 2(m)(iii) applies to liabilities outstanding for more than twelve months, regardless of whether the liability is personal or attached to property. This question was deemed academic and returned unanswered.

Issue 3: Applicability of Section 2(m)(iii) of the Wealth-tax Act on the Assessee's Claim for Deduction of Income-tax Demands
The court analyzed section 2(m)(iii), which excludes certain debts from being considered while computing net wealth, including tax liabilities outstanding for more than twelve months. The court concluded that this provision applies to any tax liability, whether personal or attached to property. The court rejected the assessee's contention that the provision should only apply to personal liabilities. The court answered this question in the affirmative, in favor of the Revenue, and against the assessee.

Issue 4: Deduction of Half the Amount Payable Under a Decree Against the Assessee's Branch and Mohan Lal's Branch
The assessee claimed a deduction of Rs. 2,43,634 on account of decrees against her branch and Mohan Lal's branch. The AAC allowed only half of the principal amount, excluding interest. The Tribunal included the interest but upheld the deduction of only half the liability. The court disagreed, stating that the entire amount of the joint and several liability should be deductible. The court held that the right to claim contribution arises only upon discharge of the debt and does not affect the nature of the debt itself. The court answered this question in the negative, in favor of the assessee, and against the Department.

Issue 5: Deduction of 1/5th of the Amount Payable Under Decrees Against the HUF of M/s. Kishori Lal Mukundi Lal
Similar to Issue 4, the assessee claimed a deduction of Rs. 5,35,312 on account of a decree against the HUF. The AAC allowed only 1/5th of the principal amount, excluding interest. The Tribunal included the interest but upheld the deduction of only 1/5th of the liability. The court held that the entire amount of the joint and several liability should be deductible, following the same reasoning as in Issue 4. The court answered this question in the negative, in favor of the assessee, and against the Department.

Issue 6: Correct Valuation of Ascertained Decrees Pending in the Execution Court on the Date of Valuation for Wealth-tax Purposes
The assessee argued that the value of the decrees should be taken at nil due to the improbability of recovery. The WTO, AAC, and Tribunal rejected this, considering the amounts at which the decrees were ultimately settled. The court found no error in the Tribunal's approach and held that the amounts realized from the settlements were the correct values. The court answered this question in the affirmative, in favor of the Department, and against the assessee.

Conclusion:
- Question 1: Affirmative, in favor of the Revenue.
- Question 2: Academic, unanswered.
- Question 3: Affirmative, in favor of the Revenue.
- Questions 4 and 5: Negative, in favor of the assessee.
- Question under section 27(2): Affirmative, in favor of the Department.

No order as to costs due to divided success.