1990 (2) TMI 85 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of entire liability of Rs. 42,096 against the assessee's wealth.
2. Applicability of the decision in CIT v. M.N. Rajam.
3. Binding nature of CBDT Circular No. 1070 on Wealth-tax authorities.
4. Proportionate disallowance of the debt.

Issue-Wise Detailed Analysis:

1. Deduction of Entire Liability of Rs. 42,096 Against the Assessee's Wealth:
The core issue was whether the entire loan amount of Rs. 42,096, borrowed for constructing a house property, should be deducted from the assessee's wealth. The Deputy Commissioner (Appeals) directed the Wealth-tax Officer (WTO) to allow the entire liability, citing a nexus between the loan and the house property. The Revenue appealed, arguing that only a proportionate amount should be deducted, referencing the Full Bench decision in CIT v. K.S. Vaidyanathan.

2. Applicability of the Decision in CIT v. M.N. Rajam:
The Deputy Commissioner (Appeals) relied on CIT v. M.N. Rajam to allow the entire loan deduction. However, the Revenue contended that this decision was overruled by CIT v. K.S. Vaidyanathan, which advocated for a proportionate deduction. The Tribunal noted that the Madras High Court in K.S. Vaidyanathan had indeed overruled M.N. Rajam, but the latter decision did not consider the relevant CBDT circular.

3. Binding Nature of CBDT Circular No. 1070 on Wealth-tax Authorities:
The assessee's counsel argued that CBDT Circular No. 1070 mandated allowing the entire loan as a deduction, and this circular was binding on the authorities. The Tribunal examined the circular, which stated that in the absence of clear statutory guidance, deductions should be allowed in a manner most beneficial to the assessee. The Tribunal found no indication in the Act that contradicted this circular, thus deeming it binding.

4. Proportionate Disallowance of the Debt:
The Revenue's alternative argument was for a proportionate disallowance of the debt, aligned with the exempt portion of the property. The Tribunal scrutinized Section 2(m)(ii) of the Wealth-tax Act, which did not explicitly provide for proportionate disallowance. The Tribunal referenced the purposive approach of interpretation endorsed by the Madras High Court in K.S. Vaidyanathan, which allowed for apportionment despite the section's vagueness. However, the Tribunal concluded that the circular's guidance was not contrary to the Act and should be followed.

Conclusion:
The Tribunal upheld the Deputy Commissioner (Appeals)'s decision to allow the entire liability of Rs. 42,096 as a deduction. The Tribunal found that the CBDT circular was binding and not contrary to the Act or judicial pronouncements. Therefore, the appeal by the Revenue was dismissed.