1985 (3) TMI 87 - AT - Wealth-tax

Summary

Issues:
- Claim of exemption from wealth-tax on fixed deposits
- Claim for deduction of loans from net wealth under section 2(m) of the Wealth Tax Act

Analysis:

Issue 1: Claim of exemption from wealth-tax on fixed deposits
The appellants, who were partners in a firm, had borrowed sums of money from the firm and kept these amounts in fixed deposits with a bank. The firm took overdrafts on the securities of these fixed deposits. The appellants claimed exemption from wealth-tax on these fixed deposits under section 5(1)(xxvi) of the Wealth Tax Act. The WTO erroneously noted the section as 5(1)(xv) but granted the exemption. The Appellate Assistant Commissioner (AAC) allowed the claim, emphasizing that the amounts were liabilities in the form of loans owed by the appellants and should be deducted. However, the Department appealed, arguing that the debts incurred in relation to the fixed deposits should not be deducted as the deposits were exempt from wealth-tax. The Appellate Tribunal held that the borrowings made for acquiring excluded assets, like fixed deposits, cannot be deducted from the value of assets for wealth tax computation. Therefore, the appellants were not entitled to claim exemption from wealth-tax on the fixed deposits.

Issue 2: Claim for deduction of loans from net wealth under section 2(m) of the Wealth Tax Act
The appellants also claimed deduction for the loans borrowed from the firm under section 2(m) of the Wealth Tax Act, which defines "net wealth" as the excess of aggregate asset value over aggregate debt value. The WTO rejected this claim, stating that since the firm had taken advantage of overdrafts on the deposits made by the appellants, the loans could not be deducted. The AAC allowed the deduction, considering the loans as liabilities owed by the appellants. However, the Appellate Tribunal disagreed, citing an exception in section 2(m) that debts incurred in relation to property exempt from wealth-tax should not be deducted. As the fixed deposits were exempt assets, the loans borrowed for acquiring them could not be deducted from net wealth. The Tribunal reversed the AAC's decision, restoring that of the Income Tax Officer, and allowed the Department's appeal on this issue.

In conclusion, the Appellate Tribunal allowed the Department's appeal, holding that the appellants were not entitled to claim exemption from wealth-tax on fixed deposits and deduction of loans from net wealth under the Wealth Tax Act.