2003 (7) TMI 264 - AT - Wealth-tax

Issues Involved:
1. Prima facie adjustment under section 16(1) of the Wealth Tax Act (WT Act).
2. Disallowance of liability claimed on a pro-rata basis.
3. Inclusion of the value of a residential flat in a cooperative housing society in the net wealth.
4. Exclusion of the value of a residential house occupied by an employee from the net wealth.

Issue-wise Detailed Analysis:

1. Prima Facie Adjustment under Section 16(1) of the WT Act:
The primary issue in Appeal No. 728 for the assessment year 1995-96 was the prima facie adjustment made by the Assessing Officer (AO) under section 16(1) of the WT Act, which was sustained by the Commissioner of Wealth Tax (Appeals) [CWT(A)]. The AO disallowed the deduction of debts claimed by the assessee on a pro-rata basis, enhancing the net wealth by Rs. 2,49,60,610. The assessee argued that the AO had no jurisdiction under section 16(1) to disallow claims that were debatable and not prima facie inadmissible. The ITAT, Mumbai, had previously approved the deduction of liabilities on a pro-rata basis in the case of Urmila & Co. (P.) Ltd. The Tribunal held that the Revenue authorities were not justified in making the disallowance by way of adjustment under section 16(1) and deleted the adjustment made by the AO and sustained by the CWT(A).

2. Disallowance of Liability Claimed on a Pro-rata Basis:
In Appeal No. 884 for the assessment year 1995-96, the main issue was the disallowance of liability of Rs. 2,49,60,610 claimed by the assessee on a pro-rata basis. The Tribunal admitted additional grounds related to the inclusion of residential flats in the net wealth. The assessee argued that the liabilities on pro-rata basis should be allowed as they were incurred in relation to assets included in the net wealth. The Tribunal referred to the ITAT, Mumbai Bench decision in Urmila & Co. (P.) Ltd. and the Hon'ble Madras High Court decision in CIT v. K.S. Vaidyanathan, holding that debts owed by the assessee should be allowed on a pro-rata basis. The AO was directed to allow appropriate deductions accordingly.

3. Inclusion of the Value of a Residential Flat in a Cooperative Housing Society in the Net Wealth:
The additional ground No. 1 in Appeal No. 884 pertained to whether the value of a residential flat in Malabar Co-operative Housing Society Ltd. should be included in the net wealth. The assessee argued that the flat, valued at Rs. 7,60,52,519, did not fall within the category of assets chargeable to wealth tax under section 2(ea) of the WT Act, as the legal owner was the Co-operative Housing Society, and the assessee only held shares in the society. The Tribunal, however, held that under section 4(7) of the WT Act, the assessee is deemed to be the owner of the flat, and its value should be included in the net wealth. The additional ground was thus rejected, confirming the orders of the Revenue authorities.

4. Exclusion of the Value of a Residential House Occupied by an Employee from the Net Wealth:
The additional ground No. 2 in Appeal No. 884, which was not pressed by the assessee, was rejected. However, in Appeal No. 47 for the assessment year 1997-98, a similar issue was raised regarding the exclusion of the value of a Borivali flat from the net wealth, as it was occupied by an employee with a gross annual salary below Rs. 2 lakh. The Tribunal restored this issue to the AO for examination and consideration with reference to the provisions of section 2(ea) of the WT Act.

Conclusion:
- Appeal No. 728: Allowed, with the adjustment made by the AO under section 16(1) being deleted.
- Appeal No. 884: Partly allowed, with the AO directed to allow liabilities on a pro-rata basis and the inclusion of the residential flat in the net wealth being confirmed.
- Appeal No. 47: Partly allowed, with similar directions as in Appeal No. 884, and the issue regarding the Borivali flat being restored to the AO for further examination.

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