1983 (5) TMI 68 - AT - Wealth-tax

Summary

Issues Involved:

1. Retrospective application of Rule 1BB of the Wealth-tax Rules, 1957.
2. Deductibility of time-barred debts as liabilities under section 2(m) of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Retrospective Application of Rule 1BB of the Wealth-tax Rules, 1957:

The Tribunal addressed whether Rule 1BB, which became operative from 1-4-1979, could be applied retrospectively to the assessment years 1970-71, 1972-73, 1973-74, 1974-75, and 1975-76. The Tribunal held that Rule 1BB is procedural and retrospective in nature, thus applicable to all pending actions. This conclusion was based on the precedent set by the Supreme Court in CGT v. Smt. Kusumben D. Mahadevia, where it was held that procedural rules can have retrospective application. The Tribunal further supported its decision by referencing the Delhi Bench's earlier decision, which applied section 7(4) of the Wealth-tax Act retroactively for valuation purposes. The Tribunal also noted that the High Court had previously dismissed similar reference applications by the revenue, reinforcing the view that Rule 1BB is procedural and applies to all pending assessments.

2. Deductibility of Time-Barred Debts as Liabilities:

The Tribunal examined whether debts that had become barred by limitation could still be considered liabilities under section 2(m) of the Wealth-tax Act. The Tribunal found that the Commissioner of Wealth-tax (Appeals) had misconceived the facts by disallowing the assessee's claim for deduction of Rs. 1,63,600 on account of liabilities. The Tribunal emphasized that limitation bars the remedy but does not extinguish the right, meaning a time-barred debt remains a liability vis-a-vis the assessee and the creditors. This interpretation aligns with the principle that liabilities acknowledged in wealth-tax returns should be allowed as deductions, regardless of the creditors' status or the time elapsed. The Tribunal concluded that the liabilities should be allowed as deductions for the assessment years in question, as they were for the assessment year 1971-72.

Conclusion:

The Tribunal declined to refer both questions to the High Court, deeming them self-evident and based on established legal principles. The Tribunal emphasized that procedural rules like Rule 1BB apply retrospectively to all pending assessments and that time-barred debts remain liabilities under the Wealth-tax Act. The reference applications by the revenue were rejected, and the Tribunal's findings were upheld based on the material on record and relevant legal precedents.