2008 (3) TMI 362 - AT - Wealth-tax

Summary

Issues Involved:
1. Assessee's claim for deduction on account of loans secured on assets included in its net wealth for computing net wealth.
2. Levy of interest under section 17B.

Issue-wise Detailed Analysis:

1. Assessee's Claim for Deduction on Account of Loans Secured on Assets:

The assessee, a company, filed its returns of net wealth for assessment years 2002-03 and 2003-04, declaring net wealth values of Rs. 57,82,160 and Rs. 49,72,354 respectively. The company claimed deductions for loans secured against industrial land and office plots. The Assessing Officer (AO) disallowed these deductions, noting that the loans were taken for business purposes (packing credit and working capital) and not for acquiring the lands. The AO held that these loans could not be considered debts incurred in relation to the assets included in the net wealth.

On appeal, the Commissioner of Wealth Tax (Appeals) [CWT(A)] upheld the AO's decision, emphasizing that the amended section 2(m) of the Wealth-tax Act, effective from 1-4-1993, did not include the phrase "secured on" in relation to debts deductible from net wealth. The CWT(A) pointed out that the legislative intent was clear from the omission of "secured on" in the final version of the Finance Act, 1992, indicating that only debts incurred directly in relation to taxable assets were deductible.

The assessee argued that the expression "debts... incurred in relation to" should be interpreted broadly to include debts secured on assets. However, the Tribunal noted that the loans were for business purposes and not for acquiring the lands. The Tribunal found no appreciable or intelligible nexus between the loans and the lands, thus rejecting the assessee's claim.

The Tribunal cited the decision of the Chennai Bench of ITAT in the case of Binny Ltd. v. Asstt. CWT [2005] 96 ITD 500, where it was held that debts incurred for purposes other than acquiring the asset in question could not be deducted under section 2(m). The Tribunal concluded that the loans in question, even though secured on the lands, did not qualify as debts incurred in relation to the lands as per section 2(m).

2. Levy of Interest Under Section 17B:

The issue of levy of interest under section 17B was deemed consequential. The Tribunal directed the AO to allow consequential relief, if any, to the assessee based on the outcome of the primary issue.

Conclusion:

The Tribunal upheld the CWT(A)'s order, confirming the disallowance of the assessee's claim for deduction of loans secured on assets for computing net wealth. The appeals were dismissed, and the AO was directed to allow consequential relief regarding the levy of interest under section 17B.