1984 (4) TMI 130 - AT - Wealth-tax

Summary

Issues:
- Deduction of wealth-tax liability of late Smt. Ar. Umayal Achi
- Deduction of estate duty liability of the estate of late Umayal Achi

Analysis:
1. The appeals concern the wealth-tax assessments for 1976-77 and 1977-78 by the assessee, Shri Rm. Arunachalam, involving disputes over two amounts: wealth-tax liability of late Smt. Ar. Umayal Achi and estate duty liability of the estate of late Umayal Achi. The contention is whether these liabilities can be deducted as debts in computing the principal value of the estate under section 2(m)(iii) of the Wealth-tax Act, 1957.

2. The assessee argued that the liabilities are not tax liabilities arising from assessments on the assessee and should be deductible. However, the department and the Commissioner (Appeals) relied on the Allahabad High Court decision in Smt. Prem Lata Agarwal's case to negate the assessee's contention. The department argued that the intention to exclude disputed tax liabilities for over a year must be clearly expressed by the Legislature. The assessee's representative cited precedents to support following the Allahabad High Court decision.

3. The Tribunal held that the estate duty liability of Rs. 1,04,065 is not deductible based on section 2(m)(iii) and the Allahabad High Court decision. However, regarding the wealth-tax liability of late Umayal Achi, the assessee is entitled to deduction. The Tribunal referenced the Supreme Court decision in Kesoram Industries & Cotton Mills Ltd. v. CWT, stating that tax liability is a debt owed by the assessee on the last day of the previous year, eligible for deduction in computing net wealth.

4. The Tribunal distinguished between the wealth-tax liability and the estate duty liability, noting that the former is deductible as a tax liability owed by the individual member, while the latter is a personal debt outstanding against the estate of the deceased. The wealth-tax liability was related to the deceased and inherited by the assessee, ceasing to be a tax liability under section 2(m)(iii).

5. Additionally, the Tribunal emphasized that the estate inherited by the assessee should exclude all debts and encumbrances, indicating that the wealth-tax liability cannot be part of the net wealth. The estate duty liability, being undisputed but not paid within the stipulated period, is not eligible for deduction.

6. In conclusion, the appeals were partly allowed, permitting the deduction of the wealth-tax liability but denying the deduction of the estate duty liability.