1982 (12) TMI 106 - AT - Wealth-tax

Summary

Issues:
Deduction of liability secured by a loan from Life Insurance Corporation (LIC) in computing net wealth under Wealth-tax Act, 1957.

Analysis:
The dispute in this case revolved around the deduction of a liability of Rs. 50,000, which was the share of a loan taken by the assessee from LIC, in computing the net wealth. The assessee co-owned a property valued at Rs. 4,75,000, mortgaged it, and took a loan of Rs. 1 lakh. The assessee claimed that the Rs. 50,000 liability should be deducted from the taxable portion of the property. The WTO rejected the claim, stating that the loan was secured on an exempted asset. On appeal, the AAC upheld the decision based on a previous judgment by the Madras High Court.

In the appeal before the ITAT, it was argued that since the value of the asset exceeded the exempted limit, the liability should be deducted proportionately. The revenue contended that the insurance policy given as collateral security prevented the deduction under section 2(m)(ii) of the Wealth-tax Act, 1957.

The ITAT analyzed the provisions of section 2(m)(ii) and determined that the debt of Rs. 50,000 secured on the house property was directly linked to the chargeable asset and could not be excluded from the net wealth computation. The collateral security of the insurance policy did not meet the criteria of being 'secured' under the Act. The ITAT referred to legal principles regarding pledges and concluded that the policy remained the property of the assessee, and LIC did not have immediate rights over it.

Considering the liability with regard to the house property, which was partly exempt, the ITAT referred to a CBDT Instruction stating that a debt secured on a partly exempted asset should be deducted in a manner beneficial to the assessee. The ITAT emphasized that the department was bound by the CBDT's view, even if it deviated from legal positions, as per a Supreme Court ruling. Therefore, the ITAT set aside the lower authorities' orders and directed the WTO to recompute the net wealth, allowing the deduction of the liability from the taxable value of the asset.

In conclusion, the ITAT allowed the appeal, emphasizing the inextricable link between the liability and the chargeable asset, and the binding nature of CBDT Instructions on the department's actions, ensuring a beneficial approach for the assessee in computing net wealth under the Wealth-tax Act, 1957.