2006 (12) TMI 197 - AT - Wealth-tax

Summary

Issues Involved:
1. Deduction as 'debt owed' for motorcars.
2. Valuation of motorcars for Wealth Tax purposes.

Summary:

Issue 1: Deduction as 'debt owed' for motorcars

The assessee claimed a deduction of Rs. 1,09,15,787 (for AY 2001-02 Rs. 1,08,66,637) as 'debt owed' in relation to motorcars. The Assessing Officer (AO) rejected this claim, stating that the tied-up loans from employees were not used to purchase the cars but were contributions from employees who would eventually buy the vehicles. The AO concluded that the assessee was not entitled to deduction u/s 2(m) of the Wealth-tax Act, citing the case of CWT v. Associated Cement Co. Ltd [1981] 128 ITR 626 (Bom.). The CWT(A) upheld the AO's decision, referencing a previous decision in the assessee's own case for AY 1998-99.

The Tribunal examined the scheme, which allowed employees to purchase vehicles with loans from the company, repaid in installments. The Tribunal found that the vehicles remained in the company's name until the loan was repaid, establishing ownership and a debt relationship. Citing cases like WTO v. Smt. Rati M. Fyzee [2002] 82 ITD 548 (Mum.) and CWT v. Bajoria Properties (P.) Ltd. [2002] 258 ITR 29, the Tribunal concluded that the debt was in relation to the asset and allowed the deduction for both assessment years.

Issue 2: Valuation of motorcars for Wealth Tax purposes

The AO adopted the written down value (WDV) of motorcars as per the books of account, rejecting the assessee's claim to use the WDV as per the Income-tax Act. The CWT(A) upheld this, stating that the depreciation rates under the Income-tax Act included fiscal incentives and did not reflect true market value.

The Tribunal referred to the decision in Samarth Knitters (P.) Ltd. v. Dy. CWT [1997] 60 ITD 657 (Mum.), which suggested using the insurance value of cars to estimate market value. The Tribunal directed the AO to re-determine the value of the vehicles based on this precedent, treating the assessee's ground as partly allowed for statistical purposes.

Conclusion:

The appeals were partly allowed, with the Tribunal directing the AO to allow the deduction for 'debt owed' and to re-determine the value of motorcars based on insurance values.