9911796707
TMI Blog2008 (3) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... was declared by the assessee at Rs. 1,68,57,691 and Rs. 1,97,20,600 respectively. The assessee-company had taken loan against security of the said lands from IFCI and State Bank of Patiala and the said loans up to the value of the said lands was claimed as deduction while computing its net wealth for both the years under consideration. From the perusal of relevant balance sheets of the assessee-company, it was noted by the Assessing Officer that the said loans were taken for packing credit and working capital. Since the lands in question belonging to the assessee-company were acquired well before taking the said loans and the said loans were clearly availed by the assessee-company for the purpose of its business and not for the purpose of acquiring the said lands, it was held by the Assessing Officer that the same could not be said to be debts incurred in relation to the assets, i.e., lands included in the net wealth of the assessee-company. He, therefore, held that the said loans could not be deducted while computing the net wealth of the assessee-company and disallowed the deduction claimed by the assessee-company on this count. 4. The matter was carried before the learned CWT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owned by the assessee on the valuation date which have been incurred in relation to the said assets.' It may be noted that by the Finance Act, 1992 the words 'on the valuation date which have been incurred in relation to the said assets' were substituted for the following words: 'on the valuation date other than- (i) debts which under section 6 are not to be taken into account; (ii) debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under this Act; and (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure-tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958),- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n date which are secured on, or which have been incurred in relation to, the said assets: Provided that where any debt secured on any asset belonging to the assessee is incurred for, or ensures to, the benefit of any other person, or is not represented by any asset belonging to the assessee, the value of such debts shall not be taken into account in computing the net wealth of the assessee.' Thus, the expression 'secured on' was appearing in section 40 of the Finance Act, 1983, which is not appearing in the amended provision of section 2(m). 4.6 The Hon'ble Gujarat High Court in the case of Arun K. Parekh v. CWT 134 ITR 182 (sic) observed, in relation to erstwhile section 2(m)(ii), as under: 'The language used in sub-clause (ii) is clear and unambiguous. Sub-clause (ii) contemplates two situations in which a debt is to be excluded from a consideration for the computation of net wealth: (i) if it is secured on a property in respect of which wealth-tax is not chargeable, or (ii) if the debt is incurred in relation to such property. Two entirely different situations were contemplated in making the above provision. A debt, though not secured, on a property in respect of which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the said assets are not allowable deduction. The Circular No. 636, dated 31-8-1992 issued by the Board explaining the provisions of the Finance Act, 1992 clearly states that where an assessee creates a charge on an asset which is liable to wealth-tax but the debt is not incurred in relation to such asset, the deduction is not allowable for computing net wealth. The relevant para 54.3 of the circular reads as under: '54.3 The Finance Act has amended clause (m) of section 2 of the Wealth-tax Act to provide that only debts which have been incurred in relation to the assets assessable to wealth-tax will be allowed to be deducted in computing the net wealth. This is to avoid a situation where an assessee creates a charge on an asset which is liable to wealth-tax and use the amount raised through such charge to acquire assets which are not liable to wealth-tax, simultaneously claiming the benefit of a deduction in respect of such a charge.' 4.9 In the light of above discussion, it is clear that deduction of debts owned by the assessee on the valuation date is allowable only in respect of debts which have been incurred in relation to the taxable assets and not the debts which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's claim for deduction on account of loans. He submitted that all the contentions now being raised by the learned counsel for the assessee were also raised before the learned CWT(A) and the same have been rejected by the learned CWT(A) by passing a well-reasoned and well-discussed order. He contended that the issue involved in the case of Smt. Rati M. Fyzee as well as the facts relevant thereto were entirely different from that of the present case and the reliance of the learned counsel for the assessee on the decision rendered by the Tribunal in the said case in support of the assessee's claim is completely misplaced. He submitted that the loans in the present case were undisputedly taken by the assessee-company for the purpose of its business and just because the same were secured against the lands, it cannot be said that the said loans were "debts... incurred in relation to the lands" as claimed by the assessee. He contended that there was no nexus, direct or indirect, between the loans and the lands and in the absence of such nexus, the authorities below were fully justified in holding that the said loans could not be considered as "debts... incurred in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in the present case as is evident from the following grounds raised by the revenue in that case:- Assessment year: 1991-92 "On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in allowing deduction of Rs. 5 lakhs to the assessee, even though the Explanation to section 5(1A) of the Wealth-tax Act prohibits such further deduction." Assessment year: 1992-93 "On the facts and in the circumstances of the case and in law, the learned CIT(A) 'erred in directing to delete the disallowance of Rs. 5 lakhs out of deduction allowed under section 2(m) overlooking that this amount to double deduction. Without prejudice to the above, the learned CIT(A) erred in allowing deduction of Rs. 5 lakhs under section 2(m) even though the Explanation to section 5(1A) of the Wealth-tax Act prohibits such further deduction." 10. A perusal of the order of the Tribunal passed in the case of Smt. Rati M. Fyzee also shows that the assessment years involved therein were 1991-92 and 1992-93 to which the provisions of section 2(m) as existed at the relevant time were applicable. The said provisions have undergone a major change by the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lands as claimed by the assessee. 11. The learned counsel for the assessee has also relied on the Notes on Clauses and Memorandum explaining the provisions of Finance Bill, 1992 introduced in the Parliament to point out that when the Finance Bill, 1992 was introduced in the Parliament, the words "secured on" were also there in the propose9 amendment in section 2(m) along with the words "incurred in relation to". While passing the Finance Bill, 1992 by the Parliament, a change, however, was made by omitting the words "which are secured on" leaving the words "which have been incurred in relation to" in the relevant provisions. In our opinion, this change finally made in the provisions of section 2(m) while passing the Finance Bill, 1992 by the Parliament is sufficient to make the legislative intention clear that the debts which are secured on the chargeable assets but were not incurred in relation to the said assets are not to be allowed as deduction under section 2(m) as rightly held by the learned CIT(A). As further pointed out by the learned CIT(A) in his impugned order, this position was made further clear by the CBDT in the Circular No. 636 issued on 31-8-1992 explaining th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Narayandas J. Hemani and there was no decision rendered by their Lordships on this aspect of the matter. 13. Similarly, in the case of Bajoria Properties (P.) Ltd., the facts involved were different inasmuch as the assessee-company therein had entered into an agreement with another company for sale of its property at Alipur for a consideration of Rs. 3 crores. Out of the said amount of Rs. 3 crores, Rs. 50 lakhs was paid during the year ended on 31-3-1987 and the intending purchaser had also obtained possession of the property for the purpose of construction of a multi-storeyed building. The conveyance of the property, however, had not been executed till the valuation date, i.e., 31-3-1987 relevant to assessment year 1987-88 and the value of the said property at Rs. 3 crores, therefore, was included in the net wealth of the assessee. The claim of the assessee before the revenue authorities was that the sum of Rs. 50 lakhs paid by the intending purchaser should be deducted as a liability from the said value of Rs. 3 crores which was rejected on the ground that it was a part of the sale consideration and was not a liability against the value of the property. On appeal, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion, this distinction made out in the two expressions used in the pre-amended provisions of section 2(m)(ii) as explained by the Hon'ble Gujarat High Court in the case of Arun K. Parekh makes it clear that there is a marked difference between the expressions "debt secured on a property" and "debt incurred in relation to such property" and it is not necessary that every debt secured on a property can be a debt which has been incurred in relation to such property. 15. It is observed that in the case of Binny Ltd. v. Asstt. CWT [2005] 96 ITD 500, the Chennai Bench of ITAT had an occasion to consider the scope of the expression "debts which have been incurred in relation to assets" used in section 2(m) and it was held by the Tribunal in this context that the phrase "in relation to" would clearly indicate that if the debt was incurred for purchasing that asset, only then the same could be allowed to be deducted from the value of such assets. In the said case, loans were advanced to the assessee against immovable properties for financing its requirement of working capital and it was held by the Tribunal that the said loans, even though were the debts secured on the immovable properti ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
