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TMI Blog1987 (7) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... t as per the amended provision, the amount of Compulsory Deposit should be deemed to be a deposit with a banking company. The CWT (A), therefore, directed the WTO to allow exemption on the Compulsory Deposit subject to the ceiling limit under section 5(1A) of the Wealth-tax Act. 4. Before us, the learned counsel for the appellant, urged that the Compulsory Deposit was made by the appellant under a statutory compulsion and was not an annuity purchased by the assessee and that the terms and conditions relating to the Compulsory Deposit precluded the commutation of any portion into a lump sum. He, therefore, contended that the value of this Compulsory Deposit ought to have been excluded from the net wealth of the appellant. The learned Departmental Representative relied on section 7A of the Compulsory Deposit Act which has been inserted in the statute with retrospective effect from 1-4-1975 by the Finance (No. 2) Act, 1980. He submitted that in view of this provision of law, the direction given by the CWT (A) was correct and that the appellant was not entitled to any further relief on this count. 5. Under section 7A of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 3 and the definition of "net wealth" in section 2(m) of the Act. 8. The CWT (Appeals), after adverting to section 2(m)(ii) of the Act, held that evidently debts which are incurred in relation to any property in respect of which wealth-tax is not chargeable, are not to be included in the aggregate value of the debts owed by the assessee on the valuation date. He further held that it was not disputed that the debt was incurred in relation to capital investment bonds which are assets not chargeable under the Wealth-tax Act and that once this position was accepted, there could be no doubt that the liability incurred in relation to such assets was not deductible in computing the net wealth. The CWT (A) also held that the fact that the assets were not available with the appellant on account of the gift prior to the valuation date would not make any different to that position. He was of the view that the appellant was not entitled to deduct the sum of Rs. 5 lakhs being a liability incurred in relation to an asset not chargeable under the Wealth-tax Act and that, therefore, the WTO was justified in disallowing the claim for deduction of the amount. This is being objected to by the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel relied on the decision of the Madras High Court in A. F. Harvey Ltd. v. CWT [1977] 107 ITR 326 at pages 333,334,339 bottom and 340 top. The learned counsel submitted that the object and purpose of the exclusion clause contained in section 2(m)(ii) was that an assessee should not get a double deduction or a double advantage, one of exemption for an asset or property under section 5 of the Wealth-tax Act and the other by ways of deduction of the corresponding debt incurred in relation to such exempted property under section 2(m) of the Act but that in the present case, there was no such double advantage or deduction claimed by the appellant and that, therefore, the appellant would be entitled to this deduction of the debt under the main provision of section 2(m) of the Act. 10. Shri G. Natarajan, the learned departmental representative relied on the findings of the CWT (Appeals) and contended that the appellant's claim for deduction of this debt under section 2(m) was rightly negatived as the debt in question was hit by the exclusion clause contained in section 2(m)(ii) of the Act. He, therefore, submitted that the order of the CWT (Appeals) should be confirmed on this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of purchasing capital investment bonds which were not assessable to wealth-tax. The assessee meets this argument of the revenue by pointing out that as on the valuation date the said capital investment bons ceased to be his assets as it did not belong to him, as he had gifted them away to a trust on 26-2-1984, long before the valuation date 31-3-1984, but that the debt incurred by him continued to be a debt as on the valuation date which he owed to his creditor Balu Alagannan and therefore it would be an admissible deduction under section 2(m) of the Act. In our view, there is considerable force and substance in these submissions urged on behalf of the appellant. It is not in dispute that the capital investment bonds which were purchased by the assessee with the funds borrowed by him from Balu Alagannan have been gifted away on 26-2-1984 to a trust and that therefore those assets did not belong to the assessee as on the valuation date. It is for this reason the said asset is not included in the net wealth of the assessee under section 2(m) of the Act. What is excluded under section 2(m)(ii) is the debt which is secured or incurred in relation to any property which belongs to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt is not related to or secured on property which is itself liable to wealth-tax. Any liability which has nothing to do with property chargeable to tax is, therefore, disregarded in ascertaining the net wealth. That precisely, in our opinion, is the scope and intention of sub-clause (ii) of clause (m) of section 2". We may point out that this decision of the Madras High Court has been affirmed by the Supreme Court in Spencer Co. Ltd.'s case. While affirming the decision of the Madras High Court, the Supreme Court held that the mode of discharging a liability does not change its true character. Again, in A. F. Harvey Ltd.'s case at page 334 of the reports their Lordships of the Madras High Court have held as follows :- "Consequently, the effect of section 3 read with section 2(m) and section 2(q) is that the wealth-tax is chargeable on the aggregate value of all the assets of a person as on the valuation date. Even though section 3 starts by saying that there shall be charged for every assessment year a tax in respect of the net wealth, still the wealth with reference to which charge has to be made has to be ascertained as on the valuation date. It may happen that a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing over a period, but in respect of the wealth as available on a particular date, namely, the valuation date. Therefore, there cannot be any analogy, true or false, between the relevant provisions of the Income-tax Act and the Act in this behalf, in view of this basic and fundamental difference existing between the chargeable events themselves. Under these circumstances, we are of the opinion that since Mr. Harvey was dead in the present case on March 28, 1957, and was not alive on March 31, 1957, which was the valuation date, his assets could not be taxed in the hands of the executors for the assessment year 1957-58, because immediately on the death of Mr. Harvey the assets ceased to belong to him and they belonged to the legatees for whom he had made provisions under the will executed by him". In the light of the aforesaid ratio of the two decisions of the Madras High Court, it is clear that the debt in question has not been incurred in relation to a property in respect of which wealth-tax is not chargeable under the Act, to fall within the mischief of section 2(m)(ii) of the Act to justify its exclusion. 14. The decision of the Full Bench of the Madras High Court in K. S. V ..... X X X X Extracts X X X X X X X X Extracts X X X X
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