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TMI Blog2014 (7) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... und of litigation before the Tribunal. Facts of the case, in brief, are that in response to notice u/s.17 of the Wealth Tax Act the assessee filed return of net wealth on 22-11-2011 declaring net wealth of Rs. 68,75,500/-. Subsequently, the assessee filed again the return of net wealth on 05-07-2012 in which the net wealth was declared at Rs. 22,32,400/-. Since the original return was filed in compliance to notice u/s.17 on 22-11-2011 and not filed u/s.14 of the Wealth Tax Act, 1957 the Assessing Officer treated the return filed on 05-07-2012 as Nonest. He, however, took into consideration the information submitted in the return filed on 05-07-2012. From the details furnished by the assessee during the course of assessment proceedings the Assessing Officer noted that the assessee had shown immovable property which were valued for computation of wealth at Government rates as published in the Ready Reckoner by the Government of Maharashtra. He further noted that in the so called revised return of wealth, deduction was claimed u/s.2(m) of the Wealth Tax Act, 1957 on account of debts owed. According to the Assessing Officer the deduction u/s.2(m) is not available to the assessee becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose for the reason that the Fair Market Value on 24-01-2013 was accepted earlier by the assessee for obtaining loan from the bank. According to him this value holds good even for future years as value of land does not depreciate. He accordingly made addition of Rs. 2,60,53,598/- being the difference between the valuation declared by the assessee and the valuation report of UCO Bank and Bank of Maharashtra made on 24-01-2003. The WTO thus determined the net wealth of the assessee at 5,06,60,544/- as against the declared net wealth of Rs. 1,73,05,200/- in the original return. 3. In appeal the CWT(A) upheld the action of the Assessing Officer. On further appeal by the assessee the Tribunal upheld the action of the Assessing Officer in bringing to Wealth Tax the non-mortgaged properties. So far as the properties mortgaged with UCO bank are concerned, the Tribunal restored the issue to the file of the CWT(A) for deciding the issue afresh by observing as under : "7.1 So far as the determination of net wealth is concerned there are basically two issues, i.e. (a) valuation of properties which are mortgaged to the Bank and (b) valuation of the properties which are not mortgaged to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any belonged to /owned by the appellant. The appellant herself in the return of wealth filed has mentioned the said assets as belonging to her and has offered to tax the value of the said assets as considered by her to wealth tax. Merely because the said assets have been offered as collateral security that too in respect of loan obtained by a company mortgaging its own assets does not become the asset belonging to the bank. 6.1 Further, the appellant has also referred to section 4 in support of his alternative contention. On perusal of the said section, it appears that the appellant is referring to the provisions of sub-section (8) of section 4 of the W.T. Act, which is reproduced below: "(8) A person - (a) who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); (b) who acquires any rights ( excluding any right by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof by virtue of any such transaction as is referred to in clause (f) of section 269UA of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved sale consideration and the purchasers were also in rightful possession of the property, however, the legal title continued to belong to the assessee in the absence of registered sale deed. On these facts, it was held that the property belonged to the assessee and was to be included in his net wealth. The decision is not relevant to decide the issue under appeal. The issue to be decided in the case under appeal is as to whether the plots of land belonging to an individual offered as collateral security to a bank in respect of loan obtained by a company (in which the said individual is director) shall be regarded as belonging to the bank and not to the individual. iii) M. Thirumani Mudliar Vs. CWT (1974) 96 ITR 152- 162 (Mad). In this case the issues to be decided by the court were as under: "1. Whether on the facts and in the circumstances of the case, the decision of the Tribunal that the assessee are assessable under the provisions of the WT Act, 1957, as falling within the charging s.3 of the Act in respect of the AYrs, 1957-58 to 1961-62 is valid in law? 2. Whether, on the facts and in the circumstances of the case, the decision of the Tribunal that the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-Scope of s.2(m)- A properly which has been tram/erred by the individual in favour of another under any disposition settlement, trust, covenant, agreement or arrangement will cease to belong to him. and cannot be brought within the fold of "belonging to" u/s. 2(m) notwithstanding the fact that the transfer was. not effected as contemplated u/s.54 of Transfer of Property Act or under the. Registration Act- Assessee executed agreement of sale in respect of certain properties and delivered possession to purchasers-Also retroceded certain properties in favour of various Sahebzadas and Sahebzadis by firmans-Agreement and the firmans not on record-Matter remanded to Tribunal to gather necessary material and decide the matter." The decision is not relevant to decide the issue under appeal. The issue to be decided in the case under appeal is as to whether the plots of land belonging to an individual offered as collateral security to a bank in respect of loan obtained by a company (in which the said individual is director) shall be regarded as belonging to the bank and not to the individual. vi) CIT Vs. Mrs. Thressiamma Abhraham (1997) 227 ITR 812 (Ker) In this case, the assessee was a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty mortgaged by shareholders was to be sold and on these facts the Hon'ble Kerala High Court had held that the said mortgaged property was not liable to wealth tax. In the case under appeal, the property was offered to bank as collateral security. The property was not mortgaged with the bank by entering into separate agreement between the company, the bank, the secured creditors, unsecured creditors and the shareholders of the company. In the case under appeal, the company which has obtained the loan has not been destroyed by natural calamities and has riot goes into liquidation. The company has not been revived with the help of loan from financial institution. The company has not failed to repay loan of the bank and bank has not taken steps even to sale the mortgaged property of the said company for recovering the loan. Therefore, the question of selling" the property of the appellant offered as collateral security never arises. Therefore, the facts of the case of the appellant are totally different and distinguishable from the facts of the cases relied on by the appellant. Thus, reliance placed by the appellant on the above decisions is misplaced. 7. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed. 8. During the course of appellate proceedings, the appellant has tiled submission dated 13/5/2014 claiming that she has filed miscellaneous petition u/s. 35 of the W.T. Act, 1957, before Hon'ble ITAT, Pune and has requested to keep the appellate proceedings in abeyance till the decision by the Bench of Hon'ble ITAT. The request of the appellant cannot be accepted as the Hon'ble ITAT, Pune has not directed the undersigned to keep the appeal under consideration in abeyance. The Hon'ble ITAT vide its order dated 30/1/2014 has directed the undersigned to decide the alternative contention of the appellant afresh. 9. Before parting it may be worth mentioning here that if the alternative contention of the appellant is accepted then it is to be held that plots offered as collateral security of individuals for loans obtained by group concerns of the said individual shall not be liable to wealth tax. if such proposition is accepted then the persons owning plots liable to wealth tax shall simply offer the said plots as collateral security in respect of loans obtained by group concerns and shall claim immunity from wealth tax in respect of the value of the plots. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded mortgage loans of the assessee. In this case in this assessment year the Liabilities exceeded by Rs. 30,94,26,712/-. The book debt does not represent any value to the assessee until it is realized and therefore, not includible in the Wealth of the assessee. The Ld. CWT(A) decided the remanded appeal without considering this legal aspect of the matter. The remanded appeal order of the Ld. CWT(A) is perverse and not sustainable in law. It be set aside. 5) On the facts and circumstances of the case and in law and in view of the fact that the Liabilities of the company far exceeded its assets value, and in view of the provisions of S. 2(m) no outsider would be willing to pay the book value even though assessee is willing to transfer the debt in favour of the prospective buyer. The value of the book debt to the assessee is nil meaning thereby no part of its valuation is includible in her taxable wealth. The addition made and sustained be quashed. 6) On the facts and circumstances of the case and in law Ld. CWT(A) completely erred in passing the appeal order on Remand tremendously hastily by not considering properly the foundational facts of the case that the Right of Equity Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him as made by the WTO. 11) On the facts and circumstances of the case and in law the observations of the Ld. CWT(A) "that the company has not failed to repay the loan to the bank and the bank has not taken steps even to sale the mortgaged property for recovery of loan, therefore, question of selling the property offered as a collateral security never arises. Thus reliance placed on Mrs. Thressiamma case (supra) is misplaced." The observations are not borne by the facts. The company has even failed to pay the interest component of the loan leave aside the repayment of Loan itself. The Bank has already put to auction the properties of the company including the mortgaged properties of the assessee. The 'ratio-disidendi' of Mrs. Thressiamma's case (supra) squarely applies. It be held accordingly. 12) On the facts and circumstances of the case and in law there was no any right of reimbursement to the assessee of the money that would be repaid to the Bank by the company by sale of the assessee's property in view of the fact there is no specific provision in the document and also in view of the fact that the assessee is made personably liable to the Bank for debts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, the contributories of the company met on July 10, 1967, and decided to revive the company utilising an amount of Rs. 6 lakhs by way of loan from the Kerala Financial Corporation, a Government undertaking. A compromise or arrangement for reconstruction of the company was thereupon proposed between the company and its members and creditors and under orders passed by the court on December 20, 1967, the liquidator of the company convened, separate meetings of the shareholders, secured creditors and unsecured creditors to consider the compromise or arrangement. Meetings were held on February 27, 1968, and the compromise or arrangement was approved with certain modifications and by order dated April 2, 1968, the court sanctioned, the scheme subject to the terms and conditions in the said order. The court also granted sanction by order dated March 13, 1969, for execution of the mortgage. The assessee was one of the parties to the compromise or arrangement. The company thereupon applied for a loan of Rs. 20 lakhs for its reconstruction. The loan was sanctioned by the Kerala Financial Corporation against the mortgage of the properties belonging to the company and properties belonging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the income- tax case of the assessee (see [1997] 227 ITR 802) there was not much scope for the Revenue to contend that the relevant document was not a deed of mortgage. The terms of the document made it clear that there was a transfer of interest in specific immovable property belonging to the assessee, to the Kerala Financial Corporation for the purpose of securing payment of money advanced by it to the company by way of loan. The right to sell mortgaged properties had been given to the corporation even without any further consent from the mortgagor company or co-mortgagors, in case of default by the mortgagor company in making repayment as per the terms of the agreement. Merely because the time for repayment was spread over a period of 8 ½ years, it could not be contended that the liability was created for perpetuity. As a matter of fact, in this case, the property of the assessee was brought to sale at the instance of the mortgagee-Kerala Financial Corporation. The Tribunal was justified in holding that for the assessment years 1976-77 to 1981-82, the only right the assessee had in the property mortgaged to the Kerala Financial Corporation was the right of equity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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