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TMI Blog1974 (10) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the valuation of the building at Rs. 9,00,000 (Rupees nine lakhs). The Wealth-tax Officer was of the opinion that the value of the plot of land as assessed by him on the basis of the ground rent was Rs.4,00,000 (Rupees four lakhs). Though the total of the valuation of the land plus the valuation of the building works out to Rs. 13,00,000 (Rupees thirteen lakhs), the Wealth-tax Officer has valued the immovable property at Rs.13,25,000. No explanation has been given to us why there was an addition of Rs. 25,000 in the valuation of the property in question. The assessee took the matter in appeal before the Appellate Assistant Commissioner, where the same contention was urged on behalf of the assessee that no separate valuation for the land should be taken inasmuch as the entire building was rented out by the assessee and the property valuation should be made with reference to the rental value thereof. The Appellate Assistant Commissioner, however, reduced the valuation of the land from Rs. 4,00,000 to Rs. 2,50,000, thereby allowing a reduction of Rs. 1,50,000. It was also contended before the Appellate Assistant Commissioner that a proper reduction of the amount for which the build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the mortgage amount was not utilised by the assessee for purposes of acquisition, repair or improvement of the building on the ground that it would not detract from the factual position that there has been a diminution in the assessee's interest in the property because there was a mortgage on it. The Tribunal, therefore, was of the opinion that, in the circumstances, the assessee was justified in claiming that for purposes of determining the value of the assessee's interest in the building in question on the relevant valuation date, the amount of mortgage debt should be deducted from the value of the property as a whole. The Tribunal, therefore, accepted the assessee's claim that the amount of the respective mortgage debts be deducted from the value of the property determined at Rs. 9,00,000 for finding out the value of the building for purposes of additional wealth-tax on urban asset under clause (c) of Paragraph A read with rule 1 of Paragraph B of Part I to the Schedule of the Wealth-tax Act. In that view of the matter, the Tribunal allowed the appeal of the assessee and dismissed the appeal of the revenue. At the instance of the Commissioner of Wealth-tax, the following ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion, according to the learned advocate of the assessee, is to be made having regard to the provisions contained in section 7 of the Wealth-tax Act. According to the learned advocate of the assessee, in the hands of the mortgagor the asset is to be regarded as subject to the charge and it should be valued by first ascertaining the market value of the said property, as if it were free of encumbrance and then deducting the amount of encumbrance ; the balance would be the value of encumbered asset. As far as the mortgagee is concerned, the asset that would be includible in his net wealth would be the outstanding principal amount under the mortgage transaction. In order that we may be able to appreciate the rival contentions in proper perspective, it would be necessary to advert to a few relevant provisions which have a bearing on the question. Section 3 of the Wealth-tax Act is the charging section, which provides that subject to the other provisions contained in the Wealth-tax Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... divided family which are situated in any area falling in the category specified in column 1 thereof exceeds the amount specified there against it in column 2. In rule 1 the category of area as well as the minimum value of the assets not liable to tax are mentioned. Category A includes the area, the population of which together with the population of the contiguous municipalities and cantonments according to the census held in the year 1961, exceeds sixteen lakhs of persons. The minimum amount of the value of the asset which is exempt from levy of this additional tax for category A is Rs. 5,00,000. The net effect of clause (c) of Part I read with rules 1 and 2 of Paragraph B of the Schedule to the Wealth-tax Act is that where asset being building or land or any right in such building or land situated within the area of category A exceeds the valuation of Rs. 5,00,000, the excess value thereof is subjected to levy of additional wealth-tax at the rates prescribed for the respective slabs under clause (c) of the said Schedule. It is against the background of these provisions that the revenue contends that the assessee was not entitled nor was the Tribunal justified in allowing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration in Spencer Co. Ltd. v. Commissioner of Wealth-tax, where the Madras High Court was concerned with the question of deduction, under section 2(m) of the Wealth-tax Act, of Rs. 31,26,000, being the amount the assessee, Spencer Company, agreed to pay by way of consideration for purchase of sundry assets of M/s. Keliner Co. Ltd., whose majority shares also were formerly agreed to be acquired by the assessee-company. Since it was claimed and adjusted against the cost of acquisition of shares in the liabilities side of its balance-sheet, the Madras High Court observed that the liability contemplated by sub-clause (ii) of clause (m) of section 2 should be such as would not merely relate to the debt in respect of the property not chargeable to tax but goes further and charges and impounds such property with repayment of the debt; and it could not possibly be said that the liability incurred in purchasing the assets in Keliners was secured on the shares in the sense that the debt could be collected from or enforced on the shares, and that there was no charge of the liability on the shares. This decision of the Madras High Court has been confirmed by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the value of an urban asset have been prescribed. Rule 2 provides : "2. In determining, for the purposes of item (3) of Paragraph A, the value of any urban asset ;- (a) any debt (whether secured or not) incurred for the purpose of acquiring, improving, constructing, repairing renewing or reconstructing such asset shall be deducted from the gross value of such asset: (b) other debts which are deductible in computing the net wealth shall be deducted from the gross value of such asset (as reduced by the debts, if any, under clause (a)) only if, and to the extent that, such debts exceed the aggregate gross value of assets other than urban assets." The argument on behalf of the revenue was that for purposes of levy of additional wealth-tax on an ascertained asset in the relevant years under reference, that is, 1965-66 and 1966-67, the principle of excluding any debt incurred for purposes of acquiring, improving, etc., any urban asset for purposes of evaluating such asset would not be relevant, inasmuch as no such provision was there in rule 1, Paragraph B, which determined the value of such asset in the relevant assessment years of 1965-66 and 1966-67. We do not thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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