Commissioner Of Wealth-Tax v. Nadir Rashid — 1995 DIGILAW 861 (MP)

JUDGMENT A.K. Mathur, Actg. C.J. 1. This is a reference at the instance of the Revenue. The following question of law has been referred by the Tribunal for answer by this court : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that since the fixed deposits in the banks were not wholly exempt from wealth-tax, liabilities on account of loans raised against them could not be disallowed in terms of Section 2(m)(ii) of the Wealth-tax Act, 1957 ?" The brief facts for disposal of this reference are as under : W.T.A. No. 390 of 1983 for the assessment year 1976-77, was by the Revenue and other appeals were filed by the assessee, i.e., W.T.A. Nos. 189 of 1983, 190 of 1983 and 191 of 1983. All the assessees are co-sharers in the business called Bhopal Stud and Agricultural Farm. In the wealth-tax assessment of the assessees, it was claimed that the said agricultural farm had liabilities amounting to Rs. 1,86,300. In calculating the value of the shares of each of the assessees, the Wealth-tax Officer allowed liabilities to the extent of Rs. 50,300 only and thus increased the value of the shares of each of the assessees. On appeal, the Commissioner of Wealth-tax (Appeals), allowed the full liability to be deducted in the remaining value of the shares of each of the assessees. This he did on the ground that the Wealth-tax Officer had not given any reason for reducing the amount of liabilities. The other point which was raised was about the disallowance of loans raised by the assessees on the pledged fixed deposit receipts with banks. This is the only point with which we are concerned in the present reference. 2. The Wealth-tax Officer disallowed the claim in view of Section 2(m)(ii) of the Wealth-tax Act. The appellate authority allowed the assessees' claim on the ground that in the assessment year 1975-76, these loans were allowed to be deducted in a group of cases of the assessees. 2. The Wealth-tax Officer disallowed the claim in view of Section 2(m)(ii) of the Wealth-tax Act. The appellate authority allowed the assessees' claim on the ground that in the assessment year 1975-76, these loans were allowed to be deducted in a group of cases of the assessees. In the other appeals which related to the assessment year 1977-78 also, the Wealth-tax Officer disallowed a portion of liability of the loan of Bhopal Stud and Agricultural Farm in determining the value of the shares of these assessees in the said business and this was approved by the Appellate Assistant Commissioner of Wealth-tax to whom the assessees had preferred the appeals. This was challenged in the aforesaid appeals before the Tribunal. 3. The other ground in these three appeals by the assessees related to disallowance of loans raised by the assessees against the security of fixed deposits. Therefore, the question before us now is whether the disallowance of the loans raised by the assessees against the security of fixed deposits should be allowed or not. We are not concerned with the question of reduction of liability pertaining to Bhopal Stud and Agricultural Farm. We are concerned with the second question of disallowance of loans raised on fixed deposits. The Tribunal held that the loans raised by each of the assessees are comparatively smaller. Under Section 5 of the Act, exemption is in respect of deposits in banks not exceeding Rs. 1,50,000. It is submitted that from the facts, each of the assessees owns a larger amount on fixed deposit and, therefore, it was held, relying on a decision in CIT v. M.N. Rajam [1982] 133 ITR 75 (Mad) that it cannot be said that the loans in question related to exemption assets. The liability raised against fixed deposits cannot be disallowed. Hence the aforesaid question has been referred by the Tribunal for answer by this court. 4. Shri Tankha, learned counsel for the Revenue, has invited our attention to a decision in CIT v. K.S. Vaidyanathan [1985] 153 ITR 11 of the Full Bench of the Madras High Court. He has further invited our attention to a decision of this court reported in CIT v. Rakesh Kumar Agarwal [1992] 198 ITR 256. 4. Shri Tankha, learned counsel for the Revenue, has invited our attention to a decision in CIT v. K.S. Vaidyanathan [1985] 153 ITR 11 of the Full Bench of the Madras High Court. He has further invited our attention to a decision of this court reported in CIT v. Rakesh Kumar Agarwal [1992] 198 ITR 256. This court, after following the decision given by the Madras High Court, has taken the following view (headnote) ; "Where an asset is only partially exempted from chargeability to wealth-tax, then, only that portion of the debt secured on such portion of the asset has to be disallowed." Shri Nema, learned counsel for the assessees, has invited our attention to a decision of the Rajasthan High Court in CWT v. Sanwarmal Shivkumar [1988] 171 ITR 377 and submitted that the reference was made to a Circular No. 1070, dated June 28, 1977, issued by the Board. Perhaps this circular was not brought to the notice of the Full Bench of the Madras High Court. Learned counsel submitted that the circulars issued by the Board are binding on the subordinate authorities. Therefore, learned counsel submitted that this reference should be answered in the light of the circular of the Board and the taxing liability of the assessee should be assessed in terms of the aforesaid circular. 5. Shri Tankha, learned counsel for the Revenue, pointed out that this circular was issued on June 28, 1977, and the Madras decision related to the assessment years 1971-72, 1972-73 and 1973-74. So far as the decision of this court is concerned, it related to the assessment year 1977-78. Be that as it may, the fact remains that this circular has a relevance in the matter and it is binding on all the subordinate authorities, but somehow it appears that the circular has been missed by all the authorities below as also by the Tribunal. The circular reads as under : "The Board have also examined the question as to how the deduction in respect of debts which are secured on, or have been incurred in relation to, any property which is partly exempt under Section 5(1) is to be allowed. The Board are of the view that in the absence of any clear indication in the Act, the deduction for such debts will have to be allowed in the manner which is most beneficial to the assessee. The Board are of the view that in the absence of any clear indication in the Act, the deduction for such debts will have to be allowed in the manner which is most beneficial to the assessee. Accordingly, if, for instance, a debt of Rs. 1 lakh has been secured on a house property, the value of which is Rs. 1,50,000 and exemption of Rs. 1 lakh is allowed under Section 5(1)(iv), the debt will have to be allowed to the extent of Rs. 50,000, being the value of the house property which is otherwise includible in the net wealth. " In pursuance of the above circular, taxing liability has to be now worked out. According to this circular, it appears that the Board has recorded that in the absence of any clear indication in the Act, deduction of such debts had to be allowed in a manner which is most beneficial to the assessee and the Board has illustrated the point by reference to an illustration that if a debt of Rs. 1 lakh has been secured on house property, the value of which is Rs. 1,50,000 and exemption of Rs. 1 lakh is allowed under Section 5(1)(iv), the debt will be to the extent of Rs. 50,000, being the value of the house property which is otherwise includible in the net wealth. Therefore, in view of this circular now, the whole taxing liability has to be worked out. 6. Hence, we accept the reference and hold that the view taken by the Tribunal is partially not correct and the taxing liability should be worked out in terms of the aforesaid circular. The reference is answered accordingly.