Pulin Krishna Roy vs Wealth-Tax Officer on 7 April, 1983

Income Tax Appellate Tribunal – Kolkata
Pulin Krishna Roy vs Wealth-Tax Officer on 7 April, 1983
Equivalent citations: 1983 5 ITD 378 Kol
Bench: P Rao, Vice, B Mitra


P.V.B. Rao, Vice President

1. These two wealth-tax appeals raise common questions and, therefore, they are disposed of by a single order.

2. The assessee claimed exemption of Rs. 1,50,000 under Section 5(1)(iv)(a) (sic) of the Wealth-tax Act, 1957 (‘the Act’) and limited his claim of exemption to Rs. 1,50,000 as mentioned under this section. This sum of Rs. 1,50,000 is made up of the following amounts for the assessment year 1975-76 :

     Description of        Value as on   Value of assets held
    Assets                13-4-1975    for mere than 6 months
                                       continuously prior to
                                       the valuation date.
                                       Exempted u/s 5(1 A)
                            Rs.           Rs.
1. Shares in
   Indian Companies.      36,530      36,530
2. Moneys in current
   account with
   Grindlays  Bank
   Ltd., 29, Netaji
   Subhas Road,
   Calcutta-1             7,854      4,305
3. Moneys in current
    account with United
   Industrial Bank
   Ltd., Hatkhola
   Branch, Calcutta-5     1,702      1,702
4. Moneys in current
   account with
   Central Bank of
   India, Hatkhola
   Branch, Calcutta-5     20,584      13,669
5. Moneys in
   compulsory deposit
   account with Central
   Bank of India,
   Hatkhola, Calcutta-5    1,440        -
6. Moneys in fixed
   deposit with
   United Industrial
   Bank Ltd., Hatkhola,
   Calcutta-5            2,11,842      93,794
7. Moneys in
   fixed deposit
   with Central
   Bank of India,
   Hatkhola, Calcutta-5   91,233           -
                          ________     _______
                          3,71,184    1,15,000
                          ________      ______


The controversy centered round the exemption relating to the moneys in the fixed deposit of Rs. 93,794. The WTO was of the opinion that the assessee cannot get deduction of the debt which he has incurred which is equivalent to the sum claimed as exemption, viz., Rs. 93,794. To clarify the matters little further, it may be mentioned that the assessee admittedly incurred loan of Rs. 4 lakhs and odd from Raja Janoki Nath Roy Ramendra Nath Roy and Co. (P.) Ltd. and out of that the assessee invested in the fixed deposits to the extent of Rs. 2,11,841. The assessee claimed the deduction of the debt under Section 2(m)(ii) of the Act, but since the assessee is claiming exemption to the extent of Rs. 93,794 under Section 5(1 A), the assessee was held to be not entitled to the exemption to that extent in view of the language of Section 2(m)(ii). This view has been approved by the first appellate authority.

3. There is no dispute that the fixed deposits were made with the money borrowed by the assessee. The restrictions imposed for the allowance of debt as mentioned in Section 2(m)(ii) will have to be complied with and this is also not disputed by Shri Poddar appearing for the assessee. His main argument is based on the decision of Madras High Court in the case of CIT v. M.N. Rajam [1982] 133 ITR 75. He has, no doubt, stated before us that the assessee’s case has not been accepted by the Tribunal for the earlier years, but the earlier Bench had not the benefit of the decision of the Madras High Court. He particularly pointed out that T.V. Srinivasan v. CWT [1980] 123 ITR 464 which was relied on by the earlier Bench of the Tribunal has been distinguished by the same High Court in M.N. Rajam’s case (supra). The learned departmental representative, however, argued that M.N. Rajam’s case (supra) will have no application since it relates to house property, whereas, we are concerned with fixed deposits of different denominations totalling Rs. 2,11,841 out of which Rs. 93,794 had been claimed to be exempt under Section 5(1A). Shri Poddar immediately mentioned that the Madras High Court has also held the same view in respect of other securities as well as in the case of CWT v. Ch. Satish [1982] 133 ITR 834.

4. Section (2)(m)(ii) reads as follows :

‘net 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 owed by the assessee on the valuation date other than

(i) ** ** **

(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 ;

In this case, the assessee incurred loans and with these loans he invested Rs. 2,11,841 in fixed deposits for the assessment year 1975-76 (we are mentioning the figure for the assessment year 1975-76 as the principle is same for both the years). The entire fixed deposits are not exempt. The overall limit of exemption under Section 5(1 A) is limited to Rs. 1,50,000. The assessee having claimed exemptions in respect of other items restricted the exemption relating to fixed deposits to the extent of Rs. 93,794. Though the only question to be considered is whether the principle laid down by the Madras High Court has application to the facts of this case, in our considered view, the same cannot apply. The total loan incurred is Rs. 4,18,142. It is out of this money that the fixed deposits to the extent of Rs. 2,11,841 have been made. Therefore, it is clear that the fixed deposits are in relation to the debts. The entire fixed deposit amount has come out of the debts incurred by the assessee. If there is no outer limit fixed under Section 5(1A), on the language of Section 2(m)(ii), the debt to the extent of the fixed deposits which has come out of the former will not be entitled to exemption. The Legislature has laid down that whenever any debt is claimed as deduction, it must not have any relation to an exempted asset. Therefore, if the assessee claims the deduction of the debt and if it is found that the debt is in relation to an exempted asset, the exemption is not allowable. By providing a limit of Rs. 1,50,000 under Section 5(1A), the position cannot be altered. If the sum of Rs. 2,11,841, which is represented by the fixed deposits, cannot be exempt, a part of it which the assessee has claimed because of the limitation imposed by Section 5(1 A), cannot also be allowed exemption. It is clear from the facts of this case that it is a reverse case from the one that arose before the Madras High. Court.

5. In M.N. Rajam’s case (supra), the mortgage debt was much lower than the value of the exempted asset. In other words, the non-exempted asset can be taken to be fully covered by the debt incurred. If we carefully analyse the facts of M.N. Rajam’s case (supra), what we find is that the total exemption allowed, i.e., half portion of the house is of Rs. 61,500 and the non-exempted portion of the other half is of the same amount. The debt incurred is only Rs. 40,404. The WTO bifurcated this debt into two halfs and held that the assessee would be entitled to the exemption of half. This has not been accepted as correct and in our view, with great respect, rightly. When the non-exempted portion of the asset is Rs. 61,500 and the debt is only Rs. 40,404, one cannot say that the debt is in relation to that portion of the exempted asset when the entire property is under mortgage. The Legislature never contemplated a situation where the debt can be bifurcated in the manner that was done by the WTO in that case. If in that very case suppose the debt is more than Rs. 61,500, we are sure that to the extent that it exceeds the value of the exempted asset their Lordships would not have allowed the allowance of the debt. To put it in concrete terms, suppose the debt incurred was Rs. 70,000, exempted portion being Rs. 61,500 and the non-exempted portion is also Rs. 61,500, to the extent of Rs. 61,500 certainly the assessee would be entitled to deduction, but in respect of balance, viz., Rs. 70,000-Rs. 61,500 = Rs. 8,500, the assessee would not be entitled to the exemption, because to that extent it is impinging on the exempted asset. As already mentioned, the situation in our case is quite different. In fact, their Lordships of the Madras High Court took note of a similar situation in T.V. Srinivasan’s case (supra) and observed in M.N. Rajam’s case (supra) as follows :

… Mr. Jayaraman, however, called our attention to a judgment of a Division Bench of this Court in T.V. Srinivasan v. CWT [1980] 123 ITR 464 which, according to him, laid down a different view of the two provisions. The ratio of the decision, however, does not bear out this contention. An owner-occupied house valued at Rs. 80,000 had a subsisting mortgage on it, which stood at Rs. 36,000 on the valuation date. On these plain facts, the Bench had no hesitation in rejecting the assessee’s claim for deduction of the debt. The Bench observed, simply, that the assessee’s contention ran ‘counter to the specific provision of Section 2(m)(ii) read with Section 5(1)(iv) of the WT Act’. With respect, this was the only correct conclusion on the facts.(p. 81)

It is clear, therefore, that T.V. Srinivasan’s case (supra) does apply to the facts of the present case. So far as the other case reported in the same volume is concerned, our comments are same. We may also mention that except for the difference in figures, the position for the assessment year 1976-77 is identical as regards the claim of debt in relation to the fixed deposits. We thus find no merit in the contention of the assessee relating to the claim of debt disallowed by the WTO.

6. Mr. Poddar also raised a contention based on the difference in the language of Section 2(m)(ii) as existed earlier and after the amendment. He highlighted the difference between the meaning of the words’chargeable’ and ‘payable’. In our opinion, this contention also has no merit and the matter has been fully thrashed out in the case of the Fifth WTO v. Mrs. Sana S. Sapatwalla [1983] 3 SOT 105 (Bom.) (SB). Unfortunately, the attention of the Bench was not drawn to the Special Bench decision referred to above and, therefore, the decision of that Bench cannot be accepted.

7. The next common ground relates to the claim for deduction of the loan payable by the assessee to Raja Janoki Nath Roy Ramendra Nath Roy and Co. (P.) Ltd., for these two years under appeal amounting to Rs. 1,66,142. The WTO mentioned that the aforesaid company has gone into liquidation and the assessee was the managing director of that company. He was taking loans from the above company without making any repayment cither of principal or interest and that he transferred the loan account into his personal fixed deposit account. Accordingly, he disallowed the loan on the ground that there is no further liability. This view was upheld by the first appellate authority.

8. Shri Poddar, appearing for the assessee, pointed out that the view taken by the authorities below is erroneous as the liability never ceased. Though the learned departmental representative tried to support the orders of the authorities below, we find no merit in the argument or in the orders of the authorities below.

9. The loan is outstanding. The company is, no doubt, under liquidation. The assessee’s liability to that company has not ceased. Merely because of the unilateral action of the assessee in transferring the loan to his fixed deposit account so far as the liability to the company, which is a juristic entity, is concerned, it has not ceased. The company has the right to recover the amount from the assessee. It is well known that unless the liability in law ceases, it continues to exist. There is no material on record to find that the liability ceased. It continues to exist and, therefore, the assessee is entitled to claim it as debt. The view taken by the authorities below is, therefore, reversed. The WTO is directed to allow the debt forr both the years under appeal

10. In the result, the appeals are allowed in part.

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