Deputy Commissioner of Vs. D.P. Dhawan - Court Judgment

Excerpt:
1. these two appeals by the revenue and two gross objections by the assessee for the assessment year 1988-89 are directed against identical orders of cwt(a), patiala. the appeals and the cross-objections were transferred to delhi benches from chandigarh bench as per order of vice-president dated 10-4-1996. the cross-objections were not pressed by the counsel for the assessee during the course of hearing. these are accordingly dismissed.2. the common issue in appeals relates to claim of liabilities. as facts are identical, we will discuss the case of shri d.p. dhawan and apply our order to both the cases. shri dhawan returned net wealth of rs. 24,65,300 after claiming deduction of rs. 7,77,189 towards liabilities from the gross value of assets disclosed at rs. 32,42,473.the wealth returned also included value of residential house under rule 1bb disclosed at rs. 42,424 under rule 1bb of the wealth-tax rules.3. the wealth-tax officer did not allow liabilities of rs. 6,71,827 claimed as payable to bank and took value of house at 'nil' with the following observations : "the overdrafts from banks were taken for the purchase of house. the assessee has claimed rebate in respect of loans from the bank to the extent of rs. 6,71,827. however, value of house has been shown at rs. 42,424 under rule 1bb thus in fact, the assessee has claimed the liability of banks to the extent of rs. 6,71,827 as against the value of residential house shown at rs. 42,424. thus the overall effect of this adjustment by the assessee is that the value of residential accommodation has been reduced to a negative figure, i.e., 6,29,403. the assessee is not entitled to take the negative figure in respect of any asset whatsoever, under the w.t. act. the liabilities in respect of residential house cannot be allowed over and above the value of house shown by the assessee whether under rule 1bb or otherwise, as according to law no asset can have a negative value. in view of these circumstances, value of residential accommodation is taken to the extent of rs. 6,71,827, i.e., to the extent of bank liability created against the house. after allowing bank liability, value of residential accommodation will be nil and same will be adopted for wealth-tax purposes. at the same time, value of liability will not be allowed." 4. the assessee impugned disallowance of liability before learned cwt(a) patiala and relied upon decision of hon'ble rajasthan high court in the case of cwt v. sanwarmal shiv kumar [1987] 34 taxman 492 as also on decision of itat, chandigarh bench in the case of smt. phool kumari v. wto 21 ttj 238. in the light of above decisions, the learned cwt (a) held that there was no justification for apportionment of liabilities.he accordingly allowed relief of rs. 6,71,827 to the assessee. the revenue has come up in appeal.5. we have heard both the parties. the learned d.r. submitted that the house has been treated as exempt and its value has been taken at 'nil'.in above circumstances, no liability in respect of loan utilised for purchase of house could be allowed. the d.r. accordingly supported order of the assessing officer. shri g.n. gupta, learned counsel for the assessee, submitted that out of total loan from the bank, a part was utilised for purchase of shares and other assets disclosed in the wealth. the assessee as per return did not claim exemption of value of house but had claimed exemption under section 5(1a) out of other movable assets as would be evident from copy of return filed before us.the assessing officer first forced exemption of house on the assessee and then disallowed liabilities on the ground that this would result into a negative figure which could not be allowed under the act. the proposition advanced by the assessing officer had no support of any statutory provision. shri gupta further argued that the assessing officer could not put the assessee in a more disadvantageous position and increase tax burden by changing assessee's option of exemption under section 5(1a) from movable assets to the house. shri gupta further argued that only debts which fall under the exclusionary clauses of section 2(m) of wealth-tax act could be disallowed. in this connection, shri gupta referred to and relied upon decision of hon'ble supreme court in the case of cwt v. j.k. cotton mfrs. ltd. [1984] 146 itr 552/16 taxman 18. shri gupta also tried to file fresh evidence in the form of certificates from the banks and prayed in the alternative that the matter may be remanded to the assessing officer for verification of his claim.6. we have given careful thought to rival submissions of the parties.the wealth-tax officer had categorically held that debts of rs. 6,71,827 had been claimed and this was the amount utilised in the purchase of the house. therefore, we asked the assessee to give evidence in the shape of any letter grounds of appeal or otherwise on record which showed that part of liabilities were utilised for acquiring assets other than the house. in spite of above opportunity, the assessee could not refer to any material on record. there is no justification to take fresh material into account at this stage of proceedings. we, therefore, decline to admit fresh material and would go by the finding of assessing officer that debt of rs. 6,71,827 was claimed in respect of house the value of which was shown under rule 1bb at rs. 42,424. 1. if the assessee is entitled to exemption of more than one asset and exercise above option in respect of a particular asset, can the assessing officer change such option and treat an asset as exempt to place higher burden of tax on the assessee 2. having regard to the value of an asset returned, liability claimed in respect of such asset, can the liabilities be disallowed merely because they exceed the value of the asset returned in our opinion, the answer to both the questions has to be returned in the negative. in the case of j.k. cotton mfrs. ltd. (supra), their lordships of supreme court after considering the scheme of the wealth-tax act in particular scheme and purpose of sale under section 2(m) made the following pertinent observations : "on a careful analysis of the aforesaid provisions it seems to us clear that the key provisions are the charging section and the definition of the net wealth given in section 2(m). under section 3, wealth-tax is chargeable on the net wealth held by every assessee on the valuation date and 'net wealth' under section 2(m) means the excess of the aggregate value of all his assets wherever located (computed in accordance with the act) over the aggregate value of all the debts owned by him on the valuation date other than the debts which fall within the exclusionary part of section 2(m). the scheme emerging from the key provisions clearly shows that barring those debts which fall within the exclusionary part of section 2(m) all other debts owed by the assessee have to be deducted from the aggregate value of the assets belonging to him on the valuation date. in other words, in order to get disqualified for the purposes deduction a debt must fall within the exclusionary part and there is nothing in the exclusionary part which suggests that the debt must either be relatable to any asset at all or if it is relatable to any asset, such asset must be included in the books of account or the balance-sheet of the assessee before a deduction in respect thereof is allowed. if such were the intention of the legislature, the exclusionary part of section 2(m) would have made a specific provisions in that behalf by adding an appropriate sub-clause therein." 8. the exclusionary clauses referred to by their lordships are reproduced at page 557 of report as under : (i) 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; and (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this act or any law relating to taxation of income or profits, or the estate duty act, 1953 (34 of 1953); the expenditure-tax act, 1957 (29 of 1957), or the gift tax act, 1958 (18 of 1958), - (remaining portion of sub-section (m) being not relevant has not been reproduced) in the present case, the assessing officer tried to bring in the case of the assessee within exclusionary clause (ii). the assessee had returned value of house at rs. 42,424 under rule 1bb. the value of the asset was clearly chargeable under the wealth-tax act but the learned assessing officer made it "not chargeable under this act" by changing option of the assessee and by treating this house as exempt. if the house was claimed as exempt than the liabilities could have been denied. but, here, some value of house was returned and, therefore, the house was not claimed as no chargeable to tax. the assessing officer could not change the option exercised by the assessee. it is settled law that if two provisions are applicable to the assessee, it is clearly right to the assessee to claim that he should be taxed under that provision which leaves him with a lighter burden. the revenue is not entitled to apply more onerous provision. therefore, the assessing officer had no right to thrust exemption on the assessee. the other reasoning given by him that against value of rs. 42,424 liability of rs. 6,71,827 cannot be allowed, is equally untenable. as per sub-clause referred to above, only debts which are secured or incurred in relation to any property not chargeable under this act are to be excluded. the mere fact that the value of returned is less than the liability claimed is no ground to disallow the liability. the market value of the house as on the valuation date might have been much more. but under the beneficial provision of rule 1bb read with section 7(4), a lesser value was returned. the assessing officer could not deny benefit of rule 1bb because he was to allow higher liabilities. in he same manner, he could not disallow liability because that would result into negative value of the asset under the act. the equitable balance struck by learned assessing officer to assess value of house at 'nil' has no support of any statutory provision. the tax has to be imposed and recovered as authorised by law and not otherwise. therefore, principle of equity had no application and could not be applied. in the light of our above discussion, we hold that liabilities were rightly claimed by the assessee and no case for disallowing any portion of liabilities has been made by the revenue. accordingly, orders of cwt(a) are confirmed.9. in the result, appeals of the revenue and cross-objections of the assessee both, are dismissed.

Judgment:
1. These two appeals by the Revenue and two gross objections by the assessee for the assessment year 1988-89 are directed against identical orders of CWT(A), Patiala. The appeals and the cross-objections were transferred to Delhi Benches from Chandigarh Bench as per order of Vice-President dated 10-4-1996. The cross-objections were not pressed by the counsel for the assessee during the course of hearing. These are accordingly dismissed.

2. The common issue in appeals relates to claim of liabilities. As facts are identical, we will discuss the case of Shri D.P. Dhawan and apply our order to both the cases. Shri Dhawan returned net wealth of Rs. 24,65,300 after claiming deduction of Rs. 7,77,189 towards liabilities from the gross value of assets disclosed at Rs. 32,42,473.

The wealth returned also included value of residential house under rule 1BB disclosed at Rs. 42,424 under rule 1BB of the Wealth-tax Rules.

3. The Wealth-tax Officer did not allow liabilities of Rs. 6,71,827 claimed as payable to bank and took value of house at 'nil' with the following observations : "The overdrafts from banks were taken for the purchase of house. The assessee has claimed rebate in respect of loans from the bank to the extent of Rs. 6,71,827. However, value of house has been shown at Rs. 42,424 under rule 1BB Thus in fact, the assessee has claimed the liability of banks to the extent of Rs. 6,71,827 as against the value of residential house shown at Rs. 42,424. Thus the overall effect of this adjustment by the assessee is that the value of residential accommodation has been reduced to a negative figure, i.e., 6,29,403. The assessee is not entitled to take the negative figure in respect of any asset whatsoever, under the W.T. Act. The liabilities in respect of residential house cannot be allowed over and above the value of house shown by the assessee whether under rule 1BB or otherwise, as according to law no asset can have a negative value. In view of these circumstances, value of residential accommodation is taken to the extent of Rs. 6,71,827, i.e., to the extent of bank liability created against the house. After allowing bank liability, value of residential accommodation will be Nil and same will be adopted for wealth-tax purposes. At the same time, value of liability will not be allowed." 4. The assessee impugned disallowance of liability before learned CWT(A) Patiala and relied upon decision of Hon'ble Rajasthan High Court in the case of CWT v. Sanwarmal Shiv Kumar [1987] 34 Taxman 492 as also on decision of ITAT, Chandigarh Bench in the case of Smt. Phool Kumari v. WTO 21 TTJ 238. In the light of above decisions, the learned CWT (A) held that there was no justification for apportionment of liabilities.

He accordingly allowed relief of Rs. 6,71,827 to the assessee. The Revenue has come up in appeal.

5. We have heard both the parties. The learned D.R. submitted that the house has been treated as exempt and its value has been taken at 'nil'.

In above circumstances, no liability in respect of loan utilised for purchase of house could be allowed. The D.R. accordingly supported order of the Assessing Officer. Shri G.N. Gupta, learned counsel for the assessee, submitted that out of total loan from the bank, a part was utilised for purchase of shares and other assets disclosed in the wealth. The assessee as per return did not claim exemption of value of house but had claimed exemption under section 5(1A) out of other movable assets as would be evident from copy of return filed before us.

The Assessing Officer first forced exemption of house on the assessee and then disallowed liabilities on the ground that this would result into a negative figure which could not be allowed under the Act. The proposition advanced by the Assessing Officer had no support of any statutory provision. Shri Gupta further argued that the Assessing Officer could not put the assessee in a more disadvantageous position and increase tax burden by changing assessee's option of exemption under section 5(1A) from movable assets to the house. Shri Gupta further argued that only debts which fall under the exclusionary clauses of section 2(m) of Wealth-tax Act could be disallowed. In this connection, Shri Gupta referred to and relied upon decision of Hon'ble Supreme Court in the case of CWT v. J.K. Cotton Mfrs. Ltd. [1984] 146 ITR 552/16 Taxman 18. Shri Gupta also tried to file fresh evidence in the form of certificates from the banks and prayed in the alternative that the matter may be remanded to the Assessing Officer for verification of his claim.

6. We have given careful thought to rival submissions of the parties.

The Wealth-tax Officer had categorically held that debts of Rs. 6,71,827 had been claimed and this was the amount utilised in the purchase of the house. Therefore, we asked the assessee to give evidence in the shape of any letter grounds of appeal or otherwise on record which showed that part of liabilities were utilised for acquiring assets other than the house. In spite of above opportunity, the assessee could not refer to any material on record. There is no justification to take fresh material into account at this stage of proceedings. We, therefore, decline to admit fresh material and would go by the finding of Assessing Officer that debt of Rs. 6,71,827 was claimed in respect of house the value of which was shown under rule 1BB at Rs. 42,424.

1. If the assessee is entitled to exemption of more than one asset and exercise above option in respect of a particular asset, can the Assessing Officer change such option and treat an asset as exempt to place higher burden of tax on the assessee 2. Having regard to the value of an asset returned, liability claimed in respect of such asset, can the liabilities be disallowed merely because they exceed the value of the asset returned In our opinion, the answer to both the questions has to be returned in the negative. In the case of J.K. Cotton Mfrs. Ltd. (supra), their Lordships of Supreme Court after considering the scheme of the Wealth-tax Act in particular scheme and purpose of sale under section 2(m) made the following pertinent observations : "On a careful analysis of the aforesaid provisions it seems to us clear that the key provisions are the charging section and the definition of the net wealth given in section 2(m). Under section 3, wealth-tax is chargeable on the net wealth held by every assessee on the valuation date and 'net wealth' under section 2(m) means the excess of the aggregate value of all his assets wherever located (computed in accordance with the Act) over the aggregate value of all the debts owned by him on the valuation date other than the debts which fall within the exclusionary part of section 2(m). The scheme emerging from the key provisions clearly shows that barring those debts which fall within the exclusionary part of section 2(m) all other debts owed by the assessee have to be deducted from the aggregate value of the assets belonging to him on the valuation date. In other words, in order to get disqualified for the purposes deduction a debt must fall within the exclusionary part and there is nothing in the exclusionary part which suggests that the debt must either be relatable to any asset at all or if it is relatable to any asset, such asset must be included in the books of account or the balance-sheet of the assessee before a deduction in respect thereof is allowed. If such were the intention of the Legislature, the exclusionary part of section 2(m) would have made a specific provisions in that behalf by adding an appropriate sub-clause therein." 8. The exclusionary clauses referred to by their Lordships are reproduced at page 557 of report as under : (i) 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; and (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953); the Expenditure-tax Act, 1957 (29 of 1957), or the Gift Tax Act, 1958 (18 of 1958), - (Remaining portion of sub-section (m) being not relevant has not been reproduced) In the present case, the Assessing Officer tried to bring in the case of the assessee within exclusionary clause (ii). The assessee had returned value of house at Rs. 42,424 under rule 1BB. The value of the asset was clearly chargeable under the Wealth-tax Act but the learned Assessing Officer made it "not chargeable under this Act" by changing option of the assessee and by treating this house as exempt. If the house was claimed as exempt than the liabilities could have been denied. But, here, some value of house was returned and, therefore, the house was not claimed as no chargeable to tax.

The Assessing Officer could not change the option exercised by the assessee. It is settled law that if two provisions are applicable to the assessee, it is clearly right to the assessee to claim that he should be taxed under that provision which leaves him with a lighter burden. The Revenue is not entitled to apply more onerous provision.

Therefore, the Assessing Officer had no right to thrust exemption on the assessee. The other reasoning given by him that against value of Rs. 42,424 liability of Rs. 6,71,827 cannot be allowed, is equally untenable. As per sub-clause referred to above, only debts which are secured or incurred in relation to any property not chargeable under this Act are to be excluded. The mere fact that the value of returned is less than the liability claimed is no ground to disallow the liability. The market value of the house as on the valuation date might have been much more. But under the beneficial provision of rule 1BB read with section 7(4), a lesser value was returned. The Assessing Officer could not deny benefit of rule 1BB because he was to allow higher liabilities. In he same manner, he could not disallow liability because that would result into negative value of the asset under the Act. The equitable balance struck by learned Assessing Officer to assess value of house at 'nil' has no support of any statutory provision. The tax has to be imposed and recovered as authorised by law and not otherwise. Therefore, principle of equity had no application and could not be applied.

In the light of our above discussion, we hold that liabilities were rightly claimed by the assessee and no case for disallowing any portion of liabilities has been made by the Revenue. Accordingly, orders of CWT(A) are confirmed.

9. In the result, appeals of the Revenue and cross-objections of the assessee both, are dismissed.