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Commissioner of Wealth-tax Vs. Narayandas J. Hemani - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 40 of 1979
Judge
Reported in[1983]143ITR87(MP)
ActsWealth Tax Act, 1957 - Sections 2, 3, 5 and 5(1)
AppellantCommissioner of Wealth-tax
RespondentNarayandas J. Hemani
Appellant AdvocateBagadiya, Adv.
Respondent AdvocateK.R. Mandovra, Adv.
Excerpt:
- .....in law in holding that the deduction on account of loan obtained from lic against the security of exempted assets, viz., lic policy, was an admissible deduction in the calculation of his net wealth if the loan taken was used for a purpose which was not exempt from wealth-tax.? '2. for the assessment year 1974-75, assessment was completed on a net wealth of rs. 96,000. on going through the records, the wto found that the assessee had claimed a deduction in the original assessment in respect of a loan amounting to rs. 35,005 taken from the life insurance corporation of india on the security of his lic policies under section 2(m)(ii) of the w.t. act. the wto was of the opinion that no deduction from the total wealth was admissible in respect of the loan secured on the insurance policies.....
Judgment:

Shukla, J.

1. The Income-tax Appellate Tribunal, Indore, has referred the following question for our opinion under Section 27(1) of the W.T. Act:

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the deduction on account of loan obtained from LIC against the security of exempted assets, viz., LIC policy, was an admissible deduction in the calculation of his net wealth if the loan taken was used for a purpose which was not exempt from wealth-tax.? '

2. For the assessment year 1974-75, assessment was completed on a net wealth of Rs. 96,000. On going through the records, the WTO found that the assessee had claimed a deduction in the original assessment in respect of a loan amounting to Rs. 35,005 taken from the Life Insurance Corporation of India on the security of his LIC policies under Section 2(m)(ii) of the W.T. Act. The WTO was of the opinion that no deduction from the total wealth was admissible in respect of the loan secured on the insurance policies which were exempted assets. Notice under Section 17(b) of the W.T. Act was issued and in response thereto the assessee filed a return of wealth showing the net wealth at Rs. 95,044. The WTO added Rs. 35,005 on the ground that this deduction was incorrectly allowed in respect of the loan secured against the LIC policies.

3. When the matter went up in appeal before the AAC the deduction of Rs. 35,005 was allowed to the assessee under Section 2(m)(ii) of the W.T. Act. The Department went before the Appellate Tribunal in appeal and the Tribunal, relying on the decisions of the Ahmedabad and Bombay Benches of the Tribunal, confirmed the decision' of the AAC holding that the deduction under Section 2(m)(ii) of the W.T. Act was allowable if the loan taken on an exempted asset was used for a purpose which was not exempt from wealth-tax. This reference has been made by the Tribunal at the instance of the Revenue.

4. Before dealing with the rival contentions, it would be useful to refer to the relevant provisions. Section 2(m) defines net wealth. It is as under:

' '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---...

(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...'

' Assets ' have been defined as under:

' 2. (e) ' Assets ' includes property of every description, movable or immovable, but does not include...'

5. Section 2(e) mentions the properties which are not included in the definition of asset. We need not reproduce all the items which are excluded from the definition of assets in Section 2(e) of the Act because it is not necessary for our purposes to do so.

6. Section 5 describes various assets which are exempted from payment of wealth-tax and which, according to this provision, shall not be included in the net wealth of the assessee. Clause (vi) of Section 5 exempts the right or interest of the assessee in any policy of insurance before the moneys covered by the policies become due and payable to the assessee.

7. A plain reading of Section 2(m)(ii) of the W.T. Act will show that for computing the net wealth only such debts are deductible from the aggregate value of all the assets which are not 'debts' which are secured on any property in respect of which wealth-tax is not chargeable under the Act. Under Section 5(1), Clause (vi) of the Act, the right or interest of the assessee in any policy of insurance is an exempted asset.

8. The loan obtained by the assessee on the security of his right or interest in his insurance policy is, therefore, a debt 'other than the debts mentioned in Section 2(m)' and, therefore, not deductible for computing net wealth. Though the Appellate Tribunal allowed a deduction of this debt on the ground that the same was ' used for a purpose which was not exempt from wealth-tax'', learned-counsel for the assessee did not adopt that line of reasoning. In fact, the user or destination of the amount of loan obtained on the security of an insurance policy, is conceptually irrelevant, for the purpose of determination of net wealth under Section 2(m)(ii) of the Wealth-tax Act. Obviously, by introducing the concept of debts used for the purpose which is exempt from wealth-tax and/or for a purpose which is not exempt therefrom, amounts to an improvement of the definition of net wealth contained in Section 2(m)(ii) of the Act. This legislative activity is not permissible in view of the plain language of the section. The Appellate Tribunal should have stopped its enquiry at the point of the source of the debt and it had no jurisdiction to continue the enquiry and find out the destination of the debt or the loan. The question referred to us, therefore, has to be decided without reference to the fact whether the loan was used for a purpose which was not exempt from wealth-tax or for a purpose which was so. exempt.

9. Learned counsel for the assessee vehemently contended that Clause (ii) of Section 2(m) refers to such debts only which are secured on any property not chargeable under this Act. According to the learned counsel the right or interest of the assessee's insurance policy was not such an asset because it was chargeable under the Act, though, under Section 5, it was exempted from payment of wealth-tax. Counsel thus suggested that there was a distinction between an asset not chargeable to wealth-tax and an asset on which tax was not payable. According to him, if an asset was chargeable initially, under Section 3 of the W.T. Act, a loan secured on such ah asset will not be covered by Clause (ii) of Section 2(m) of the Act, which defines wealth-tax. Thus, according to him, the interest of the assessee being an asset chargeable to wealth-tax was not covered by Clause (ii) of Section 2(m) even though such an interest was exempt from payment of tax under Section 5(1)(vi) of the Act. Learned counsel invited our attention to the definition of the word 'assets' in Clause 2(e) of the Act and argued that only such items of property which are excluded in Section 2(e) from the definition, of assets are covered by Clause (ii) of Section 2(m) because they constitute property in respect of which-wealth-tax is not chargeable. After carefully examining this novel argument, we are clear that it is misconceived. Section- 3 of the W.T; Act is the Charging section. It isas follows :

'Subject to the other provisions contained in this 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 valuation date of every individual,Hindu undivided family and company at the rate of rates specified inSchedule I. '

10. The preamble of the section shows that the Aarge of tax is 'subject to the other provisions contained in this Act'. Section 5 of the Act enumerates the assets which are not includible for computing net wealth and on which no wealth-tax is payable. Thus Section 3 read with Section 5 makes it clear that the right or interest of an assessee in an insurance policy is a property not chargeable under this Act.

11. A similar question arose before this court in CWT v. Premnarayan Garg (M.C.C. No. 39/1979 decided on 20-2-1981--[1982] 134 ITR 315). This court, following the decision of the Allahabad High Court in Jiwan Lal Virmani v. CWT [1961] 66 ITR 338, held that a loan secured on a life insurance policy could not be deducted as a debt for computing net wealth. The reference was answered in favour of the Department; Following the above decision, we answer this question as follows :

'The Appellate Tribunal was not correct in law in holding that the deduction on account of loan obtained from LIC against the security of exempted assets, viz., LIC policy, was an admissible deduction in the calculation of his net wealth if the loan taken was used for a purpose which was not exempt from wealth-tax.'

12. The answer is in the negative and in favour of the Department. There shall be no order as to costs.


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