1. The sole controversy in the present case is whether an addition of Rs. 37,500 to the assessee's returned wealth was justified on the ground that the assessee had earned interest to that extent.
The assessee held a fixed deposit receipt of Rs. 8,50,000 against which he had obtained an overdraft of Rs. 6,40,000 from the said bank. Out of it Rs. 3,50,000 were given on loan by him to one Shri P.N. Singh. He derived an income of Rs. 26,250 from him by way of interest, which went to increase the wealth of the assessee correspondingly. The balance amount of loan was kept by the assessee either with himself at home without lending it to anybody or was given over by him to his son without interest. No income, whatsoever, was, admittedly, actually earned on the aforesaid amounts. In the income-tax assessment, the interest paid by the assessee to the bank on such amounts as were kept idle at home or were given to the son without realising any interest from him, were not allowed as legitimate business expenditure of the assessee and corresponding addition was, therefore, made to his total income. On the basis of such addition, the WTO made an addition to the assessee's total wealth also for the aforesaid year.
3. The assessee challenged the aforesaid order of the learned WTO before the AAC, who somehow felt that the order of the WTO was correct.
She, therefore, dismissed the appeal by making, inter alia, the following observations : The interest on this loan was claimed at Rs. 65,626 but the WTO concluded that the appellant was not entitled to claim deduction of interest for the balance amount of loan which had either been given to his son or had been kept idle at home. He, thus, disallowed the proportionate interest amounting to Rs. 37,500. The learned counsel could not advance any acceptable argument as to why this proportionate disallowance should not be upheld. Considering the fact that the interest claimed is not against any income which was assessed to tax, the disallowance of Rs. 37,500 is quite justified and the same is upheld.4. It is against the aforesaid order of the learned AAC that the present appeal has been filed by the assessee. The contention of the learned counsel for the assessee has been that the assessee did not have the aforesaid wealth and, therefore, there was no occasion of making assessment thereon.
5. On behalf of the department, the order of the learned AAC was stoutly supported.
6. After carefully examining the rival submissions, we have no hesitation in holding that the addition of Rs. 37,500 is not at all justified. There is no deeming provision under the Wealth-tax Act under which an addition made to the assessee's total income in the income-tax assessment by disallowing a certain expenditure could also be treated as deemed wealth of the assessee for purposes of wealth-tax assessment.
Under the Wealth-tax Act, 1957 ('the Act'), we have to look at the relevant provisions, namely, Section 2(m), to determine the assessee's total income and, according to the provisions of the said section, one has to find out the actual assets of the assessee and aggregate them and then determine the actual debts of the assessee and aggregate them and excess of the assets over the debts has to be taken as the net wealth. None of the deeming provisions enumerated in Section 4 of the Act, cover the addition made in the present case. Admittedly, the interest payment to the bank was an actual event and, therefore, the wealth of the assessee went down to that extent. To presume that interest to the extent of Rs. 37,500 was not paid would not be correct because even while disallowing it under the Income-tax Act, 1961, the assumption made was not that interest was not paid to the bank but that such payment was not for the business purpose of the assessee and, therefore, could not be allowed as a deduction while computing the assessee's total income. Once payment of the interest is conceded to, it becomes an outgoing and does not get reflected in the assessee's wealth by way of an asset and, therefore, there is no justification whatsoever in treating it as part of the assessee's asset. The addition made is, accordingly, deleted and the appeal is hereby allowed.