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Apoorva Shantilal (Huf), Vs. Commissioner of Wealth-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference Nos. 7, 19 to 21 and 26 of 1980
Judge
Reported in(1982)1GLR1
ActsWealth Tax Act, 1957 - Sections 2, 2M, 3 and 5(1)
AppellantApoorva Shantilal (Huf), ;arun K. Parikh, ;ashok K. Parikh, ;ajit K. Parikh and ;kamal K. Parikh
RespondentCommissioner of Wealth-tax
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate B.R. Shah and; R. P. Bhatt, Advs. of R.P. Bhatt & Co.
Excerpt:
direct taxation - deduction - sections 2, 2m, 3 and 5 (1) of wealth tax act, 1957 - assessee held life insurance corporation (lic) policy - assessee took loan on security of lic policy - assessee claimed deduction on loan taken - whether assessee entitled to claim deduction on loan taken - assessee's right or interest in lic not chargeable to tax in view of exemptions given under section 5 (1) (vi) - debt secured on any property in respect of which wealth-tax not chargeable has to be excluded while computing net wealth of assessee. - - 2 should be read as 'and'.the argument was that sub-clause (ii) would apply only if the following two conditions are satisfied, viz......of which wealth-tax was not chargeable, it could not be deducted from the aggregate value of the assets of assessee under sub-clause (ii) of clause (m) of s. 2 of the act. it is this view, taken by the tribunal and the wealth-tax authorities, which is challenged before us in these references. 3. before dealing with the problem at hand we may take a quick look at the relevant provisions. section 3 of the act provides for charge of wealth-tax. it provides : '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.....
Judgment:

Mankad, J.

1. Common question which arises for our consideration in these references under s. 27(1) of the W.T. Act, 1957 (hereinafter referred to as 'the Act'), is whether the assessee is entitled to claim the deduction of a loan taken from the Life Insurance Corporation, which is secured on a life insurance policy while computing his net wealth. This question arises in the context of the provision contained in sub-clause (ii) of clause (m) of s. 2 of the Act.

2. The assessee in each of these references holds a life insurance policy. He took a loan on the security of a life insurance policy. It was claimed that while computing his net wealth, this loan amount should be deducted from the aggregate value of all his assets. The wealth-tax authorities and the Tribunal negatived this claim, taking the view to the effect that as the debt in question was secured on the property in respect of which wealth-tax was not chargeable, it could not be deducted from the aggregate value of the assets of assessee under sub-clause (ii) of clause (m) of s. 2 of the Act. It is this view, taken by the Tribunal and the wealth-tax authorities, which is challenged before us in these references.

3. Before dealing with the problem at hand we may take a quick look at the relevant provisions. Section 3 of the Act provides for charge of wealth-tax. It provides :

'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 rates specified in Schedule I.'

4. Section 4 provides for the inclusion of certain assets as belonging to an individual in the computation of his net wealth. Section 5 provides for exemption in respect of certain assets and, to the extent it is relevant, it reads as follows :

'5. (1) Subject to the provisions of sub-section (IA), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee - ... (vi) 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.'

5. Section 2(m), which defines 'net wealth', reads 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; and...'

6. Section 2(e) defines 'assets'. It is an inclusive definition. Assets include property of every description, movable or immovable, except the properties specifically excluded.

7. In the context of the aforesaid provisions and the rival contentions outlined in the next breath, we have to resolve the problem. Interest of the assessee in a policy of insurance before money covered by the policy becomes due and payable to the assessee is not includible in the net wealth of the assessee under s. 5(1)(vi) of the Act. In other words, the interest of the assessee in the policy of insurance is a property in respect of which wealth-tax is not chargeable or payable under the Act. The assessee has taken a loan on the security of a life insurance policy. It is contended on behalf of the assessee that the loan or debt though secured on a life insurances policy has to be deducted from the aggregate value of his assets to determine his net wealth. On the other hand, the revenue, relying on sub-clause (ii) of clause (m) of s. 2 of the Act, contends that the debts secured on any property in respect of which wealth-tax is not chargeable under the Act, is not an admissible deduction. In view of the rival contentions what we are called upon to resolve is whether the debt secured on a life insurance policy comes within the purview of sub-clause (ii) of clause (m) of s. 2 of the Act.

8. On a plain reading of sub-clause (ii), it is difficult for the assessee to escape from its purview. The assessee's right or interest in the life insurance policy is not chargeable to tax in view of the exemption given under s. 5(1)(vi) of the Act. The debt secured on any property in respect of which wealth-tax is not chargeable has to be excluded while computing the net wealth of the assessee. Consequently, the conclusion that the amount of debt or loan taken from the LIC has to be excluded or ignored while computing the assessee's net wealth is inescapable.

9. Whether, the tax is chargeable or whether it is payable in respect of a property there is no distinction between the two as is sought to be urged on behalf of the assessee. The distinction, if any, is without any difference, and it overlooks the opening part of s. 3. Section 3 significantly opens with the words 'Subject to the other provisions contained in this Act'. These words are deliberately used with a purpose. 'Net wealth' is chargeable to wealth-tax subject to the other provisions of the Act including s. 5. In other words, chargeability to wealth-tax is subject to the provisions contained in the Act. Whether an asset is not chargeable to tax on account of its belonging to the excluded category under clause (e) of s. 2, or the exemption provisions contained in s. 5, does not make any difference. In either case it would not be chargeable to tax under s. 3. In our opinion, the words 'chargeable' and 'payable' are interchangeable words in the present context for the purposes of the search for the solution of the problem at hand. There is no significant difference between 'chargeable' and 'payable'. It would appear that the word 'chargeable' is used in relation to an asset, while the word 'payable' is in connection with the assessee. We are, therefore, not inclined to accept the argument that the words 'in respect of which wealth-tax is not chargeable' have reference to only those properties which are excluded from the definition of the word 'assets' in clause (e) of s. 2. Sub-clause (ii) would apply in a case where a debt is secured on or which has been incurred in relation to any property in respect of which wealth-tax is not chargeable or payable under the Act. Once it is admitted or established that wealth-tax is not payable on any property, whether on account of its being excluded from the definition of the word 'assets' or on account of its being exempted from the payment of wealth-tax, the debt secured on or incurred in relation to such property shall have to be excluded from the computation of net wealth. In other words, the deduction of such a debt from the aggregate value of the assets of the assessee is not admissible. The object of the amending clause (m) by the Wealth-tax, (Amend.) Act, 1964, is not clear. But we do not consider that it has brought any substantial change in the provision. In substance, the provision has remained the same. We, therefore, find ourselves unable to accept the argument that the Legislature amended clause (m) with the intention to restrict the application of clause (ii) to debts secured on or incurred in relation to the property which was excluded from the definition of the word 'assets' defined in clause (e) of s. 2. As already pointed out above, the words 'chargeable' and 'payable' are interchangeable in the present context, and in order to attract the application of sub-clause (ii) what is material is whether the property on which a debt is secured or in relation to which it is incurred is not chargeable to wealth-tax in the sense that no wealth-tax is payable thereon whether on account of an exemption or on account of an exclusion from the definition of the word 'assets'. The view which we are taking is supported by a decision of the Allahabad High Court in Jiwan Lal Virmani v. CWT : [1967]66ITR338(All) , which was rendered in the context of clause (m) of s. 2 before its amendment by Wealth-tax (Amend.) Act, 1964. The decision of the Allahabad High Court which is not based on any peculiar significance attached to the word 'payable' would apply even to the provision as amended.

10. It was next urged on behalf of the assessee that the word 'or' used in sub-clause (ii) of clause (m) of s. 2 should be read as 'and'. The argument was that sub-clause (ii) would apply only if the following two conditions are satisfied, viz., (i) the debt must be secured on a property in respect of which wealth-tax is not chargeable; and (ii) the debt must have been incurred in relation to such property. It was urged that the word 'or' should be read as 'and'. In none of the cases under reference (such is the argument), the revenue had established that the debt was incurred in relation to the property in respect of which wealth-tax was not chargeable and consequently and exclusion of the debt in the computation of net wealth was not justified. There is no substance in this argument also. There is no justification to read the word 'or' as 'and'. The language used in sub-clause (ii) is clear and unambiguous. Sub-clause (ii) contemplates two situations in which a debt is to be excluded from a consideration for the computation of net wealth : (i) if it is secured on a property in respect of which wealth-tax is not chargeable, or (ii) if the debt is incurred in relation to such property. Two entirely different situations were contemplated in making the above provision. A debt, though not secured, on a property in respect of which wealth-tax is not chargeable, may be incurred in relation to such property. On the other hand, a debt though not incurred in relation to a property in respect of which wealth-tax is not chargeable may be secured on such property. In either case, the debt is not deductible from the aggregate value of the assets of the assessee. On a plain reading of sub-clause (ii), it is clear that it does not contemplate a cumulative satisfaction of the two conditions before its application as urged on behalf of the assessee. If we accept the argument of the assessee, we would be legislating and not interpreting sub-clause (ii). To read sub-clause (ii) in the manner suggested on behalf of the assessee would amount to rewriting the provision.

11. The result of the above discussion is that the debt which is secured on the life insurance policy of the assessee has to be excluded while computing the net wealth of the assessee under s. 2(m)(ii) of the Act. We, therefore, uphold the view taken by the Tribunal and answer the question referred to us in each of these references in the affirmative and against the assessee.

12. References answered accordingly with no order as to costs.


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