2016 (4) TMI 455 - AT - Wealth-tax

Tribunal Allows Building Asset Liability Deductions Pro-rata, Upholds Property Tax Disallowance

The Tribunal allowed the appeals in WTA 52/D/2007 and WTA 53/D/2007, concerning the disallowance of liabilities in relation to building assets. The ... Deduction on pro-rata basis - Held that:- On the overall facts and circumstances of the case and respectfully following the ratio of the judgment in the case of CIT vs. Vaidyanathan (1982 (11) TMI 1 - MADRAS High Court ) we hold that liabilities can be deducted on pro-rata basis. In identical circumstances, it has been held by the ITAT, Mumbai Bench in the case of Lloyds Realty Ltd. vs. DCIT (2003 (7) TMI 264 - ITAT BOMBAY-WT ) that the debts owed by the assessee have to be allowed on pro-rata basis. Issues Involved:1. Disallowance of property tax deduction.2. Disallowance of liabilities in relation to the building asset.Issue-wise Detailed Analysis:1. Disallowance of Property Tax Deduction:In WTA 51/Del/2012, the assessee company claimed a deduction of Rs. 5,45,831/- on property tax levied, but the deduction was limited to Rs. 3,90,979/- based on the property tax actually paid by the assessee. The assessee did not press this ground during the appeal, and hence, it was dismissed.2. Disallowance of Liabilities in Relation to the Building Asset:WTA 51/Del/2012:The assessee company constructed a building on leased land and let it out, receiving a rent of Rs. 18 lakhs. The original cost of the building was Rs. 36.78 lakhs, and the written down value was Rs. 28.62 lakhs as of 31.3.1988. The assessee claimed a deduction of Rs. 30,42,575/- on account of liabilities, which was disallowed by the AO due to lack of evidence. The assessee argued that due to the lapse of 18 years, it could not produce necessary details as records were not traceable. The company applied a formula to calculate pro-rata liability for deduction: Value of property/assets X total outside liability. The Ld. AR relied on the decision of the Mumbai 'WT' Bench in the case of Lloyds Realty Ltd. vs. DCIT 90 ITD 710.WTA 52/D/2007:For the year ended 31.3.1989, the building was let out with a rent of Rs. 20,20,500/-. The value of the total assets was Rs. 94,48,028/-, and the value of the building was Rs. 27,08,531/-. The total liability was Rs. 91,10,920/-. The debt related to the building was calculated as: Value of the property/total assets x total liability, resulting in Rs. 26,11,890/-. This addition was upheld by the Ld. CWT (A), and the assessee contested it on similar grounds as in AY 1988-89.WTA No. 53/D/2007:The building was let out to Projects & Development India Pvt. Ltd. until 20th May 1991, with a monthly rent of Rs. 1,72,500/-. The rent for April 1991 was Rs. 1,72,500/-, and for 1.5.91 to 20.5.91 was Rs. 1,11,290/-. The building remained vacant after 20th May 1991. The AO calculated the gross maintainable rent by multiplying Rs. 1,72,500/- by 12, arriving at Rs. 20,70,000/-. The Ld. CWT (A) set aside this issue for de novo valuation. The assessee claimed a deduction of Rs. 20,56,494/- on pro-rata liabilities, which was disallowed by the AO and confirmed by the Ld. CWT (A).Tribunal's Decision:The Tribunal considered the submissions and the facts. As per Section 2(m) of the WT Act, debts incurred in relation to assets included in the net wealth are deductible. The Tribunal noted that borrowed funds were likely used to acquire the assets due to the meagre capital and reserves compared to the total assets. The Tribunal referred to the judgment of the Hon'ble High Court of Madras in CIT vs K.S. Vaidyanathan 153 ITR 11 (Mad.), which supports the principle of apportionment of debts. The Tribunal held that liabilities can be deducted on a pro-rata basis and directed the AO to allow appropriate deductions in all three years under appeal.Conclusion:WTA 51 was partly allowed, and WTA 52 and 53 were allowed. The order was pronounced in the Open Court on 29th February, 2016.