TaxTMI 
TaxTMI 
2006 (8) TMI 236
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.... Village and 160 cents were situated in Trikkadavoor Panchayat. For the purpose of business, the assessee had borrowed loans from Syndicate Bank, Kollam, which was to the extent of Rs. 84,35,373 including interest and Rs. 1,65,000 from the SIDCO, Trivandrum. It is the contention of the assessee that the bank liabilities were secured by charge on the land of the company in addition to the personal guarantee of the directors of the assessee company. Subsequently, the assessee company decided to sell out the land and for that purpose, encumbrance by way of a simple mortgage on the land was required to be lifted. For the purpose of clearing the title of the land, the assessee company raised unsecured loans from its directors. The assessee was served with notice under s. 17 of the WT Act and assessments of the assessee were completed for all these assessment years vide different orders of the same date i.e. 3rd Feb., 2004. 3. The assessee challenged the orders of the AO before the CWT(A) mainly on two issues-(i) valuation adopted by the AO for wealth-tax purposes and (ii) amount of the loans taken by the assessee from the directors was not allowed as a liability or debt incurred in r....
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....bsp; 31-3-1996 25,000 2. 31-3-1997 28,000 3. 31-3-1998 31,000 4. 31-3-1999 34,000 5. 31-3-2000 37,000 6. 31-3-2001 40,000 ------------------------------------------------ 5. The assessee challenged the said valuation before the CWT(A). The CWT(A) partly allowed the claim of the assessee and observed as under: "6. Rival contentions considered. What is to be considered is the market value of the properties viz. 215.09 cents of land in Kollam Village. The best pointer to the market val....
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....s. He further submitted that the AO has not at all considered this particular aspect and open space left for recreational purpose and roads were also valued and included in the net wealth of the assessee. The learned Authorised Representative further submitted that though the urban land is subject to wealth-tax, but the urban land on which no building can be constructed cannot be subject-matter of wealth-tax. Moreover, the AO should have excluded from the valuation open space left for recreational purposes and for roads totalling to 54.688 cents of land as it is not an asset at all. The learned Authorised Representative further submitted that as far as valuation is concerned, the assessee has declared the valuation as under which is reasonable valuation: (i) As on 31-3-1996 Rs. 15,000 per cent (ii) As on 31-3-1997 Rs. 16,500 per cent (iii) As on 31-3-1998 Rs. 18,000 per cent (iv) As on 31-3-1999 Rs. 18,500 per cent (v) As on 31-3-2000 Rs. 19,000 per cent (vi) As on 31-3-2001 Rs. 20,700 per cent The learned Authorised Representative finally concluded that the AO may be directed to acce....
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....tedly on the valuation dates of the earlier years, the said area was in the possession of the assessee and there was no sale of the plots in the asst. yrs. 1996-97 to 2000-01. 9. As far as the another grievance of the assessee in respect of valuation is concerned, we find substance in the argument of the learned Authorised Representative. On the perusal of the order of the AO, we find that the AO has worked out the valuation on the basis of value estimated for asst. yr. 2001-02 and thereafter, on the estimate basis he has worked out the valuation for the preceding assessment years, including asst. yr. 1996-97. In our opinion, the said method is not the correct one as the submission of the learned Authorised Representative that the said estimation is made on the basis of surmises and presumptions only which is not permissible under the provisions of law. The AO should have referred this matter at the most to the Departmental Valuation Officer for the purpose of valuation. As far as the charging provisions of the WT Act are concerned, it is only the valuation date on which the fair market value of the asset is considered and determined as per the status of each and every asset. In....
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....atus of this particular property and it will not be advisable at this stage again to restore this matter to the AO for fresh consideration. In our opinion, the approach of the AO is totally unjustified because the valuation is supported by the sale deeds. The AO has travelled further without giving any reasons why he is adopting the higher sale price when the supporting documents of the sale deeds weredec1aring the value of the plots between Rs. 20,000 to Rs. 35,000 available. Moreover, we find that the CWT(A) has taken a very casual approach and passed a very cryptic order. That also cannot be sustained. 10. In our opinion, after considering the chart filed by the assessee which is placed at p. Nos, 4, 5 and 6 of the paper book in which details of area-wise sale transactions are given which are not disputed by the learned Departmental Representative, the average sale price per cent comes to Rs. 26,000. We have already expressed that we have to adopt reasonable estimate, but it is based on data available on record and no purpose would be served if we restore this matter to the AO for referring to the DVO. We find that the AO has noted that the assessee has sold some land during ....
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....f the bank. The learned Authorised Representative submitted that the assessee company had availed loans from the Syndicate Bank, Kollam and for the purpose of availing the loan, simple mortgage on the land owned by the assessee company was created. The outstanding bank liability as on 31st March, 1994 was Rs. 86,00,373. The assessee decided to sell out the land and settle the bank liability as the assessee company was defunct and in the interest of the assessee company it was necessary to settle all the liabilities by selling the land. It was further argued that for the purpose of clearing the bank loan, funds were arranged. As the assessee approached the bank for settling the liability, one-time settlement was reached and the bank asked the assessee to pay Rs. 40,72,924. For payment of the said liability, the assessee had to raise funds and hence, the assessee borrowed loans from the directors and the same were paid to the bank and the bank liability or loan was cleared off in February, 1995. Clearance of the bank loan was very important for selling the land which was the only valuable asset remaining with the assessee. He further argued that if there is any encumbrance on the lan....
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....the directors by the assessee and the asset which is the subject-matter of charge under the WT Act. He further submitted that as far as the provisions of s. 2(m) are concerned, it is envisaged that the borrowing should be either for acquiring the asset or for contributing to the intrinsic value of the asset in any manner. The money borrowed from the directors for the purpose of one-time settlement with the bank has no direct nexus. Merely because the charge on the property is cleared which was offered as a collateral security, the said liability or debt cannot be treated as incurred in relation to the asset or land. He further submitted that the AO has rightly disallowed the claim of the assessee. 13. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. We have also carefully gone through the documents and papers filed by the assessee in the paper book. In this case, the basic facts are not disputed that the assessee company has borrowed loan from Syndicate Bank, Kollam, for the purpose of its business. It is also not disputed that the assessee company was defunct and incurred huge liabilities. It is al....
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....Syndicate Bank 7 in respect of settlement of dues and return of the title deed of the property mortgaged ----------------------------------------------------------- 2. 8-5-2006 Copy of letter by the assessee to 8-9 Syndicate Bank, Kollam requesting confirmation letter in respect of the mortgaged land as a collateral security for borrowing the loan ----------------------------------------------------------- 3. 7-6-2006 Copy of letter from Syndicate Bank 10 -------------------------------------------------------....
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..... Charge of wealth-tax-(1) Subject to the other provisions (including provisions for the levy of additional wealth-tax) contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, but before the first day of April, 1993, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, HUF and company at the rate or rates specified in Schedule I. (2) Subject to the other provisions contained, in this Act, there shall be charged for every assessment year commencing on and from the 1 day of April, 1993, wealth-tax in respect of the net wealth on the corresponding valuation date of every individual, HUF and company, at the rate of one per cent of the amount by which the net wealth exceeds fifteen lakh rupees." 15. As per the above charging provision, wealth-tax is charged on the net wealth. As the Government decided to restrict the wealth-tax on the nonproductive assets, old definition of s. 2(e) was replaced by the new definition of s. 2(ea). In the newly inserted definition of s. 2(ea), assets were specified as the non-productive assets for the pur....
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....e in the area in which the law is in force. Considering the overall scheme of the WT Act even before the amendment net wealth was the concept i.e. aggregate value of the assets minus aggregate value of the debts owed by the assessee. As far as the word "incurred" is concerned, as per R. Ramanatha Iyer in Law Lexicon, Second Edition, Reprint 2000, p. 925 "incurred" means "to entail, or to become liable or subject to". The next phrase is very important i.e. "in relation to". In N. Bindra's Interpretation of Statutes (Ninth Edition, pp. 1581 and 1582, it is stated as under: "The expression 'in relation to' or 'pertaining to' is a very broad expression which presupposes another subject-matter. These are the words of comprehensiveness where both might have direct significance as well as an indirect significance depending upon the context. Reference may be made to Corpus Juris Secundum where it is stated that the term 'relate' is also defined as meaning to bring into association or connection with. It has been clearly mentioned that 'relating to' has been held to be equivalent to or synonymous with as to 'connecting with' and 'relating to'. The expression 'pertaining to' is an express....
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....In our opinion, the legislature has not intended only that there should be a direct nexus in respect of the debt incurred relating to the assets but even indirect nexus which is otherwise incurred for making the property encumbrance-free and to make the title marketable. If the loans or debts are incurred then the said debt should be reduced from the value of the assets. On perusal of the paper book and as per the data before us, we find that there is no proper quantification in respect of the loans borrowed by the assessee from the directors. We further find that as per the letter from Syndicate Bank which is placed at page No. 7, the assessee company has made the repayment in February, 1995. Now, as per the provisions of s. 2(m), debt owed by the assessee on the valuation dates only qualifies for deduction from the value of the gross asset for working out the net wealth. As far as the quantification of the amount of debt owed to the directors on each valuation date for all the assessment years is concerned, it is not possible for us as the required record is not available with us. We, therefore, consider it fit to restore the issue to the file of AO for making the quantification ....