Decided on February 19,1982



P.K. Mehta, Accountant Member - (1.) THE assessee-HUF has filed these three wealth-tax appeals for the assessment years 1973-74 to 1975-76 against a combined order of the Commissioner, Gujarat-I, under Section 25(2) of the Wealth-tax Act ("the Act"). As the issue involved for all the three years is a common one, these appeals are conveniently disposed of by a common order.
(2.) On examination of the wealth-tax records, the Commissioner noticed that the WTO had wrongly allowed a deduction of Rs. 3,75,000 in each assessment year from the value of an urban asset, namely, "Mangalbag Bungalow" and thus the levy of additional wealth-tax had been undercharged. The amount of Rs. 3,75,000 deducted was of a loan which was obtained from Harshavadan Mangaldas Investment Co. on the mortgage of the aforesaid urban asset. This debt was claimed by the assessee as deduction against the value of immovable property, i.e., "Mangalbag Bungalow", and the same was allowed by the WTO for the three years. The amount of loan was utilised by the assessee for making advances to Aryodaya Mills Ltd. and Victoria Mills Ltd. The Commissioner was of the view that as the loan obtained against the pledge of the immovable property has been lent out for the purpose otherwise than dealt with in Rule 1(a) of Paragraph B of Part I of Schedule I to the Act, the same could not be given as a deduction from the value of urban immovable asset. He further observed that "though the debt of Rs. 3,75,000 is allowable as a deduction against the movable asset, and thereby the total wealth will remain unchanged, the levy of additional wealth-tax will undergo an upward revision". Finding this error prejudicial to the interests of revenue in the assessment orders of the WTO for the three years under appeal, he set aside those orders with a direction to the WTO to re-do the assessments in accordance with law. Shri S.S. Bagai, the learned counsel of the assessee, contended that the treatment given by the WTO in each assessment was quite correct and the order of the Commissioner was erroneous. He submitted that the ownership of an immovable property consists of a bundle of rights and when a mortgage is taken against such property, the owner's rights gets diminished by the mortgagee obtaining such rights in the mortgaged property. He invited attention to Section 58 of the Transfer of Property Act in support of this proposition and further submitted that in law what remained with the owner after mortgage was equity of redemption and the owner was no longer owner of full property. It was next stated that for the purpose of determining the market value of such a property, it will be an appropriate method to deduct from the market value, the value of encumbrance, i.e., the mortgage loan amount. It was next contended that the deduction of mortgage loan will be a part of arriving at the value of a mortgaged immovable property which is an asset by itself under Section 7 of the Act and it is not a deduction of the type which is referred to in Rule 2 of Schedule I. He also relied on the Gujarat High Court's decision in CWT v. Smt. Shirinbanoo [1976] 102 ITR 735, where the scope of this rule was considered in the context of a mortgaged property as the revenue had referred to Rule 2 under consideration here.
(3.) ON behalf of the revenue, it was contended that the view taken by the Commissioner was correct and attention was invited to Paragraphs A and B of Part 1 of Schedule I. It was submitted that the value of an urban asset has to be determined with reference to the provisions of those two paragraphs so far as the charge of additional wealth-tax was concerned and deduction mentioned in Rule 2(a) in Paragraph B alone could be given and not the mortgage loan deduction as was done by the WTO. It was pointed out that for the assessment years for which the reference was decided by the Gujarat High Court in CWT v. Smt. Shirinbanoo (supra), Rule 2 was not applicable as it was introduced with effect from the assessment year 1971-72 only.;

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