TMI Blog2001 (8) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to double deduction. He therefore, restricted the deduction in respect of the liability to Rs.35,00,000, as against Rs.40,00,000 claimed, and added back the excess of Rs.5,00,000 to the assessee's net wealth. The result was that only a sum of Rs.35,00,000 out of the liability in respect of security deposit was allowed as a debt owed by the assessee. 3. The assessee filed appeals before the CWT(A). It was contended before him that the liability in respect of the security deposit was clearly a debt owed by the assessee and had nothing to do with the exemption granted under section 5(1A). It was pointed out that the deduction claimed in respect of the debt owed and the exemption under section 5(1A) were independent of each other and therefore, the Assessing Officer should not have disallowed the liability to the extent of Rs.5,00,000, on the ground that the assessee also enjoyed exemption of Rs.5,00,000 from the value of the property under section 5(1A). 4. The CWT(A) accepted the assessee's contention in the following words:-- "I have given a careful thought to the submissions made by the Ld. Counsel and I find force in them. Admittedly, the deposit of Rs.40 lakhs taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th reference to section 5(1A), he drew our attention to the judgment of the Hon'ble Bombay High Court in the case of CITv. Nima Specific Family Trust [2001] 248 ITR 29 and submitted that as per the ratio laid down in the said judgment, what has been listed out under section 5(1A) is only the order of priority of exemption in respect of various assets and it has no bearing on the quantum thereof. With reference to the provisions of Section 2(m)(ii), read with Explanation 2 below, the said provision, he contended that the debt owed by the assessee could be disallowed only if it is either secured on or has been incurred in relation to any property in respect of which wealth-tax is not chargeable and that in the present case the security deposit has not been secured on the house property. Therefore, according to him the only question to be examined is whether the debt has been incurred in relation to the house property. On this aspect, his contention was that the security deposit has been taken, not in relation to the house property, but has been taken in relation to the tenancy rights created in favour of the licensee of the flat and since there is no question of assessing the tenancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is not includible in the net wealth under section 5(1A). In other words, the deduction will be limited to the extent of the value of the asset which is included in the assessee's net wealth. 9. It is nobody's case that the security deposit received by the assessee herein is a debt which is "secured on" the house owned by the assessee. The question then is whether it has been incurred "in relation to" the house. The contention raised on behalf of the assessee before us is that the security deposit has nothing to do with the house owned by the assessee, which is exempt under section 5(1A) to the extent of Rs. 5 lakhs, but it is related to the tenancy rights created in favour of the licensee, and has been taken as a sort of assurance for the performance of an obligation under the tenancy agreement, viz., to vacate the property when required. Neither the tenancy rights nor the assurance is an asset for the purposes of the Wealth-tax Act. It is therefore contended that the deduction cannot be curtailed to the extent of Rs.5 lakhs on the ground that it has been incurred "in relation to" the house property. We find it difficult to accept the contention. In our opinion, the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. 10. We may now briefly notice the authorities cited by the learned representative for the assessee before us. The judgment of the Hon'ble Bombay High Court in Nima Specific Family Trust's case dealt with a different issue altogether. That was with reference to the provisions of section 80HH(9) of the Income-tax Act. It was held that the various deductions specified in the sub-section only spelt out the order of priority in respect of those deductions and they did not refer to the quantum of the deductions. This decision was sought to be pressed into service with reference to section 5(1A) of the Wealth-tax Act, but in our opinion, the decision has no relevance to the point with which we are concerned in these appeals. In fact, so far as section 5(1A) is concerned, the quantum of exemption is clearly specified -- it is Rs.5 lakhs. So far as the assessee is concerned, the house property has been valued at Rs.43,02,024. It falls for exemption under section5(1)(iv). The aggregate exemption given by sub-section (1A) is Rs.5 lakhs and in the present case that is exhausted by the exemption given under section 5(1)(iv) in respect of the house property. Therefore, there can neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemption allowed to the asset, could be made. The asset concerned was agricultural land which was exempt only upto Rs.1.5 lakhs under section 5(1)(iva). It was held that since agricultural land was only partially and not fully exempt from wealth-tax, the debt secured thereon cannot be disallowed even proportionately. Here again, the words that fell for interpretation of the Court were "not chargeable to wealth-tax", appearing in section 2(m)(ii) and not the words "debts..... incurred in relation to" appearing therein. This decision is also therefore not relevant. 13. The learned representative for the assessee drew our attention to the observations of the learned author A.C. Sampath lyengar in his treatise on "Three New Taxes" Vol.1, Pages 348-352 which according to him supported his client's case. We have carefully read those pages of the books but we found nothing in those pages of the treatise to support the contention taken before us on behalf of the assessee or relevant to the controversy before us. Most of the discussion is with reference to debts secured on or incurred in relation to assets "not chargeable to wealth tax". We did not find any guidance from the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the WTO in that case the introduction of the Explanation 2 has made a difference to the position. It has authorised proportionate allowance/disallowance of the debt, depending on the value of the asset that is fixed/exempt in our opinion, the Explanation is based on equitable considerations and is fair to both the assessee and the Revenue. 15. We may also refer to one more aspect. The learned representative for the assessees drew our attention to the ground taken by the Department in respect of the assessment year 1991-92 and submitted that it is misconceived in as much as it referred to the Explanation below section 5(1A) which has nothing to do with the present controversy. We agree with him, but we prefer to consider the same as an inconsequential Shp or error, not affecting the maintainability of the appeal. The proper reference should have been to the Explanation 2 below section 2(m), as rightly taken in the ground in respect of the assessment year 1992-93. But ignoring the technicality and considering the substance of the matter we condone the error and decide the appeal for the assessment year 1991-92 on the footing that the reference in the ground is to Explanation 2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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