1981 (11) TMI 83 - AT - Wealth-tax

Summary

Issues Involved:
1. Deduction of amounts as debts owed by the assessee on the valuation dates.
2. Classification of liabilities as income-tax liabilities under section 2(m)(iii)(b) of the Wealth-tax Act, 1957.
3. Consideration of amounts outstanding for more than twelve months on the valuation dates.

Issue-wise Detailed Analysis:

1. Deduction of amounts as debts owed by the assessee on the valuation dates:
The appeals concern the deduction of Rs. 4,02,026 and Rs. 3,12,084 for assessment years 1974-75 and 1975-76, respectively, as debts owed by the assessee on the valuation dates. These amounts represented the income-tax liability of late Shri Kumaraswamy Reddiar, father of the karta of the assessee-HUF, Shri Radhakrishnan. The WTO disallowed these deductions, considering them outstanding for more than 12 months on the valuation dates as per section 2(m)(iii)(b) of the Wealth-tax Act, 1957. The AAC, however, allowed the deductions, agreeing with the assessee that these amounts were not income-tax liabilities of the assessee-HUF but liabilities like any other. The revenue appealed against this order.

2. Classification of liabilities as income-tax liabilities under section 2(m)(iii)(b):
The departmental representative argued that these liabilities should be treated as income-tax liabilities of the assessee under section 159, and thus fall within the purview of section 2(m)(iii). The assessee contended that these liabilities were not income-tax liabilities of the assessee but were taken over along with the business of late Kumaraswamy Reddiar. The Tribunal had previously held that interest levied under section 220(2) on these liabilities should be allowed as a deduction in the computation of business income, treating them as liabilities like any other. The Tribunal clarified that this order was specific to the context of allowing interest deduction and did not extend to categorizing these sums under section 2(m)(iii).

3. Consideration of amounts outstanding for more than twelve months on the valuation dates:
The assessee argued that the amounts could not be considered outstanding for more than twelve months as they had been paying the instalments without default. The departmental representative countered that the amounts should be considered outstanding regardless of the instalment payments. The Tribunal acknowledged the various High Court decisions supporting the assessee's claim that amounts paid in instalments without default should not be considered outstanding for more than twelve months. However, the Tribunal remanded the matter to the AAC for verification of the factual position regarding the payment of instalments without default.

Conclusion:
The Tribunal concluded that the AAC erred in holding that section 2(m)(iii) did not apply to the liabilities in question. However, the Tribunal agreed that the amounts could not be considered outstanding for more than twelve months if the assessee had kept up with the instalment payments. The case was remanded to the AAC for verification of this factual position, with instructions to allow the claim if the assessee had adhered to the instalment schedule without default. The appeals were restored to the AAC for further proceedings.