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2016 (4) TMI 455 - ITAT DELHI

2016 (4) TMI 455 - ITAT DELHI - TMI - 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 ass .....

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ertains to Assessment Year 1989-90 and WTA No. 53 pertains to Assessment Year 1992-93. All the three appeals have a common issue and they were heard together. Hence, all the three are being disposed by this common order. 2. The facts of the cases are that the assessment in all the three cases was restored to the file of the AO by the Delhi Bench WT-1 of the Tribunal in its order dated 22.6.2004 in WTA Nos. 172,173 and 174/Del/1999 and now aggrieved by the orders of the wealth tax authorities bel .....

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he written down value as at 31.3.1988 was ₹ 28.62 lakhs. The assessee company claimed a deduction of ₹ 5,45,831/- on property tax levied but the deduction was limited to ₹ 3,90,979/- based on the property tax actually paid by the assessee. Further, the assessee had claimed a deduction of ₹ 30,42,575/- on account of liabilities which was completely disallowed by the AO on the ground that the assessee could not file any evidence to substantiate the same. Both these addition .....

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as per Companies Act records of more than 8 years need not be maintained. Even as per Income Tax Act records of about six previous years are to be maintained. The period of 18 years is quite a long time and therefore the company was at a disadvantageous position to collect the information. It appears even the records of the department are not available. It was submitted that the capital of the appellant company is only ₹ 5 lakhs. Even the capital has been eroded by the debit balance in pr .....

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53,155/- had resulted in the assets of ₹ 61,58,720/-, the liability relating to building block of ₹ 28,62,174/- could only be ₹ 30,45,779/-. It was further pleaded that had there been capital and reserves, it could be easily stated that the building block had emanated from capital and profits. Unfortunately, not only the paid-up capital had been eroded, but also liabilities had been incurred to the tune of ₹ 3,94,435/-. Hence, this was the only way of correlating the liab .....

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total assets of the company as at 31.3.1989 was ₹ 94,48,028/-. The value of the building was ₹ 27,08,531/-. The total liability was ₹ 91,10,920/-. Accordingly, the debt incurred in connection with the building was calculated as under: Value of the property/total assets x total liability i.e.Rs.27,08,531/Rs.94,48,028 x ₹ 91,10,920 = ₹ 26,11,890 5.1 This addition/disallowance was upheld by the Ld. CWT (A) and the assessee is in appeal contesting the same. The Ld. AR .....

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e period 1.4.91 to 20.5.91 aggregated to ₹ 2,83,790/-. Thereafter the building remained vacant till 31.3.1992. However, the AO proceeded to calculate the gross maintainable rent by multiplying ₹ 1,72,500/- by 12 to arrive at a figure of ₹ 20,70,000/-. This issue was set aside by the Ld. CWT (A), to the file of the AO for de novo valuation. However, like in the earlier two years under appeal, the assessee had claimed a deduction of ₹ 20,56,494/- on account of prorate liabi .....

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ing from the side of the assessee, the Ld. CWT (A) was justified in rejecting the claim. 8. Thus, in Assessment Year 1988-89, the dispute was mainly on the issue of disallowance if ₹ 30,42,575/- on account of liabilities. Similarly in Assessment Year 1989-90, the amount of liabilities in dispute was ₹ 26,11,890/-. In Assessment Year 1992-93, the amount of liabilities in dispute was ₹ 20,56,494/. 9. We have carefully considered the submissions made before us and have gone throug .....

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borrowed funds. However, verifiable record in this respect is not available. On a perusal of the balance sheets, apparently, as compared to the value of total assets, the assessee's capital and reserves are meagre and therefore obviously borrowed funds would have been utilized in acquiring the assets. However, the question that does remain is that can an assessee s pro rata claim be allowed in absence of a specific provision in the Wealth Tax Act. In this regard, the judgment of the Hon ble .....

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atutes are to be construed strictly and in favour of the assessee. No exception can be taken to the proposition that fiscal statutes should be interpreted strictly and in cases of doubt, the benefit of construction must be given in favour of the assessee. However, this rule applies only to charging sections and not to machinery sections or to provisions which give relief to the taxpayer. In Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1, it has been held that the rule of strict construction applies .....

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jana v. Elphinstone Spinning and Weaving Mills, ). In this case, s. 2(m) is not a charging section, but it is only a machinery section for the calculation of the net wealth of an assessee. In other words, it is a machinery section as opposed to s. 3 which is the charging section. In the circumstances, the rule of strict construction relied upon by the learned counsel for the assessee cannot be applied. Section 2(m)(ii) can only be interpreted in such a way as to make the machinery workable. 29. .....

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uty of the court to ascertain what the Legislature meant. There may be instances where the words do not clearly bring out the legislative intent. This may be due to the fact that the language used in a particular enactment either exceeds or falls short of expressing the meaning intended. In such circumstances, the court is obliged to interpret the statute by discovering the true intention of the Legislature. 30. Maxwell on the Interpretation of Statutes, 12th edition, page 228, states the rule t .....

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r, on the ground that the Legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear it must not be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used. Lord Reid has said that he prefers to see a mistake on t .....

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alinude. In other words, before the court can resort to any other source for assistance, it must first seek to find the legislative intention from the words, phrases and sentences which make up the statute subject to construction. If the meaning of the language of the statute is plain, then, according to the rule announced in innumerable cases, there is really no need for construction as the legislative intention is revealed by the apparent meaning, that is, the meaning clearly expressed by the .....

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uction but is revealed by them. They perform the function of a microscope. The same is true with reference to the subject-matter of the statute, the purpose or object of its enactment, its effect and consequence, its occasion and necessity, and its logicall of which are not sources of the legislative intent but aids to its discovery. In other words, the court resorts to these aids not for the legislative intent but simply to identify it. The language is the reservoir of the legislative intention .....

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such a case is within the obvious purpose of the statute and the omissions appears to have been due to accident or inadvertence, the court cannot include the omitted case by supplying the omissions. This is equally true where the omission was due to the failure of the Legislature to foresee the missing case. As is obvious, to permit the court to supply the omissions in statutes would generally constitute an encroachment upon the field of the Legislature. But, inasmuch as it is the intention of t .....

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ve. Similarly, a plain misnomer may be corrected, or a statute made intelligible by the addition of a word suggested by the statute. It is proper for the court to supply such omissions because they are in fact a part of the statute, having been intended to be included in the statute when drafted and enacted." 32. to quote Craies on Statute Law, 7th edition, p. 94: "If the language of an Act of Parliament is clear and explicit, it must as already stated, receive full effect, whatever ma .....

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ent is, as Brett L.J. said in The R. L. Alston [1883] 8 PD 5 'unfortunately expressed in such language that it leaves it quite as much open with regard to its form of expression, to the one interpretation as to the other', the question arises, 'what is to be done? We must try and get at the meaning of what was intended by considering the consequence of either construction.' And if it appears that one of these constructions will do injustice, and the other will avoid that injustic .....

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nterpretation of a statute thus (p. 631): "Now, when a question arises as to the interpretation to be put on an enactment, what the court has to do is to ascertain ' the intent of them that make it', and that must of course be gathered from the words actually used in the statute. That, however, does not mean that the decision should rest on a literal interpretation of the words used in disregard of all other materials. 'The literal construction then', says Maxwell on the Int .....

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e [1584] 3 Co Rep 7a; 76 ER 637 (A-1). These are principles well settled, and were applied by this court in Bengal Immunity Co. Ltd. v. State of Bihar . To decide the true scope of the present Act, therefore, we must have regard to all such factors as can legitimately be taken into account in ascertaining the intention of the Legislature, such as the history of the legislation and the purpose thereof, the mischief which it intended to suppress and the other provisions of the statute, and constru .....

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e the ambiguity by resort to some general principle. 34. In Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155, 164; 2 KB 481 at p. 498), Denning L.J. spelt out the principles of interpretation of statutes in the following terms: "Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise, and, even, if it were, it is not possible to provide for them in terms free from all ambiguity. The E .....

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rafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it, and of the mischief which it was passed to remedy, and they he must supplement the written word so as to given force .....

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htened it out? He must then do as they would have done. A judge must not alter the material of which it is woven, but he can and should iron out the creases." 35. Denning L.J. reiterated the same view in Magor and St. Mellons R.D.C. v. Newport Corporation [1950] 2 All ER 1226 at p. 1236) thus: "I have no patience with an ultra-legalistic interpretation which would deprive them of their rights altogether. I would repeat what I said in Seaford Court Estates Ltd. v. Asher [1949] 2 All ER .....

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