W.TA. NO. 133/KB OF 1987-88, DECIDED ON 25TH MAY, 1995. VS W.TA. NO. 133/KB OF 1987-88, DECIDED ON 25TH MAY, 1995.
1996 P T D (Trib.) 1
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui Acting Chairman and S.M. Sibtain Accountant Member
W.TA. No. 133/KB of 1987-88, decided on /01/.
th
May, 1995. Wealth Tax Act (XV of 1063)---
------S.2(m)(ii)---Debt owed--Loan secured against asset which it not subject to the, levy of wealth tax is not a debt mod irrespective of its subsequent utilization which is immaterial--Wealth Tax Officer thus we justified in refusing to Am the loan WCUF04 from the am against the security of S.N.F. Bonds which was not subject to the levy of wealth tax as debt owed.
WTAs. Nos. 81 to 85/KB of 1979-80; WTAs. Nos.101 sad 102/KB of 1982-63; WTAs. Nos. 251,252/KB of 1953-84, WTAs. Nos.753 and 254/KB of 1983-84; WTA No.25B/KB of 1982-83 WTA No.182/KB of 1982-83; WTA No.182/KS of 1984-83; WTA No.445/KB of 1987/88; (1987) 66 ITR 338; (1987)123 ITR 66 (1990)123 ITR 91 and 193 ITR 488 ref.
Muhammad Yousaf Butt, D.R. for Appellant.
Khalil A.C.A. for Respondent.
Date of hearing: 25th May, 1995.
ORDER
This appeal at the instance of Department is directed against the order, dated 6-5-1987 by the learned Commissioner of Income Tax (Appeals), Zone-V, Karachi in W.T.A. No.754 relating to the assessment year 1986-87.
2. The sole objection raised on behalf of the Department is that the learned Commissioner of Income Tax (Appeals) was not justified in issuing direction to allow the claim of liability.
3. Heard Mr. Yousuf Butt, learned Representative for the Department and Mr. Khalil Ahmad, A.CA. Learned Representative for the respondent. The admitted facts are that the respondent claimed a sum of Rs.29,82,040 as liability which was secured from the U.B.L. against S.N.F. Bonds of a face value of Rs.35,00,000. The Assessing Officer held that it was not debt owed by virtue of the provisions contained in section 2(m)(ii) of the Wealth Tax Act, 1963 being secured against an asset, which is not liable to wealth tax. It was contended before the assessing officer that the liability was admissible as it was incurred in relation to an asset, which was liable to wealth tax. In this case the amount of Rs.29,82,040 was advanced to M/s. Sanaullah Woollen Mills. The liability was disallowed by the assessing officer for the following reasons:
"This claim is based on the notion that the liability gets its cover from the clause, or if it has been incurred in relation to an asset which is not liable to wealth tax of section 2(m)(u) of the Wealth Tax Act, 1963. This clause would come to the rescue of the assessee provided that the assessee gets a clearance from the restriction laid down in the first clause of section 2(m)(ii) of the Wealth Tax Act, 1963. Under the first clause, a liability is inadmissible if it is secured against an asset which is not liable to wealth tax. The admissibility of the liability is not conditional under this clause, it is absolute. It has to be disallowed in all circumstances. It cannot therefore, be considered for admissibility under any conditions. The second part of clause 2(m)(ii) i.e. or it is incurred in relation to an asset which is not liable to wealth tax creates a further restriction on admissibility of a liability rather than give the assessee a licence to arm him against the department. The intention of the legislature could therefore, in no circumstance be presumed to issue such a licence.
The liability claimed by the assessee cannot therefore under any circumstances or conditions be allowed. Liability is therefore disallowed."
4. The respondent/assessee preferred first appeal contending that the assessing officer has not interpreted the law correctly. The learned Commissioner of Income Tax (Appeals) directed to allow the liability for the following reason:
"2. So far as the disallowance of liabilities is concerned, the Wealth Tax Officer does not seem to be justified in his action because the loans were obtained for acquiring assets which were duly offered for taxation. Since the Wealth Tax Officer has already subjected to tax the assets obtained from the loans, he was duty bound to allow the related liability also as provided under section 2(m) of the Act. The view taken by the W.T.O. that since the loan was secured against Special National Fund Bonds which are exempt from tax, the same is not admissible as a deduction under the provision of the Act does not seem to be correct because section 2(m)(ii) provides that all debts which are secured on, or which are incurred in relation to any asset in respect of which wealth tax is not paid under the Act, are not allowable. In other words for a debt to be allowable either of the following two conditions must be fulfilled,
--???????? Debts which are secured on any assets in respect of which wealth tax is ??????????? payable.
or
--???????? Debts which have been incurred in relation to any asset in respect of which wealth tax is payable.
The aforesaid construction of the subsection is very clear and in any one of the above situations, deduction is to be allowed in arriving at the net wealth chargeable to tax. The debt may be secured and may not lead to the creation of taxable asset and a debt may not have any security and may lead to the creation of taxable asset and in both the situations the debt will be allowed as a deduction.
In a similar situation the learned Income Tax Appellate Tribunal vide their WTAs. Nos. 81 to 85/KB of 1979-80, dated 13-9-1981 have observed that if the loans obtained against pledge of non-taxable asset were in fact utilized for the purchase of taxable asset, the said loan will have to be allowed by the Department. Same view has been taken by my learned predecessors vide their WTAs. Nos.726 and 746/CIT-A/Z-5/1981-82 and 1982-83, dated 3-10-1984 and WTAs. Nos.817 and 689, dated 16-1-1986."
5. Being aggrieved with the above direction the- department has preferred this second appeal before us. Mr. Yousuf Butt, learned representative for the department has submitted that it is clearly provided in section 2(m)(ii) that debts which are secured on or which have been incurred in relation to any asset in respect of which wealth tax is not payable under the Wealth Tax Act, 1963 is not to be treated as debt owed and there is no ambiguity in the law, therefore, the Wealth Tax Officer was justified in refusing the liability and the learned Commissioner of Income Tax (Appeals) has misdirected in holding that the loan secured from the U.B.L. against the security of S.N.F. Bonds was an admissible liability for the reason that the loan so secured was invested in taxable asset. He has contended that the law being very clear the learned Commissioner of Income Tax (Appeals) has traveled beyond his jurisdiction in taking into consideration the subsequent utilization of the loan secured, against the assets which are not liable to the charge of wealth tax.
6. On the other hand the learned representative for the respondent has submitted that the impugned direction of leaned Commissioner of Income Tax (Appeals) is justified morn particularly because he has placed reliance on an order of this Tribunal in WTAs. Nos.81 to 85/KB of 1979-1989, dated 13-9-1981.
7. We have confronted Mt. Khalil Ahmad with the provision contained in section 2(m)(u) and have asked if there is any ambiguity in the law to which he has replied in negative. While supporting the impugned direction of learned Commissioner of Income Tax (Appeals) and referring to the earlier order of this Tribunal cited above he has conceded that the legislature while providing that the debts which are secured on or which have been incurred in relation to any asset is respect of which Wealth Tax is not payable has not provided further to consider subsequent investment of such loan.
8. We have carefully considered the contentions raised by the learned representative for the parties. We have found that the point in issue has been considered in various judgments by, this Tribunal and except for the order, dated 13-9-1981 is WTAs Nos.81 to 85/KB of 1979-1980 on which the learned Commissioner of Income Tax (Appeals) has placed reliance i$ all other judgment it has been held that the loan secured on non-taxable assets is not the debt owed under section 2(m)(u) of the Wealth Tax Act, 1963. In W.TAs. Nos.101 and 102/KB of 1982-1983 vide order, dated 25-5-1986 a Division Bench of this Tribunal it has held as follows:
"From perusal of section 2(m)(ii) it appears that although the e8gregate value of the assets of an assessee should exceed the aggregate value of all the debts owed by the assessee in order to yield a net wealth, yet such debts should not have been secured on any asset in reaped of which wealth tax is not payable under the Wealth Tax Act. Since the debts are secured against insurance policies which are an asset on which wealth tax is not payable they fall within the mischief of section 2(m)(ii). The fact that the amount obtained against the security of insurance policy was invested in obtaining assets on " which the wealth tax has been offered appears to be wholly immaterial in view of the law as it stands today."
9. The above view has been followed in large number of case consistently and some of the orders are as follows: --
WTAs Nos. 251 and 252/KB of 19113-84, dated 16-2-1988, ((1980)123 ITR 464; W.T.A. No.253 and 254/KB of 1983-84, dated 29-2-1988, ((1990) 186 ITR 91;) W.TA No. 258/KB of 1903-84, dated 2-3-1988, (193 ITIZ 488.) W.TA. No. 59/KB of 1982-83, dated 5-i1-1988, (3) W.T.A. No.182/KH of 1984-85, dated 11-1-1989 and (6) W.TA. No. 445/KH of 1987-88, dated 31-5-1989.
10. A similar provision is contained in section 2(m)(ii) of the Indian Wealth Tax Act and in a large number of cases it has been held that loan secured against non-taxable assets is not a debt owed irrespective of the fact whether the loan is utilized in acquiring a taxable asset. Some of the judgments from Indian jurisdiction are cited below:
(1)(1987) 66 ITR 338;(2) (1980) 123 ITR 464; (3) (1990) 186 ITR 91;(4) 193 ITR 488.
??????????? 11. Since the law contained in section 2(m)(ii) is very clear as conceded by the learned counsel for the respondent and has been considered in large number of cases in the sub-continent, therefore, we are of the considered opinion that any loan secured against an asset which is not subject to the levy of wealth tax is not a debt owed irrespective of its subsequent utilization which is immaterial in view of the law as it stands in statute book.
12. For the foregoing reasons it is held that the Wealth Tax Officer had rightly refused to allow, the loan secured from the U.B.L against the security of S.N.F. Bonds which is not subject to the levy of wealth tax as debt owed and the learned Commissioner of Income Tax (Appeals) was not justified in giving direction to the contrary.
?13. The appeal at the instance of department is allowed. The impugned direction of the learned Commissioner of Income Tax (Appeals) is vacated and the disallowance as made by the Wealth Tax Officer is hereby restored.
M.B.A./127/T
??????????? Appeal allowed.