W.T.As. Nos. 645/IB to 647/IB of 1998-99, decided on 10th June, 2002. VS W.T.As. Nos. 645/IB to 647/IB of 1998-99, decided on 10th June, 2002., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2653 (2002)

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑S.2(16)‑‑‑Net wealth‑‑‑Loan obtained against foreign currency deposit was utilized in purchasing shares which were offered for taxation‑‑‑Such loan/debt was disallowed being an inadmissible liability by the Assessing Officer‑‑‑Assessee contended that either the said loans be allowed as a liability or the shares purchased which had been offered to taxation may be excluded from the levy of wealth tax‑‑‑First Appellate Authority observed that the Assessing Officer was not justified to disallow the liability as the assessee had declared the corresponding assets against such liability‑‑‑Validity‑‑‑Any loan secured against any assets, which was not subject to the levy of wealth tax was not `debt owed' within the contemplation of subsection (16) of S.2 of the Wealth Tax Act, 1963 irrespective of its subsequent utilization which was immaterial‑‑ Assessing Officer rightly refused to allow the loan as liability secured against foreign currency deposits, which were not subject to the levy of wealth tax and the First Appellate Authority was not justified for issuing a direction for allowing such loans as a liability‑‑‑Orders in all the appeals were vacated by the Tribunal and department's appeals were accepted ‑‑‑[I.T.As. Nos.81 to 85/KB of 1979‑80 reversed].

I.T.As. Nos.81 to 85/KB of 1979‑80 reversed.

1996 PTD (Trib.) 1 rel.

W.T.As. Nos. 101 and 102/KB of 1982‑83; (1987) 66 ITR 338; (1980) 123 ITR 464; (1990) 186 ITR 91; 193 ITR 488 and (1982) 134 ITR 135 ref.

Naushad Ali Khan, D.R. for Appellant. S. A. Kazmi, I.T.P. for Respondents.

Date of hearing: 6th June, 2002.

JUDGMENT

MUHAMMAD JAHANDAR (JUDICIAL MEMBER).‑‑‑This judgment shall dispose of abovementioned three appeals, as these involve identical question of law; which have been filed by the Department against three different orders passed by learned CWT (A) dated 27‑11‑1998 in respect of assessment year 1997‑98.

2. Relevant brief facts are that assessees in these cases, bang individuals filed wealth tax returns for the year under consideration and during the assessment proceedings, in response to statutory notices, Messrs Coopers & Lybrand, CA appeared before Assessing Officer. One of the questions involved in framing the assessments that lived up to the disposal of these appeals pertains to the allowability of some loans obtained by the assessees from bank against foreign currency deposits. The Assessing Officer confronted the A.R. of this question, that the debts which are secured on any asset in respect of which wealth tax is not payable are not to be allowed as per subsection (16) of section 2 of the Wealth Tax Act, 1963. The assessee in reply contended that the loans so obtained again;, foreign currency deposit had been utilized in purchasing shares, therefore, either the said loans be allowed as a liability or the shares purchased which have been offered to taxation may be excluded from the levy of wealth tax. The explanation was found to be not satisfactory and the Assessing Officer disallowed the said loans as being an inadmissible liability. The assessees aggrieved of this treatment preferred appeals before the learned CWT (A) who through the impugned order dated 27‑11‑1998 observed that the Assessing Officer was not justified to disallow the liability as the assesses had declared the corresponding assets against this liability. He relied on an unreported judgment of this Tribunal in I.T.As. Nos. 81 to 85/KB of 1979‑80, dated 13‑9‑1981. The Department has assailed the findings of the learned CWT (A) on the following grounds:‑‑‑

(1) That the learned CIT (A) was not justified to issue the direction allowing the Bank loan as liability under section 2(16) of the Wealth Tax Act, 1963. The debts which are secured on any assets in respect of which wealth tax is not payable are not to be allowed;

(2) that CIT (A) appeal has relied on Tribunal's unreported cases in W.T.A. No.81/KB of 1979‑80, dated 13‑9‑1981, which could not be verified as the text of said order was not available with CIT (A).

3. Learned D.R. maintained that a bare reading of subsection (16) of section 2 of the Wealth Tax Act, 1963, shows that any debt which has been obtained against any asset, which is not chargeable to tax shall not be allowed as deduction while computing net wealth. He added that utilization of the loan so obtained is not of any concern and immaterial which does not affect the computation of net wealth. He contended that the precedent relied on by learned CWT (A), which has also been referred by the learned A.R., does not specifically deal with the question of allowability of debt, obtained against any asset not chargeable to tax which has been utilized for the creation of an asset and has been offered to taxation. As against this, learned A.R. vehemently contended that he has not been able to find out any other case‑law except the unreported judgment viz. W.T.As. Nos.81 to 85/KB of 1979‑80 on this issue. He argued that the Tribunal in the said judgment has held that if a debt, obtained against an asset not chargeable to tax, has been utilized for creation of an asset which has been offered for taxation, such a debt is allowable liability towards the computation of the net wealth. He also contended that as a matter of fact, the loans obtained against foreign currency deposits, in the instant cases are not an assets of the assessees but a liability which they owed to the Bank and whets the assessees have purchased shares by utilizing these loans and have offered those shares fpr taxation either the loans so obtained may be allowed to be deducted towards computation of net wealth or the share so purchased by utilizing those loans may be excluded from taxation because in the event of disallowance of the loan being a liability and the shares having been purchased as a result of that loan are subjected to taxation, the assessees will be jeopardized twice which may not presumably be the intention of the Legislature.

4. After hearing learned D.R. and A.R. at length and perusing the orders passed by the forums below it appears that the assessees obtained some loans from bank against foreign currency deposits and utilized those loans by purchasing shares of certain companies. During the assessment proceedings, the assessee claimed deduction of the said loans toward the computation of net wealth which was not allowed by the Assessing officer on the ground that the same are not admissible on the basis of subsection (16) of section 2 of the Wealth Tax Act, 1963. It seems advantageous to reproduce subsection (16) of section 2 of the Wealth Tax Act, 1963, which is as under:‑‑‑

"(16) net wealth means the amount by which the aggregate value computed in accordance with; the provisions of this Act of all the assets, wherever located belonging to the assessees on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessees on the valuation date other than:‑‑‑

(i) debts which under section 6 or 6‑A are not to be taken into account; and

(ii) 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 this Act;

(iii) any property owned by any minor child of the assessees shall be deemed to belong to the assessees. "

5. A bare reading of clause (ii) of this subsection (16) of section 2 (ibid) shows that wealth which has been subjected to wealth tax is an amount which is in excess of aggregate value of all debts owed by the assessee but it shall not include among others debts which are secured on or which have been incurred in relation to any asset in respect of which wealth tax is not payable. In the cases in hand the assessees obtained loans from banks against foreign currency deposits/assets which are admittedly not subject to wealth tax. The contention of the assessees are that since they have utilized the loans so secured or obtained in buying certain shares of some companies, the same may be allowed to be deducted. Incidentally, some cases involving the same questions have been dealt with over the years by this Tribunal, among which an unreported decision has been referred to by the learned A.R. in W.T.As. Nos. 81 to 85/KB of 1979‑80, dated 13‑9‑1981. Brief facts and findings are as under:

"A loan was taken from the insurance company against the appellant's life insurance policy and it was utilized for the purchase of different shares of limited companies. The appellant disclosed the value of these shares in his wealth tax returns for purposes of taxation. While making the assessments the Income Tax Officer allowed these liabilities against the value of the assets offered for taxation. Later on, it accrued to the Wealth Tax Officer that the loan liability obtained against the life insurance policy was not deductible debt under section 2(m)(ii) of the Wealth Tax Act. After issuing a show‑cause notice under section 35, the Wealth Tax officer rectified his assessment, orders by disallowing the deduction of the amount of aforesaid debts, from the value of other assets. An appeal before the learned A.A.C. was filed. The learned A.A.C. concluded that the provisions of section 2(m)(ii) of the Wealth Tax Act were not applicable in the appellant's case and that the liabilities were allowable against the assets in all the years. The department then filed an appeal before Tribunal against the order of the learned A.A.C. It was held that in case it is proved that the amounts so borrowed were in fact utilized for purchase of shares then the department will have to allow the amounts of loans as a liability. "

6. It, however, appears that the view taken in W.T.As. Nos. 81 to 85/KB of 1979‑80, dated 13‑9‑1981 and has been pressed into service by the assessee has not been followed by the Tribunal in other cases of identical nature. The preponderant view has always remained been otherwise which justifiably was entrenched on sound reasoning. In 1995, the same issue again cropped up before this Tribunal and it was addressed in a judgment reported as 1996 PTD (Trib.) 1 in which the abovementioned unreported judgment (W.T.As. Nos.81 to 85/KB of 1979‑80, dated 13‑9‑1981), was discussed and different view was taken. Relevant extracts are as under:‑‑‑

"The admitted facts are that the respondent claimed a sum of Rs.29,82,040 as liability which was secured from the HBL against SNF. 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. The respondent/assessee preferred first appeal contending that the Assessing Officer has not interpreted the law correctly. The CIT (A) directed to allow the liability for the following reason. 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 in W.T.As. Nos.81 to 85/KB of 1979‑80 on which the learned CIT (A) has placed reliance, in all other judgments it has been held that the loan secured on non taxable assets is not the debt owed under section 2(m)(ii) of the Wealth Tax Act, 1963. 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. 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. "

7. Another judgment of a Division Bench of the Tribunal in W.T.As. Nos. 101 and 102/KB of 1982‑83 vide order dated 25‑5‑1986 may be referred wherein it was found that 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 todate.

8. A similar provision is contained in section 2 (m) (ii) of the Indian Wealth. Tax Act and in 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 other judgments from Indian jurisdiction. are cited below:‑‑‑

(i) (1987) 66 ITR 338,

(ii) (1980) 123 ITR 464,

(iii) (1990) 186 ITR 91 and

(iv)193 ITR 488.

From among the judgments of Indian jurisdiction, one reported as (1982)134 ITR 135 is only quoted which provided:‑‑‑

"That the loan obtained against a security of insurance policy and invested in business to acquire taxable assets was the debt secured on property exempted from wealth tax and; therefore, not deductible in computing net wealth under the Wealth Tax Act, 1957, where similar provision is contained in section 2(m)(ii)."

9. Seemingly learned A.R. has tried to create a distinction between a loan obtained against foreign currency deposits and remain credited on the valuation date in the name of the assessee and a loan obtained or secured against foreign currency deposited and was utilized in buying some assets. In the former case he concedes that the loan is not deductible but in the latter case he opines that the same is allowable having been utilized for purchasing the shares which have been offered to taxation. This appears to be an anomalous distinction which cannot be conceived to have been intended by the law maker for the reason that a loan obtained against foreign currency deposits can very easily be got deducted as a liability by utilizing the same in terms of creating assets and the one who has not done that is siphoned off by the mischief of subsection (16) of section 2 (ibid). Further this provision primarily deals with the computation of net wealth by allowing certain loans as liability in given situations while some other loans are not allowable as being outcome of assets not subject to taxation. This simple proposition cannot be stretched to an extent that cuts across the clear intendment in relation to allowability or otherwise A.R.'s contention thus clearly tantamounts to circumvention of letter of law, which is not allowed.

10. There is another angle of viewing this situation. If loan obtained against the foreign currency deposits is utilized for acquiring sortie, assets and those are allowed not to be taxed as sought for it would militate against the operation of sections 3 and 4 of the Wealth Tax Act which make certain assets subject to taxation that do not fall in the exempt assets. Therefore, any interpretation of, subsection (16) of section 2 (ibid) which would help exclude certain assets from taxation amount to violation of the charging sections and a spurious one. Providing exclusion or exemption undoubtedly is the domain of statute law and Court or for that matter tribunal cannot create the one.

11. Beside this, assuming for sake of arguments, if assets created out of debt secured against foreign currency deposits, which are not subject to taxation, are excluded from chargeability of taxation, inferentially that would end up with advancing double concession or exemption in relation to assets firstly which are not taxable as being exempt and secondly when stand as collateral in securing the debts, which are invested and the investment is sought to be excluded from taxation. The Legislature does not grant an assessee a double advantage; once by exempting the value of the asset and a second time by permitting the debt secured on that asset to be deducted. The logic behind the legislative policy is clear enough. Section 2 (16) (ii) thus sees debts in a dichotomous classification (i) debts were secured on assets (which may be described colloquially as taxable assets); and (ii) debts secured on assets (which may be described, again colloquially, as exempted assets). The contention of learned A.R. in this regard is thus fallacious.

12. As a sequal to the foregoing and to be in line with the dictum laid down in 1996 PTD (Trib.) 1 it may safely beheld that any loan secured against any assets, which is not subject to the levy of wealth tax is not debt owed within the contemplation of subsection (16) of section 2 (ibid) irrespective of its subsequent, utilization which is immaterial.

13. In these circumstances, the Assessing Officer rightly refused to allow the loan as liability secured against foreign currency deposits, which are not subject to the levy of wealth tax and the learned CIT (A) through the impugned order was not justified for issuing a direction for allowing such loans as a liability. Resultantly the impugned orders in all the appeals are vacated and the department's appeals are accepted.

C.M.A./M.A.K./397/Tax(Trib.)

Appeals accepted.