CWT Vs. VASAVI PRATAP CHAND

JUDGEMENT

(1.) INTERPRETATION of certain provisions of Wealth Tax Act, 1957 (hereinafter referred to as the Act) is involved in these set of references. The question which has been referred for the opinion of this court is as under : 'Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in coming to the conclusion that the loan of Rs. 1,13,258 obtained by the assessed on the security of the life insurance policies is deductible in computing her net wealth under section 2(m)(ii) of the Wealth Tax Act, 1957 ?'

(2.) FOR the purpose of disposal of these matters, fact of the matter would be noticed from Wealth Tax Ref. 25 of 1980. The respondent is an assessed under the Wealth Tax Act. Partap Chand, husband of the assessed, had obtained a loan against certain policies from LIC. The assessed was trustee as well as beneficiary of these policies. A sum of Rs. 1, 13,258 was obtained by way of loan and assignment of the said policy. A part of the loan was invested in purchase of shares and another part thereof was used for making advances to others. She filed a return under the Wealth Tax Act showing net wealth at Rs. 8,75,384 for the assessment year 1975 -76 which included the value of certain shares including those which had been purchased out of the aforesaid loan. She claimed deduction for total liability of Rs. 1,38,731 which included the aforesaid loan amount of Rs. 1,13,258. The Wealth Tax Officer assessed the liability of the assessed at Rs. 1,38,731. The net wealth was thus determined at Rs. 9,26,620. The Commissioner was however, of the view that the order passed by the Wealth Tax Officer was erroneous and prejudicial to the interest of the revenue. He issued a show -cause notice on 30 -11 -1977, calling upon her to explain why the liability relating to the aforesaid loan amount should not be deducted from the value of her assets. The Commissioner was of the opinion that the said amount does not fall within the purview of the term net wealth as laid down in section 2(m)(ii) of the Act. The contentions raised by the assessed in her show cause were rejected. Against the order of the Commissioner, the assessed preferred an appeal to the Tribunal. The Tribunal allowed the said appeal by an order dated 25 -6 -1979, holding that the Commissioner was not justified in withdrawing the relief already granted by the Wealth Tax Officer by holding that his order was erroneous insofar as it was prejudicial to the interests of the revenue. Upon an application filed by the Commissioner, the Tribunal referred the aforesaid question to this court for its opinion.

(3.) MR . Sanjiv Khanna, learned counsel appearing for revenue would submit that undisputedly the LIC policies are exempted from the purview of Wealth Tax Act under section 5(1)(4) [sic -5(1)(vi)] of the said Act. According to the learned counsel if the benefit arising out of the policy could only be derived upon attaining maturity with the last payment made in relation thereto, the same would not attract the definition of 'net wealth' as contained in section 2(m)(ii) of the Act. Learned counsel would submit that the provisions of sections 3, 4 and 5 of the Wealth Tax Act must be read harmoniously and so read, the amendment carried out in the definition to word chargeable' from, 'payable' would not attract the mischief rule. The words 'chargeable' and 'payable' according to Mr. Khanna are synonymous. In support of the said contention reliance has been placed by him on CIT v. K.S. Vaidyanathan : [1985]153ITR11(Mad) , Apoorva Shanti Lal v. CWT : [1982]135ITR182(Guj) and CWT v. Premnarayan Garg (1982) 134 ITR 315 . Our attention was also drawn to the fact that this aspect of the matter had although been accepted by the Tribunal but it erred in proceeding on the basis that insurance policy is not one of the excluded assets. Mr. Anup Sharma, learned counsel appearing for the respondent on the other hand, would submit that 'the minority view in CIT v. Vaidyanathan (supra) has been approved by the Division Bench in CWT v. Vasant Kumar Govindji Kotak : [1990]186ITR91(Bom) . Learned counsel would contend that the expression payable used in section 5 must be construed having regard to the fact that the assets must at first be 'chargeable' to tax and then a question would arise as to whether the same is 'payable' or not. Mr. Khanna in reply pointed out that Bombay High Court has not determined the question involved in this case and only in relation to another. contention, the minority view of the Full Bench of Madras High Court was followed. Interpretation clause contained in section 2 of the Act begins with the words 'unless the context otherwise requires'. Assets has been defined in section 2(e) to mean :