H H NATWARSINHJI Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THE assessee late Shri Natwarshinhji ex ruler of erstwhile State of Porbhandar through his legal representative filed wealth tax returns for the asst. yrs. 1971 72 to 1979 80. It was contended by the assessee before the WTO that the deceased ruler had deposited Rs. 4,50,000 with Shri V.K. Gandhi of Bombay sometime in 1967 68 but due to the inability of Shri V.K. Gandhi, who merely gave empty promises, to pay back the said amount, the assessee was entitled to deduction thereof on the ground that the amount had become irrecoverable as the party had become insolvent. The WTO, however, did not accept the claim of the assessee and held that the debt had not become bad during the years in question and as such no deduction was admissible. The CWT(A) before whom the order of the WTO was challenged held that since the assessee had not been able to recover the amount, the value of the debt had become 'nil' during the years in question i.e. asst. yrs. 1971 72 to 1979 80. He, therefore, directed deduction of Rs. 4,50,000 in computing the net wealth of the assessee and partly allowed the appeal. The Revenue preferred an appeal before the Tribunal and the Tribunal held that the CWT(A) was not justified in reducing the value of the debt to 'nil'. The Tribunal found that till the insolvency proceedings were commenced on 24th Oct., 1975, which was long after the valuation date, there was nothing to suggest that there was any major depreciation in the value of the debt. The Tribunal also observed that the deletion of the interest accruing on the debt from the last year's wealth tax assessment did not affect the valuation of the debt. It further observed that the assessee had not written off the amount of debt in the corresponding income tax proceedings. It was held that the valuation of the debt has to be at its face value until specific date about debtor's insolvency or pecuniary embarrassment was received. The Tribunal, therefore, allowed the appeal of the Revenue by its order dt. 21st Aug., 1982 in respect of asst. year 1971 72 and by its common order dt. 24th Aug., 1984 in respect of asst. yrs. 1972 73 to 1975 76 restoring the orders of the WTO.

(2.) IN compliance with the order of this Court, the Tribunal referred the following common question for the opinion of this Court under S. 27(3) of the WT Act, 1957 (hereinafter referred to as "the Act") :

(3.) IN view of the above discussion, we answer the question referred to us in the negative and against the Revenue. Reference shall stand disposed of accordingly with no order as to costs.