Law:

Section:

Section 2(m) of the Wealth-tax Act, 1957 - Net Wealth - Debt owed - Assessee-company purchased assets of another company 'K', in which it had major shareholding - In terms of agreement in event of 'K' going into voluntary liquidation assessee could without paying sale consideration or unpaid part thereof to liquidator, surrender any shares of 'K' held by assessee to liquidator and set off or reduce in debtedness - Whether mere fact that instead of paying back debt in cash, assessee could discharge same by transfer of shares, it did not change character of liability - Held, yes - Whether, therefore, prima facie sale consideration in question was debt due from assessee to 'K' which was entitled to deduction under section 2(m) while calculating net wealth of assessee - Held, yes Facts The assessee-company acquired large number of shares of company 'K'. The acquisition was done partly for cash and partly in lieu of shares of the assessee-company issued to the shareholders of 'K'. Later on the assessee acquired all the assets of company 'K' for a consideration of Rs. 31,26,000. Part of this consideration was to be paid in cash on demand by 'K'. In terms of agreement, in case 'K' was to go into voluntary liquidation, the assessee-company could instead of paying to liquidators the amount of Rs. 31,26,000 or the unpaid part thereof, surrender to the liquidators any share of 'K' held by assessee and set off or reduce the indebtedness. The WTO, the Appellate Assistant Commissioner as well as the Tribunal took the view that in computing net wealth of the assessee-company the amount of Rs. 31,26,000 could not be regarded as 'debt' due from the assessee. The High Court differed from that view and allowed the assessee's claim. On appeal to Surpeme Court : HELD It was true that the assessee had a controlling interest in company 'K' but that did not, in law, made company 'K' a part of assessee-company. 'K' and the assessee-company were two different legal entities. The company 'K' had been assessed to wealth-tax in the relevant accounting periods and in computing its net wealth the debt of Rs. 31,26,000 due to it by the assessee was taken into consideration. It was also not…

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