Law:

Section:

Section 2(m) of the Wealth-tax Act, 1957-Net wealth-Whether agricultural Income tax and loan secured on tea crop allowable as deduction in computing net assets-Held, no Facts The assessee was a partner of a firm which had, amongst other business, a tea estate. It maintained a consolidated balance sheet for its tea estate and other business for the assessment years 1960-61 to 1967-68. For these assessment years, the assessee claimed deductions from its net wealth of (a ) agricultural income-tax liability; and (b) bank loan of Rs. 2,89,154 against hypothecation of the entire tea crop of the tea estate inclusive of land and growing crops coming within the mischief of section 2(m )(ii) . The WTO disallowed the deductions holding that (i) agricultural income tax, which was disputed and unpaid within one year from the date of assessment, was debt incurred in relation to agricultural assets which were exempt from wealth-tax; (ii) out of the aforesaid bank loan, Rs. 1 lakh was referable to exempted assets. The AAC and the Tribunal allowed the assessee's claim in entirety. The Tribunal held that, though agricultural income-tax was a charge on agricultural income, it was not secured or charged on agricultural assets only. On reference: Held 1. Section 2(m)(ii) bars the deduction of debts which had been incurred in relation to any assets and/or secured on assets in respect of which wealth-tax was not payable. Agricultural Income-tax was, undoubtedly, a debt which was incurred in relation to assets such as agricultural land and growing crops which were not included in the definition of chargeable assets in section 2(e). Similarly, the loan secured by hypothecation related to,inter alia, growing the tea crops which were not included in the definition of chargeable assets. The hypothecation is also with respect to manufactured tea so that only 60 per cent of income is treated as agricultural income and balance 40 per cent as non-agricultural income. This is because income from tea is the income out of combined efforts of agricultural as well as non-agricultural assets. 2. Since section, 2(m)(ii) will apply in both the cases, neither the agricultural income-tax nor the loan…

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