Rent and deposits received by intermediary tenant from ultimate user not to be taken for computing net wealth of owner; CIT(A) gives no reasons for rejection – Revenue in appeal with new ground – should Govt suffer for officers’ mistakes? : Bombay HC

MUMBAI, JAN 16, 2008 : REVENUE has preferred this appeal on the following questions of law :-

(a) In the facts and circumstances of the case and in law, whether the rent and deposits received by the intermediary tenant from the ultimate user of the premises or the rent and deposit received by the assessee from the intermediary tenant, who never occupied the premises is to be taken for the computation of the net wealth of the assessee for valuation under Rule 3 of part B of Schedule III of the Wealth Tax Act, 1957 ?

(b) Whether the assessee could be allowed deduction u/s 2(m) of the Wealth Tax Act, 1957 of the debts owed on pro-rata basis without the assessee establishing that the debts were incurred in relation to assets which formed part of the net wealth of the assessee?

In so far as question (a) is concerned, the same does not survive in view of the judgment of the High Court in The Commissioner of Income Tax-3 v.M/s.Akshay Textiles Trading –

In so far as question (b) is concerned, here is the funny story of classic mismanagement of appeals and issues till the High Court. The High Court found that the said question was never raised in the memo of appeal. The said question was also not answered by the Tribunal. The Tribunal in fact answered some non existing question considering the appeal memo as drafted by the appellant.

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One of the contentions raised by the respondents before the Assessment officer was in respect of the debt of sum of Rs.21,94,144/ – considering section 2(m) of the W.T.Act, 1957. The Assessing officer for reasons recorded, rejected the claim by holding that it was not incurred for acquisition of assets
chargeable to Wealth tax.

The respondents aggrieved, preferred an appeal. One of the grounds raised was in the matter of proportionate debts, the very question has been decided by the assessing officer. The Commissioner (Appeal) in paragraph 4.1 considered the said contention, and in paragraph 4.3 answered the said issue in favour of the assessee and accordingly, partly allowed the appeal.

6. Revenue aggrieved, preferred an appeal before ITAT. In ground (b) the liability of Rs.21,94,144/ – was set out but it was wrongly stated as being deposit received from the tenants for letting out the properties. The other ground which was framed infact, did not arise from the order of the Commissioner (Appeal). The Appeal was listed with other Appeals. On common questions framed ITAT disposed of the various appeals including the appeal filed by the appellants herein. The three grounds which were raised in fact, were most extraneous in so far as respondent was concerned.

Now what should the High Court do?

The question is whether on account of failure by revenue to frame the proper ground in the appeal memo, is there power in the court, after it has been brought to its notice that an issue arose which required to be answered but had not been properly raised as required to preclude itself from considering the said issue.

The High Court observed,

1. Procedure is not meant to trip justice but to aid the cause of justice.

2. Wrong drafting by the draftsman cannot result in the Court being prevented from looking at the correct issue and having the issue answered.

3. Law would be much poorer if the Court precluded itself from doing so, merely because the draftsman for some reason has not applied his mind in framing the correct question or grounds.

4. The order of the Commissioner( appeals) does not disclose any reason as to why the appeal was allowed on the issue of proportionate debts. If the appellate authority seeks to reverse the finding of the authority below, it was bound to give reasons to its conclusion. We find the order does not disclose any reason for coming to the conclusion arrived at.

So the matter is remanded to the Tribunal.

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