SANJAY ARORA, ACCOUNTANT MEMBER 
AND AMIT SHUKLA, JUDICIAL MEMBER

ORDER

Sanjay Arora, Accountant Member - This is a set of cross Appeals, i.e., by the Assessee and the Revenue, arising out of separate orders by the Commissioner of Wealth Tax (Appeals)-18, Mumbai ('CWT(A)' for short), partly allowing the assessee's appeal contesting its assessment u/s.16(5) r/w s. 17 of the Wealth Tax Act, 1957 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 29.12.2011 and rejecting the Assessing Officer's (A.O.) rectification u/s.35 (also refer para 3 of this order).

2. The only issue arising in the instant case is the value at which the assessee's immovable property in the form of a flat, admittedly an asset u/s. 2(ea) of the Act, is to be assessed to tax in view of the assessee's claim for Rs.212 lacs as debt owed there-against.

3. The controversy centers around the quantum of the debt owed u/s. 2(m) of the Act in relation to the assessee's lone asset subject to tax, which is therefore deductible in computing its net wealth under the Act. While the assessee claims it at Rs.212 lacs (refer ground nos. 1 to 7), the Revenue's stand, as it finally obtains, is of it being at nil. Though the Revenue initially admitted to the debt owed at Rs.58 lacs, the loan/s liability assumed for the purchase of the asset was found to have been discharged during the year itself, so that no amount could be said to be owed by the assessee in relation thereto as on 31.03.2009, the valuation date and, accordingly, rectification proceedings were initiated, reducing the said amount to nil, which though stood not accepted by the ld. CWT(A) vide his order dated 06.02.2014. It is for this reason, the subject matter of the appeal being the same, that we consider the appeals under reference as cross appeals.

The brief facts of the case are that the assessee, a 2/5th owner of a flat at NCPA, Mumbai, purchased the balance 3/5th share from the other three co-owners, holding 1/5 share each, for a consideration of Rs.93 lacs apiece, i.e., for a gross consideration of Rs.279 lacs, during the relevant year. The value of the flat, outstanding in its accounts at Rs.103.30 lacs as at the beginning of the year, thus came to be at Rs.382.92 lacs at its end, i.e., including other incidental charges, as explained to us during hearing, for Rs.0.62 lacs (refer balance-sheet as at 31.03.2009/PB-1, pgs.4-14), even as its fair market value, i.e., as assessable under the Act, worked out on the basis of the rent capitalization method thereat was at Rs.561.20 lacs (refer computation of income at PB-1, pg.1). To this extent, there is no dispute between the parties. Since, however, the assessee had taken loans for financing the purchase as also for repaying the security deposit (of Rs.310 lacs), taken by the owners in respect of the lease of the said flat, in view of its termination during the year, which it claims as a debt owed u/s.2(m), differences have arisen between it and the Revenue, and which is a subject matter of dispute between them.
4. We have heard the parties, and perused the material on record.

4.1 We shall, in view of the foregoing, proceed by discussing each such loan. At the outset, we may though clarify that the assessee, both per its grounds assumed as well as its arguments before us, restricts its claim qua loans to Rs.212 lacs, i.e., as against Rs.273.75 lacs claimed per its return of wealth (PB-1, pgs. 1-3). The same is from two parties:

We proceed party-wise, in seriatim.

Shri Manoharlal Tandon (Rs.27 lacs)
4.2 As per the loan account, as appearing in the books of the lender, Rs.90 lacs was paid to the assessee on 12.06.2008 (PB-1, pg. 27). The same stands utilized in payment of purchase cost to one of the co-owners, of which the lender is one, on 18.06.2008 (PB-1, pg. 16). The same is clearly for the purpose of the flat (asset). There are two repayments, i.e., on 08.09.2008 (Rs.28 lacs) and 24.03.2009 (Rs.30 lacs), so that the outstanding balance in the loan amount as at 31.03.2009 is Rs.27 lacs , at which sum the same is being claimed by the assessee. The repayments are not in dispute. The only other entries in the account are for credit and payment of Rs.62 lacs to the assessee (on 01.12.2008), i.e., of the security deposit held by the said co-owner as a previous co-owner, i.e., corresponding to his 1/5th share, to which the assessee become entitled to upon transfer. The same clearly has no impact on the loan transaction; the assessee only receiving from the seller the corresponding share of the security deposit held by the latter on the transfer of his share to it. We, accordingly, have no hesitation in confirming Rs.27 lacs, the amount outstanding in the loan account of Shri Manoharlal Tandon as on 31.03.2009, as a debt owed u/s. 2(m).

Shri Jaydeep Tandon (Rs.185 lacs)
4.3 The entries in respect of the credit and payment of Rs.62 lacs, and on the same dates, also appear in the assessee's account in the books of Shri Jaydeep Tandon (PB-1, pg. 128), being also a seller, and to the same effect, i.e., nil, being in fact not a part of the loan account. The first entry in the loan account is a sum of Rs.92 lacs received on 12.06.2008. The same is utilized, again, for payment of purchase price of Rs.93 lacs to one of the co-owners on 18.06.2008 (PB-1, pg. 16), so that it is eligible for being a debt owed. The loan is repaid to the extent of Rs.30 lacs on 08.09.2008, so that Rs.62 lacs outstands as on 31.03.2009 in respect of the said loan of Rs.92 lacs. We, accordingly, have no hesitation in confirming the said amount of Rs.62 lacs as a debt owed u/s.2(m). Another Rs.123 lacs stands borrowed from Shri Jaydeep Tandon in July, August and November, 2008, which outstands as such as on 31.03.2009. The same is also claimed by the assessee as part of the debt owed to the said person u/s. 2(m), making the total qua the latter at Rs.185 lacs.

The basis of the assessee's claim for Rs.123 lacs is the utilization of this sum to the extent of Rs.120 lacs toward repayment of security deposit to M/s. Hexaware Technology Ltd., i.e., the lessee, on 02.12.2008, which is at a total of Rs.314.09 lacs, as sought to be exhibited with reference to the assessee's bank statement (PB-1, pgs. 22, 23). This is pressed with reference to Board Circular (No.28 [F.No.8/8/69-IT(A-I)], dated 20.08.1969/copy on record) issued in context of deduction of interest on borrowed capital u/s.24(1)(vi) of the Income Tax Act, 1961. A fresh loan raised to repay the original loan taken for constructing/buying property would substitute the old loan, so that the interest thereon is also deductible. Security deposit, it is submitted, is deductible as a debt owed u/s.2(m) in view of the decision by the hon'ble jurisdictional high court in the case of Miss Deanna J. Jeejeebhoy v. WTO [2011] 330 ITR 149/[2009] 180 Taxman 586 (Bom.). The loan assumed to repay the same would thus also be eligible for being so considered.
We have carefully perused the judgment in Miss Deanna J. Jeejeebhoy (supra), which is binding on us. The dispute in that case, as apparent from the questions raised before the hon'ble court, was whether the debt owed in relation to a property chargeable to Wealth Tax could be reduced on the basis that a part thereof stood invested in an asset exempt from wealth-tax. Both the parties proceeded on the footing that the security deposit was a debt owed u/s.2(m), so that the point in issue was the extent to which it was allowable in-as-much as the assessee had admittedly invested a part thereof in tax-exempt bonds, to which extent therefore deduction had been denied by the Revenue. The hon'ble court clarified that once it was accepted that the security deposit taken was a debt in respect of a property chargeable to wealth-tax, then it (deposit) would not be a debt covered by section 2(m)(ii), i.e., a debt secured on or incurred in relation to a property not chargeable to wealth tax. That is, a mere investment of funds would not alter the character of the receipt, on which (character) there was no disagreement between the parties. This is the short point on which the hon'ble court was called upon to and did in fact opine, resolving the questions of law posed before it. It is even otherwise trite law that a decision is an authority on what it actually decides, and not what may remotely or even logically flow from it (refer: Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC).

We examine the assessee's claim on merits, which is thus open for us to adjudicate. In our view, a security deposit taken by the assessee-lessor leads to an inflow of funds with it. He is thus without doubt better placed than a person not a receipt of the security deposit, result as it does in a corresponding increase in his cash/bank balance, which could be profitably deployed/invested. Of course, there is a concomitant liability to repay the debt on the termination of the agreement, i.e., the assessee's assets and liabilities both undergo an increase by the same amount. It would therefore be at best a tax-neutral exercise in-as-much as, though it makes the assessee cash rich, does not enhance his net worth in view of the funds carrying an obligation of repayment, but shall not cause a decrease in his net wealth. In fact, to the extent it allows the assessee access to interest-free funds, it confers upon it a valuable right. One only needs to deposit the sum in the bank for the corresponding term to generate risk free (or almost so) interest, realizing the value of access to such funds, making the depositee wealthier to that extent, and in any case of the matter, even disregarding the same, would lead to a status quo, so that the transaction is, as aforestated, tax-neutral. We are as such unable to appreciate the deduction of the sum deposited by way of security (for the performance of the contract) as a debt owed u/s. 2(m). True, the words 'in relation to' occurring in section 2(m), even as explained by the hon'ble court in Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) in the context of section 14A of the Income-tax Act, are very wide. A lease agreement, however, is towards 'exploitation of the property for gain', i.e., is essentially an agreement for the 'user' of the property, so that the sum realized under the said agreement by way of deposit may not qualify to be considered as a debt owed in relation to an asset u/s. 2(m) inasmuch as it has no bearing or relation with the acquisition, holding or even the valuation of the asset. On the contrary, valuation models, as indeed under the relevant Rules itself (Schedule III to the Act, r. 5), recognize the transfer of a benefit to the owner (by the tenant) thus, providing for a percentage (15%) of such interest-free deposit as a part of the 'gross maintainable rent', i.e., with reference to which valuation is made, further limiting the addition to the differential interest where the deposit is interest bearing.

Continuing further, we may also examine the validity of the assessee's claim on facts, i.e., presuming that a security deposit is a debt owed u/s. 2(m). We, accordingly, proceed to examine if the said decision is applicable under the facts and circumstances of the case. Without doubt, the loan to the extent of Rs.120 lacs, being utilized in repayment of the security deposit, would substitute the same. The lease agreement with M/s. Hexaware Technology Ltd., however, stands admittedly terminated prior to the valuation date, and it is in fact only upon so that the deposit amount stands refunded thereto. There is no subsisting lease agreement in favour of the said lessee-depositor as on the valuation date. The repayment of the security deposit during the year, so that there is no liability in its respect as at the year-end, there is no question of the same being a debt owed u/s.2(m) in relation to the assessee's flat (asset). That a reduction in the assessee's investible resources (to that extent) should result in the denial of a claim, is the paradox that we had sought to emphasize hereinbefore with reference to the assessee's claim for a reduction in his wealth, i.e., on principle. The decision by the hon'ble court aforereferred is, therefore, neither applicable in law or on facts. No part of the balance loan of Rs.123 lacs from Shri Jaydeep Tandon would therefore qualify as a debt owed as on the valuation date. The claim u/s. 2(m) qua loan therefrom is therefore valid for Rs. 62 lacs only. We decide accordingly.

4.4 The ld. Authorized Representative (AR) would orally submit that Rs.13.50 lacs, i.e., the security deposit in respect of a lease agreement with M/s. Aim Capital Advisors Pvt. Ltd., be allowed as a debt owed u/s.2(m), making his plea with reference to the assessee's balance-sheet as on 31.03.2009 (PB-1 pgs. 4, 14). This, he informs, is the new lessee in respect of the NCPA flat. We find no ground in its respect before us. The same also does not arise out of the impugned order. In fact, the assessee's case before the lower authorities was only in relation to debt assumed to purchase the flat. We have in any case held that the security deposit received from a lessee or tenant, result as it does in a corresponding asset/s with the assessee, rather places him in a more favorable position than he is on its' non-receipt, so that the same is not a debt owed u/s.2(m). The assessee's claim is thus not maintainable either on facts or in law. We decide accordingly.

5. The A.O., post assessment, moved a rectification application u/s.35 of the Act, to, as it appears, the ld. CWT(A), contending, with reference to the remand report by the A.O. dated 14.08.2013, that as only a debt to the extent outstanding as on the valuation date could be considered as a debt and, thus, a debt owed u/s.2(m), no deduction under the said provision was admissible; the entire loan of Rs.58 lacs from the two parties afore-said, i.e., Shri Manoharlal Tandon (Rs.28 lacs) and Shri Jaydeep Tandon (Rs.30 lacs), as allowed in assessment vide order dated 29.12.2011, stood paid on 08.09.2008, i.e., prior to 31.03.2009, so that it did subsist as on that date and, accordingly, there had occurred a mistake apparent from the record in allowing deduction u/s.2(m) at Rs.58 lacs qua loan from the said two parties. The ld. CWT(A), on the basis of the assessee's balance-sheet as on 31.03.2009, reflecting the outstanding to Shri Manoharlal Tandon and Shri Jaydeep Tandon at Rs.27 lacs and Rs.185 lacs respectively as at the close of the year, confirmed his order dated 17.09.2013, so that no rectification u/s.35 was called for, vide his order dated 06.02.2014 supra. Aggrieved, the Revenue is in appeal.

6. We have heard the parties, and perused the material on record. In view of our detailed findings at paras 4.2 and 4.3 (supra), based on the assessee's account as appearing in the books of the creditors as well as the assessee's bank account and other material, and which is consistent with the assessee's balance-sheet as on 31.03.2009, we find no merit in the Revenue's case as sought to be made per the rectification proposed. The same has thus been rightly rejected by the first appellate authority, whose order gets upheld in result. We decide accordingly, so that the assessment order does not suffer from the mistake which it is claimed to bear, and no adjustment to the debt allowed in assessment, i.e., apart from that confirmed in terms of this order, shall hold. We decide accordingly.

7. In the result, the assessee's appeal is partly allowed and the Revenue's appeal is dismissed.