Car loans: net wealth alone is taxable

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: Companies generally provide car loans to their employees. The cars are purchased by the company and they continue to be owned by the company until the loans are fully paid by employees. Under the Wealth tax Act 1957, the value of cars has to be included in the value of assets, which are liable to wealth tax every year. However, such value would have to be reduced to the extent of the loan. Under section 2(m), the amount by which the aggregate value of all assets belonging to the assessee is in excess of the aggregate value of all the debts owed by the assessee on the valuation date, which have been incurred in relation to these assets, is liable to wealth-tax.

The first condition is that an asset should belong to an assessee. The next condition is that a debt should be owed by the assessee. The word "debt" as defined in the Black's Law Dictionary is "a sum of money due by certain and express agreement. A specified sum of money owing to one person from another, including not only obligation of debtor to pay but right of creditor to receive and enforce payment." State v Ducey, 25 Ohio App 2d 50, 266 NE 2d 233,235.

It is also defined to mean a fixed and certain obligation to pay money or some other valuable thing or things, either in the present or in the future. In a still more general sense, the definition would cover that which is due from one person to another, whether money, goods, or services. The word “owe” means to be under an obligation to pay. The term "debt owed" is defined to be a liability to pay in praesenti or in futuro an ascertainable sum of money.

The next condition is that the debt should be in relation to the asset, which is liable to wealth tax. The term "in relation to" has been considered at length by the Income-tax Appellate Tribunal, Mumbai Bench in the case of Rati M Fyzee (82 ITD 548), wherein it was held that, it is not necessary that the debt should have a direct or immediate relation with the concerned asset; the relationship can be a little remote or even indirect, having regard to the broad language used by the provision.