Madras High Court
Assistant Commissioner Of Income Tax vs Ratanlal Didwania on 29 January, 1998
Equivalent citations: [2000]70ITD253(MAD)
ORDER
R. S. Kalsian, A.M. As common question of law and facts are involved, all these appeals have been heard together and disposed of by this common order for the sake of convenience. These are all Revenue's appeals.
1.1 We will first deal with WTA Nos. 901 to 905/Mad./90 pertaining to the assessment years 1980-81 to 1984-85. All these appeals have been filed by the Revenue against the Commissioner (Appeals) common order dated 27-3-1990.
1.2 The first ground of appeal is that the order of the Commissioner (Appeals) is opposed to law and facts of the case. This ground of appeal is general in nature and does not require any specific decision.
2.1 The second ground of appeal for assessment years 1980-81 to 1984-85 is that the Commissioner (Appeals) should not have allowed the liability relating to the interest payable under sections 139(8) and 217 of the Income- tax Act, 1961. The assessing officer did not allow deduction for interest charged under sections 139(8) and 215 of the Act for the years under consideration.The Commissioner (Appeals), however, has directed the assessing officer to work out the interest component as was payable on the relevant valuation dates of each of the assessment years and allow the interest as liability subject to other provisions of the Act.
2.2 It is argued by the learned Departmental Representative that liability to pay interest arises only after the completion of assessment, when interest under section 139(8) or 215/217 is charged. The learned Departmental Representative stated that there was no liability to pay interest on the valuation date as no interest was charged on the valuation dates. The learned counsel of the assessee has filed a paper book which includes order of Commissioner, Central-I under section 264 of the Income Tax Act (order dated 27-3-1996). The Commissioner, Central-I vide his order has waived the interest under sections 139(8) and 217 for all the years and hence the liability to pay interest under sections 139(8) & 217 does not survive.
2.3 We have considered the facts of the case. The Commissioner (Appeals) directions are not clear. The liability to pay interest under sections 139(8) and 215/ 217 arises only on the date of the order of the assessing officer levying interest under sections 139(8) and 215/217 of the Income Tax Act. The interest under sections 139(8) and 215/217 can be waived by the assessing officer under Rules 117A and 40 of the Income Tax Rules. Charging of' interest under section 139(8) and section 215/217 is not automatic. Decision to charge interest is taken only after the assessment is completed and tax is determined. If the assessing officer has passed the order of assessment after the valuation date then the liability to pay interest would arise on the date of the order of the assessing officer in the case of the assessee, since the interest under sections 139(8) and 215/217 has been waived by the Commissioner subsequently vide order dated 27-3-1996 there was no liability on the assessee to pay interest. Therefore, this ground of appeal by the revenue is allowed for assessment years 1980-81 to 1984-85 as no interest under section 139(8) or 215 is payable by the assessee on the valuation date which can be allowed deduction.
3.1 The third ground of appeal for assessment years 1980-81, 1981-82 and 1982-83 is that the Commissioner (Appeals) should not have allowed the liability of Rs. 3,61,133. The assessing officer observed that the assessee has claimed deduction of Rs. 6,11,853 as due to Metallurgic Hands G.D.R. Berlin. This sum was claimed to be due by Didwanis Import & Export (P.) Ltd., for the material imported from the foreign supplier. The goods were not taken by the assessee and no money was paid to the foreign supplier as there was various discrepancies in the documents. Ultimately the foreign supplier seems to have agreed to release the goods restricting his claim to Rs. 3,60,000 which was claimed as deduction by the assessee. The assessing officer considered that the payment to foreign supplier in foreign exchange in respect of a bill relating to 1980-81 cannot be legally made as it will be violation of provisions of FERA. The mere presence of a claim by a foreign supplier will not entitle the assessee to claim the same as liability. This claim was, therefore, disallowed by the assessing officer. The assessing officer has also mentioned that the assessee himself did not claim this amount as a liability in the returns on the ground that this will be allowed only when it is settled. In first appeal it was claimed for the assessee that as the assessee has not been able to make the payment or secure the permission of the Government for the payment of this amount the liability did not cease. The Commissioner (Appeals) considered that the assessee's claim is justified and stated that how the payment is to be made is a different issue and does not lead to the cessation of liability.
3.2 It is argued by the learned Departmental Representative that the dispute between the assessee act the foreign supplier was not at all settled upto the valuation date and, therefore, the deduction is not allowable. The learned Departmental Representative referred to the decision of the Calcutta High Court in the case of CIT v. Soorajmull Nagarmull (1981) 129 ITR 169 (Cal) and that of Allahabad High Court in the case of Swadeshi Cotton Mill. Co. Ltd. v. CIT (1980) 125 ITR 33 (All). The learned counsel of the assessee reiterated the same arguments which were raised before the Commissioner (Appeals) and relied on the order of the Commissioner (Appeals). The learned counsel of the assessee reiterated the same arguments which Were raised before the Commissioner (Appeals) and relied on the order of the Commissioner (Appeals).
3.3 We have considered the rival submissions. Though the assessing officer has mentioned that due to various discrepancies in the documents the goods were not taken over by the assessee, there are no details of the dispute nor the Commissioner (Appeals) has mentioned the facts. There are no facts on record to show when the goods were sent by foreign supplier (Metallurgic Hands G.D.R. Berlin) and when the goods were taken over by the assessee and how value of goods have been considered for wealth-tax purpose. In the absence of details regarding the dispute and treatment to the goods given by the assessee, we are not able to give any finding on the issue. We, therefore, restore this issue to the file of the assessing officer for bringing the following details on record:
When the goods were imported by the assessee;
When the claim was settled between the assessee and the foreign supplier;
How the goods have been treated for wealth-tax purpose; whether the value of the goods supplied by Berlin party has been included in the total wealth of the assessee; and if so what is the value added in the total wealth.
If the value of goods has not been included in the total wealth of the assessee then the question of deduction does not arise. However, if the value of the goods has been included in total wealth then the liability to that extent will be allowable deduction till the date of discharge of liability. All these facts are not clear. The assessing officer should consider the issue de novo after giving relevant dates of the arrival of goods to India; date of settlement between the assessee and the foreign supplier and whether the value of goods has been included in the total wealth of the assessee on the relevant valuation dates. The assessing officer should gather all the relevant facts and then decide the issue. Therefore, this issue is restored to the file of the assessing officer and the ground of appeal is treated as allowed for statistical purpose.
4.1 Another ground of appeal taken by the revenue for assessment years 1983-84 and 1984-85 in WTA Nos. 904 & 905/Mad./90 is that the Commissioner (Appeals) should not have allowed the disputed customs duty of Rs. 43,82,802. The assessing officer observed that the assessee has claimed deduction for liability of customs duty of Rs. 43,82,802. The goods were imported in the name of Gidwanis Import Export (P.) Ltd. & M/s. Raja Engineering Co. The duty leviable on these goods was at the rate of 225 per cent plus Rs. 325 per metric tonne. The assessee objected to the customs duty at these rates and claimed that the duty leviable was only 45 per cent plus Rs. 325 per metric tonne. The matter was taken by the assessee before the Madras High Court and as per order of the Madras High Court, the assessee was allowed to clear the goods by payment of undisputed duty by giving bank guarantee for the disputed duty. The assessee cleared the goods on 13-9-1982 after filing the necessary bank/ personal guarantee to cover the disputed duty amounting to Rs. 43,82,802.
This disputed customs duty was not claimed as deduction in the return of wealth but it was claimed as deduction during the assessment proceedings. The assessing officer did not allow deduction of this disputed customs duty liability of Rs. 43,82,802. The assessee has been disputing the very levy of customs duty.
4.2 In first appeal the Commissioner (Appeals) considered that the claim for the duty was raised by the customs department and the assessee was asked to pay duty at the rate of 225 per cent instead of 45 per cent. The Commissioner (Appeals) relied on the decision in the case of CIT v. Associated Cement Co. Ltd. (1981) 128 ITR 626 (Bom). The Commissioner (Appeals) observed that the assessee was under obligation to pay the money and the liability was certainly an ascertained liability. He, therefore, directed the assessing officer to allow deduction of Rs. 43,82,802 which has been contested by the revenue in this appeal. It is argued by the learned departmental Representative that the facts in the case of Associated Cement Co. Ltd. (supra) were different and that in that case the liability was in dispute.
4.3 The learned Departmental Representative has referred to the decision of the Supreme Court in the case of. Kesoram Industries & Cotton Mills Ltd. v. CWT (1969) 59 ITR 767 (SC) and argued that when the payment of customs duty has been disputed by the assessee, then the same cannot be considered as debt owed within the meaning of section 2 (m) of the Wealth Tax Act on the valuation date. The learned counsel for the assessee, on the other hand, argued that though the customs duty has been disputed in Writ Petition before the High Court the liability to pay the disputed customs duty has accrued to the assessee and, therefore, allowable deduction. The learned counsel relied on the decision of the ITAT, Indore Bench in the case of Meghji Girdharlal (HUF) v. WTO (1995) 52 ITD 459 (Ind-Trib) in support of his argument. The decision of the Bombay High Court in the case of Associated Cement Co. Ltd. (supra) relied on by the Commissioner (Appeals) and the decision of the Supreme Court in the case of CWT v. Raja Vishwanth Pratap Singh (1996) 222 ITR 189(SC) was brought to the notice of the assessee's counsel as well as the Departmental Representative. The learned counsel for the assessee submitted that the debt relating to customs duty was outstanding on the valuation date and, therefore, an allowable deduction. The learned Departmental Representative, however, submitted that the assessee has claimed that the goods were defective and the customs duty at the rate of 225 per cent is not liable. Since the assessee has contested the liability of customs duty at a particular rate and the High Court has stayed the order relating to payment of customs duty, no debt is owed to the assessee on the relevant valuation date and hence not an allowable deduction.
4.4 We have considered the rival submissions, facts of the case and material on record. From the facts of the case it is clear that the assessee was required to pay customs duty at the rate of 225 per cent instead of 45 per cent as claimed by the assessee. Since the customs authority did not agree to the claim of the assessee that duty is leviable at the rate of 45 per cent, the assessee filed a Writ Petition and obtained stay in respect of order of customs authorities. Under the Income Tax Act, in view of the mercantile system of accounting followed by the assessee the liability of customs duty is an allowable deduction out of total income on accrual basis, even if the same is disputed in appeal before the appellate authorities or before the courts, but the system of accounting followed by the assessee is not relevant insofar as deduction of debt, out of total wealth for wealth-tax purposes is concerned in view of the following decisions:
(i) CWT v. Vysyaraju Badreenarayana Moorthy Rain (1985) 152 ITR 454 (SC)
(ii) CWT v. Maharani Yogesh Kurnari (1995) 211 ITR 766 (Raj)
(iii) CWTv. K. T Divecha (1990) 86 ITR 3 10 (Bom)
(iv) CWT v. Vasantlal D. Mehta (1990) 186 ITR 284 (Bom)
(v) Dipti Kumar Basu v. CWT(1976) 105 ITR 450 (Cal)
(vi) Smt. M. Ramanainma v. CWT(1986) 157 ITR 555 (AP).
In the case of Vysyaraju Badreenarayana Moorthy Raju (supra), it was held by the Hon'ble Supreme Court that system of accounting, mercantile, cash or hybrid is of no relevance for the purpose of determining the assets of assessee. Similarly, outstanding liabilities incurred but not included in balance sheet can be excluded from the net wealth. Under the Wealth Tax Act, system of accounting is not the relevant factor for determining asset and "debts owed" by an assessee on the valuation date. Any system of accounting is not required to be maintained under the Wealth Tax Act. In view of the provision of section 145 of the Income Tax Act, 1961, the system of accounting is relevant, only for the purpose of computing "profit and gains of business or profession or income from other sources". Under the Wealth Tax Act, the only thing to be seen is whether the liability for custom duty which has been disputed by the assessee before the High Court, is a debt owed by the assessee on the valuation date.
4.5 We may further illustrate this.point. The Income Tax Department has been allowing deduction for the provision for gratuity liability made on the basis of actual valuation based on the services of employees for the earlier years. In fact, in the case of CIT v. Eastern Spg. Mills Ltd. (1980) 126 ITR 686 (Cal), the assessee was maintaining its account under the mercantile system. The assessee created a provision for gratuity to the extent of Rs. 8,57,863 on acturial basis in accordance with the statutory provisions of the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971, which was a special liability created for the first time in 1971 and claimed the entire provisions as permissible business expenditure in the assessment year 1972-73. The Income Tax Officer held that the allowable amount pertaining to the relevant year was only Rs. 1,79,595 and disallowed the balance of Rs. 6,78,267 as excess provIsion. The Appellate Assistant Commissioner. and the Tribunal accepted the assessee's claim. The Hon'ble Calcutta High Court affirmed the decision of the Tribunal and held that a prudent businessman in the circumstances, was bound to make a fair estimate of- his liability under the Act from year to year. The assessee was entitled to make a prudent estimate of the liability which would accrue for the payment of gratuity in the form of a deferred payment of wages for the employees concerned which was necessary for earning its profit. The Hon'ble High Court further held that where an estimate of the liability was possible, such liability was properly deductible in computing the profit of the relevant year of the assessec. There was nothing improper in admitting, as deductions, provisions to meet contingent liabilities if by so doing a truer balance was arrived at between the receipts of the year and the cost of earning them, or between the expenses of the year and the fruits of incurring them. This decision was followed by the Hon'ble Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. v. CIT (1991) 91 ITR 518 (Cal). Similarly, in the case of Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC), the Hon'ble Supreme Court considered the question relating to deduction of gratuity liability and of the profits and gains of business. The Hon'ble Supreme Court held that where the liability under a scheme of gratuity in respect of the accounting year is stated in the profit and loss account, in the absence of any challenge by the workmen to the correctness of the method of valuation and in the absence of a challenge that such liability cannot be estimated on any f air standard, the amount claimed according to the profit and loss account should be presumed to be genuine and allowed. The Supreme Court further held that contingent liabilities discounted and valued as necessary can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into consideration. However, while considering the expression "debt owed" in the case of Standard Mills Co. Ltd. v. CWT (1967) 163 ITR 470 (SC), in computing the net wealth of the assessee under the Wealth Tax Act, 1957 the Supreme Court held that the liability of the assessee to pay gratuity to its employees on the determination of employment was a mere contingent liability which arose only when the employment was determined by death, incapacity, retirement or resignation. This decision was followed by the Hon'ble, Supreme Court in the case of P. Sathrughan Pillai v. CWT (1993) 199 ITR 7 (SC). In this case, the Hon'ble Supreme Court held that a liability f or payment of gratuity in terms of the Kerala Industrial Employees Payment of Gratuity) Act, 1970, is not deductible as a "debt owing" on the valuation date in computing the net wealth for the purposes of wealth-tax. Therefore, these decisions of the Calcutta High Court and the Supreme Court clearly reveal that the. principal applicable for allowing deductions while computing the profits and gains of the business or profession or income from other sources under the Income Tax Act and while computing the net wealth of the assessee under the Wealth Tax Act are totally different. An assessee might be entitled to deduction under the Income Tax Act out of the profits and loss of the business or income from other sources in accordance with the of accounting but he might not be entitled to the same deduction under the Wealth Tax Act, because the liability under the Wealth Tax Act may v be a contingent liability or may not be a debt owed by the assessee of the valuation date.
4.6 In the case of Kedarnalh Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC), the Supreme Court was concerned with the deduction of sales tax determined to be payable by the sales tax authorities on the sales made by the assessee during the calendar year 1954, relating to the assessment year 1955-56. The assessec had contested the sales-tax liability in appeals. The assessee had also made no provision in its books as regard to the payment of that account. The appeals to higher authorities or courts taken by the assessee contesting its liability to pay the sales tax ultimately failed. It was held by the Hon'ble Supreme Court that whether the assessee is entitled to a particular deduction or not will depend on the, provision of law relating thereto and not on the view which the assessee might take of their rights; nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The Hon'ble Supreme Court held that the assessee, who followed the mercantile system of accounting, was entitled to deduct from the profits and gains of its business such liability which had accrued during the period for which the profits and gains were being computed. The Supreme Court held that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date. The assessee, was therefore, entitled to deduction of sales-tax and such liability does not cease to be a liability because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail. In this case, the issue was whether the liability of sales-tax which has been disputed by the assessee has accrued and deductible as an expenditure under section 10(2)(xv) of the Income Tax Act, 1922. But as pointed out earlier the system of accounting is not relevant under the Wealth Tax Act. Accrual of liability is not a criteria for allowing deduction under the Wealth Tax Act, because the provisions of law relating to deduction out of the profits and gains of the business or income from other sources in accordance with the method of accounting under the Income Tax Act, are different from the provisions of law applicable for deduction of "debt owed" under the Wealth Tax Act.
4.7 The decision on an issue in income-tax case is not relevant for deciding the issues under the Wealth-tax assessment as per the decision of the Bombay High Court in the case of CWT v. State Bank of India (1995) 213 ITR 1 (Bom). In this case the issue involved was whether the Tribunal was right in holding that the wealth of the trust is exempt under section 5(1)(i) of the Wealth Tax Act. The Tribunal had held in the assessee's own case under the Income Tax Act that the assessee trust is not entitled to exemption in respect of its income under section 11 of the Income Tax Act. The Bombay High Court held that the fact that the trust is not entitled to exemption in respect of its income under section 11 of the Income Tax Act was of right relevance in deciding the claim for exception under section 5(1)(i) of the Wealth Tax Act.
Therefore, for the purpose of considering deduction under the Wealth Tax Act the provisions of Wealth Tax Act has to be considered and system of accounting or the provisions of Income Tax Act is not relevant event if the same liability has been allowed deduction under the Income Tax Act while computing the total income of the assessee. Under section 2(m) of' the Wealth Tax Act net wealth mean the value of all the assets belonging to the assessee on the valuation date which is in excess of the aggregate value of all the debts owed by the assesee on the valuation date. Now we have to consider whether the customs duty liability of Rs. 43,82,802 which has been disputed by the assessee before the Hon'ble High Court is a "debt owed' under section (2m) of the Income Tax Act. The learned Commissioner (Appeals) considered that such a liability was certainly an ascertained liability. In the case of Associated Cement Co. Ltd. (supra) relied upon by the Commissioner (Appeals), the facts of the case were that the assessee had made a provision for bonus payable to the employees in respect of the assessment years 1957-58 to 1959-60. The relevant valuation dates being 31-7-1956 and 31-7-1957 and 31-7-1958. The amounts asset apart were calculated at three months basic earnings for the first year. For the second year the provision was at the rate of three months salary to workers drawing emoluments upto Rs. 1000 per month and 20 percent for the rest. In the third year the provision was sufficient to meet the payment of bonus at a flat rate of 20 percent to all the employees. The Hon'ble Bombay High Court held that the Tribunal had found that there was nothing to show that the assessee's claim was in excess of the normal amounts that were paid to the employees year after year. The mere fact that some adjudication had taken place, the nature of which was not fully disclosed would not affect the position that the amounts set apart were on the same basis on which the payments were made during the previous years. If the employer did not dispute his liability to pay bonus, the amounts so set apart represented an ascertained present liability in respect of the payment of bonus (Emphasis supplied). Therefore, in computing the net wealth of the assessee, the provision for bonus was a "debt owed" under section 2(m) and was a permissible deduction. In the case of Associated Cement Co. Ltd. (supra) the accrual of liability was considered by the Hon'ble High Court as allowable deduction because the employer did not dispute his liability to pay bonus to the employees. But in the case of the assessee before us the liability to custom duty has been disputed before the High Court and, therefore, the case of Associated Cement Co. Ltd. (supra) is not helpful to the assessee in any manner.
4.8 In the case of Kesoram Industries & Cotton Mills Ltd. (supra), the issue decided by the Supreme Court was whether the proposed dividends and provision for taxation are debt owed by an assessee on valuation date. The Supreme Court held as under:
"We have briefly noticed the judgments cited at the bar. There is no conflict on the definition of the word "debt". All the decisions agree that the meanning of the expression "debt" may take colour from the provisions of the concerned Act, it may have different shades of meaning. But the following definition is unanimously accepted:
'A debt is a sum of money which is now payable or will become payable in furture by reason of a present obligation : debitum in praesenti, solvendum in furtureo."
The said decisions also accepts the legal position that a liability depending upon a contingency is not a debt in praesenti or in futura till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of section 2(m) of the Wealth Tax Act can be defined as a liability to pay, in praesenti or in futuro an ascertainable sum of money."
4.9 In the case of Raja Vishwanalh Pratap Singh v. CWT (1972) 84 ITR 135 (All), the brief facts of the case were as under:
The assessee is the son of the late Captain Raja Bahadur Ram Gopal Singh. The father was the owner of extensive zamindari and other properties. He was in huge debts. He applied under section 4 of the U.P. Encumbered Estates Act for the equitation of his debts. While the application was pending, his estate was taken over by the court of wards on 16-9-1941. The estate was released on 16-2-1953. During the pendenecy of the application before the special Judge, Raja Bahadur Ram Gopal Singh passed away. Thereafter, the proceedings went on in the name of the assessee.
Out of the savings of the estate the court of wards invested an amount of Rs. 6,11,324 in Government securities. The investment fetched Rs. 76,000 as interest, The total amount was realised by the assessee. The special Judge passsed simple money decrees for about Rs. 30,00,000 and odd against the assessee. When some of the decree-holders wanted to proceed against the amount of Rs. 6,87,000 and odd, the assessee opposed their efforts. The special Judge held that the decree-holders could not proceed against that amount. His view was to upheld by this court on 25-3-1961. By this time proceedings for assessment of the Wealth-tax for the assessment years 1957-58, 1958-59 and 1959-60 were completed. The proceedings for the assessment years 1960-61 and 1961-62 were, however, pending. For the assessment years before 1960-61 the Department had taken into account the decretal debts of Rs. 30,00,000 and odd and had held that the assessee was not taxable. But when the judgment of this court, dated 25-3-1961, came to the knowledge of the Department, the Department too proceedings under section 17 of the Wealth Tax Act against the assessee for the assessment years 1957-58, 1958-59 and 1959-60.
After hearing the assessee the department held that as the decretal debts of Rs. 30,00,000 and odd could not be recovered from the sum of Rs. 6,87,000 and odd, the said amount constituted the net wealth of' the assessee against which no debts were owed. Accordingly, the department levied Wealth-tax on the said amount for the assessment years 1957-58, 1958-59 and 1959-60 under section 17. For the assessment years 1960-61 and 1961-62 the assessee was assessed to wealth-tax on the said amount. Feeling aggrieved with the decision of the Department, the assessee has got these questions referred to this court.
The Hon'ble High Court considered the meaning of debt at page 137. According to the Shorter Oxford English Dictionary, "owe" means "to have to pay, to be under obligation to pay or repay (money etc.) to be indebted in, or to the amount of". Wharton's Law Lexicon defines "due" as meaning anything owing. Accordingly, "debts owed by the assessee", are debts which he is liable to pay. The Hon'ble Allahabad High Court held as under of page:
"According to section 2(m) net wealth is the difference between the value of" "all the assets belonging to the assessee" and the "debts owed by the assessee". There is no doubt that the property inherited by the assessee from his deceased father would constitute his "assets", for it belongs to him. (See AIR. 1929 Born. 288). It will be taken into account in determining his net wealth. Accordingly, the debts which may be satisfied from that inherited property should fairly be held to be "debts owed by the assessee", Kesoram Cotton Mills Lid. v. CWT (1963) 48 ITR 31 (Cal.) does not deal with the question before us."
The revenue felt aggrieved and filed the appeal before the Supreme Court. In the case of Raja Vishwanath Pratap Singh (supra) the Hon'ble Supreme Court reversed the decision of the Allahabad High Court and held as under:
It was not the case of the assessee that he had a personal liability to pay the decretal amount of Rs. 30,00,000 and that it was payable by him ultimately. The decree holders have been unable to proceed against his assets (the Government securities of Rs. 6,87,000) for the realisation of their decretal dues. It is not the case of the assessee that on the relevant valuation date the assessee was saddled with a decretal debt and the assessee was under a legal obligation to pay that amount sooner or later. Having successfully thwarted the attempts of the decree-holders to proceed against the aforesaid Government securities and the income arising therefrom the assessee cannot now be heard to say that the decretal dues are his debts which are personally payable by him. We are of the view that the Tribunal had given good reasons for its decision and the decision of the Tribunal should have been upheld by the High Court."
It is clear from the decision of the Hon'ble Supreme Court that the assessee thwarted the attempts of the decree-holders to proceed against the Government securities and the income arising therefrom because the assessee opposed the efforts of decree holders, who wanted to proceed against the Government securities owned by the assessee and the assessee's objection was upheld by the High Court. The liability fixed under the decree of court is of the same nature as liability under any statute enacted by the Legislature. When the assessee, in the case of Raja Vishwanath Pratap Singh (supra) objected to the efforts of the decree holder who proceeded against the Government securities held by him, then the nature of liability of about Rs. 30,00,000 which was existing under the decree of the court was changed and the liability of Rs. 30 lakhs in the case of Raja Vishwanath Pratap Singh (supra) was not considered as debt owed by the assessee on the valuation date, because the court have held that the decree holder could not proceed against that amount. It is again re-emphasised that the Hon'ble Supreme Court held that "Having successfully thwarted the attempts of the decree-holders to proceed against the aforesaid Government securities and the income arising therefrom the assessee cannot now be heard to say that the decretal dues are his debts which are personally payable by him."As already stated, there is no difference between decretal dues and statutory liabilities. Therefore, the decision of the Hon'ble Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd (supra) and the decision of the Supreme Court in the case of Raja Vishwanth Pratap Singh (supra) laid down the following propositions of law:
The meaning of the expression "debt" may take colour from the provisions of the concerned Act; it may have different shades of meaning.
Debt is a sum of money which is now payable or will become payable in future by reason of a present obligation; debitum in praesenti, solvendum in futuro.
A liability (sic) depending upon a contingency is not a debt in praesentior in futuro till the contingency happened.
If an assessee has challenged the liability before the court and obtained stay order of the court against the proceedings for recovery of liability then the liability will not be considered as debt owed by the assessee under the Wealth Tax Act.
Applying these principles of law to the case of the assessee, it is clear that the assessee has claimed before the Hon'ble Madras High Court that the duty was payable at 45 per cent plus Rs. 325 per metric tonne on the defective imported goods. The assessee has challenged the levy of customs duty at the rate of 225 per cent on the ground that goods were defective and the rate of customs duty on imported defective goods were 45 per cent plus Rs. 325 and not 225 per cent plus Rs. 125 per metric tonne. The Hon'ble High Court in case Nos. 1086 and 1087 of 1982 has on 20-2-1982 passed an interim exparte order permitting the importer to take delivery of the goods from the customs authority on payment of undisputed duty plus Rs. 325 per metric tonne and executing a bank guarantee towards 100 per cent of the disputed duty demanded by the customs authority. The undisputed customs duty have been arrived at the rate of 45 per cent plus Rs. 325 per metric tonne. Under these circumstances, it is equally clear that the assessee has, by filing suits in case Nos. 1086 and 1087 of 1982 thwarted attempts of the customs authorities to proceed against the assessee for recovery of disputed customs duty. As per the copy of bank guarantee furnished by the assessee, it is seen that bank guarantee has been furnished only for disputed duty and goods have been released by paying customs duty at the rate of 45 percent plus Rs. 325 per metric tonne. The assessee could not now claim that the disputed customs duty was debt owed which was payable by him, because the matter is pending before the Hon'ble High Court. Till the Hon'ble High Court decides the issue the liability of disputed customs duty under the Wealth Tax Act will only be a contingent liability depending on the decision of the High Court. Therefore, the liability of disputed custom duty of Rs. 43,82,802 is not a debt owed on the valuation date, because the matter is pending before the Hon'ble High Court and there is no liability of the assessee to pay that amount on the relevant valuation date because further proceedings have been stayed by the Hon'ble High Court for recovery of the disputed custom duty. Therefore, this ground of appeal for the assessment years 1983-84 and 1984-85 is decided in favour of the revenue and against the assessee.
5. The learned counsel for the assessee relied on the decision of the Indore Bench of the Tribunal in the case of Meghji Girdharlal (HUF) (supra). In this case, the Tribunal vide order dated 7-10-1994, held that the penalty imposed by the Central Excise Authority, which was disputed in appeal by the assessee is an allowable deduction out of the total wealth. The ratio laid down by the Tribunal in this case, has no application after the delivery of the decision of the Supreme Court in the case of Raja Vishwanath Pratap Singh (supra).
Therefore, the decision of the Tribunal in the case of Meghji Girdharlal (HUF) (supra) has not been followed.
6.1 The next ground of appeal for the assessment year 1984-85 is that the Commissioner (Appeals) failed to appreciate the fact that in the absence of any claim for payment of interest from the Customs department, the same is not allowable as liability on the valuation date. The assessee claimed before the assessing officer that the interest payable on customs duty amounting to Rs. 4,65,140 should be allowed as deduction. It was further claimed by the assessee that the interest is payable to customs on delayed payments. The assessing officer considered that no interest was levied on customs duty and no undisputed demand of interest on customs duty was outstanding on the valuation date. Therefore, the assessee's claim was rejected by the assessing officer. In first appeals, the Commissioner (Appeals) directed the assessing officer to ascertain the exact amount of interest payable and allow the necessary deduction of the interest payable.
6.2 It is argued by the learned Departmental Representative that the interest is not payable till the order is passed by the Customs Authority and no demand has been raised by the Customs Authority. Therefore, the question of liability for interest on customs duty does not arise. However, the learned counsel for the assessee argued that levy is statutory and claimed deduction for interest on customs duty on accrual basis.
6.3 We have considered the rival submissions. It is a fact that the Customs Authority has not demanded interest on customs duty which is under dispute before the Hon'ble High Court. The Commissioner (Appeals) directions in this regard are very vague because till the order is passed regarding the interest on customs duty, there is no question of interest payable by the assessee. The liability for interest arises only when the order is passed by the Customs Authority regarding the payment of interest on customs duty because such order can be passed only when the customs duty is finally determined. Since the dispute about the customs duty is pending before the High Court, there is no question of liability for interest payable on customs duty. We, therefore, reverse the order of the Commissioner (Appeals) and confirm the order of the Assessing officer.
7. Wealth Tax Act No. 226/Mad/91, is filed by the revenue against the order of the Commissioner (Appeals) dated 26-11-1990 for the assessment year 1986-87. The first ground of appeal is general in nature and does not require any specific comments.
8. 2 and 3 grounds of appeal are that the Commissioner (Appeals) should not have allowed the liability of Rs. 3,61,133. Ground Nos. 2 and 3 are covered by paragraphs 3.1 to 3.3 of this order. For the reasons mentioned in para 3.3, we restore this issue to the file of the assessing officer for bringing necessary details on record and then decide the issue after giving adequate opportunity of being heard to the assessee. Therefore, 2 and 3, grounds of appeal are treated as allowed for statistical purposes.
9. Ground Nos. 4 and 5 are that the Commissioner (Appeals) should not have allowed the disputed customs duty of Rs. 43,82,802. These grounds are also covered by paragraphs 4. 1. to 4.9 mentioned above. In view of the reasons mentioned in para 4.9, these grounds of appeal are allowed in favour of the revenue.
The order of the Commissioner (Appeals) is, therefore, reversed and the order of the assessing officer is confirmed.
10. The next ground of appeal for the assessment year 1986-87 is that Commissioner (Appeals) should not have allowed the interest payable on customs duty. This issue is covered by paragraphs 6.1 to 6.3 of our this order and the reasons mentioned therein, this ground of appeal is allowed.
11. 1 The next ground of appeal is that the Commissioner (Appeals) should not have allowed the penalty of Rs. 8,73,489 under section 18(1)(a) and Rs. 2,08,26,278 as penalties under section 271(1)(c), 273 and 271(1)(a) as liabilities 12 It is stated by the learned Departmental Representative that the demands of penalties were raised during the financial year 1987-88 and that these were not liabilities as on the valuation date on 31-3-1986. According to him, no demand was raised on the valuation date and there was no liability. However, the learned counsel for the assessee supported the order of the Commissioner (Appeals).
11.3 We have heard the rival submissions. It is seen that the Commissioner (Appeals) has waived various penalties totalling to Rs. 88,62,242, Rs. 8,62,999 and Rs. 86,01,433 under section 271(1)(a), 273(2)(b) and 271(1)(c) respectively for the assessment years 1978-79 to 1985-86 vide order dated 30-11-1994 [File No. 1543/2A/73/89-90 Cent. I. If under section 273A of the Income Tax Act No penalty was levied by the assessing officer on the valuation date Le. 31-3-1986. Unless and until the demand for penalty has not been raised, there is no liability to pay, because imposition of penalty is discretionary and based on the facts of each case. Since, no penalty was imposed before 31-3-1986 and no penalty was outstanding, on 31-3-1986, the Commissioner (Appeals) was not correct in holding that the penalty should be allowed subject to the provisions of section 2(m)(iii)(b). When the demand for penalty has not been raised, the provisions of section 2(m)(iii)(b) are not applicable. We, therefore, reverse the order of the Commissioner (Appeals) and confirm the order of the assessing officer. This ground of appeal is also allowed in favour of the revenue.
12.1 The next ground of appeal is that the Commissioner (Appeals) should not have deleted the addition of Rs. 5,00,000 to the admitted wealth. The assessing officer made an addition of Rs. 5 lakhs because the same was added to the total income of the assessee. The Commissioner (Appeals) deleted the addition on the ground that no money was available with the assessee on the valuation date.
12.2 We have heard the rival submissions. During the course of hearing, it was revealed by the parties before us that the Commissioner (Appeals) has deleted the addition in the income-tax proceedings and, therefore, there is no question of making the addition to the net wealth of the assessee on the basis of the addition to the total income of the assessee. In view of the facts of the case, we confirm the order of the Commissioner (Appeals) and dismiss this ground of appeal.
13. Wealth Tax Act Nos. 104,105 & 106/mds/92.
13.1 These appeals are filed by the revenue against the order of the Dy. Commissioner (Appeals) dated 20-8-1991 for the assessment years 1978-79, 1979-80 and 1985-86. The first ground of appeal is general in nature and does not require any specific comments.
14. The next ground of appeal for the assessment years 1978-79, 1979-80 and 1985-86 is that the Dy. Commissioner (Appeals), should not have allowed the liability relating the interest payable under section 139(8) and 2 15 of the Income Tax Act. This issue is covered by paragraphs 2.1 to 2.3. of this order.
For the reasons mentioned in para 3.3. we reverse the order of the Dy. Commissioner (Appeals) and confirm the order of the assessing officer. This ground of appeal is allowed.
15. The next ground of appeal for the assessment years 1978-79, 1979-80 and 1985-86 is that the Dy Commissioner (Appeals) should not have allowed customs duty and interest payment on customs duty. These issues are covered by paragraphs 4.1 to 4.9 and 6.1 to 6.3. In view of the reasons mentioned in para 4.9, we decided the issue regarding customs duty, in favour of the Revenue. For the reasons mentioned in para 6.3, we decide the issue regarding interest payment on customs duty also, in favour of the revenue. This ground of appeal is allowed.
16. The next ground of appeal for assessment year 1978-79, 1979-80 and 1985-86 is that the Dy. Commissioner (Appeals) should not have allowed bonded ware house charge.
17. We found that the Dy. Commissioner (Appeals) has not considered the facts of the case properly. He has not given any finding on this issue. We are not aware when the liability to pay arose and when the payment was actually made. We, therefore, restore this issue to the file of the Dy. Commissioner (Appeals) to find out the following facts :
When the liability to pay arose and how that liability has arisen.
When the liability was discharged by the assessee.
In the absence of relevant facts, we are not able to give any finding on this issue. Since the issue is restored to the file of the Deputy Commissioner (Appeals) for proper consideration, he should give adequate opportunity to the assessing officer as well as to the assessee before deciding the issue and must bring all relevant facts on record. This ground of appeal is treated as allowed for statistical purposes.
18. The next ground of appeal for the assessment years 1978-79, 1979-80 and 1985-86 is that the Dy. Commissioner (Appeals) should not have allowed the liability Rs. 3,61,133. This ground is covered by paragraphs 3.1 to 3.3 of this order. For the reasons mentioned in para 3.3, we restore this issue to the file of the assessing officer for bringing necessary details as mentioned in para 3.3 and decide the issue after giving adequate opportunity of being heard to the assessee. This ground is also allowed for statistical purposes.
19. In the result, appeals for the assessment years 1980-81, 1981-82 and 1982-83 are allowed for statistical purposes. Appeals for the assessment years 1983-84 and 1984-85 are allowed. Appeal for the assessment year 1986-87 is treated as allowed for statistical purposes. Appeals for the assessment years 1978-79, 1979-80 and 1985-86 are treated as allowed for statistical purposes.