Punjab-Haryana High Court
Sri Harindar Singh vs Wealth Tax Officer, A Ward, Bhatinda And ... on 23 December, 1966
Equivalent citations: AIR1968P&H353, [1967]64ITR394(P&H), AIR 1968 PUNJAB AND HARYANA 353, 1967 (1) ITJ 555, ILR (1967) 2 PUNJHAR 559, 64 ITR 394
ORDER Gurdev Singh, J.
1. Colonel His Highness Raja Sir Harinder Singh Brar Bans Bahadur, Ruler of the former Faridkot State, Petitioner in these four writ petitions (Civil Writs Nos. 1841 to 1843 of 1962) under Articles 226 and 227 of the Constitution is an assessee under the Wealth Tax Act 27 of 1957. He has been assessed by the Wealth Tax Officer, A--Ward, Bhatinda for the various years 1957-58, 1958-59, 1959-60 and 1960-61. The petitioner was not satisfied with the assessment orders, and he applied for rectification under Section 35 of the Act claiming that the amount of Wealth Tax and other taxes such as Expenditure Tax and Gift Tax, for which he had incurred liability in a particular year, should have been deducted from his assets in determining the net wealth as defined in Section 2(m) for assessment of the Wealth Tax. This plea has, however, been rejected by the Wealth Tax Officer (respondent No. 1) whose orders have been upheld by the Commissioner of Wealth Tax and the Central Board of Revenue (Respondents 2 and 3). The petitioner DOW challenges the correctness of those orders on the plea that the Wealth Tax authorities had wrongly interpreted the provisions contained in Section 2(m) of the Act.
2. Under Section 3 or the Act, which is the charging section, wealth tax is to be paid by every individual, Hindu undivided family and company at the rate or rates specified in the schedule to the Act. The expression "net wealth" has been thus defined in Clause (m) of Section 2 of the Act:--
"(m) "Net Wealth" means the amount by which the aggregate value computed in accordance with the provision of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than:--
(i) debts which under Section 6 are not to be taken into account;
(ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth-tax is not payable under this Act; and
(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure Tax Act, 1957 (29 of 1957), or the Gift Tax Act, 1958 (18 of 1958),
(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceedings as not being payable by him, or
(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a. period of more than twelve months on the valuation date".
3. The petitioner's contention before the Wealth Tax Authorities was that the wealth tax, to which he was liable for the particular year under assessment, constituted a debt which he owed, and he was entitled to its deduction from the total value of his assets in computing the net wealth on which tax was payable by him tor that year despite the fact that the tax had not till then been assessed and no demand notice for its payment issued to him. Similarly, for some of the years he claimed deduction of Expenditure Tax and Gift Tax which he was liable to pay for those years. In rejecting his contention, the Commissioner Wealth Tax, to whom revision against the impugned orders of the Wealth Tax Officer were taken, in his order, dated 28th April, 1962, observed:--
"The important thing to be considered is whether the tax demands, which have not yet beent determined, can be held to be debts owed by the assessee. A debt is owed only when it has actually been determined. It is only after the order of assessment has actually been passed and the officer has issued a notice of demand calling upon the assessee to make the payment by a particular date that it can be said that the assessee owes the amount of tax as a debt. The tax liabilities claimed by the assessee as deductions had not been determined on the relevant date. They cannot, therefore, be allowed as deduction in arriving at the net wealth of the assessee".
4. Mr. K. C. Puri, appearing for the petitioner, has argued that the view expressed above is not sustajnable on a plain interpretation of Clause (m) of Section 2 of the Act, in which, except for certain types of debts, it is provided that the debts owed by an assessee have to be deducted from his total assets in determining the net wealth on which he can be called upon to pay tax under Section 3 of the Act. He further argues that once the assessee has incurred liability for payment of the tax, it amounts to a debt owed by him, and, accordingly, the amount which he is liable to pay as tax, irrespective of the fact whether his liability has actually been quantified or not by assessment or a notice of demand issued against him, constitutes a debt owed by him. In this connection, he has cited (1947) 15 ITR 302 = (AIR 1947 FC 32); (1963) 48 ITR 943 = (AIR 1967 Assam 63), (1964) 52 ITR 482 = (AIR 1964 Gui 154), (1965) 55 ITR 556 (Guj) and (1964) 51 ITR 790 = (AIR 1964 Mys 204). The Federal Court decision in (1947) 15 ITR 302 = (AIR 1947 FC 32), does not directly deal with the point, but it was observed therein by Kania J. (as he then was), who delivered the judgment of the Court:--
"The liability to pay the tax is founded on Sections 3 and 4 of the Income-tax Act, which are the charging sections. Section 22 etc,, are the machinery sections to determine the amount of tax."
(4-a) The decision of the Gujarat High Court in the Commissioner of Wealth Tax. Gujarat v. Raipur Manufacturing Co, Ltd. (1964) 52 ITR 482 = (AIR 1964 Guj 154), is, however, a direct authority on the point. After an exhaustive discussion of the matter and the various authorities bearing on the point it was held that the liability to income-tax arises under the statute imposing the liability and does not depend on assessment and that the liability to tax was not, therefore, a contingent liability but had already accrued on the valuation date and hence was allowable. In the other two decisions, to which Mr. K. C. Puri has referred, the Assam and the Mysore High Courts have expressed a similar view.
Mr. D. N. Avasthy, appearing for the respondents, Wealth-tax authorities, has, however, pointed out that a different view has been taken by the Madras, Calcutta, Bombay and terala High Courts in (1963) 48 ITR 1005 = (AIR 1963 Mad 356), (1963) 48 ITR 959 - (AIR 1963 Mad 230), (1963) 48 ITR 31 = (AIR 1963 Cal 392), (1963) 48 ITR 49 = (AIR 1963 Cal 112), (1963) 50 ITR 267 and (1964) 54 ITR 332 = (AIR 1965 Ker 68). In Kesoram Cotton Mills Limited v. Commissioner of Wealth-tax, Calcutta (1963) 48 ITR 31 = (AIR 1963 Cal 392), which has been relied upon by Mr. Avasthy as leading authority in defence of the impugned orders of the tax authorities, it was held by a Division Bench of the Calcutta High Court that although the assessee was liable to pay income-tax on the valuation date, the actual amount of the liability to pay income-tax on the valuation date having not been ascertained and determined by the Income-tax authorities, no debt towards income-tax was owed by the assessee on the valuation date and, accordingly, such liability for payment of income-tax was not a debt owed on the valuation date within the meaning of Section 2(m) of the Wealth-tax Act, 1957.
5. The various authorities cited above disclose a sharp conflict of opinion among different High Courts. All these are Division Bench decisions. There is no decision of this Court bearing on the point. The matter is of considerable importance as it is likely to affect a large number of assessees residing within the jurisdiction of this Court. I, accordingly, consider it expedient that for an authoritative pronouncement, them petitions should be heard by a larger Bench. I, accordingly, direct that the papers be laid before my Lord the Chief Justice for affording roe the assistance of another learned Judge of this Court to dispose of these petitions in accordance with Rule 1 (x) (b) of Chapter 3-B of the Rules and Orders of the High Court. Volume V.
6. Mr. Avasthy requests for an early hearing as guidance of this Court is needed by the respondent-authorities in dealing with a number of similar cases pending before them.
ORDER OF THE DIVISION BENCH Gurdev Singh, J.
7. This order will dispose of four petitions under Articles 226 and 227 of the Constitution (Civil Writ Nos. 1841 to 1844 of 1962), which involve cmmon question relating to the interpretation of the expression 'net wealth' as defined in Section 2(m) of me Wealth Tax Act 27 of 1957 (hereinafter referred to as the Act).
8. Under Section 3 of the Act, which is the charging section. Wealth-tax is to be charged for every financial year commencing on and from the 1st day of April, 1957, in respect of the Net Wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule to the Act. The valuation date as defined in Section 2(1) in relation to any year of assessment means the last day of the previous year as defined in Section 3 of the Income-tax Act. The petitioner had been maintaining his accounts according to the Bikrami calendar, which commences on the 13th of April eachyear, and his valuation date is 12th April of every year. For the first assessment year (1957-58) he submitted his return on 31st January, 1958, the accounting year being from 13th April, 1956, to 12th April, 1957. Similarly for the subsequent assessment years 1958-59, 1959-30 and 1960-61, he furnished returns on 30th October, 1958, 7th September, 1959, and 15th September, 1960, respectively. The assessments for all these years were finalized on 13th March, 1961, but later those orders of assessments were amended on 3rd April, 1961, and the petitioner was assessed to pay Wealth-tax for the following years as detailed below. He had, however, made certain payments during the respective assessment years, which are also shown in the following table:--
Assessment year Wealth-tax assessed. Wealth-tax paid. Balance. Rs.
RS. RS. RS.
1967.58 83121.17 Np. 71400/- 10731,17 Np
1968.59 79076.17 Np. 72000/- 7776.17 Np.
1969.60 107819.33 Np. 74000/- 88889.88 Np.
1900.61 98894.82 Np. 70000/- 86894,82 Np.
9. On 25th April, 1961, the petitioner applied under Section 35 of the Act for rectification of the assessment by reducing his Net Wealth by the amount of the Income-tax (Rs. 82285.61) and the Wealth-tax that he had to pay for the assessment year 1957-58. Similarly, he claimed deductions on account of the Wealth-tax for the subsequent years 1958-59, 1959-60 and 1960-61 in computing his Net Wealth for those years. He also claimed deduction on account of Expenditure-tax of Rs. 30282, Rs. 28605 and Rs. 39999 for the years 1958-59, 1959-60 and 1960-61, respectively, paid by him for those years. For the last year of assessment 1960-61 he further claimed deduction of Rupees 2519 which he had paid as Gift-tax. His prayer was, however, rejected by the Wealth-tax Officer, vide his order, dated 30th September, 1961, which forms annexure *B* to each of these petitions. A petition for Revision under Section 25 of the Act against this order was rejected by the Commissioner of Wealth-tax (Respondent 2) on 28th April 1962.
10. The petitioner's submission before the Wealth-tax authorities was that the Wealth-tax to which he was liable for the particular year under assessment constituted a debt which he owed, and he was entitled to its deduction from the aggregate value of his assets in computing the Net Wealth on which tax was payable by him for that year notwithstanding the fact that the tax had not till then been assessed and no demand notice for its payment issued to him. In rejecting this contention, the Commissioner, Wealth-tax, to whom revisions against the orders of the Wealth-tax Officer were taken observed:
"The important thing to be considered is whether the tax demands, which have not vet been determined, can be held to be debts owed by the assessee. A debt is owed only when it has actually been determined. It is only after the order of assessment has actually been passed and the officer has issued a notice of demand calling upon the assessee to make the payment by a particular date that it can be said that the assesses owes the amount of tax as a debt. The tax liabilities claimed by the assessee as deductions had not been determined on the relevant date. They cannot, therefore, be allowed at deductions in arriving at the Net Wealth of the assessee".
11. It is the validity of this order (Annexure C to the petition) that has been assailed by the petitioner in these writ petitions.
12. Shri K. C. Puri, appearing for the petitioner, has argued that the view expressed by the Commissioner is not sustainble on a plain interpretation of Clause (m) of Section 2 of the Act, in which, except for certain types of debts, it is provided that the debts owed by an assessee have to be deducted from the aggregate value of his assets in determining the Net Wealth on which he can be called upon to pay tax under Section 3 of the Act. He has further urged that once the assessee has incurred the liability for payment of the tax, it constitutes a debt owed by him, irrespective of the fact whether his liability has actually been quantified or not by assessment or a notice of demand issued against him.
13. The question that thus arises for consideration in these petitions before us is whether the Expenditure-tax, the Gift-tax and the Wealth-tax which a person has to pay for a particular year can be deducted from the aggregate value of his assets in computing his Net Wealth for the purposes of assessing the Wealth-tax payable by him for that year. Under Section 3, which is the charging section. Wealth-tax is to be levied in respect of the Net Wealth on the corresponding date of valuation of each individual. Hindu undivided family and company. The expression 'Net Wealth has been denned thus in Clause (m) of Section 2 of the Act:--
"(m) 'Net Wealth means the amount by which the aggregate value computed in accordance with the provision of this Act of all the assets wherever located, belonging to the as-sessee on the valuation date, including assets required to be included in his Net Wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than: --
(i) debts which under Section 6 are not to be taken into account;
(ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which Wealth-tax is not payable under this Act; and
(iii) the amount of the tax, penalty or interest payble in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure Tax Act, 1957 (29 of 1957) or the Gift Tax Act, 1958 (18 of 1958),
(a) which is outstanding on the valuation date and is claimed by the assessee in appeal revision or other proceedings as not being payable by him, or
(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date".
14. From this, it is obvious that in computing the Net Wealth debts owed by an as-lessee on the date of valuation, excepting those specified in Clauses (i), (ii) and (iii), have to be deducted, It is, however, not disputed that none of these clauses has any applicability to the facts of the case before us.
15. The question whether the amount of Wealth-tax, Expenditure-tax and Gift-tax, for the payment of which the petitioner had incurred liability in various years, can be deducted from his total assets in computing his net wealth for the purposes of Wealth-tax depends upon the interpretation of the expression "debts owed" by the assessee as used in this clause. The Commissioner of Wealth-tax has taken the view that a tax which the assessee may be liable to pay, does not become a debt owed by him unless the order of assessment has been actually passed, amount of the tax determined, his liabi-ty quantified and notice of demand issued. On the other hand, Shri K. C. Puri appearing for the petitioner has urged that since all the debts owed by the assessee have to be excluded in computing the net wealth the taxes for which the assessee has incurred liability during the relevant year have to be excluded from consideration notwithstanding the fact that the assessment had not taken place and the tax payable has not been quantified. Elaborating his argument learned counsel has contended that when a tax becomes payable, it becomes a debt owed by the assessee and the mere fact that the amount has to be ascertained subsequently or its demand is made later, does not affect the liability of the assessee to pay it or alter the nature of this liability.
16. This matter has come up for consideration before various High Courts of this country. Their decisions prior to the year 1964 disclose a sharp conflict of opinion. In support of the view taken by the Commissioner of Income-tax, Shri D. N. Awasthi has invited our attention to the decisions of the Madras, Caluctta, Bombay and Kerala High Courts in (1963) 48 ITR 1005 = AIR 1963 Mad 356), (1963) 48 ITR 998 = AIR 1963 Mad 280), (1963) 48 ITR 31 = AIR 1963 Cal 382), (1963) 48 ITR 49 = (AIR 1963 Cal 112) (1963) 50 ITR 267 (Bom), (1964) 54 ITR 332 = (AIR 1965 Ker 66) and (1964) 54 ITR 587 = (AIR 1965 Ker 209). On the other hand, the High Courts of Gujarat. Assam and Mysore have taken a contrary view in (1964) 51 ITR 482 = (AIR 1964 Guj 154), (1965) 55 ITR 556, (1963) 48 ITR 943 = (AIR 1967 Assam 63), (1964) 52 ITR 370 and (1964) 51 ITR 790 = (AIR 1964 Mys 204), and have ruled that the word debt comprised an ascertained sum of money provided it was ascertainable by reference to relevant data and the liability to pay was unconditional, that is to say, it had to be paid anyhow and in all circumstances. This later set of decisions supports the petitioner's plea that the taxes for which the petitioner had incurred liability during the accounting year were debts owed by him and had to be excluded from consideration in arriving at his net wealth.
The matter has, however, been set at rest by the recent decision of their Lordships of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax (Central, Calcutta), (1966) 59 ITR 767 = (AIR 1966 SC 1370), wherein the view expressed by the Division Bench of the Gujarat High Court in Commissioner of Wealth-tax v. Raipur Manufacturing Co. Ltd., (1964) 52 ITR 482 = (AIR 1964 Guj 154), was expressly approved. The decisions to the contrary thus stand overruled. This case came up before their Lordships of the Supreme Court on appeal against the judgment of the Calcutta High Court in Kesoram Cotton Mills Ltd. v. Commissioner of Wealth-tax, (1963) 48 ITR 31 = (AIR 1963 Cal 392), in which a Division Bench of that Court had held that in computing the net wealth of the assessee, the provision lor payment of Income-tax and Super-tax in respect of the year of account was not a "debt owed" within the meaning of Section 2(m) of the Wealth-tax Act, 1957, and accordingly it was not deductible in computing the net wealth of the assessee. On consideration of the relevant provisions of the Wealth-tax Act, the Finance Act, and the in-come-tax Act, their Lordships of the Supreme Court rejected this opinion and ruled that the liability to pay Income-tax is a debt within the meaning of Section 2(m) of the Wealth-tax Act and it arises on the valuation date during its continuance (sic) -- ('during the accounting year' -- Vide p. 785--Ed.). Subba Rao J. (as he then was), who delivered the majority judgment of the Court, summarised his conclusions thus:--
"A debt is a present obligation to pay an ascertainable sum of money, whether the amount is payable in praesenti or in future debitum in praesenti, solvendum in futuro. But a sum payable upon contingency does not become a debt until the said contingency has happened. A liability to pay Income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable date. There is a perfected debt at any rate on the last day of the accounting year and not a contegent liability. The rate is always easily ascertainable. If the Finance Act is passed, it is the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favourable to the assesses. All the ingredients of a "debt" are present. It is a present liability of an ascertainable amount." In that case their Lordhsips were dealing with a claim for deduction of Income-tax and Super-tax in respect of the accounting year, for which provision had been made in the balance-sheet, in calculating the net wealth of the assessee company. Reference in this connection was made to Section 3 of the Wealth-Tax Act and it was observed:--
"Net wealth is the amount by which the aggregate value of the assets of the assessee as on the said date is in excess of the aggregate value of the debts owed by it on the said date. Under Section 3 of the Income-Tax Act, the assessee was liable to pay Income-Tax and Supertax on its income ascertained during the accounting year ending with March 31, 1957, at the rates prescribed under the Finance Bill or the previous Finance Act whichever was less, as the Finance Act of 1957 was passed only in September, 1957."
Proceeding further, Subba Rao J. said:
"Looking at the problem from the standpoint of a businessman or looking at the question from a commonsense view, one will reasonably hold that the net wealth of an assessee during the accounting year is the income earned by him minus the tax payable by him in respect of that income. If a person earns Rs. 1,00,000 during the accounting year and has to pay Rs. 60,000 as tax in respect of that income, it will be incongruous to suggest that his wealth at the end of that year is Rs. 1.00,000. A reasonable man will say that his income in only Rs. 40,000, which represents his wealth at the end of the vear. But it said that what is just is not always legal. This Court has, on more than one occasion, emphasized the fact that the -oal income of an assessee has to be ascertained on commercial principles subject to the provisions of the Income" Tax Act. Is there any provision in the Wealth-Tax Act which compels us to come to a conclusion which is unjust on the face of it?"
17. The following passage from the Annual Practice, 1950 (page 808) was quoted with approval as " a full and accurate statement of the law on the subject" supported by English decision:
"But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and a case where both the debt and its payment rest in the future, In the former case there is an attachable debt in the latter case there is not. If, tor instance a sum of money is payable on the happening of a contingency, there is no debt owing or accruing But the mere fact that the amount is not ascertained does not show that there is no debt."
The definition of a debt, which is according to his Lordhsip, universally accepted, is:
"A 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, salveudum in future."
The learned Judge concluded the discussion on this subject with the following words of Earl Jowitt in British Transport Commission v. Gourley, (1956) A. C. 185, at p. 203:--
"The obligation to pay tax save for those in possession of exiguous incomes is almost universal in its application. That obligation is ever present in the minds of those who are called upon to pay taxes, and no sensible person any longer regards the net earnings from his trade or profession as the equivalent of his available income."
18. In view of this authority of their Lordships of the Supreme Court, Shri D. N. Awasthi appearing for the revenue had to concede that so far as the Income-Tax or Super-Tax payable by an assessee is concerned, it must be deducted from his total wealth in arriving at his net wealth irrespective of the fact whether the assessment has or has not taken place and notwithstanding that the Income-Tax has not been quantified nor notice for demand issued.
19. Thus in dealing with the various taxes for which the petitioner claims deduction in arriving at his net wealth for a particular year, we have to keep in view the meaning of "net wealth" as given by their Lordships of the Supreme Court in Kesoram Industries case, (1966) 59 ITR 767: (AIR 1966 SC 1370) (supra). The taxes of which the deduction is claimed by the petitioner before us are the Expenditure-tax, Gift-tax and Wealth-Tax. Deduction on account of the Expenditure. Tax is claimed for the assessment years 1958-59, 1959-60 and 1960-61, sift-tax for the year 1960-61, and the Wealth-tax for all the four years 1957-58, 1958-59, 1959-60 & 1960-81. It is not disputed that the assessment of these taxes was made after the date of valuation, but the liability for Expenditure-Tax for the respective years had been incurred during the corresponding accounting year. It is also not denied that the assessment of the Expenditure Tax for these three years took place during the corres-pondine year of the assessment of the Wealth Tax and the payment was also made before the assessment of the Wealth-Tax for all the tour years from 1957 to 1961 was finalised. The assessment of Rs. 2519/- on account of Gift-Tax for the Wealth-Tax Act assessment year 1960-61 was finalised during that year and the amount of the tax was paid on the 18th of February, 1961, i.e. before the Wealth-Tax for the corresponding year was assessed.
Thus we find that the deductions which the petitioner claims on account of Expenditure-Tax and Gift-Tax were not in the nature of debts that had to be paid in future, but liability that had been incurred and discharged as well during the corresponding vear of the assessment The mere fact that the amount of tax was determined later, would neither alter the nature of the petitioner's liability nor justify the refusal of the authorities to allow deduction of these amounts in arriving at the net wealth for corresponding accounting years. As Liability for these taxes had been incurred, they were "debts owed" within the meaning of that expression in accordant with the rule laid down in Kesoram Industries case (1966) 59 I T. R. 767 = (All 1966 SC 1470) (Supra).
20. In dealing with the question whether deduction can be allowed on account of liability for a tax incurred by the assessee, we have to refer to the relevant provisions of the Act under which that particular tax is levied. The Expenditure-tax is levied under the Expenditure-tax Act 29 of 1957. It is Section 3 which is the charging section lays down:
"Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on ana from the 1st of April, 1958, a tax (hereinafter referred to as Expenditure-tax) at the rate or rates specified in the Schedule in respect of the expenditure incurred by any individual or Hindu undivided family in the previous year".
21. The rate of tax is given in the schedule and thus there can be no difficulty in computing tax which a person is liable to pay on the expenditure incurred by him. Thus the liability to pay an Expenditure-tax is a debt owed by the assessee and has to be excluded from the aggregate value of his assets in assessing his net wealth under Clause (m) of Section 2 of the Act.
22. The Gift-tax is levied under the Gift-tax Act 18 of 1958. Under its charging provision, Section 3, Gift-tax is charged for every assessment year on and from the 1st day of April, 1958 "in respect of the gifts, if any, made by a person during the previous year (other than gifts made before 1st day of April, 1957) at the rate or rates specified in the Schedule". It is thus apparent that even under this Act, the liability to pay tax arises on the day a gift is made or in any case on the last day of the accounting year. This liability can easily be determined with reference to the Schedule to the Act containing rates on which the tax is to be charged. It is not a contingent liability and is thus a debt owed by the assessee within the meaning of that expression as used in Clause (m) of Section 2 of the Wealth-tax Act.
23. Dealing with the nature of the liability for payment of the tax that arises under the Income-tax Act, Shah J., speaking, for the Court observed as follows in Kalwa Devadattam v. Union of India, (1963) 49 ITR 165 = (AIR 1964 SC 880).
"Under the Indian Income-tax Act liability to pay Income-tax arises on the accrual of the income, and not from the computation made by the taxing authorities in the course of assessment E :oceedings; it arises at a point of time not ter than the close of the year of account".
24. The charging provisions of the Expenditure-tax Act and the Gift-tax Act are similar. The expenditure-tax is levied upon the expenses incurred in the previous year and the gift-tax is also on the gifts made during the previous year. It is thus obvious that liability tor tax under both these Acts arises not later than the close of the previous year. Thus the principle laid down by their Lordships of the Supreme Court in Kesoram Industries case (1966) 59 ITR 767 = (AIR 1966 SC 1370) (supra), in dealing with the claim for reduction of Income-tax and Super-tax, will also apply to taxes payable under the Expenditure-tax Act and Gift-tax Act iu assessing the net wealth as defin-ed in Section 2(m) of the Wealth-tax Act. The rates of both these categories of taxes being fixed under the schedules to the relevant Acts, the liability incurred for their payment was neither uncertain nor contingent, but m praesenti, though the demand and payment of the same was made later. In the words of their Lordships of the Supreme Court, such liability has all the ingredients of a debt and is a present liability of ascertainable amount. In Maharaja of Pithapu-ram v. Commissioner of Income-tax, (1945) 11 ITR 221 = (AIR 1945 PC 89), Lord Thankerton observed:
"Under the express terms of Section 3 of the Indian Income-tax Act, 1922, the subject at charge is not the income of the year of assessment, but the income of the previous year".
The same is the position with regard to the Income-tax which is now in force, and also under the Expenditure-tax and the Gift-tax Acts.
25. Accordingly I find that the petitioner's claim for deductions on account of Expenditure and Gift taxes for which he had incurred liability during the accounting years under reference, is well founded. The respondents Wealth-tax authorities were thus clearly wrong in failing to give him the benefit of the same in computing nis net wealth.
26. The only other tax for which the petitioner has claimed deduction is the wealth-tax to which he was liable in the various assessment years under reference. Shri K. C. Puri has argued that liability for the wealth-tax for the various years under reference was incurred by the petitioner during the respective years and thus the amount of the wealth-tax payable by him foe that particular year constituted a debt owed by him and it had to be deducted from the total assets in arriving at his net wealth on which wealth-tax had to be assessed. Shri D. N. Awasthi on the other hand, arguing for the Revenue, has contended that the amount of wealth-tax which an assessee has to pay for a particular year cannot be considered a debt as the liability for its payment arises only on the date of the valuation and the net value on which the tax has to be assessed, cannot be computed after deducting the wealth-tax which is still to be determined. It is no doubt true that, as hat been laid down by their Lordships of the Supreme Court in Kesoram Industries case, (1966) 59 ITR 767 = (AIR 1966 SC 1370) (supra) that the mere fact that the tax has not been assessed or quantified, would not exclude it from the category of debt owed, but what has to be considered is the date on which the liability to the tax is incurred. The tax under the charging section (3 of the Wealth-tax Act) is to be paid in respect of the net wealth on the corresponding valuation date of every individual. "Valuation date" is defined in Section 2(q) as meaning the last day of the previous year as defined in Section 3 of the Income-tax Act. Thus if we take the first year of the petitioner's assessment (1957-58), the corresponding date of valuar tion would be 12th of April, 1957. According to the petitioner's return, nis net wealth on that date was assessed at Rs. 94,77,191 on which he was assessed to the payment of Rs. 82,121.17 P. as wealth-tax. If the petitioner's contention is accepted, it would mean that his net wealth for the purposes of assessment year 1957-58 would be Rs. 94,77,191 minus Rs. 82,121.17 which equals Rs. 93,95,069.83. As a necessary consequence it would follow that the wealth-tax for that year had to be paid not on Rs. 94,77,191, but on Rs. 93,95,069.83. In that case, the amount of tax would be less than Rs. 82,121.17. This will create a queer and anomalous situation. If the correct amount of the wealth-tax which, according to the petitioner, he was liable to pay for the assessment year 1958-59 was not Rs. 82.21.17 but much less, he cannot insist that Rs. 82,121.17, the tax that had been assessed by the authorities, should be deducted from his total assets. This illustration goes to show ridiculous results that would follow. If the wealth-tax which is to be assessed on net value is itself deducted from the total assets to arrive at the net wealth, it will be impossible to determine the net value as unless the exact amount of the tax payable is known, it cannot be deducted from the net assets, and the amount of the tax payable cannot be known unless the net value is first ascertained, This anomalous position was pointed out by K S. Hegde J. (as he then was), delivering the judgment of a Division Bench of the Mysore High Court in Commissioner of Income-tax/ Wealth-tax v. Amco Batteries (P.), Ltd., (1964) 52 ITR 370, which is a direct authority on the point. After finding, in consonance with the view expressed in the recent decision of the Supreme Court in Kesoram Industries case (1966) 59 ITR 767 = (AIR 1966 SC 1370 (supra). that the provision made for the payment of income-tax was a debt owed and the same was deductible from the gross wealth to arrive at the net wealth, it was held in that case that the provision made for the payment of the wealth-tax was not such a debt and. therefore, it could not be deducted in computing the net wealth. In dealing with this matter. Hegde J., said:
"But when we come to provision made tor the payment of wealth-tax, we are faced with certain practical difficulties. The wealth-tax is leviable on the "net wealth". If the provision made for the payment of wealth-tax is deductible from the "net wealth", the net wealth determined will have to be changed. This process will have to go on ad infinitum. In other words, the conception of "net wealth" will become an ever-receding phenomenon. Further, the contention advanced on behalf of the assessee in this regard does not accord with the pattern of our tax legislation. It is a well-accepted practice that no tax can be deducted from the income on which the said tax is levied." Except for the last sentence in these observations, I respectfully agree with the view expressed by Hegde J., with regard to the practical difficulty in allowing the wealth-tax payable for a particular year to be deducted in computing the net wealth on which that tax is pavable. As has been observed earlier, it is impossible to arrive at wealth-tax which, according fo the petitioner, had to be deducted from his assets fee arrive at his net wealth without first knowing the amount of the net wealth on which that tax is to be levied. If the wealth-tax is assessed on the value of the total assets, it may be possible to calculate the amount of the tax, but the tax, according to the scheme of the Wealth-tax Act, has to be assessed on the net wealth and not on the total assets which an assessee possesses. Thus, by very nature of things, in arriving at net assets, it is impossible to deduct the amount of the tax which is legally payable in respect of the net wealth.
27. We should not lose sight of the fact that the wealth-tax is different in nature from such taxes as income-tax, expenditure-tax and gift-tax. The wealth-tax is to be levied on the net assets in the hands of the assessee on the date of valuation. The total assets held by an assessee on any date prior to the date of valuation are not relevant for that purpose. The position with regard to income-tax, expenditure-tax and gift-tax is, however, different. The as-sessee's liability to pay these taxes arises on the day his income, expenditure or value of gifts exceeds the amount which is exempt from sucb taxes under the respective Acts though his full liability for such taxes will be ascertained at the close of the accounting year. As the assessment of wealth-tax is to be made on the valuation date, which is the last date of the previous year, it cannot be said that the liability to tax bad already arisen and was thus in the nature of debt owed by the assessee, It may happen in some cases that one may not be in possession of any assets or his net assets may be much below the taxable limit though for a good part of the accounting year he was in possession of vast assets.
28. We are accordingly of the opinion that no deduction on account of wealth-tax could be allowed to the petitioner-assessee in arriving at his net assets for the purpose of computing the wealth-tax payable by him for the various years under reference.
29. In view, however, of our finding that the petitioner was entitled to deductions on account of expenditure-tax and the gift-tax, the orders of the Wealth-tax authorities to that extent cannot be sustained, and we direct the respondent authorities to rectify the orders in view of the observations made by us above so as to give the petitioner relief for the amount paid by him on account of expenditure and gift-taxes- AH the four petitions are, accordingly accepted to the extent indicated above. In the circumstances of the case, we leave the parties to bear their own costs.
Shamshek Bahadur, J.
30. I agree.