1992 (6) TMI 14 - HC - Wealth-tax

Summary

Issues:
Interpretation of section 2(m)(iii) of the Wealth-tax Act, 1957 regarding the deductibility of tax deducted at source under section 192 of the Income-tax Act, 1961 in computing the net wealth of the assessee.

Detailed Analysis:

The judgment pertains to assessment years 1970-71 to 1975-76 and addresses a common question of law referred by the Tribunal under section 27(1) of the Wealth-tax Act, 1957. The issue revolves around the treatment of tax deducted at source under section 192 of the Income-tax Act, 1961, which remains unpaid to the credit of the Revenue for more than 12 months concerning the computation of the net wealth of the assessee. The Tribunal, in this case, questioned whether such unpaid tax deductions fall under section 2(m)(iii) of the Wealth-tax Act, 1957, and are deductible in determining the net wealth of the assessee.

The facts established by the Tribunal reveal that the assessee, an individual and a partner in a partnership concern, had tax deductions at source under section 192 of the Income-tax Act, reflected in the balance sheet but unpaid to the Central Government for over 12 months. The Wealth-tax Officer disallowed deduction citing section 2(m)(iii) of the Wealth-tax Act, 1957. However, the Appellate Assistant Commissioner and subsequently the Tribunal held that the liability to pay tax deducted at source was not a result of an order under the Income-tax Act but a statutory obligation, thus not subject to the 12-month limit specified in section 2(m)(iii).

The crux of the issue lies in the interpretation of section 2(m)(iii) of the Wealth-tax Act, 1957. The provision excludes certain debts, including tax liabilities outstanding for more than 12 months, from the computation of net wealth. The Assessing Officer's understanding was that any tax liability payable under the Income-tax Act, irrespective of the source, would fall under this exclusionary clause. However, the judgment clarifies that the liability under consideration must stem from an order passed under or in pursuance of the Wealth-tax Act or other relevant tax laws to qualify for exclusion.

The judgment emphasizes that the liability to deduct tax at source under section 192 of the Income-tax Act is not contingent on any specific order but is a statutory obligation imposed on the employer. Therefore, such liabilities do not fall within the ambit of section 2(m)(iii) of the Wealth-tax Act, which pertains to liabilities arising from specific orders under the tax laws. The legislative intent behind the provision is to discourage defaulters and uphold tax compliance, which does not align with including automatic statutory obligations like tax deductions at source.

In conclusion, the Court rules in favor of the assessee, affirming that tax deductions at source under section 192 of the Income-tax Act, which remain unpaid for more than 12 months, are not subject to the limitations of section 2(m)(iii) of the Wealth-tax Act, 1957. The judgment underscores the distinction between liabilities arising from specific orders and automatic statutory obligations, providing clarity on the deductibility of such liabilities in computing the net wealth of the assessee.