1991 (1) TMI 30 - HC - Wealth-tax

Summary

Issues:
Interpretation of whether income-tax and wealth-tax liability on income and wealth disclosed voluntarily under the Voluntary Disclosure of Income and Wealth Ordinance, 1975, subsequent to the valuation date is an admissible deduction in computing the net wealth of the assessee for the assessment years 1968-69 to 1970-71.

Detailed Analysis:
The case involved a reference under section 27(3) of the Wealth-tax Act, 1957, regarding the deductibility of income-tax and wealth-tax liability on income and wealth disclosed voluntarily by the assessee under the Voluntary Disclosure of Income and Wealth Ordinance, 1975, for the assessment years 1968-69 to 1970-71. The Wealth-tax Officer had reopened assessments due to the disclosure made by the assessee, but did not allow the tax liabilities arising from the disclosure as deductions. The Appellate Assistant Commissioner allowed the claim, which was further upheld by the Appellate Tribunal, stating that such tax liabilities constituted a debt under the Wealth-tax Act, 1957.

A Division Bench of the Calcutta High Court had previously considered a similar question under the Voluntary Disclosure Scheme introduced by the Finance Act, 1965. The court held that the amount declared under the scheme had the liability to pay income-tax embedded in it on the valuation date, and the liability was deductible as a debt owed in computing the net wealth of the assessee. This decision was subsequently approved by the Supreme Court in a relevant case.

Additionally, the Kerala High Court had also held that the liability to pay income tax on concealed income disclosed under a voluntary disclosure scheme is deductible as a debt owed on the valuation date. The court noted that while there may be differences in the schemes' procedures, assessments, and penalties, the objective of both schemes was to encourage disclosure of concealed income and wealth for previous years.

Ultimately, the High Court of Calcutta held that there should be no distinction in principle regarding the deductibility of tax paid on voluntarily disclosed income, and if the assessee had discharged the tax liability under the Income-tax Act, such tax must be considered a debt owed on the respective valuation date. Therefore, the court concluded that the assessee was entitled to claim a deduction for the tax liability in respect of the disclosure made under the Voluntary Disclosure of Income and Wealth Act, 1976. The court answered the reference question in the affirmative and in favor of the assessee.