1990 (6) TMI 32 - HC - Wealth-tax

Issues Involved:
1. Entitlement to deduction of tax liability under section 140A of the Income-tax Act, 1961, from the total wealth under section 2(m)(iii)(b) of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction of Tax Liability:

The primary issue for consideration was whether the assessee is entitled to deduct the self-assessment tax payable under section 140A of the Income-tax Act, 1961, from the total wealth under section 2(m)(iii)(b) of the Wealth-tax Act, 1957, even if it remained outstanding for more than one year on the valuation date.

Assessee's Argument:
The assessee contended that section 2(m) of the Wealth-tax Act allows for the deduction of all debts owed by the assessee, which includes taxes as debts. The counsel argued that the bar under clause (iii) of section 2(m) applies only to amounts of tax for which an order has been passed by the concerned tax authority. Since no such order was passed in this case, the bar does not operate, and the debts should be allowed as a deduction.

Department's Argument:
The Department argued that the amounts were rightly disallowed under section 2(m)(iii) of the Wealth-tax Act. It was contended that the liability imposed by section 140A is a statutory liability to pay tax, which is a sum payable and not merely a debt that may become payable. Therefore, the assessee is not entitled to the deduction as claimed.

Tribunal's Decision:
The Tribunal confirmed the order passed by the Wealth-tax Officer and the Appellate Assistant Commissioner, disallowing the deduction claimed by the assessee. The Tribunal held that section 2(m)(iii) of the Wealth-tax Act provides that taxes which remain unpaid for more than one year after the demand was raised are not eligible for deduction.

Court's Analysis:
The court examined whether the self-assessment tax payable under section 140A, which remained outstanding for more than one year, could be considered a debt owed under section 2(m) of the Wealth-tax Act. The court noted that the self-assessment tax under section 140A is a statutory liability and does not require an order to be passed by the concerned authority. Therefore, the bar under clause (iii) of section 2(m) does operate, and the assessee is not entitled to the deduction.

Relevant Case Law:
The court referred to several decisions to support its conclusion, including:
- H. H. Setu Parvati Bayi v. CWT [1968] 69 ITR 864 (SC): This decision was not applicable as it did not address the issue of clause (iii) of section 2(m).
- CWT v. Standard Vacuum Oil Co. Ltd. [1966] 59 ITR 569 (SC): The Supreme Court held that a debt is owed when an order under section 18A(1) is passed and a notice of demand is sent.
- Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 (SC): The Supreme Court held that a liability to pay income-tax is a present liability, though it becomes payable after it is quantified.
- CWT v. J. K. Cotton Manufacturers Ltd. [1984] 146 ITR 552 (SC): The Supreme Court held that the expression "outstanding" refers to a liability remaining unpaid after the obligation to pay is incurred.
- CWT v. Kantilal Manilal [1985] 152 ITR 447 (SC): The Supreme Court held that section 2(m)(iii)(a) comes into play only after a demand for payment of tax has been made.
- Swadeshi Cotton Mills Ltd. v. CWT [1971] 81 ITR 482 (Allahabad HC): The court held that section 2(m)(iii) refers to a liability which is a present debt.

Conclusion:
The court concluded that the self-assessment tax payable under section 140A, which remained outstanding for more than one year, cannot be deducted under section 2(m) of the Wealth-tax Act. The order passed by the Tribunal was upheld, and the question referred was answered in the negative and against the assessee. The Department was entitled to its costs, with counsel's fee fixed at Rs. 500 (one set).

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