1989 (2) TMI 102 - HC - Wealth-tax

Summary

Issues:
Whether the assessee is entitled to claim deduction of tax liability in respect of disclosure made under section 3(1) of the Voluntary Disclosure of Income and Wealth Act, 1976.

Analysis:
The case involves the question of whether the assessee is entitled to claim a deduction of tax liability in relation to a voluntary disclosure made under the Voluntary Disclosure of Income and Wealth Act, 1976. The respondent, an assessee to wealth-tax for the assessment year 1976-77, made a voluntary disclosure under section 3(1) of the Act, resulting in a tax liability of Rs. 11,87,690. The Wealth-tax Officer did not allow this tax liability as a deduction, arguing that the Ordinance creating the liability was promulgated after the valuation date. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal both sided with the assessee, relying on previous court decisions and the nature of the disclosure under the Act. The Tribunal emphasized that the declaration under the Act pertains to income that escaped assessment and should have been part of the assessed income.

In a related judgment, the Supreme Court held in Ahmed Ibrahim Sahigra Dhoraji v. CWT [1981] 129 ITR 314, that the liability to pay income tax on concealed income disclosed under the Voluntary Disclosure Scheme is deductible as a "debt owed" on the valuation date. The Court explained that the declaration under the Finance Act, 1965, includes the liability to pay income tax, even though the ascertainment of that liability is postponed. The Court viewed section 68 of the Finance Act, 1965, as a package deal where the declarant is considered to have discharged all liability regarding the concealed income. The Supreme Court also endorsed the Bench decision of the High Court in Babu Naidu's case [1978] 112 ITR 341.

The High Court, after considering the arguments and precedents, concluded that the timing of the promulgation of the Voluntary Disclosure of Income and Wealth Act, 1976, in relation to the valuation date is irrelevant. The Court agreed with the Tribunal's decision that the assessee is entitled to claim the deduction of the tax liability arising from the disclosure made under section 3(1) of the Act. Therefore, the Court answered the question referred to it in the affirmative, ruling in favor of the assessee and against the Revenue. The Court directed that a copy of the judgment be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.