1987 (8) TMI 21 - HC - Wealth-tax

Summary

Issues:
Interpretation of Wealth-tax Act, 1957 - Deduction of income-tax liability from gross amount for wealth computation.

Analysis:
The judgment addressed seven references under section 27(1) of the Wealth-tax Act, 1957, involving the same assessee for the assessment years 1966-67 and 1968-69 to 1973-74. The core question revolved around whether the Tribunal was correct in allowing the deduction of income-tax liability from the gross amount of the assessee's share, which was Rs. 76,000, pertaining to earlier undisclosed income. The undisclosed income of Rs. 3,04,000 earned by a firm was later disclosed to the Income-tax Department, leading to a settlement in 1975. The Wealth-tax Officer initially included the entire Rs. 76,000 in the assessee's wealth, but the Appellate Assistant Commissioner and the Tribunal disagreed. They held that the tax liability on the amount had to be deducted as per section 2(m) of the Wealth-tax Act, 1957, before computing the net wealth. The Tribunal referred to relevant Supreme Court cases, emphasizing that the tax liability crystallized on the valuation date, making it a "debt owed" and thus deductible. The judgment highlighted that the quantification of tax liability post-settlement did not alter the fact that the liability accrued when the income was earned.

The judgment further cited Supreme Court decisions like CWT v. K. S. N. Bhatt, CWT v. Vadilal Lallubhai, and CWT v. Vimlaben Vadilal Mehta, which supported the deductibility of tax liability as a debt owed under section 2(m) of the Wealth-tax Act, 1957, even if quantified post the valuation date. Relying on these precedents, the High Court ruled in favor of the assessee and against the Revenue in all seven references for the assessment years 1966-67 and 1968-69 to 1973-74. The judgment affirmed that the Tribunal's decision to deduct the tax liability from the gross amount of Rs. 76,000 for wealth computation was legally sound.

In conclusion, the High Court dismissed the references without costs, upholding the Tribunal's stance on deducting income-tax liability from the gross amount to determine the net wealth of the assessee under the Wealth-tax Act, 1957.