1987 (11) TMI 73 - HC - Wealth-tax

Summary

Issues:
1. Whether the claim of the assessee was a mistake apparent on the face of the record under section 35 of the Income-tax Act?
2. Whether the inclusion of the gross dividend in the computation of the assessee's net wealth for the purpose of assessment under the Wealth-tax Act was an error apparent on the face of the record and rectifiable under section 35?

Detailed Analysis:

Issue 1:
The assessee filed an additional return under the Wealth-tax Act stating that the company had declared a dividend of Rs. 28,650, of which the net dividend due to the assessee was Rs. 22,000. The Wealth-tax Officer included the gross dividend amount in the assessment. The assessee sought rectification under section 35, which was rejected by the Officer. The Tribunal upheld the decision. The assessee argued that the inclusion of the differential amount (income-tax due on the dividend) in the net wealth calculation was an error apparent on the face of the record and rectifiable under section 35.

Issue 2:
The Revenue contended that the tax deductible at source was not a debt owed by the assessee before the valuation date, as the dividend was paid after that date. However, the Court held that the liability to pay tax on the income arose as soon as the dividend was declared, even if not paid. The substantive liability of the assessee to pay tax on the income accrued as soon as the dividend was declared. The Court emphasized that income arising on the declaration of the dividend should be considered in computing the net wealth, excluding the tax owed on such accrued income. Referring to previous judgments, the Court concluded that the tax deductible at source in respect of the dividend declared but not yet deducted should be excluded from the computation of net wealth under the Wealth-tax Act.

The Court answered the first question in favor of the assessee, stating that the inclusion of the tax deductible at source in the computation of the net wealth was an error apparent on the face of the record and rectifiable under section 35. As a result, the Court did not address the second question. The parties were directed to bear their respective costs in the case, and a copy of the judgment was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.