1984 (11) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the term "outstanding" in Section 2(m)(iii)(a) of the Wealth-tax Act.
2. Entitlement to deduction of income-tax assessed after the assessment years in question for the purpose of computing net wealth.
3. Reframing of the question of law referred by the Tribunal.

Detailed Analysis:

1. Interpretation of the term "outstanding" in Section 2(m)(iii)(a) of the Wealth-tax Act:
The Tribunal had to determine whether the term "outstanding" as used in Section 2(m)(iii)(a) of the Wealth-tax Act justified the disallowance of the tax liability claimed by the assessee. The Wealth-tax Officer disallowed the assessee's claim for income-tax liabilities on the grounds that the amounts were not admissible under Section 2(m)(iii)(a) and (b) and that the liabilities were not ascertained on the valuation dates. The Tribunal upheld this disallowance, leading to the reference to the High Court for an opinion on the interpretation of "outstanding."

2. Entitlement to deduction of income-tax assessed after the assessment years in question for the purpose of computing net wealth:
The assessee claimed deductions for income-tax liabilities for the assessment years 1971-72 to 1974-75, which were quantified after the relevant valuation dates. The High Court had to determine whether these liabilities could be considered "debts owed" under Section 2(m) of the Wealth-tax Act. The court noted that the liability to pay income-tax is a present liability on the valuation date, even if it is quantified later. The court referred to precedents like CWT v. Kantilal Manilal, which held that tax liabilities are debts owed by the assessee on the valuation date and should be deducted when computing net wealth.

3. Reframing of the question of law referred by the Tribunal:
The court found that the question referred by the Tribunal did not accurately capture the real controversy, which was whether the assessee was entitled to a deduction for income-tax assessed after the assessment years in question. The court agreed to reframe the question to address this issue directly. The reframed question was: "Whether, on the facts and circumstances of the case, the applicant-assessee is entitled to deduction of income-tax assessed after the assessment years in question, for the purpose of computation of her net wealth, on a true interpretation of the expression 'debt owed' in section 2(m) of the Wealth-tax Act?"

Judgment:
The court concluded that the assessee was entitled to the deduction of income-tax liabilities for the purpose of computing net wealth, even if these liabilities were quantified after the relevant valuation dates. The court emphasized that the liability existed on the valuation date and was merely quantified later. The court answered the reframed question in favor of the assessee, stating that the applicant-assessee is entitled to the deduction of income-tax assessed after the assessment years in question for the purpose of computation of her net wealth, on a true interpretation of the expression "debt owed" in Section 2(m) of the Wealth-tax Act. The reference was answered accordingly with no order as to costs.