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Issues:
- Whether the entirety of the income declared by the petitioners under section 68 of the Finance Act, 1965, is liable to be taxed for determining their taxable wealth. - Whether the income-tax due on the income declared under section 68 of the Finance Act, 1965, should be deducted from the income declared to arrive at the net wealth assessable to wealth-tax. Analysis: The appeals arose from the dismissal of two petitions where the petitioners argued that the income declared under section 68 of the Finance Act, 1965, should not be entirely taxed for determining their taxable wealth. They contended that income-tax due on the declared income must be deducted to arrive at the net wealth assessable to wealth-tax. The definition of "net wealth" in section 2(m) of the Wealth-tax Act, 1957, was crucial in this regard, as it specified the calculation method for determining net wealth. The valuation date for the assessment years in question was established to be crucial, and the petitioners argued that income-tax liabilities on the declared income should be considered as debts owed by them on the valuation dates. The petitioners had declared their income under section 68 of the Finance Act, 1965, and the assessing authorities had accepted this declaration, levying tax accordingly. However, the petitioners argued that the tax levied under section 68 should be deducted from the income declared to determine their net wealth assessable to wealth-tax. The court referred to the Supreme Court decision in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax [1966] 59 ITR 767, which clarified the concept of "debt owed" under the Wealth-tax Act, 1957. The court emphasized that income-tax liabilities, whether present or future but ascertainable, should be considered as debts owed by the assessees on the valuation dates. The court analyzed the provisions of section 68 of the Finance Act, 1965, in conjunction with section 4 of the Income-tax Act, 1961, to determine the liability of the assessees. It concluded that the Finance Act, 1965, only specified the tax rate and the income to be taxed, while the liability stemmed from the Income-tax Act, 1961. The court held that the income-tax liability was a debt owed by the assessees on the valuation dates, as per the Wealth-tax Act, 1957. Consequently, the Wealth-tax Officer was found to be in error for not deducting the income-tax liability from the declared income for the relevant assessment years. The court allowed the writ appeals, set aside the original judgment, and ruled in favor of the petitioners, granting them costs.
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