1974 (5) TMI 21 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the income-tax liabilities on the assessee's half share of the income disclosed voluntarily under section 68 of the Finance Act, 1965, constitute a debt under section 2(m) of the Wealth-tax Act, 1957, for the assessment years 1959-60 to 1964-65.
2. Whether the amount of Rs. 2,84,658 claimed by the assessee as a deduction for the unassessed income disclosed voluntarily under section 68 of the Finance Act, 1965, is permissible in computing the net wealth for the assessment years 1959-60 to 1964-65.

Issue-wise Detailed Analysis:

Issue 1: Income-tax liabilities as a debt under section 2(m) of the Wealth-tax Act, 1957
The Tribunal held that the income-tax liabilities on the voluntarily disclosed income under section 68 of the Finance Act, 1965, were indeed debts owed within the meaning of section 2(m) of the Wealth-tax Act, 1957, on the relevant valuation dates. The Tribunal reasoned that although the declaration was made in May 1965, the disclosed income pertained to earlier years and thus was already in existence. Consequently, the tax liability on this income was considered a debt owed. The Tribunal's decision was influenced by the Supreme Court's rulings in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax and H. H. Setu Parvati Bayi v. Commissioner of Wealth-tax, which established that tax liabilities on income are debts owed.

Issue 2: Permissibility of deduction of Rs. 2,84,658 in computing net wealth
The Tribunal allowed the deduction of Rs. 2,84,658 claimed by the assessee, reasoning that the tax liability on the disclosed income was a legitimate debt owed. The Tribunal rejected the department's contention that the tax liability arose only under the provisions of section 68 of the Finance Act, 1965, and not under the normal provisions of the Income-tax Act. The Tribunal concluded that the disclosed income, being part of the assessee's wealth for the earlier years, necessitated the deduction of the corresponding tax liability to arrive at the net wealth.

Analysis of Relevant Statutory Provisions:
Section 68 of the Finance Act, 1965, allows for the voluntary disclosure of undisclosed income, which is then taxed at a concessional rate of 60%. This provision aims to bring concealed income to the surface by offering a reduced tax rate. The language of section 68 indicates that the disclosed amount represents income that would ordinarily be assessable under the Income-tax Acts of 1922 or 1961. The Finance Act of 1965 does not impose a new tax but prescribes the rate for taxing the disclosed income.

Judicial Precedents:
The judgment references the Supreme Court's explanation in Commissioner of Income-tax v. Khatau Makanji Spinning and Weaving Co. Ltd., which clarified that Finance Acts prescribe tax rates but do not impose new taxes. The Finance Acts must align with the charging sections of the Income-tax Acts.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that the income-tax liabilities on the disclosed income under section 68 of the Finance Act, 1965, constituted debts owed within the meaning of section 2(m) of the Wealth-tax Act, 1957. Consequently, the deduction of Rs. 2,84,658 was permissible in computing the net wealth for the assessment years 1959-60 to 1964-65. The questions referred to the court were answered in the affirmative, in favor of the assessees and against the revenue.

Final Judgment:
Questions answered in the affirmative.