1965 (10) TMI 20 - SC - Wealth-tax

Whether on the facts and in the circumstances of the case in computing the net wealth of the assessee the arrears of tax as determined as per notice under section 18A of the Indian Income-tax Act for the two assessment years under consideration constitute a debt owed by the assessee within the meaning of section 2(m) of the Wealth-tax Act as on the valuation date ? Held that - High Court was right in answering the question in favour of the assessee. A debt is owed when an order under section 18A(1) is passed and a notice of demand sent. The amount mentioned in the notice begins to be owed till a new figure is substituted by the action of the assessee. On the valuation dates in these appeals the assessee had not taken any action under section 18A(2) and consequently the amounts mentioned in the notices of demand were debts owed within section 2(m) of the Wealth-tax Act on the valuation dates. Appeal dismissed.

Summary

Issues:
1. Interpretation of whether arrears of tax under section 18A of the Income-tax Act constitute a debt owed by the assessee under the Wealth-tax Act.

Detailed Analysis:
The Supreme Court considered whether arrears of tax under section 18A of the Income-tax Act constitute a debt owed by the assessee under the Wealth-tax Act. The case involved demands made against a company for tax payments for two years, with final instalments outstanding on the valuation dates. The Appellate Tribunal directed the Wealth-tax Officer to determine if the demands should be deducted from the total wealth computation. The High Court, following precedent, ruled in favor of the assessee. The Revenue appealed, arguing that the amount payable under section 18A is not finalized until March 15 and does not constitute a debt until then. The Court analyzed relevant statutory provisions, including the definitions of "net wealth" and "valuation date" under the Wealth-tax Act. The charging section of the Act imposes wealth tax based on net wealth on the valuation date of the individual or company. The key issue was whether the amounts demanded under section 18A were debts owed by the assessee on the valuation dates. The notices of demand were issued quarterly, requiring payment to the Central Government. The Revenue contended that the provision allowed the assessee to estimate and adjust tax payments, indicating a running account rather than a fixed debt. However, the Court held that until a new estimate is made by the assessee, the amount demanded is ascertained, creating a statutory liability. The Court agreed with the High Court's interpretation that the demands constituted debts owed by the assessee under the Wealth-tax Act on the valuation dates.

The Court further emphasized that the liability under section 18A does not become contingent merely because it may be reduced or extinguished based on future actions by the assessee. The Court cited a previous judgment to support the view that a debt is owed once an order under section 18A(1) is passed and a notice of demand is issued. The amounts mentioned in the demand notices are considered debts owed until a new figure is substituted by the assessee's action. As the assessee had not taken any action under section 18A(2) on the valuation dates, the amounts demanded were deemed as debts owed within the meaning of section 2(m) of the Wealth-tax Act. Consequently, the Court upheld the High Court's decision in favor of the assessee, dismissing the Revenue's appeals and ordering costs to be paid.