1967 (12) TMI 4 - SC - Wealth-tax

Liability towards wealth-tax calculated on the basis of wealth-tax return filed by the appellant is an admissible deduction under s. 2(m) for the purpose of computation of the net wealth of the appellant - Assessee s appeal is allowed

Summary

Issues:
1. Deductibility of wealth-tax liability in computing net wealth.
2. Justification of deletion of difference between market value and book value of shares.
3. Allowance of provision made for tax as a deduction in computing break-up value of shares.

Issue 1: Deductibility of wealth-tax liability in computing net wealth:
The appellant contested that wealth-tax should be deducted in computing net wealth for the relevant assessment years. The Appellate Tribunal initially allowed the claim, but the Commissioner of Wealth-tax challenged this decision. The High Court considered whether wealth-tax liability could be deducted as a liability for the respective years. The High Court ruled that wealth-tax liability crystallizes on the valuation date, not on the first day of the assessment year. The court referenced the principle established in a previous case, emphasizing that a liability to pay tax is a present liability, even if quantified later. The court held that wealth-tax liability on the valuation date should be considered a debt owed and deducted from the estimated value of assets for the assessment year. Consequently, the High Court answered in favor of the appellant, allowing the deduction of wealth-tax liability under section 2(m) of the Wealth-tax Act for the assessment years in question.

Issue 2: Justification of deletion of difference between market value and book value of shares:
The High Court also addressed whether the deletion of differences between market value and book value of shares held by a company was justified. The court ruled in favor of the appellant on this issue, stating that the deletion was justified under the circumstances and provisions of the Act. This decision favored the appellant against the department's contentions.

Issue 3: Allowance of provision made for tax as a deduction in computing break-up value of shares:
The third question raised was whether a provision made for tax and shown in the balance sheet should be allowed as a deduction in computing the break-up value of shares in a specific company. The High Court sided with the appellant on this matter, holding that the provision for tax should indeed be allowed as a deduction in computing the break-up value of shares. This decision supported the appellant's position in the case.

In conclusion, the Supreme Court allowed the appeals, with costs awarded to the appellant. The court upheld the deductions of wealth-tax liability, justified the deletion of differences in share values, and allowed the provision for tax as a deduction in computing share values. The judgments delivered by the High Court favored the appellant on all three issues, providing a comprehensive analysis and legal reasoning for each decision.