1992 (5) TMI 172 - SC - Wealth-tax

Whether, on the facts and in the circumstances of the case, the claim of the assessee for deduction of the tax liability amounting to Rs. 6,69,766 in computing the net wealth in four wealth-tax assessments is admissible under the provisions of the Wealth-tax Act - High Court rightly held that the amount of Rs. 6,69,766 was not admissible as deduction while computing the net wealth of the appellant

Issues Involved:
1. Deductibility of tax liability in computing net wealth under the Wealth-tax Act, 1957.
2. Interpretation of section 2(m)(iii)(a) and (b) of the Wealth-tax Act regarding outstanding tax debts.
3. Impact of pending appeals and final adjudication on tax liability and its deductibility.

Detailed Analysis:

Issue 1: Deductibility of Tax Liability in Computing Net Wealth

The central question was whether the assessee's claim for deduction of a tax liability amounting to Rs. 6,69,766 in computing the net wealth for the assessment years 1962-63 to 1965-66 was admissible under the Wealth-tax Act, 1957. The appellant, the erstwhile Raja of Jeypore, argued that this liability should be deducted from his net wealth as it was a debt within the meaning of section 2(m) of the Wealth-tax Act. However, the Wealth-tax Officer disallowed the claim on the ground that the tax payable had remained outstanding for more than twelve months on the valuation date.

Issue 2: Interpretation of Section 2(m)(iii)(a) and (b) of the Wealth-tax Act

The court examined whether the tax liability could be deducted under section 2(m)(iii)(a) or (b) of the Wealth-tax Act. According to section 2(m), net wealth is the aggregate value of all assets minus the aggregate value of all debts owed by the assessee on the valuation date, excluding certain debts such as:

(i) Debts not to be taken into account under section 6.
(ii) Debts secured on or incurred in relation to properties not chargeable to wealth tax.
(iii) Amounts of tax, penalty, or interest payable in consequence of any order under the Wealth-tax Act or related laws, which are either:
(a) Claimed by the assessee in appeal, revision, or other proceedings as not payable, or
(b) Outstanding for more than twelve months on the valuation date.

The court noted that for clause (a) to apply, the amount must be both outstanding on the valuation date and claimed by the assessee as not payable in any pending proceedings. Since no such proceedings were pending on the valuation dates for the years in question, the court found that the appellant could not be precluded from claiming the deduction under sub-clause (a).

Issue 3: Impact of Pending Appeals and Final Adjudication on Tax Liability and its Deductibility

The court also considered whether the tax liability, which became final after the Supreme Court's decision in 1958, could be deducted if it remained outstanding for more than twelve months on the valuation date. The appellant argued that the period should be counted from the date of the fresh notice of demand issued in 1964. However, the court held that the liability to pay the tax existed from the original demand date, and since it remained unpaid for more than twelve months on the valuation dates, the bar under sub-clause (b) applied.

The court further explained that under section 66(7) of the Income-tax Act, income-tax is payable irrespective of whether a reference is pending. Therefore, the tax assessed remained outstanding throughout the period the reference was pending in the High Court and during the appeal in the Supreme Court. The court concluded that the tax liability was outstanding on the valuation dates for more than twelve months, making it non-deductible under section 2(m)(iii)(b).

Conclusion:

The Supreme Court upheld the High Court's decision, concluding that the tax liability of Rs. 6,69,766 was not deductible while computing the net wealth of the appellant for the assessment years 1962-63 to 1965-66. The appeals were dismissed with costs.

← Previous Next →