1981 (5) TMI 46 - AT - Wealth-tax

Summary

Issues:
- Whether the additional tax liability arising from a settlement order made after the valuation date can be considered as a debt owed by the assessee on the relevant valuation dates.

Detailed Analysis:
The judgment involved four departmental appeals that raised a common contention regarding the allowance of a liability of Rs. 24,338 arising from a settlement order made after the valuation date. The assessee, a partner in a dissolved firm, sought to deduct the additional tax liability as a debt in computing net wealth for assessment years. The WTO initially rejected the claim, leading to an appeal before the AAC.

The AAC considered the matter and allowed the deduction of Rs. 24,338, stating that the liability was related to the assessee's share of unaccounted profits of the firm. The AAC reasoned that since the income-tax liability of Rs. 91,552 from the settlement order was allowed, the additional sum of Rs. 16,550 demanded personally from the assessee should also be deductible. The remaining amount of Rs. 7,788 represented 50% of the tax payable by the firm, which the AAC deemed attributable to the assessee's share of unaccounted profits.

The departmental representative challenged the AAC's order, arguing that the additional tax liability post-dating the valuation dates could not be considered a debt. Conversely, the assessee's counsel relied on various authorities and the AAC's order to support the deduction claim. The ITAT, after considering the submissions and case circumstances, agreed with the AAC. The ITAT referenced decisions supporting deduction based on final tax assessments and held that the additional tax liability from the settlement order should be regarded as part of the tax determined on assessment.

Regarding the Rs. 7,788 representing 1/2 of the tax payable by the dissolved firm, the ITAT opined that since the firm was dissolved, the tax had to be recovered from the assessee. Therefore, the tax liability was considered a debt owed by the assessee on the relevant valuation dates. Consequently, the ITAT upheld the AAC's decision to allow the deduction of Rs. 24,338 in computing the net wealth for each assessment year.

In conclusion, all four departmental appeals were dismissed, affirming the deduction of the additional tax liability as a debt owed by the assessee on the relevant valuation dates.