1972 (11) TMI 3 - SC - Wealth-tax

Voluntary Liquidation - High Court was right in coming to the conclusion that Rs. 31, 26, 000 mentioned in the question referred to the High Court is a debt due from the assessee-company - Tribunal is not right in holding that the claim of the assessee for the deduction of Rs. 31, 26, 000 was rightly rejected as coming under s. 2(m)(ii)

Summary

Issues:
Interpretation of the term "debt" under section 2(m)(ii) of the Wealth-tax Act, 1957.

Analysis:
The case involved a dispute regarding the deduction of Rs. 31,26,000 as a debt under the Wealth-tax Act. The Wealth-tax Officer, the Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal held that this amount was not a debt due from the assessee. However, the High Court disagreed and ruled in favor of the assessee, stating that the amount constituted a debt. The key question was whether the Rs. 31,26,000 was a debt within the meaning of section 2(m)(ii) of the Act.

The assessee, a public limited company, had acquired shares and assets from another company, Kellners, for a consideration of Rs. 31,26,000. The agreement between the companies allowed for the payment to be made in cash or through the transfer of shares under specific circumstances. The High Court considered the nature of this liability and concluded that it qualified as a debt due from the assessee to Kellners, despite the option to settle it through share transfer.

The court emphasized that the controlling interest of the assessee in Kellners did not negate the existence of a separate legal entity for Kellners. Even though the assessee had influence over Kellners, they remained distinct entities in the eyes of the law. The court rejected the argument that the liability ceased to be a debt due to the controlling interest, affirming that the two companies were legally separate entities.

Ultimately, the Supreme Court upheld the High Court's decision, ruling that the amount of Rs. 31,26,000 constituted a debt owed by the assessee-company. The appeals were dismissed, and the court affirmed the High Court's judgment in favor of the assessee.