1971 (9) TMI 28 - SC - Wealth-tax

Whether the provision of Rs. 2,99,21,841 made by the assessee for its tax liability, less the amount of the last installment of advance tax constituted a debt owed by the assessee within the meaning of clause (m) of section 2 of the Wealth-tax Act on the relevant valuation date - question is answered in favor of assessee

Summary

Issues:
- Referral of questions of law to the High Court regarding computation of net wealth based on tax liability provision.
- Interpretation of "debt owed by the assessee" under the Wealth-tax Act.
- Inclusion of provision for tax liability in the computation of net wealth.
- Exclusion of the last instalment of advance tax from the net wealth calculation.

Analysis:
The judgment by the Supreme Court involved two consolidated applications, one by the assessee and the other by the Commissioner of Wealth-tax, seeking a referral of questions of law to the High Court regarding the computation of the net wealth based on a tax liability provision. The relevant assessment year was 1958-59, and the main issue revolved around the deduction claimed by the assessee for a sum provided in the books for tax liabilities. Both the Wealth-tax Officer and the Appellate Assistant Commissioner disallowed the deduction, leading to an appeal before the Tribunal.

The Tribunal differentiated between a debt and a liability, citing the definition of "debt" as a sum presently or future payable due to an obligation. It held that a provision for tax liability, without a quantified assessment and demand, did not constitute a "debt owed by the assessee" under the Wealth-tax Act. However, the Tribunal recognized the last instalment of advance tax, with a demand before the valuation date, as a debt owed by the assessee, as it represented a present obligation for payment on a specific future date.

The High Court ruled in favor of the revenue, but the Supreme Court disagreed, citing precedent in Kesoram Industries case. It held that the provision for tax liability, minus the last advance tax instalment, did constitute a debt owed by the assessee. As a result, Civil Appeal Nos. 1404 of 1970 and 1471 of 1971 were allowed in favor of the assessee, overturning the High Court's decision. However, Civil Appeal No. 1405 of 1970 was dismissed as the certificate granted by the High Court lacked supporting reasons.

In conclusion, the Supreme Court clarified the interpretation of "debt owed by the assessee" under the Wealth-tax Act, emphasizing the distinction between mere liabilities and debts with present obligations. The judgment highlighted the importance of quantification and demand in determining the inclusion of tax provisions in the net wealth calculation, ultimately favoring the assessee's position in this case.