1967 (8) TMI 9 - HC - Wealth-tax

Assessee claimed deduction of a sum of Rs. 28,37,282-8-0, representing taxes, penalties, etc. - provisions of s. 2(m)(iii) are a bar to the deduction of Rs. 28,37,282 in the computation of the net wealth of the assessee as on the relevant valuation dates

Issues Involved:

1. Deductibility of certificate debt under section 2(m)(iii) of the Wealth-tax Act.
2. Constitutionality of section 2(m)(iii) of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Deductibility of Certificate Debt under Section 2(m)(iii) of the Wealth-tax Act:

The assessee, a coal-mining company, claimed a deduction of Rs. 28,37,282-8-0, representing taxes and penalties assessed and demanded in 1952, from its net wealth for the assessment years 1957-58 and 1959-60. This amount was subjected to recovery proceedings under the Public Demands Recovery Act. The Wealth-tax Officer disallowed this deduction, a decision upheld by the Appellate Assistant Commissioner. However, the Appellate Tribunal allowed the deduction, stating that once a certificate under the Public Demands Recovery Act is issued, the amount becomes a certificate-debt and not a tax payable under section 2(m)(iii) of the Wealth-tax Act. The Tribunal opined that such debts constitute a charge upon the immovable property of the assessee and are thus deductible.

The High Court, however, disagreed with the Tribunal's view. It held that the character of the debt as a tax demand does not change merely because recovery proceedings are initiated under the Public Demands Recovery Act. The Court cited precedents, including Ramesh Behari Ghose v. Union of India and Builders Supply Corporation v. Union of India, to support the view that income-tax dues, even when enforced through the Public Demands Recovery Act, retain their character as tax demands and do not transform into land revenue. Therefore, the sum of Rs. 28,37,282-8-0, being outstanding for more than twelve months on the valuation date, falls under the purview of section 2(m)(iii)(b) and is not deductible in computing the net wealth of the assessee.

The High Court answered the first question in the affirmative, ruling against the assessee.

2. Constitutionality of Section 2(m)(iii) of the Wealth-tax Act:

The assessee contended that section 2(m)(iii) of the Wealth-tax Act was ultra vires the Constitution, arguing that the Central legislature could levy wealth-tax only on assets and not on debts, as per entry 86 of the Constitution. The Tribunal, however, rejected this contention, stating that the Central legislature was within its rights to allow or disallow deductions of debts in computing the net wealth and that section 2(m)(iii) did not offend the Constitution.

The High Court noted that the Tribunal, being a creature of the statute, did not have the jurisdiction to decide on the constitutionality of statutory provisions. This view was supported by the Supreme Court's decisions in K. S. Venkatarantan & Co. (P.) Ltd. v. State of Madras and C. T. Senthilnathan Chettiar v. State of Madras, which held that questions of ultra vires are beyond the Tribunal's jurisdiction.

Consequently, the High Court concluded that the second question did not arise for decision in this reference and should not have been referred to the Court.

Conclusion:

The High Court ruled that the amount of Rs. 28,37,282-8-0 was not deductible from the net wealth of the assessee under section 2(m)(iii) of the Wealth-tax Act and that the question of the constitutionality of section 2(m)(iii) did not arise for decision. The assessee was ordered to pay the costs of the reference to the Commissioner of Wealth-tax.

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