1968 (9) TMI 17 - HC - Wealth-tax

Computation of the assessee s net wealth on the valuation date - whether in view of the provisions of section 2(m)(iii)(a) of the WT Act, 1957, the income-tax liability is a debt which could be allowed as a deduction - Held, no

Summary

Issues:
Whether income-tax liability of Rs. 5,53,370 can be allowed as a deduction in the computation of the assessee's net wealth on the valuation date of December 31, 1956.

Analysis:
The case involved a reference under section 27(1) of the Wealth-tax Act, 1957 regarding the deductibility of income-tax liability amounting to Rs. 5,53,370 in the computation of the assessee's net wealth on the valuation date. The assessee, a public limited company, had claimed this amount as a debt deductible in the computation of its net wealth. The tax liability in question arose from assessments for the years 1943-44 to 1948-49, with the assessee having paid a portion under protest and challenging the balance. The Wealth-tax Officer disallowed the deduction, citing the ongoing challenge to the liability. However, the Appellate Assistant Commissioner and the Income-tax Tribunal ruled in favor of the assessee, holding that the liability had matured into a valid debt despite the ongoing appeal.

The interpretation of Section 2(m)(iii)(a) of the Wealth-tax Act was crucial in this case. This provision excluded certain tax liabilities from being considered as debts for the purpose of computing net wealth, particularly those claimed by the assessee in appeal or revision as not payable. The retrospective nature of an amendment introduced by the Finance Act, 1959 was also significant. This amendment, giving effect to clause (iii) of Section 2(m), was deemed to have been present in the Wealth-tax Act since its inception in 1957. The retrospective effect meant that the disputed amount of Rs. 5,53,370, being the subject of an appeal by the assessee, could not be considered a deductible debt for the computation of net wealth as of the valuation date.

Ultimately, the court answered the reference question in the negative, emphasizing that the retrospective nature of the amendment had not been considered by the Tribunal. As a result, the disputed amount could not be allowed as a deduction in the computation of the assessee's net wealth. The court decided that there would be no order as to costs for the reference, given the oversight regarding the retrospective effect of the amendment.