1967 (8) TMI 33 - HC - Wealth-tax

Whether the provision made for tax payable under section 23A where no order under section 23A had been passed before the valuation date is an allowable deduction in the computation of the net wealth - Held, no

Summary

Issues Involved:
1. Allowability of tax provisions as deductions under the Wealth-tax Act.
2. Whether advance tax under section 18A is a debt owed.
3. Provision for additional super-tax under section 23A as an allowable deduction.

Detailed Analysis:

Issue 1: Allowability of Tax Provisions as Deductions
The first question addresses whether sums representing tax balances for the years ending December 31, 1954, and December 31, 1957, are allowable deductions in the computation of net wealth under the Wealth-tax Act. The central issue is whether these taxes, for which provisions have been made, qualify as "debts owed" under section 2(m) of the Wealth-tax Act, 1957. The Tribunal initially declined these deductions, but the Supreme Court in Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax established that a provision for income tax is a present liability and qualifies as a debt owed, deductible in computing net wealth. Accordingly, the first part of the first question is answered in favor of the assessee, with the caveat that the assessee must seek remedy independently under section 35(2).

Issue 2: Advance Tax as Debt Owed
The third question pertains to whether tax due under section 18A, based on the assessee's estimate, can be regarded as a debt owed. The Tribunal had initially ruled against the assessee, but the Supreme Court's decision in Commissioner of Wealth-tax v. Standard Vacuum Oil Company Ltd. clarified that amounts covered by notices of demand under section 18A are debts owed within the meaning of section 2(m) of the Wealth-tax Act. The principle applies equally to advance tax paid on demand or on the assessee's estimate. Therefore, the third question is answered in favor of the assessee.

Issue 3: Provision for Additional Super-tax under Section 23A
The second question involves whether a provision made for tax payable under section 23A, where no order was passed before the valuation date, is an allowable deduction. The Tribunal disallowed this deduction, arguing that liability under section 23A arises only from an order of the Income-tax Officer, not automatically by statutory force. The Supreme Court in M. M. Parikh, Income-tax Officer v. Navanagar Transport and Industries Ltd. supported this view, stating that liability under section 23A does not arise until an order is passed by the Income-tax Officer. Thus, the second question is answered against the assessee.

Conclusion:
1. The first part of the first question is answered in favor of the assessee, but the assessee must seek remedy under section 35(2).
2. The second part of the first question is also answered in favor of the assessee.
3. The third question is answered in favor of the assessee.
4. The second question is answered against the assessee, as the liability under section 23A arises only from an order by the Income-tax Officer.