2009 (3) TMI 420 - HC - Wealth-tax

Deduction under section 2(m)(iii) settlement Whether on the facts and circumstances of the case, the Tribunal was justified in holding that the tax liability of Rs.10, 76, 380 resulting on account of settlement pertaining to the assessment years 1958-59 to 1971-72 arrived at with the Commissioner of Income-tax on March 24, 1975, was allowable as a deduction under section 2(m)(iii) of the Wealth-tax Act, 1957? The assessee was an industrial undertaking within the meaning of the Explanation to section 5(1)(xxxi) of the Wealth Tax Act, 1957. Held that- the assessee is an industrial undertaking entitled for exemption under section 5(1)(xxxii) of the act and accordingly uphold the conclusion arrives at by the Ld. Commissioner (Appeals) though for different reason. The reference is disposed of. Decision in favour of assessee against the revenue.

Summary

Issues:
1. Deductibility of tax liability under section 2(m)(iii) of the Wealth-tax Act, 1957.
2. Eligibility for deduction under section 5(1)(xxxii) of the Wealth-tax Act, 1957.

Issue 1: Deductibility of Tax Liability under Section 2(m)(iii) of the Wealth-tax Act, 1957:
In the assessment year 1976-77, the assessee claimed deduction of income-tax and wealth-tax liabilities from the assessment years 1958-59 to 1971-72, based on a settlement with the Commissioner. The Wealth-tax Officer initially disallowed the claim, stating that the liabilities were outstanding for more than 12 months on the valuation date. However, the Appellate Tribunal ruled in favor of the assessee, allowing the deduction. The Revenue contended that the liabilities were not deductible under section 2(m)(iii) of the Act. The assessee argued that previous court decisions supported their position, emphasizing that the tax liability had crystallized and was deductible from the net wealth. The Tribunal's decision was supported by Supreme Court precedents, confirming that even if the tax liability was quantified subsequently, it was deductible as a 'debt owed' under the Act. The judgment concluded that the tax liability determined by the Commissioner was deductible from the net wealth of the assessee.

Issue 2: Eligibility for Deduction under Section 5(1)(xxxii) of the Wealth-tax Act, 1957:
Regarding the second issue, the Revenue conceded that previous court decisions had ruled against them. The Division Bench referred to relevant case law and held that the assessee, engaged in processing goods, qualified as an industrial undertaking under section 5(1)(xxxii) of the Act. The judgment emphasized that the nature of the activity did not require the entire process to be carried out by the assessee alone, and the activity of processing goods made the assessee eligible for exemption under the Act. Citing specific findings and legal interpretations, the judgment concluded that the assessee was indeed an industrial undertaking entitled to the exemption under section 5(1)(xxxii) of the Act.

In conclusion, both issues were decided in favor of the assessee based on legal interpretations, precedents, and relevant provisions of the Wealth-tax Act, 1957. The judgment provided detailed reasoning and analysis for each issue, ultimately disposing of the reference in favor of the assessee.