1969 (7) TMI 22 - HC - Wealth-tax

Whether the Tribunal was right in holding that the demands remaining unpaid in respect of instalments falling due after the valuation date cannot be treated to be outstanding for a period of more than 12 months on the valuation date within the meaning of section 2(m)(iii)(b) of the Wealth-tax Act 1957 and in directing accordingly that the entire should be treated as a debt owed by the assessee under section 2(m) - Held yes

Summary

Issues:
Deduction of income-tax liabilities before arriving at net wealth, interpretation of outstanding debts under Wealth-tax Act.

Analysis:
For the assessment year 1957-58, M/s. Banarashi Prasad Kedia filed a return of net wealth as a Hindu undivided family, claiming deduction of income-tax liability. The Income-tax Officer disallowed the amount claimed, leading to an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner rejected the claim, stating that the sum claimed could not be allowed as a debt owed under the Wealth-tax Act. The assessee then appealed to the Tribunal, where it was conceded that only specific claims could be made. The Tribunal held that certain amounts could be considered as debts owed by the assessee and allowed as deductions in computing net wealth.

The main question referred to the court was whether demands remaining unpaid after the valuation date could be treated as outstanding debts for more than 12 months. The court analyzed the provisions of the Wealth-tax Act and relevant case law to determine the nature of outstanding debts. The court referred to the Supreme Court decision in the case of Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, which defined "debt owed" as a liability to pay an ascertainable sum of money. The court also considered the interpretation of "outstanding" in the context of the Act, emphasizing that the amount must be payable and still outstanding on the valuation date.

The court further discussed the concept of outstanding debts in light of the installment scheme granted by the income-tax authorities. It was concluded that an amount which the assessee had the right to pay subsequent to the valuation date could not be considered outstanding on the valuation date. The court held that the Tribunal's decision was correct, as the amounts in question did not meet the criteria of being outstanding debts on the relevant valuation date. Therefore, the question was answered in the affirmative, and the Commissioner of Wealth-tax was directed to pay the costs of the reference.

In summary, the judgment delved into the interpretation of outstanding debts under the Wealth-tax Act, analyzing relevant provisions and case law to determine the eligibility of certain income-tax liabilities as deductible debts. The court emphasized the requirement for debts to be payable and outstanding on the valuation date, ultimately affirming the Tribunal's decision in the case.