1970 (1) TMI 10 - HC - Wealth-tax

Computation of net wealth - provision for payment of income-tax and super-tax in respect of assessments not completed till the respective valuation dates - such amount is deductible in computing the net wealth of the assessee

Summary

Issues:
1. Deductibility of provision for payment of income-tax and super-tax in computing net wealth for assessment years 1957-58, 1958-59, and 1959-60.
2. Interpretation of the term "debt owed" under section 2(m) of the Wealth-tax Act.
3. Application of section 2(m)(iii)(b) in determining net wealth regarding outstanding tax liabilities for more than twelve months on the valuation date.

Detailed Analysis:
1. The judgment addressed the issue of whether the provision for payment of income-tax and super-tax, not quantified by an assessment order but accrued, should be deductible in computing the net wealth for specific assessment years. The Appellate Tribunal rejected the claim made by the assessee, leading to a reference being made to the High Court. The court referred to the Supreme Court decision in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, emphasizing that the tax liability need not be quantified by an assessment order to be considered a debt owed. The court held that the Appellate Tribunal erred in rejecting the claim, stating that the tax liability, for which provision was made, should be treated as a debt owed by the assessee.

2. The interpretation of the term "debt owed" under section 2(m) of the Wealth-tax Act was crucial in this case. The court highlighted that in determining the net wealth of an assessee, it is essential to compute the aggregate value of assets and debts owed. The excess of asset value over debt value represents the net wealth. The court analyzed the exclusion of certain classes of debts, including tax payable under a law related to income or profits outstanding for more than twelve months on the valuation date. The court emphasized that for tax to be considered payable, there must be an assessment order under the Indian Income-tax Act, 1922. As no assessment order was made on the valuation dates in question, the exception in section 2(m)(iii)(b) did not apply.

3. Regarding the application of section 2(m)(iii)(b) in determining net wealth concerning outstanding tax liabilities for more than twelve months on the valuation date, the court clarified that the clause of exception specified in the provision was not attracted in this case. As there was no evidence that the tax liability was outstanding for the required period, and no assessment order had been issued by the valuation dates, the court ruled in favor of the assessee. The court answered the question referred in the affirmative, allowing the deduction of the provision for income-tax and super-tax in computing the net wealth for the relevant assessment years. The assessee was awarded costs, including counsel's fee assessed at Rs. 200.