1970 (4) TMI 41 - HC - Wealth-tax

Wealth Tax Act, 1957 - held that provisions made for payment of income-tax and super tax which is not an over estimate is allowable as debt owed by the assessee - Whether,the sum being the balance of the demand payable as a result of the findings and orders of the Income-tax Investigation Commission was deductible in determining the net wealth of the company - question is answered in affirmitive in favour of assessee

Summary

Issues:
1. Deductibility of provision for income tax and super tax in computing net wealth.
2. Deductibility of provision for proposed dividend in computing net wealth.
3. Deductibility of outstanding demand payable as a result of findings by Income-tax Investigation Commission in determining net wealth.

Analysis:

Issue 1:
The court addressed whether the provision for payment of income tax and super tax in respect of pending assessments was deductible in computing the net wealth of the assessee. Referring to a Supreme Court decision, the court held that the provision made by the assessee for tax liability was allowable as a debt owed by the assessee under the Wealth-tax Act. The court emphasized that the liability created by the charging section was a present liability of an ascertainable amount. Consequently, the court ruled in favor of the assessee on this issue.

Issue 2:
The court examined the deductibility of the provision for proposed dividend in computing the net wealth of the assessee. Citing the Supreme Court's ruling, the court determined that the proposed dividend, recommended by the directors but pending approval at the general body meeting, did not constitute a debt owed by the company to the shareholders. Therefore, the court concluded that the provision for proposed dividend was not deductible in computing the net wealth of the assessee.

Issue 3:
The court deliberated on the deductibility of the outstanding demand payable as a result of findings by the Income-tax Investigation Commission in determining the net wealth of the company. The assessee argued that the outstanding demand should be deducted in the wealth-tax assessment. However, the Wealth-tax Officer and the Appellate Assistant Commissioner disallowed the claim, stating that the tax liability must be related to the assets declared by the assessee to qualify for deduction. The Tribunal also upheld this view. The court disagreed with the Tribunal's interpretation, stating that the debts owed by the assessee need not be referable to the declared assets to be deductible. It emphasized that the tax payable on suppressed profits should be allowed as a deduction under the Wealth-tax Act, regardless of the assets it was related to. Therefore, the court answered question No. 3 in the affirmative and in favor of the assessee.

In conclusion, the court ruled in favor of the assessee on the deductibility of the provision for income tax and super tax, while denying the deductibility of the provision for proposed dividend. Additionally, the court allowed the deduction of the outstanding demand payable as a result of findings by the Income-tax Investigation Commission, emphasizing that the debts owed need not be directly related to the declared assets for deduction under the Wealth-tax Act.