1970 (8) TMI 17 - HC - Wealth-tax

Wealth Tax Act 1957 - computation of net wealth - claim for deductions for different debts such as provisions for income-tax dividends and balance due on demand of investigation commission -

Summary

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

Analysis:
1. The first issue revolves around the deduction of a provision for income-tax and super-tax in computing the net wealth of the assessee. The Supreme Court precedent in Kesoram Industries case established that such provisions constitute a present liability of an ascertainable amount and are deductible. Therefore, the amount of Rs. 8,47,130 provided for these taxes by the assessee was held to be deductible in computing the net wealth.

2. The second issue concerns the deductibility of a proposed dividend in computing the net wealth. Following the precedent set by the Supreme Court in the Kesoram Industries case, it was ruled that until a company formally accepts and declares a dividend, any proposed dividend remains a mere recommendation and not an existing liability. Hence, the proposed dividend of Rs. 3,78,900 was deemed not deductible in computing the net wealth of the assessee.

3. The third issue addresses the deductibility of a demand payable as a consequence of orders and findings of the Income-tax Investigation Commission in determining the net wealth. Referring to a previous decision of the court in a similar case, it was held that such demands representing existing liabilities are deductible in determining the net wealth of the company. Therefore, the sum of Rs. 20,94,027, being the balance of the demand payable, was considered deductible in this case.

In conclusion, the court answered the first and third questions in the affirmative, favoring the assessee, as the provisions for income-tax and the demand payable were held to be deductible. However, the second question regarding the proposed dividend was answered in the negative, against the assessee. The parties were directed to bear their own costs in this reference.