1971 (5) TMI 1 - HC - Wealth-tax

Voluntary disclosure of income - wWhether income-tax paid on disclosed income can be treated as a debt for the purposes of Wealth-tax Act

Summary

Issues:
1. Interpretation of the Finance Act, 1965 regarding voluntary disclosure of income.
2. Determination of net wealth for Wealth-tax assessment considering income-tax liability.
3. Applicability of deductions for income-tax paid under the voluntary disclosure scheme.

Analysis:

The judgment addresses two writ petitions arising from similar facts concerning the interpretation of the Finance Act, 1965, and its implications on Wealth-tax assessment. The Finance Act, 1965, introduced a scheme for voluntary disclosure of secreted income with retrospective effect from March 1, 1965. The scheme provided for a concessional basis for settling income-tax liability on the disclosed amount. The petitioners availed of this scheme by disclosing undisclosed income for various assessment years and paying income-tax accordingly.

The dispute arose when the Wealth-tax Officer initiated proceedings under the Wealth-tax Act, 1957, to reassess the net wealth based on the disclosed income attributed to specific assessment years. The petitioners argued that the income-tax payable on the disclosed income should be considered a debt owed by them on the valuation date and deducted from the disclosed amount to determine the net wealth for Wealth-tax assessment. However, both the Wealth-tax Officer and the Appellate Assistant Commissioner rejected this contention.

The court examined the relevant provisions of the Wealth-tax Act and the Finance Act, 1965, to assess the petitioners' claims. It was established that the income-tax paid under the voluntary disclosure scheme was not a debt owed by the assessee on the valuation date for determining net wealth under the Wealth-tax Act. The court clarified that the tax liability arises only when the income is assessed under the relevant Income-tax Act, not at the time of disclosure under the Finance Act, 1965.

The court concluded that the petitioners' claims for deduction of income-tax paid under the voluntary disclosure scheme in determining the net wealth for Wealth-tax assessment were not sustainable. The court dismissed the writ petitions, upholding that the income-tax paid under the voluntary disclosure scheme did not qualify as a debt owed by the assessee on the valuation date for Wealth-tax assessment purposes.

In summary, the judgment clarifies the distinction between income-tax liability under the Income-tax Act and net wealth assessment under the Wealth-tax Act, emphasizing that the tax liability arises only upon assessment under the relevant Income-tax Act, not at the time of voluntary disclosure under the Finance Act, 1965.