‘TAX DUE’ WOULD MEAN AN ASCERTAINED LIABILITY

[Mr. M. GOVINDARAJAN]

The terms ‘tax due’ would mean an ascertained liability. It will have to be depending upon the context in which these words are used. The phrase ‘tax due’ cannot refer merely to a liability created by the charging section to pay the tax under the relevant law. It must refer to an ascertained liability for payment of tax quantified in accordance with law.

The Block’s law dictionary defines the term ‘due’  - “Owing, payable, justly owed…. Owed, or owing, as distinguished from payable.  A debt is often said to be due from a person where he is the party owing it, or primarily bound to pay, whether the time for payment has or has not arrived. The word ‘due’ always imports a fixed and settled obligation or liability, but with reference to the time for its payment there is considerable ambiguity in the use of the term, the precise signification being determined in each case from the context.

Jowitt Dictionary of English Law Vol.I defines ‘due’ as anything owing, that which one contracts to pay or perform to another… As applied to a sum of money ‘due’ means either that it is owing or that it is payable, in other words, it may mean that the debt is payable at once or at a future time. It is a question of construction which of these two meanings the word ‘due’ has in a given case.

In ‘Lord Dunedin in Whitney V. Commissioner of Inland Revenue’ – (1926) AC 37 it was held that there are three stages in the imposition of a tax.  There is the declaration of liability that is the part of the stature which determines what persons in respect of what property are liable.  Next there is the assessment. Liability does not depend on assessment that ex hypothesi has already fixed.  But assessment particularizes that exact sum which a person liable has to pay. Lastly come the methods of recovery of the person taxed does not voluntarily pay.

In ‘State of Rajasthan & Others V. Chazilal’ – 1965 (2) SCC 805 the Supreme Court considered the provisions of the Rajasthan Sales Tax Act, 1956.  It observed that according to Section 16(1)(b) there must be a tax due and there must be a failure to pay the tax due within the time allowed.  The Court is of the view that no tax was due within the terms of Section 16 (1)(b).  Section 3 which is the charging section of the Act, read with Section 5 makes tax payable i.e., creates a liability to pay the  tax.  That is the normal function of a charging section in a taxing statute. But till the tax payable is ascertained by the Assessing Authority under Section 10 or by the assessee under Section 7(2) no tax can be said to be due.  For till then there is only a liability to be assessed to tax.

In ‘Associated Cement Co. Limited V. Commercial Tax Officer, Kota & Others’ – 1981 (10) TMI 146 - SUPREME COURT OF INDIA it was held that until the tax payable is ascertained by the Assessing Authority or by the assessee, no tax can be said to be due, for till then there is only a liability to be assessed to tax.

In ‘Harshad Shantilal Mehta V. Custodian & Others’ – 1998 (5) TMI 25 - SUPREME Court the Supreme Court had an occasion to consider the following question amongst others – What is meant by revenues, taxes, cesses and rates due?  Does the word ‘due’ refer to the liability to pay such taxes  etc ., or does it refer to a liability which has crystallized into a legally ascertained sum immediately payable?  The Supreme Court observed that in the present case, the words ‘taxes due’ occur in a section dealing with distribution of property.  At this stage the taxes ‘due’ have to be actually paid out. Therefore, the phrase ‘taxes due’ cannot refer merely to a liability created by the charging section to pay the tax under the relevant law. It must refer to an ascertained liability for payment of taxes quantified in accordance with the law.  In other words, taxes as assessed which are presently payable by the notified person are taxes which have to be taken into account under Section `11(2)(a) while distributing the property of the notified person. Taxes which are not legally assessed or assessments which have not become final and binding on the assessee, are not covered under Section 11(2)(a) because unless it is in an ascertained and quantified liability, disbursement cannot be made.  In the context of Section 11(2)(a) the ‘taxes due’ refer to ‘taxes as finally assessed’