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TMI Blog1962 (5) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... t owed within the meaning of Section 2(m) of the Wealth Tax Act, 1957 and as such deductible in computing the net wealth of the assessee? 2. The facts are as follows: The assessee is a company incorporated under the Indian Companies Act. Its subscribed capital at the end of the relevant accounting year was ₹ 2,29,99,125/-. In Schedule 'D' annexed to the balance sheet its fixed assets were shown as being worth ₹ 2,60,52,357/-, the original cost of the same being ₹ 2,30,32,833/-. The assets had been revalued during the year ending on March 31, 1950 when a sum of ₹ 1,45,87,000/- was added to the value at cost. On the valuation date the figure of ₹ 2,60,52,357/- was arrived at after making certain adjustments. The first question relates to this revaluation. The contention of the assessee is that the increase of ₹ 1,45,87,000/- ought to be ignored altogether in computation of the net wealth under the Act. This amount has been shown in Schedule 'B' to the balance sheet as capital reserve not available for dividend. In the profit and loss account a sum of ₹ 15,29,855/- has been shown as the amount of dividend proposed to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss for which accounts are maintained by him regularly, the Wealth Tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance sheet of such business as on the valuation date and making such adjustments therein as the circumstances of the case may require. 4. It would therefore appear that under Sub-section (1) of Section 7 the Wealth Tax Officer is called upon to value the assets on the estimate of what the same would fetch if sold in the open market on the valuation date. Where the assessee carries on business for which accounts are regularly maintained, the Wealth Tax Officer may, instead of valuing each asset separately, determine the net value of the assets of the business as a whole having regard to the balance sheet of such business making necessary adjustments therein. In this case we are not concerned with the question as to whether the word 'may' in Clause (a) of Sub-section (2) means 'shall'. The Wealth Tax Authorities have proceeded on the valuation of the assets given in the balance sheet and the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n valuation was subject to no reservation or qualification. As the value of the assets was increased a corresponding balancing figure had to be introduced under 'reserve and surplus'. This was done by showing a capital surplus of ₹ 1,45,87,000/- i.e. the exact figure which represented the increase in the value of the assets. This, however, does not mean that of the value of the assets of the company had to be determined on a date subsequent to the revaluation the figure of ₹ 1,45,87,000/- should be deducted from the revalued assets. This would result in the value of the assets being taken on the basis of the cost thereof less depreciation. This method ought not to be adopted in a case where the company itself felt that its assets were worth much more than the actual cost thereof. It is not necessary to speculate as to what would have happened if there had been no revaluation of the assets in 1950 and whether the Wealth Tax Authorities would be justified in making a valuation of the assets themselves if they felt that the balance sheet did not give a true and correct figure of the value of the assets. It was argued on behalf of the assesses that Section 7(2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not open to any share holder to say that the company was indebted to him in a certain amount as dividend before the declaration of the same at the general meeting. No share-holder can sue a company for payment of a dividend unless it is sanctioned at a general meeting. 7. The third question is one of some nicety and depends upon the proper construction of various sections of the Income Tax Act. It was argued on behalf of the assessee that the liability to pay Income Tax arose as soon as anybody engaged in business and although it might be quantified by the Income Tax Authorities after the valuation date the liability continued in existence throughout the accounting year including the said date and as such there was a debt which ought to be taken into account in computing the net wealth of the assessee. This argument is attractive but not entirely sound. Until the close of the year i.e. the valuation date which in this case was March 31, 1957 it was not possible to say whether as a result of the whole year's working the assessee would incur any liability to Income Tax for the accounting year. It is not difficult to imagine a case where an assessee goes on making profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, J. also relied on Sabju Sahib's case, ILR 22 Mad 139. 8. In (1883) 11 QBD 518, the question was whether the income of a judgment-debtor arising from a fund vested in trustees payable half yearly in February and August could be attached in their hands when it appeared that the last half yearly payment had been made and there was no money in their hands at the time of attachment. Lindley L. J. observed there (page 527) I should say, apart from any authority, that a debt legal or equitable can be attached whether it be a debt owing or accruing; but it must be a debt, and a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in future. An accruing debt therefore is a debt not yet actually payable, but a debt which is represented by an existing obligation. 9. To merit deduction in the computation of net wealth the liability must not only be a debt but one solvendum in praesenti. 10. To consider the question from the point of view of the Income Tax Act: Under Section 3 tax is to be charged for any year at the rate or rates prescribed for that year in accordance with and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: An insurance committee acting under the National Insurance Acts, 1911 and 1913, and the Regulations made thereunder, entered into an agreement with the panel doctors of their districts by which the whole amounts received by the Committee from the National Insurance Commissioners were to be pooled and distributed among the panel doctors in accordance with a scale of fees; the total amount available for medical benefit so received by the committee was to be the limit of their liability to the panel doctors, and if the total pool was insufficient to meet all the proper charges of the panel doctors in accordance with the scale there was to be a pro rata reduction for each doctor, and on the other hand if it should be in excess of the amount required the balance was to be distributed among the panel doctors. It was held that where a panel doctor had done work under his agreement with the Insurance Committee, and the Committee had received funds in respect of medical benefit from the National Insurance Commissioners, there was a debt owing or accruing from the Insurance Committee to the panel doctor which could be attached under Order XLV Rule 1, notwithstanding that as a matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deral Court observed the Income Tax assessment proceedings commence with the issue of a notice. The service of receipt of a notice is not, however, the foundation of the jurisdiction, of the Income Tax Officer to make the assessment or 'of the liability of the assessee to pay the tax...... The liability to pay the tax is founded on Sections 3 and 4 of the Income Tax Act which are the charging sections. Section 22 etc. are the machinery sections to determine the amount of tax. Referring to the above pronouncement of Lord Dunedin his Lordship said In India these well considered pronouncements are accepted without reservation as laying down the true principles of taxation under the Income Tax Act. 14. The above statement of law was amplified by the Supreme Court in Chatturam Horiram Ltd. v. Commissioner of Income Tax, B. and O. [1955]27ITR709(SC) under the scheme of the Income-lax Act the income of an assessee attracts the quality of taxability with reference to the standing provisions of the Act but the payability and the quantification of the tax depend on the passing and application of the annual Finance Act. Thus, income is chargeable to tax independent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebt was owed by the assessee on the valuation date. It is unfortunate that an assessee who cannot retain a portion of his wealth because he is under a liability to the State to pay it by way of Income Tax add super-tax should yet be called upon to pay wealth tax without such deduction. But in the absence of the liability ripening into a debt owed I do not see my way to accept the assessee's contention that the liability should be taken into account in computing the net wealth. 17. The answers to the questions put therefore are as follows: Question No. 1 in the affirmative. Question No. 2 in the negative. Question No. 3 in the negative. The assessee must pay the costs of this Reference. Chandra Narayan Laik, J. 18. I agree with the conclusions arrived at and the answers given by my Lord, but I intend to add a few words on question No. 3 only, which runs as follows: (3) Whether, on the facts and circumstances of the case, in computing the net wealth of the assessee the amount of the provision for payment of Income Tax, and super-tax in respect of the year of account was a debt owed within the meaning of Section 2(m) of the Wealth Tax Act, 1957 and as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is, 'being owed'. In Webster's and Shorter Oxford Dictionaries, the word 'owing' has also been stated to mean debt. 24. In my view, the words 'debt owed' in Section 2(m) of the Act denote that the obligation to pay the debt must be one in praesenti and not in future. The said view gets support from the decision of Subramanian Chettiar v. Arunachallam Chettiar, 29 Ind App 138 (PC). 25. In the case of Inland Revenue Commrs. v. Bagnall Ltd., (1944) 1 All ER 204, the fact was that the respondent was incorporated as a private Company, limited by shares under the Companies Act, 1862 (repealed), so long ago as the year 1887. It selected the years 1935 and 1937 as its standard period for the purpose of the Excess Profits Tax. The Excess Profits Tax was imposed by the Finance Act, 1939 and Part II of the 7th Schedule to that Act contains the Rules for computing the capital employed in a trade or business the profits whereof are subject to that tax. The section of those Rules provides that in the computation of the capital, 'debts' are to be deducted from the capital employed in the trade or business during both the standard period and in any charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rehand and nothing more. 28. Now if we look to the provisions of the other Acts, viz., the Bengal Agricultural Debtors Act, 1935 it has been held by B. K Mukherjea, J. (as his Lordship then was), delivering the judgment on behalf of the Court, in the case of Jabed v. Taher AIR1941Cal639 that a debt must be a specified and ascertained sum. Under the said Act in another case, viz., Noor Mea v. Noakhali Nath Bank, Ltd. AIR1939Cal298 , the words 'debt owing' and 'liabilities' were explained by this Court in some detail. 29. My Lord has just now referred to the Full Bench decision reported in ILR 40 Mad 31: (AIR 1918 Mad 1145) (FB) Arising out of Section 25 of the Indian Contract Act and I refrain from repeating the reasonings. The decision in ILR 36 Cal 936 (FB) also discussed by my Lord, has been approved by their Lordships in the Supreme Court in Mukti Lal v. Trustees of the Provident Fund of the Tin Plate Co. of India, Ltd. (1956)IILLJ215SC . 30. In a case decided by this Court in Secretary of State for India v. Smt. Parijat Debi, reported in AIR1933Cal841 , dealing with Section 214 of the Indian Succession Act, it has been held that a sum of money payable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to settle its amount. 35. Mr. Mitter further contended that in Form A annexed to Rule 3 of the Rules, debt has been equated not only with liabilities but even with contingent liabilities and he drew our attention to the notes at the footnote under Annexure XII to the said Form. He developed his argument by saying that when it is provided that debts which are purely in the nature of contingent liabilities should not be included m Annexure XI or XII, the Legislature thereby meant that the provisions of Income Tax though might not be a 'debt owed' in the strict sense of the term, must come in any event within the category of liability or at least in the category of contingent liability and therefore the said sum should be deducted in assessing the net wealth, as the said sum is not a 'purely' contingent liability. 36. Mr. Mitter's argument suffers from at least, two defects: the first one, that Form A does not apply in the case of Companies which is the case here and secondly the Forms cannot prevail over the section of the Act. (vide: In the matter of Recols (India) Ltd., 57 C WN 468 (S. B.)). 37. I am also unable to accept the argument of Mr. Mitter that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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