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TMI Blog1975 (5) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner ?" The assessment year is 1964-65, and the valuation date is March 31, 1964. M/s. Orr Dignam Co., a firm of solicitors, is hereinafter stated as the "firm" The assessee is a partner of the firm. The firm maintains its books on cash basis. The firm is entitled to get costs from its clients and has submitted the bills to them. In the assessment year, the firm did not include in its balance sheet these unrealised sums, hereinafter stated as the "outstandings". The Tax Officer has included them in the balance sheet on the ground that these outstandings are the assets of the firm and are includible in the computation of the net wealth of the assessee and on estimate, has determined the assessee's share in these outstanding at Rs. 2,50,000. The Appellate Assistant Commissioner, on appeal by the assessee, has directed the Tax Officer to determine the assessee's share in the net wealth of the firm, under rule 2 of the Wealth-tax Rules, 1957, by taking these outstandings into account in accordance with the percentage determined by him. And, save as to certain matters, the Appellate Tribunal has affirmed the decision of the Appellate Assistant Commissioner and has also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Commissioner of Wealth-tax v. Vysyaraju Badreenarayanamoorthy Raju. (iv) The Tax Officer should not have included these outstandings in the balance-sheet of the firm, because the assessee will not get his share in these outstandings in the event of his not remaining in the firm on the date of realisation of these outstandings under clause 20 of the partnership deed and this is a circumstance which justifies their non-inclusion under section 7(2)(a) of the Act. (v) If these outstandings are included in the computation of the net wealth of the firm the estimated income-tax liability of the firm on these outstandings should also be taken into account and the assessee should be allowed a proportionate deduction in respect thereof in accordance with his share in the firm. There is no dispute that property of every description, movable and immovable, is included in the term "asset" barring the properties specified in section 2(e) and other sections of the Act. "Property", as said by the Supreme Court in Ahmed G. H. Ariff v. Commissioner of Wealth-tax, "is a term of the widest import and, subject to any limitation which the context may require, it signifies ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority judgment after considering a few well-known decisions and also approving the Full Bench decision of this court, Subba Rao J. (as he then was), at p. 780 of the report, says this : "We have briefly noticed the judgments cited at the Bar. There is no conflict on the definition of the word 'debt'. All the decisions agree that the meaning of the expression 'debt' may take colour from the provisions of the concerned Act : it may have different shades of meaning. But the following definition is unanimously accepted : 'A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation : debitum in praesenti, solvendum in futuro'." The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in future till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of section 2(m) of the Wealth-tax Act can be defined as a liability to pay in praesenti or in future an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce against the recovery of the debt : in other words, a debt is no less a debt because it has not yet matured, if it will certainly become payable in the future." It is well-settled that a debt is an obligation to pay forthwith or in future an ascertained or an unascertained sum of money if it can be ascertained on a subsequent date. It also includes a future debt. It has been held in Sandersons Morgans case, that notwithstanding any special agreement to pay the attorney and client cost, the court has jurisdiction to disallow the costs unreasonably and in excess of the limits prescribed by the Rules of the Original Side of this court charged by the solicitors from the clients. It was also held that in a proper case the court can direct taxation of the bill of costs and the solicitor is also entitled to a reasonable and fair remuneration for the professional services rendered by him to his client, but not the costs which are unnecessarily and unreasonably incurred by him for his client. No doubt, under certain special circumstances, the court can disallow certain items of cost, but it has no sweeping power to absolve the client altogether from paying the costs of his sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d we see no reason as to why the right to receive compensation cannot be included amongst the assets of an assessee," Section 7(1) of the Act provides that the value of any asset, other than cash, shall be estimated to be the price which, in the opinion of the tax officer, it would fetch, if sold in the open market on the valuation date. The Bombay High Court has construed this section in Commissioner of Wealth-tax v. Purshottam N. Amersey, and its interpretation, has been approved in Ariff's case 2, at pp. 477-78 of the report, in the following terms : "It has been rightly observed by the High Court that when this statute uses the words 'if sold in the open market' it does not contemplate actual sale or the actual state of the market, but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market and on that basis the value has to be found out. It is a hypothetical case which is contemplated and the tax officer must assume that there is an open market in which the asset can be sold. The Supreme Court has also dismissed the appeal filed by the assessee from the decision of the Bombay High Court in Commissioner of Wealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edn.), at p. 69, it is said that a debt is a legal chose-in-action. Hence, we overrule this plea of Mr. Ginwalla. Further, an actionable claim means a debt, other than the debts specified in section 3 of the Transfer of Property Act. Where a debt is transferred in accordance with the provisions of section 130 of the Transfer of Property Act it carries with it all legal incidents thereof including the securities for such debt under section 8 of the Transfer of Property Act. The moment a debt is validly transferred the transferee is vested with all the rights and remedies of the transferor under section 130 of the Transfer of Property Act. And the language of this section is "positive" and the right conferred by it cannot be whittled down by the application of "the principles of English law" is the decision of the judicial Committee of the Privy Council in Mulraj Khatau v. Vishwanath Prabhuram Vaidya. These bills of the firm, in our opinion, are choses-in-action and, therefore, the contention of Mr. Ginwalla must fail. We are also unable to entertain his contention that nobody is willing to purchase these bills of the firm, because no such fact has been stated or found by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) and (ii) earlier. Now, in Commissioner of Wealth-tax v. V. B. Raju, the assessee carried on money-lending business and maintained his books on cash basis. He did not include the interest realised by him in his wealth-tax return and, therefore, the tax officer included them in the computation of his net wealth, but the Tribunal deleted the same by holding that the tax officer has no power to do so under section 7(2)(a) of the Act, because it would amount to a changing of the cash system of book-keeping into a mercantile system of accounting. The High Court accepted the said opinion of the Tribunal and, at page 332 of the report, said as follows : "Admittedly, the Wealth-tax Act is a sister legislation of the Income-tax Act, and various provisions have been made in it which incorporates the machinery set up under the Income-tax Act for its working. The learned standing counsel for the revenue admits that, under the Income-tax Act, in the case of an assessee maintaining its accounts on cash basis, there is no scope for taking accrued income before receipt .......... In the absence of any specified provision in the Wealth-tax Act for a different mode of computation of net we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot entered in the books, is nonetheless a debt as held by Erle C.J. in the case of Shipley v. Marshall in the following terms : "To constitute a 'book debt' it cannot, to my mind, be necessary that the transaction should be entered in a book." The tax officer is expressly authorised to make adjustments in the balance sheet under section 7(2)(a) of the Act if "the circumstances of the case may require" him to do so. The fact that a book debt is not entered in the books is itself a circumstance which justifies its inclusion in the balance sheet under this section for the purpose of making the adjustment. In our opinion, by making such adjustment in the balance-sheet, the tax officer does not convert the cash system of book-keeping into a mercantile system of book-keeping for the purpose of the Wealth-tax Act. The Income-tax Act and the Wealth-tax Act may be sister legislations, but from the mere fact that the same machinery has been utilised it cannot be said that these two Acts are in pari materia. The legislative intent must be ascertained from the language used in these two statutes and not from the mere utilisation of the same machinery which has been adopted to utilise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thdraw or receive out of the partnership any sums standing to the credit of his account in the books of the firm." The submission of Mr. Ginwalla is that the assessee may not remain in the firm on the date of realisation of these outstandings and in that event he will not get his share in these outstandings under this clause and, therefore, the tax officer was not justified in including these outstandings in the balance-sheet of the firm, because this is a circumstance which justifies their non-inclusion under section 7(2) of the Act. But the Act is concerned with net wealth of the assessee on the valuation date. These outstandings were assets and the wealth of the firm on that date. And the assessee was a partner of the firm on that date. Hence, there is no merit in this contention. No income-tax is payable by the firm on these outstandings on the valuation date in view of its cash system of accounting and section 2(m) of the Act does not allow any such deductions. Therefore, the last contention of Mr. Ginwalla must also fail. In the facts and in the circumstances of the case, we make no order as to costs. R. N. PYNE J.--I agree. - - TaxTMI - TMITax - Wealth ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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