1988 PLP 629 (PTD)

KARAM ELAHEE CHAUHAN, J.-- This case relates to the assessment of wealth tax for the assessment year 1965-66. The Wealth Tax Officer, by means of his order, dated 26th May, 1970 did not allow deduction of the respondent's income-tax and wealth tax liabilities `from the total wealth in respect of the year aforementioned on the ground that on the valuation date the relevant assessments were still pending and liabilities had not been finally quantified. The respondent -assessee filed an appeal before the Appellate Assistant Commissioner which was accepted by means of his order, dated 17th May, 1971. The Appellate Assistant Commissioner of Income-tax held that in the eye of law the amount of tax liability was determined before the assessment was made and the liability thus related back to the valuation date which should be allowed. In this way he excluded an amount of Rs.45,534 from the wealth of the assessee. The Wealth Tax Officer filed an appeal before the Income-tax Appellate Tribunal (Pakistan), Lahore but without any success, as the same was rejected on 29th November, 1971. The case in hand w.--is being processed by the authorities concerned alongwith assessment year 1966-67. The appeals before the Income-tax Appellate Tribunal were also about both these assessment years. The order of the Appellate Tribunal is a short one and can be reproduced with advantage. It reads as follows:- "In these two wealth tax appeals the only objection of the department concerns the deduction of the tax liabilities including the income-tax and wealth tax as directed by the Appellate Assistant Commissioner. (2) For both the years the appellant claimed that certain liabilities of income-tax and wealth tax should be deducted from the wealth on the respective valuation dates in order to arrive at the correct taxable wealth. The Wealth Tax Officer, however, refused to do the same on the ground that the liabilities were determined much after the expiry of the valuation dates. When the matter went to the Appellate Assistant Commissioner ha directed that the same should be allowed. (3) The department's grievance in these circumstances before us is that the Appellate Assistant Commissioner was not justified in admitting the tax liabilities as deductions since a number of assessments were still pending and at the most the liabilities only for the assessments that were completed could be claimed as admissible deductions. It is also argued that the claim for the liabilities was ultimately adjusted by certain reductions etc. as a result of appeals and, therefore, the Appellate Assistant Commissioner was little justified in directing the deduction of the whole claim. (4) We do not find any merit in the department's case as in our view all the tax liabilities are debts owed within the meaning of section 2(m) of the Wealth Tax Act and without these adjustments' the correct wealth on particular dates of valuation cannot be worked out. We, however, agree that only ascertainable and correct liabilities should be allowed so that the appellant does not get any benefit for exaggerated or fictitious claim. (5) The two appeals would be disposed of accordingly."

2. Not being satisfied with the view of the Tribunal the commissioner of Wealth Tax has made a reference in this Court under subsection (1) of section 27 of the Wealth Tax Act (XV of 1963) to answer the following question of law:- "Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the tax liability amounting to Rs.45,534 is to be excluded under section 2(m) of the Wealth Tax Act for purpose of computing the net wealth liable to wealth tax?" The present judgment will attend to this question.

3. Sh. Abdul Haque, learned counsel for the petitioner has referred to the definition of the words 'assessment year', 'assets' 'net wealth' and 'valuation date' as contained in section 2 of the Wealth Tax Act. They read as follows:- Section

2. Definition-- In this ,Act, unless the context otherwise requires,-- (a)

(b)

(c)

(d) assessment year means the years for which tax is chargeable under section 3. (e) 'assets' includes property of every description movable or immovable, but does not include-- (i) growing crops, grass or standing trees on agricultural land; (ii) any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land: Provided that the building is on or in the immediate vicinity of the land and is a building, which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as a dwelling house or a store-house or an outhouse; (iii) one residential house owned and occupied by the assessee for purposes of his own residence where such assessee has exercised the option under sub-paragraph (i) of paragraph (1) of the Schedule; (iv) animals; (v) a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant; (f)

(g)

(h)

(i)

(j)

(k)

(l)

(m) "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets,, wherever located, belonging to the assessee on' the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-- (i) debts which under section 6 are not to be taken into account; and (ii) debts- which are secured on, or which have been incurred in relation to, any asset in respect of which wealth tax is not payable under this Act; (n)

(o)

(p) "valuation date", in relation to any year for which an assessment is to be made. under this Act, means the last day of the previous year as defined in clause (11) of section 2 of the Income Tax Act if an assessment were to be made under that Act for that year: Provided that where in the case of an assessee there are different previous years under the Income Tax Act for different sources of income the valuation date for the purposes of this Act shall be the last day of the previous years aforesaid; (q)

(r)

(s)

Sh. Abdul Haque then referred to section 3 of the Wealth Tax Act where it is written that "subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of July, 1963, a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual and Hindu undivided family at the rate or rates specified in the Schedule". He submitted that according to the aforesaid provision of law, wealth tax is to be levied on the net wealth of an assessee as it stood on the corresponding valuation date of any individual. While computing "net wealth" aggregate of all the debts owed by the assessee on the valuation date is to be excluded as laid down in section 2 (m) of the Act. He submitted that liability to pay income-tax was not a "debt owed" within the true construction of these words until and unless a demand notice to an assessee had actually been issued on or before the valuation date under section 29 of the income Tax Act XI of 1922 where it is written that "when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of this Act, the Income Tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty or interest a notice of demand in the prescribed form specifying the sum so payable." To be a "debt", he submitted; the debt must be quantified and until and unless it is so done, it did not become due and could not be said to be owed by an assessee. Debt "due" and debt "owed", according to him, were always synonymous terms. To project his submission he referred to the following passage of the Privy Council occurring in Doorga Prasad Chamaria v. Secretary of State (1945) 13 I T R 285 (P.C.) where at page 289 it was written that "the last objection to the certificate is that in column 4 no period for which the demand is due was stated as required by the heading to that column. In their Lordships' opinion, although income-tax may be popularly described as due for a certain year, it is not in law so due. It is calculated and assessed by reference to the income of the assessee for a given year, but it is due when demand is made under section 29 and section

45. It then becomes a debt due to the Crown, but not for any particular period". Certain similar observations are contained in Radheshyam Agarwala v. The Commissioner of Income Tax, East Pakistan. Central Secretariat, Dacca P L D 1960 SC (Pak.) 187 where Munir, C.J. at pages 190 and 191 wrote as follows: "As to the first question, namely, whether the impugned notification which was issued by the Central Board of Revenue after the Finance Act had come into force and almost in the middle of the year of assessment, there should be no difficulty in answering it if the general scheme of the income-tax and its relation with the Finance Act is fully comprehended. The basic feature of the Income-tax Act is that the various liabilities created by it arise only when their extent is determined by the Finance Act, section 3 of the Income Tax Act declares:- 'Where any Act of Parliament enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or members of the association individually.' The machinery provided by the Act for the enforcement of a liability comes into motion only when the Finance Act determines the rate or rates of tax on the total incomes of different classes of assessee for the previous year. When these rates have been specified, then by virtue of section 3 tax at those rates has to be charged for the assessment year in question in accordance with the provisions of the Income Tax Act in respect of the total income of the 'previous year' of different classes of assessees. If there be no Finance Act the Income Tax Act remains a dormant statute, but with the passing of the Finance Act it comes at once into activity and the machinery created by it immediately gets into gear to enforce the liabilities of different classes of assessment." Later on at pages 193and 194,the learned Chief Justice wrote follows ; "Though the precise point relating to the power of Central Board of Revenue to change a previous year after the Finance Act has come into force has never come up before any superior Court except in an indirect manner in the inadequately argued case of Messrs Nanak Chand Fateh Chand v. The Commissioner of Income-tax, Punjab and North-West Frontier Province 21 T.C. 167 there are stronger cases which in principle govern the present case. The leading case on the construction of the (Income Tax Act is the judgment of Lord Thankerton in the Privy Council case Maharajah of Pithapuram v. Commissioner of Income Tax, Madras A I R 1945 P.C.

89. In that case several years before the year of assessment the assessee had of transferred certain assets to his daughters under revocable transfers. The Income Tax (Amendment) Act VII of 1939 amended the Indian Income Tax Act, 1922 by providing that income from the assets thus transferred shall be deemed to be the income of the transferor: For the assessment year 1939-40 the income from the assets transferred, by the appellant was included in his own income for the previous year and the contention raised before the Privy Council was that income from the transferred assets was not liable to such inclusion because the transfers had been made long before the Amending Act VII of 1939 which governed the assessment for the year 1939-40 was passed. The Privy Council repelled this contention and held that the income for which exemption was claimed was rightly taxed. The following observations which influenced the decision in the case and which have a direct reference to, the "point involved in the resent case, occur in the short judgment of Lord Thankerton:

In the first place, it is clear to their Lordships that under the express. Provisions of section 3 of the income Tax Act, 1922 the, subject of charge is not the income of the year of assessment, but the income of the previous years . In the second place it should be remembered that the Income Tax Act, 1922, as amended from time to time, forms a Code which has no operative effect except so far as is rendered applicable for the recovery of tax imposed for a particular fiscal year by a Finance Act: "By subsection (1) of section 6, Finance Act, 1938, income-tax for the year beginning on 1st April, 1939, is directed to be charged at the rates specified in Part 1 of Schedule 2, and rates of super tax are also provided for, and by subsection (3) it is provided that: "For the purpose of this section and of Schedule 2 the expression 'total income' means total income as determined for the purposes of income-tax or super tax, as the case may bee in accordance with the provisions of the Income Tax Act, 1922 ." "This can only refer to the Income Tax Act 1922, as it stood amended at the date of the Finance Act, 1939, and necessarily included the alterations made by the Amending Act, which had already come into force on 1st April, 1939." It will have been noticed that the language of the Finance Act applicable to the assessment year of the present case is precisely the same as that of the Finance Act which determined the decision of the case before the Privy Council the only difference between the two being that whereas in the present case on 1st April, 1951 the Board had not issued any order under sub-clause (b) and the assessee was therefore, entitled to choose his own year, in the case before the Privy Council an amendment had come into force on the date of the Finance Act's coming into force and the income of the previous year had been assessed in accordance with that amendment, though the transactions affected were several years old. The only Indian case directly in point is Scandia Steam Navigation Co. Ltd. Bombay v. The Commissioner Income-tax Bombay, reported in A I R 1955 Bom. 230 where with his usual versatility in the Income-tax matters, Chagla, C.J. has discussed the inter-relation of the Finance Act and section 3 of the Indian Income-tax Act, the exact nature of the liability that arises immediately on the coming into force of the Finance Act and how that liability remains unaffected throughout the assessment year except by retrospective legislation. In the present case it cannot possibly be contended that the order of the Central Board of Revenue was an act of the legislature affecting rights or liabilities which had already come into existence by the passing of the Finance Act." Another case in similar strain is reported in the matters of the Companies Act, 1913 and of the Exchange Bank of India and Africa Ltd. P L D 1954 Sindh 222 to which we would attend later. It was on the lines of the approach' contained in the aforesaid cases that Sh. Abdul Haque advanced the argument hereinbefore mentioned regarding the scope and impact of the Income Tax Act and the liability thereunder.

4. Before dealing with the income-tax Act and the nature of the liability imposed thereby, it is necessary to focus attention on section 2(m) of the Wealth Tax Act and to find out as to what is the meaning of the words 'debts owed' as used therein, because it is only thereafter that are will arise to examine whether liability created by section 3 of the Income-tax Act is a debt owed by the' assessee or not. The word 'debt' is nowhere defined in the wealth A Tax Act and we have, therefore, to fall back on its ordinary general meaning. It, is further to be noticed that the word 'debt' is to be kept distinct from what is known as a 'loan', for every loan may be 'debt' but every 'debt' will not necessarily be a loan. Our view is that a debt is' sum of money which is now payable or will become payable it future by reason of a present obligation debitum in praesenti solvendum in futuro. In some cases it may not be presently payable and it may be uncertain in amount, which will become certain when accounts are finally dealt with. In other words, it is a present liability to pay an amount in future, though it was not ascertained but was ascertainable. We have not been able to find any case where this legal proposition may have been doubted or taken exception to. Rather case-law consistently supports this enunciation of law. See Webb v. Stenton and others Garnishees (1883) 11 Q.B.D. 518, O'Driscoll and another v. Manchester Insurance Committee (1912) 3 K.B. 499 and Ogdens Limited v. Weinberg (1906) XCV I T R

567. We hold accordingly it Corpus Juris (edited by William black and William Benjamin (1919) Edn. Vol. XVII at page 1371 column 2 onward there exists a very illustrative enunciation of law regarding the word debt'. It reads as follows: "Debt In General. Judicial definitions of the terms 'debt' are numerous. It is a common law word of technical meaning. It has not, however, a fixed or invariable signification, but has several recognised meanings, which vary greatly, according to the subject-matter and the language in connection with which the word is used. It is used in different statutes and constitutions in senses varying from a very restricted to a very general one. In a purely technical sense, it is that for which an action of debt or indebitatus assumpsit will lie; a sum of money due by certain and express agreement, as by a bond for a determinate sum, a bill or note, a special bargain or a rent reserved on a lease; where the quantity is fixed and specified, and docs not depend upon any subsequent valuation to settle it, a sum of money due upon contract, express or implied. In a larger sense, the word means that which one person is bound to pay to another, or to perform for his benefit, a sum of money' due from one person to another, whether money, goods, or services: due, all that is due under any form of obligation or promise; anything had or held of or from another, his property or right, his due; what one owes: an obligation founded on contract, express or implied, for the payment of money or other thing of value; a demand; any kind of just demand for the recovery of money;' a claim; any just claim for the recovery of money; liability. In a broad sense; the word means that which one is obliged to do or suffer; trespass; duty or what one owes to another, although, in its limited sense, only a particular kind of duty. By some authorities it seems to be considered that any cause of action which may be assigned, or which will survive for or against the legal representatives after death, is properly called a 'debt', in whatever connection referred to. In the most extensive sense of the' term, everything is a debt which is of absolute obligation. The word in its common signification imports the moneyed obligation of a person incurred in his private capacity, or from his individual acts, and not such obligations as are imposed upon him by law in his public relations, or in common with all other citizens. The term has been construed to include all kinds of obligations, such as obligations arising from implication of law? and as not being confined to obligations for the payment of money arising on contract. While the term is generally confined to legal obligations, it may include equitable obligations as well. There is always some obligation that it shall be paid, but the manner in which it is to be paid, or the means of coercing payment do not enter into the definition; and it makes no difference, where the obligation is to pay money, whether it is payable out of, and limited to, a specific fund, or whether the fund shall prove adequate or not, provided it belongs to, and is, as to the object to which it is to be applied, under the control of, the person who engages to make the payment. It arises at the very moment that the obligation is undertaken and continues until discharged by payment. Therefore, in this broad and comprehensive sense, if any time elapses between the performance of the service on the one hand, and the payment of the money or thing of value for which the contract for that service calls on the other, the relation of the parties to each other will be that of debtor and creditor, and the thing which is owed by one to the other will be a debt. The word even in its broadest signification, implies that the consideration of the obligation of the debtor has been executed on the part of the creditor, and the payment of the debt discharges the obligation. A debt, technically so-called, may be evidenced by record, by contract under seal, or by simple contract only. While a debt has been loosely defined as a contract or promise, it is not a contract, but is the result of a contract". Respectfully keeping these principles in view we are of the opinion that in the context of the Wealth Tax Act, the definition of 'debt' as hereinbefore adopted by us will be more befitting, and this word should be understood' in a very extensive sense inasmuch as the actual words used in section 2(m) are 'all the debts owed' and the word 'all', according to us, excludes all limitations and exceptions.

5. As regards the word 'owed' in Aiyer's Law Lexicon (1940 Edition), page 931 it is written that 'owe' means to be under obligation to pay and 'owes' as used in a plaint charging that the defendant owes the plaintiff the price of an article sold means simply to be obliged or bound to pay and applies as well to an immature as to an overdue obligation'. It is to be remembered that strictly speaking there is a difference between the words 'owed' and 'due' for that which is due is always owed by the debtor, but that which is 'owed' may not be due at a particular date. Both these words are not always synonymous as was being pleaded and each case depends upon its own facts and circumstances, and the law applicable and relevant thereto. Generally speaking, however, the former refers to liability whereas the latter to payability. We daily come across cases, for instance, where certain amount is payable by' periodic instalments the result whereof is that though all the instalments are 'owed' by the debtor but each instalment is due at its proper time. The creditor may be debarred from enforcing payment of any instalment till it has actually fallen due (or in other words till the date for its payment has arrived)--but so far as the debtor is concerned he is not debarred from presenting payment in advance and that is on the sole ground that he owes it and wants to discharge his liability. The test, therefore, to see whether a person 'owes' a debt is to see whether he is under an obligation to pay, and not whether the actual date for payment has arrived or not. That date may be still ahead but while counting the 'debts' owed by a debtor he can certainly include such a 'debt' in his list of obligations and liabilities, which he is to pay in future. So far as the word 'due is concerned it is used sometimes from the point of view as to when its payment can be enforced by the creditor. Similarly sometimes word 'owed' is used with reference to the debtor. Generally speaking a 'debt' is 'owed' by the debtor immediately it is incurred, though a creditor cannot recover it unless, if he has fixed a date for its return, the said date has arrived. However, so far as the debtor is concerned he definitely can say that he does owe the relevant money on his part. Since in the Wealth Tax Act word 'owed' is used with reference to the assessee i.e. the debtor and not the creditor i.e., the State, all the debts which the assessee owes are to be excluded from his assets though the time for payment of those debts may be little remote. The Wealth Tax Officer is not to regulate the relationship of the assessee with his creditors but is only to recognise the existence (if that, relationship and notice whether a particular debt is owed by the, assessee or not. If on the relevant valuation date the liability for a debt exists the Wealth Tax Officer is to excl, 'e the amount of that liability from the assets of the assessee and cannot refuse to do so merely because time for making payment towards that liability is to come in future. Here we take the case of a mortgagor who has mortgaged his property for a particular period. No doubt, his right to redeem the mortgage will arise "when the principal money has become due' (see section 60 of the Transfer of Property .Act IV of 1882) and that time may be still ahead, but it cannot be said that the amount is not 'owed' by the mortgagor. We have given an example of a mortgage not for the purpose of suggesting that mortgage or secured debts are also to be excluded from the 'net assets' under the Wealth Tax Act because such debts are not debts within the scope of section 2 (m) ibid and our sole aim is to explain the difference between a debt 'owed' and debt 'due'. Any interpretation of section (m) of the Wealth Tax Act which is based on substituting the word 'due' for word 'owed' is bound to lead to incorrect results apart from 1 the fact that a Court of Law is not authorised to substitute its own words in place of those which are consciously used by then legislature itself. In Corpus Juris, Volume 17 already referred to above it is written as follows on page 1377 in column No.3 of Footnote 92 (b): "92 (b). 'Debt owing' and 'debt due' distinguished. Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds solvendum in praesenti and solvendum in futuro. 'Pea v. Arguello 37 Cal. 524;

525. In re: Philadelphia Co. 18 Pa. Dist 805 35 Pa, Co. 442.'' , This supports the view adopted by us in this paragraph.

6. Stage is now ripe to attend to the provisions of the Income Tax Act for the purpose of finding whether an amount, which an assessee has reserved for payment towards discharge of the Income Tax liability incurred or accrued before the valuation date is a debt owed by him and should be deducted from his assets, or should this deduction be refused because the amount has not yet become 'due' inasmuch either Income Tax assessment has not been completed or the assessment order has not been passed or the demand notice under Section 29145 of the Income Tax Act has not yet been issued. For the purpose of carefully understanding the scheme of the Income Tax Act, reference may be made to a passage of Lord Dunedin in Whitney v. Commissioner of Inland Revenue [(1962) A.C. 37] where at page 52, he stated as follows: "My Lords, I shall now permit myself a general observation. Once that it is fixed that there is liability, it is antecedently highly importable that the statute should not go on to make that liability effective. A statute is designed to be workable, and the interpretation thereof by a Court should be to secure that object, unless crucial omission or clear direction make that end unattainable. Now, there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute 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 been fixed. But assessment particularizes the exact sum, which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay. To the same strain is Williams v. Henry Williams Limited and another, which is an unreported judgment of the Court of Appeal dated 3-11-1926, wherefrom a passage of Lord Justice Sargeant is quoted in the case of Cockerline and Co. v. Inland Revenue Commissioners [(1932) 16 Tax Cases 1]. It reads as follows. "I cannot see that the non-assessment prevents the incidence of the liability, though the amount of the deduction is not ascertained until assessment:' The liability is imposed by the charging section, namely, Section 38 (which is Excess Profits Duty) the words of which are clear. The subsequent provisions as to assessment and so on are machinery only. They enable the liability to be quantified, and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and .all the materials for ascertaining it are available immediately." Earlier also in Cockerline & Co. v: Inland Revenue Commis sioners [(1932) 16 Tax Cases 1] at page 19, Lord Hansworth, M.R. after accepting the passage from Lord Dunedin's Judgment quoted above observed as follows: "Lord Dunedin, speaking, of course, with accuracy as to 'these taxes, was not unmindful of the fact that it is the duty of the subject to whom a notice is given to render a return in order to enable the Crown to make an assessment upon him; but the charge is made in consequence of the Act, upon the subject; the assessment is only for the purpose of quantifying it" Then Romer I, J. in McKenna (H.M. Inspector of Taxes v. Eaton Turner) (1936) 1 K.B. 1 at page 16 observed:- "If the tax is clearly imposed the omission of the Legislature to provide means for its collection must be regarded as an unfortunate omission and nothing else. It is only where a doubt arises whether the tax is chargeable by a certain section that the absence of machinery for collection becomes a relevant consideration. " Our own Supreme Court in Lt.-Col. Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty, Government of Pakistan, Karachi and another P L D 1962 SC 335 endorsed the same view. The actual passage in this report in the words of Hamoodur Rahman, J. (as then his Lordship was) at pages 362 and 363 runs as follows:- "The liability to pay the tax arises by virtue of the charging sections alone, though quantification of the amount payable may be postponed. As observed by Lord Dunedin at page 110 in the case of Whitney v. The Commissioners of Inland Revenue 10 T. C. (H. L.) 88 'there are three stages in the imposition of a tax; there is the declaration of liability, that is the part of the statute 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 been fixed. But assessment particularises the exact sum, which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay'. Again as Romer L.J. observed in the case of McKenna (H.M. Inspector of Taxes) v. Eaton Turner (1936) 1 K.B. 1 at p. 16 'if the tax is clearly imposed, the omission of the Legislature to provide means for its collection must be regarded as an unfortunate omission and nothing else. It is only where a doubt arises whether the tax is chargeable by a certain section that the absence of machinery for collection becomes a relevant consideration'. Thus, it would seem that the mere postponement of the quantification of a tax or a defect in the machinery designed for the realization of a tax or even the absence of such machinery does not and cannot defeat the liability for the tax." ' Cornelius, C.J. at page 346 also endorsed the same view by referring to the judgment of Hamoodur Rahman, J. and the case of McKenna v. Eaton Turner. Fazal-e-Akbar, J. at page 353 agreed with the views expressed and the conclusion reached by the C.J. and adopted the same. Kaikaus, J. on pages 355 and 356 observed that 'at the same time, there is a distinction between provisions that create the liability and those that provide the machinery for the realization of that liability. Once the creation of liability is clear the machinery sections are to be interpreted so as to make the realization possible. Brother Hamoodur Rahman has himself referred to McKenna (H.M. Inspector of Taxes) v. Eaton Turner, where it was laid down that if the imposition of a tax is clear the omission to provide machinery is not a relevant consideration." In Chatturam and others v. Commis sioner of Income-tax, Bihar A I R 1947 FC 32 (Spens, C.J., Zafrullah Khan and Kania, JJ), it was observed at page 35 column 2 at the end of para 8 that "in India these well-considered pronouncements are accepted without reservation as laying down the true principles of taxation under the Income-tax Act'. In Attorney-Generals v. Aramayo and others (1925) 9 Tax Cases 445 it was held that there may be a waiver as to the machinery of taxation, which ensures against the subject. If this is true nature of the machinery provisions, we venture to think that we can then safely hold that the mere fact that those provisions have not been put into gear, that by itself will not affect the debt liability created by the charging section of the Act. In the face of this copious case-law on the subject in hand we have no hesitation in holding that liability to pay income-tax as created by section 3 of the Income-tax Act is a 'debt owed' by the assessee on the relevant valuation date and the mere fact that the assessment has not been made or completed or that a demand notice has not been issued and the amount has not yet become technically 'due' does not detract anything from the finding recorded by us herein. In that view of the matter, the amount of such a 'debt owed' has to be deducted from the, total assets of the assessee for computing his net assets for the levy of wealth tax thereon.

7. Taking up the cases referred to in para 3 of this judgment we may say that they lay down law as regards when a debt is due (or to be more precise when an income-tax is due) and. not as to when can it be said to be owed by the assessee. In Doorga Prasad Chamaria v. Secretary of State (1945) I T R 285 (P C) the whole emphasis is on payability as distinct from chargeability of the income-tax. That is so, is clear from a later ruling of the Privy Council in Walace Brothers & Co. Ltd. v. Commissioner of Income-tax (1948) PC 118 where in para 10 they held that 'the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment fill necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed'. These two judgments of the Privy Council can well be reconciled if the matter is approached from the point of view we have expressed above, otherwise they will run counter to one another, though our finding is that there is no conflict in them and they enunciate (respectfully speaking) precise position of law on the two distinct relevant matters mentioned therein and we should not unnecessarily try to confuse or blend them. Similarly Radheshyam Agarwala v. The Commissioner of Income-tax PLD 1960 SC 187 is a case on the point as to when does an income-tax become 'due' and not when it can be said to be 'owed'. In other words, it is also a case of payability as distinct from chargeability. If this case is read keeping Lt.-Col, Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty PLD 1962 SC 335 in view, then the distinction between two concepts of income-tax, as herein explained becomes more highlighted. As regards the matters of the Companies Act, 1913 and of the Exchange Bank of India and Africa Ltd. P L D 1954 Sind 222 that was a case where income-tax assessment had not been made and demand notice had not yet been issued when the company was wound up. The departmental representative desired that the claim of the income-tax should be given preference under section 230 of the Companies Act (VII of 1913), which reads as follows:- Section 230. 'Preferential payments' -- (1) In a winding up there shall be paid in priority to all other debts-- (a) all revenue, taxes, cesses and rates, whether payable to the Government or to a local authority, due from the company the date hereinbefore mentioned and having become due payable within the twelve months next before the date; (b) all wages or salary of any clerk or servant in respect of service rendered to the company within the two months next before the said date, not exceeding one thousand rupees for each clerk or servant; (c) all wages of any labourer or workman, not exceeding five hundred rupees for each, whether payable for time or piecework, in respect of services rendered to the company within two months next before the said date; (d) compensation payable under the Workmen's Compensation Act, 1923, in respect of the death or disablement of any officer or employee of the company; (e) all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees maintained by the company; and (f) the expenses of any investigation held in pursuance of clause (h) in section 138 of this Act. (2) The foregoing debts shall-- (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportion; and (3) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding-up, the foregoing debts shall be discharged forthwith so far as the assets are sufficient to meet him. (4) In the event of a landlord or other person distraining or having distrained on any goods or effects of the company within three months next before the date of a winding-up order, the debts to which priority is given by this section shall be a first charge on the goods or effects so distrained, or the proceeds of the sale thereof: Provided that in respect of any money paid under any such charge the landlord or the other person shall have the same rights of priority as the person to whom the payment is made. (5) The date herein before in this section referred to is:- (a) in the case of a company ordered to be wound up compulsorily which had not previously commenced to be wound up voluntarily, the date of the winding-up order; and (b) in any other case, the date of the commencement of the winding-up'. Inamullah, J. (as then his Lordship was) held that since the tax had not become due as there was no assessment and no demand notice by or on the date of winding-up, therefore, it was not a debt due on that date and as such it could not be given preference. However, the learned Judge directed that the income-tax claim should be registered as an ordinary claim and not a preferential claim. The fact that despite there being no assessment or no demand notice the income-tax claim was directed to be registered as a debt under section 230 (ibid) rather goes against the department which now says that it is not a claim or a debt even. For other cases where the distinction between chargeability and payability has been noticed see Sh. Ihsan Elahi & Co. v. Commissioner of Income-tax P L D 1974 Note 22 at p.59. Chatturam Horilram Ltd. v. Commissioner of Income-tax, Bihar and Orissa (1955) 27 I T R 709 Supreme Court (India) and Sree Meenakshi Mills Ltd. Madurai v. Commissioner of Income-tax, Madras PLD 1957 Supreme Court (India) 188 at 217.

8. Learned counsel for the petitioner reverting back to the word 'debt' submitted that a 'debt' is always a contractual obligation whereas the duty to pay income-tax is a statutory liability. For a debt there must, according to him, exist the relationship of a debtor and a creditor, which, he pleaded, is not the position of the assessee and the State under the Income-tax Act. The contention has no merit. The connotation of the term 'debt' should not be restricted to such liabilities only which are being suggested by the learned counsel. In Muthupalania Chettiar v. Alagamai Achi and others A I R 1961 Mad. 138 (D. B.) , it was held that where money is paid to a person who is not entitled to it under the mistaken impression that the money was due to him there is an obligation on him to refund you the money and such liability must be deemed to have arisen on the date of the payment itself and can be called a 'debt'. For similar other cases see Corpus Juris Vol. 17 (above referred to) where at page 1376, under footnotes No.70 and 71, copious precedents are quoted to show that the word 'debt' includes all kinds of obligations such as obligations arising from implication of law and is not confined to obligations for the payment of money arising on contract alone, we do not feel the necessity to dilate upon this point in any great detail because we notice that in Doorga Prasad Chamaria v. Secretarv of State (1945) 13 I T R 295 (P.C.) ibid, the Privy Council itself has called such an obligation as a 'debt' and held that it becomes 'due' to the Crown when a demand is made. That this is a 'debt' is thus quite clear, though so far as the distinction between the words 'due' and 'owing' is concerned we have already, written enough earlier on this subject and need not repeat the same over again at this stage.

9. Sheikh Abdul Haque then referred to Rule 9 of the Wealth Tax Rules promulgated under section 46 of the Wealth Tax Act by the Central Board of Revenue. This Rule reads as follows:- "Rule 9. 'Bulk Valuation'.-- (a) Where the Wealth Tax Officer is satisfied that the accounts kept by an assessee carrying on a business, are reliable and there is no reason to suspect any fraud on the part of the assessee, he may determine the value of the net wealth representing the various assets of the business in the following manner, namely: (i) The net wealth representing the various assets shall be taken as the sum of the paid-up capital, reserves and the balance to the credit of the profit and loss account. (ii) The liabilities shown in the balance-sheet shall be carefully scrutinised so as to exclude every item, which is not a liability proper. (iii) If according to the accounting system followed by the assessee, the original value of the block (i.e. fixed assets) is kept unaltered and depreciation is provided for by constituting fund out of which investments are made, the value of such depreciation fund shall be excluded from the computation. (iv) If development allowance has been deducted from the value of the block, the amount of it shall be added back. (v) Where the closing stock is undervalued, the amount representing the under-valuation shall be added back. The following working examples will illustrate the aforesaid provisions. Balance Sheet of XYZ Ltd. Liabilities Assets Paid-up capital 50,00,000 Factory and other Buildings 25,00,000 Plant and machinery 45,00,000 Sundry Creditors 15,00,000 Stock in trade 15,00,000 General reserve 10,00,000 Sundry debtors 14,00,000 Taxation reserve 15,00,000 Cash in hand 1,00,000 Proposed dividends 8,00,000 Dividends declared and paid 1,00,000 Profit and loss 1,00,000 Account Balance 1,00,00,000 1,00,00,000 . . ' The computation of the value of assets can be made in two ways: (1) on the basis of the balance-sheet value of the assets, and (2) on the basis of the paid-up capital and reserves. (1) Balance-sheet value of all assets 1,00,00,000 Deduct: Sundry creditors Rs.15,00,000 Dividends declared and unpaid Rs. 1,00,000 16,00,000 Net Wealth Rs. 84,00,000 (2) The same result will be obtained by computing net wealth by reference to the paid-up capital and reserves indicated below:- Paid-up capital Rs.50,00,000 General reserve Rs.10,00,000 Taxation reserve Rs.15,00,000 Proposed Dividends Rs. 8,00,000 Profit and Loss Account Balance Rs. 1,00,000 Net Wealth Rs.84,00,000 (b) Where the date on which a balance-sheet has been drawn up is different from the valuation date, the Wealth Tax Officer shall not, except with the prior approval of the Inspecting Assistant Commissioner of Wealth Tax, adopt a value different from the value as on the date of the balance-sheet as the value of the assets of the business of the valuation date. (c) In computing the net wealth in the manner specified-in clause (a), deduction on account of depreciation allowance shall be made at the normal rate only specified in Rule 9 of the Income-tax Rules. (d) Where as a result of the method of accounting followed by an assessee, certain assets are omitted from the balance-sheet altogether, the. Wealth Tax Officer shall make an appropriate adjustment in the value determined in the manner specified in clause (a)." Learned counsel argued that in sub-rule (a)(i) it was written that 'the net wealth representing the various assets shall be taken as the sum of the paid-up capital, reserves and the balance to the credit of the profit and loss account'. That the 'reserves' -- (including the taxation reserves) -- were to be so included, he submitted, was clear from the table appended to the above rule, where a separate figures of Rs.15,00,000 in the illustrative example for evaluating the assets was included. From this he argued that to suggest that an amount which an assessee may have kept as a reserve for clearing a tax liability, is to be deducted from his assets, was not correct and rather, as the above table showed, it should be added thereto. The contention has no merit. Firstly, because, rules are to be read subject to the parent Act and if the Wealth Tax Act says in section 2(m) that debts owed are to be excluded then a rule cannot direct otherwise. Secondly, our constructions of the above sub-rule and table is that it, in no way overrides the Act and only the construction placed by the learned counsel thereon, to speak with respect to him, is not correct. All that the above sub-rule states is that if the income is to be computed under a system known as 'bulk system' then one way to compile it is to note down all the liabilities of the assessee and total them up. While noting down the liabilities, 'tax reserves' are also naturally to be included therein. The sub-rule and the illustration go only so far and no further. From the figure 'tax reserves' so included, how much amount should then actually be allowed to be F deducted or excluded as a debt owed will no doubt depend upon the assessment order to be passed by the Wealth Tax Officer as is clear from sub-rule (a)(ii) where it is written that 'the liabilities shown in the balance-sheet shall be carefully scrutinised so as to exclude every item which is not a liability proper'. He may note that an assessee claims that he owes a debt of Rs.15,00,000 for income-tax which is likely to be charged from him for the relevant year, though assessment thereof has not yet been made. After taking note of this fact and claim the Wealth Tax Officer will examine the matter and the record' and will be, in our opinion, at liberty to hold that according to him this liability will be of a lesser amount and only that amount should, therefore, be allowed to be deducted. The rule and the illustration hereinbefore mentioned should be read in this way and not in the manner in which Sh. Abdul Haque was trying to interpret them.

10. Sh. Abdul Haque argued that generally speaking though a debt may be a present liability to pay an amount in future which was not ascertained but was ascertainable however, so far as the debt of income-tax was concerned, he submitted, it could not be said to be ascertainable immediately on the valuation date (which was the last date of the previous year which is brought under taxation)-- because the rate of taxation may have yet to be fixed by the Finance Act which is promulgated every year as envisaged in section 67(B) of the Income Tax Act. The plea has no merit. On the last date of the year concerned when the income for the purpose of taxation is considered to be closed, the said income has already poured into the coffers of the assessee. He very well knows as to what and how much it is. In section 67(B) of the Income Tax Act (XI of 1922) it is written that 'if on the first day of July in any year provision has not yet been made by an Act of Parliament for the charging of income-tax for that year, this Act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding year or the provision proposed in the Bill then before the National Assembly, whichever, is more favourable to the assessee, were actually in force'. This shows that both the income and the rate of tax are available and the question is simply of going through the accounts and finding out the relevant figures. Merely because sometime will be consumed in making or processing the assessment and quantifying the tax is thus no ground to hold that the debt is not ascertainable.

11. This case was heard alongwith 19 other cases which are:- T.R. 177 of 1971; T.R. 176 of 1971; T. It. 201 of 1971; T.R. 96 of 1971; T.R. 81 of 1972; T.R. 84 of 1972; T.R. 83 of 1972; T.R. 100 of 1972; T.R. 170 of 1972; T.R. 181 of 1972; T. R. 166 of -1971; T.R. 187 of 1971; T. R. 186 of 1972; T.R. 188 of 1972; T.R. 189 of 1972; T.R. 80 of 1974; T.R. 15 of 1974; T.R. 16 of 1974 and T.R. 17 of 1974. In some of these cases at the time of making wealth tax assessment even the income-tax assessments of the assessee concerned had been completed and the amount of income-tax had been duly quantified but still the Wealth Tax Officer refused to deduct the same from the total assets of the assessees for computing the net assets for the purpose of wealth tax. This mistake was rectified by the Tribunal' but the department feeling aggrieved referred all these cases to us pleading that if on the valuation date the income is not quantified the mere fact that it was quantified later (though before the date of assessment of the wealth tax) even then its deduction was not permissible and still it was not a debt owed within the meanings of section 2(m) of the Wealth Tax Act. This view, respectfully speaking, is clearly erroneous in the face of the discussion made and the finding recorded by us that the 'income-tax' is a debt owed on the valuation date even its quantification is made thereafter and the same should be deducted and was rightly deducted by the Tribunal while computing the net assets of the assessees. The relevant question referred to us in all these 19 references regarding deduction of income-tax liabilities is answered accordingly.

12. In some cases the Tribunal has also allowed deduction of the wealth tax, which had remained in arrears while computing net assets I for the subsequent years. On the principles and for the reasons recorded earlier, such deduction, if it has remained in arrears will, according to us, constitute -- a debt owed by the assessee and its deduction was rightly allowed by the Tribunal. No doubt, in the year under charge its deduction will not be permissible but when once that liability has accrued and debt for that year has become a debt owed by the assessee then while computing the net assets of subsequent years, the deduction of this debt will have to be made both on principle of 'debt owed' or on the principle that by that debt the opening balance of the assets of the subsequent year automatically gets reduced. The answer to the question regarding justification of such deduction is consequently also answered in the affirmative.

13. Since the points raised were not free from difficulties, the parties shall bear their own costs. M.B.A./C-21/L Question answered in the affirmative.