1968 PLP 555 (PTD)

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 valua tion 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 profits from the beginning of the year of account to, say, the 15th March of the next year and in between March 15 and March 31 he suffers losses which not only wipe out his profits but make him a loser in respect of the business on the whole year's working. Even in a case where an assessee suffers no loss during the accounting year and it is possible to compute his income on the valuation date the exact amount of the liability to tax cannot be ascertained on that date because the rate of income‑tax is fixed every year by the Finance Act on a date after April

1. There is no room for doubt that a debt must be for a liquidated sum of money and it can be either owed or accruing. In Sabju Sahib v. Noordin Sahib ((1898) I L R 22 Mad. 139) it was held that unless there was a liability to pay, a liquidated sum of money there was no debt, following the English decision in Johnson v. Diamond ((1855) 11 Exch. 73). In that case it was further held that, where it was not possible to say before the taking of accounts as to what the exact amount of liability would be, there was no debt. This judgment was ap proved of by a Full Bench of the Madras High Court in Doraisami Padayachi v. Vaithilinga Padayachi ((1916) I L R 40 Mad. 31). There it was held that the word "debt" ordinarily meant a sum payable in respect of a money demand recoverable by action. Sabju Sahib's case was relied on by a Bench of this court in Bisseswar Roy v. Durgadas Mehara ((1905) I L R 32 Cal. 418). The question was more elaborately dealt with in the Full Bench case of Banchharam Majumdar v. Adyanath Bhattacharjee ((1909) I L R 36 Cal. 936). There, Jenkins C. J. relied on the definition of debt given by Lord Lindly L. J. in Webb v. Stenton ((1883) 11 Q B D 518) and said that "a debt is a sum of money which is now payable or will become payable in future by reason of present obligation." Mookherjee, J. referred to the case of People v. Arguello ((1869) 37 Calif 529), where the Supreme Court a debt of California had pointed out the difference between which was due and payable and one which was promised be to paid at a future date. To quote the words of the judgment in that case "debts are of two kinds : solvendum in praesenti and solvendum in futuro . . . . A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time." Mookherjee, J. also relied on Sabju Sahib's case. In Webb v. Stenten 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 attach ment. 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 futuro. An accruing debt, therefore, is a debt not yet actually payable, but a debt which is represented by an existing obligation." To merit deduction in the computation of net wealth the liability must not only be a debt but one solvendum in praesenti. 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 subject to the provisions of the, Income‑tax Act. Sec tions 6 to 12 lay down how computation of different income is to be made. A return of income has to be furnished under section

22. Assessment is then made under section

23. Under subsection (1) of section 23 it can be done on the basis of the return if the Income‑tax Officer is satisfied there with ; otherwise the Officer has to call upon the assessee for production of evidence to show that the return made is correct and complete: After hearing the evidence the Income‑tax Officer has to assess the total income of the assessed and determine the sum payable by him on the basis of such assessment under subsection (3). Of necessity, such determination and assessment will be after the year of account. Section 29 lays down that the Income‑tax Officer must serve upon the assessee a notice of demand in the prescribed form specifying the sum payable by him. Under sec tion 45 an assessee is to be deemed to be in default in payment of tax unless he pays within the time limit fixed by the section. The mode and time of recovery of tax are laid down in section

46. No doubt there are provisions in the Act for deduction of tax at source under section 18, for advance payment under sec tion 18‑A and provisional assessment under section 23‑B, but these sections to my mind do not affect the present case. Sections 18 and 18‑A only provide for the collection of income‑tax on "pay as you earn" basis on the hypothesis that the assessed will be found liable to pay the taxes deducted or paid in advance. An assessment under section 23‑B will create a debt beyond doubt. The position under the Income‑tax Act was thus summed up by the Judicial Committee in the case of Doorga Prosad Chamaria v. Secretary of State ((1945) 13 I T R 285): " . . . .. . 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." Learned counsel for the assessed referred to the case of O'Driscoll v. Manchester Insurance Committee ((1915) 3 K B 499), in support of his argument that there may be a debt even though the amount does not become certain before the taking of accounts. The facts there were as follows: 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 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 calculation the exact share payable to him may not have been then ascertained. Under Order XLV, rule 1, not only a debt owed but a debt accruing could be attached. Swinfen Eady L. J observed (page 512) : "By article 37 of the National Health Insurance (Medical Benefit) Regulations. (England), 1913, which are applicable to Mr. Sweeny's contract of January 1914. As soon as may be after the expiration of each quarter the committee shall pay to each practitioner such sum as may be agreed between the committee and the panel committee in advance of the amount due to him. There is therefore a statutory obligation on the committee to pay to the panel doctors a quarterly sum on account, the amount of which is to be determined as therein provided . . . That being so, Dr. Sweeny had on April 9, 1914, become entitled to a pay ment on account for work done, and that right was not subject to be divested by any contingency . . . Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the insurance committee. Therefore there was a 'debt' at the material date, though it was not presently payable and the amount was not ascertained. It is not like a case where there is a mere probability of a debt as, for instance, where a person has to serve for a fixed period before being entitled to any salary, and he has served part of that period at the time the garnishee order nisi is served." The words in Order XLV are "debts owing or accruing" and it was pointed out by Bankes L. J. that "debts owing or accruing include debts dehita in praesenti solvenda in futuro." In our case a debt accruing will not be within the section ; it must be debt owed. The observations of Lord Dunedin in Whitney v. Commissioners of Inland Revenue (1926 A C 37) with regard to the scheme of the English Income‑tax Act have often been relied on in India. His Lordship said (page 52): "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‑hypothesis, has already been fixed. But assessment particularizes the exact sum which a person liable has to pay". In Chatturam v. Commissioner of Income‑tax ((1947) 15 I T R 302), Kania, J., delivering the judgment of the Federal Court, observed : "The income‑tax assessment proceedings com mence with the issue of a notice. The issue or 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 assessees 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 pronounce ments 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." The above statement of law was amplified by the Supreme Court in Chatturam Horilram Ltd. v. Commissioner of Income-tax ((1955) 27 I T R 709) : Under the scheme of the Income‑tax Act the income of an assessee attracts the quality of taxability with reference to the standing provisions of the Act but the playability 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 the passing of the Finance Act but until the Finance Act is passed no tax can be actually levied." It was argued however that the rules framed under the Wealth-tax Act and the forms prescribed thereunder go to show that the liabilities of an assessee are to be disclosed and taken into account in the computation of the net wealth. The power to make rules is given by section 46 of the Act. Reference was made to Forms A and B which are prescribed under the rules. Form A is the form of return of net wealth under subsection (1) or subsection (2) of section 14 of the Act and is to be used by individuals and Hindu undivided families only. Form B is a similar form for use by companies only. Annexure XII, to Form A is headed "statement of debts located outside India owing by the assessee other than those included in Annexure XI". There is a note at the foot of this annexure which reads "debts which are purely in the nature of contingent liabilities should not be included in Annexure XI or XII". From 'this it was sought to be argued that all liabilites unless they were contingent were meant to be included. A similar contention was raised with regard to Annexure III of Form B under which there is a heading of "current liabilities". Annexure III is to contain a statement of debts located in India owing by the company. Annexure VI to Form B is for statement of debts located outside India owing by the company. Under this annexure there are four heading, the third heading being for "current liabilities" and the fourth for "ascertained liabilities treated as contingent‑liabilites". Counsel for the assessee argued that all this went to show that the liabilities mentioned in. these forms were received by the expression "debts owed" in clause (m) of section 2 to the Act. Counsel also referred to the form of balance‑sheet prescribed under the Companies Act under which "current liabilities" have to be shown. In my view, the use of the expression "liabilities" and 'current liabilities" in the form cannot control the meaning of the expression "debts owed" in clause (m) of section 2 to the Act. As has been pointed out in numerous cases all debts are liabilities but all liabilities are not debts and to merit deduction under section 2(m) it is only liabilities which have ripened into "debts owed" that can be' taken into account. The result therefore is that although the assessee was liable to pay income‑tax on the valuation date the actual amount of the liability was not ascertained until sometime thereafter by the pass ing of the Finance Act and the determination made by the Income-tax authorities. In any case no debt 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 liabi lity to the State to pay it by way of income‑tax and 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. 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. LAIK, J.‑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 deductible in computing the net wealth of the assessee ?" In other words, the answer to the said question would really depend on the meaning of the words "debt owed" in section 2(m) of the Wealth‑tax Act, 1957 (hereinafter called the Act). If we look into the provisions of the Act itself, the Legislature, apart from the said words "debt owed", has mentioned the words "debt secured" and "debt incurred" in the said section 2(m) itself and the words "debt owing" in sections 4(3) and 7(ii) of the Act. The words "debt owed" have not been used anywhere else in the Act. Neither do they appear in the Wealth-tax Rules, 1957 (hereinafter called the Rules) nor in the forms prescribed thereunder. Debts might be of various kinds, viz., absolute and condi tional, which are payable at once or in future. Debts might also be "owing and accruing", `accruing due" or "growing due" etc., and the expressions were used as such at different places. Mr. Mitter appearing on behalf of the applicant argues' that according to the Concise Oxford Dictionary, debts is defined as a sum payable and therefore provision for payment of income‑tax in the instant case is a "debt owed" in the same sense. But the word "debt" has been defined by Dr. Murray in his New English Oxford Dictionary (1897 edition) "that which is owed or due'". It originates fro the Latin word "debitum" which was sometimes artificially spelt "debts" from lath to 16th century, after which the word "debt" became the English spelling. To quote Shakespeare in Hamlet as stating "to pay ourselves what to ourselves is debt". Shakespeare also said in Merchant of Venice. "He would rather have Antonio's flesh than twenty times the value of the sum that he did owe him". Milton also said at different places in his works "He owed his wealth to his father"; "He owed his victory to his Lieutenants". According to Webster, debt is also defined as "thing owed". The same thing is said in one form or the other by Burrows on Words and Phrases, by Stroud in Judicial Dictionary, in Byrne's Law Dictionary and Jowitt's Law Dictionary of England and I need not repeat them here. The word "owing" has also been defined in the said dictionary of Murray to mean "that is yet to be paid or rendered", that is, "being owed". In Webster's and Shorter Oxford Dictionaries, the word "owing" has also been stated to mean debt.' 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 S. Chettiar v. A. Chattiar ((1902) I L R 25 Mad. 603). In case of Inland Revenue Commissioners v. Bagnall Ltd. ((1941) 1 All E R 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 seventh Schedule to that Act contains the rules for computing the capital employed in a trade or business the profits whereof are subject to that tux. The section of those rules provides that in the computation of capital "debts" are to be deducted from the capital employed in the trade or business during both the standard period and in any chargeable accounting period. In the said case, a point was raised by the Attorney‑General that assuming that there was a liability, that liability did not become a debt within the meaning of that word as used in the Finance. Act, 1939, Schedule VII, until the liability was quantified Macnaghten, J. held by concluding, "it is true that the word `debt' may in certain matters be used so as to cover a mere liability, but I think that in this Act it is used in the proper sense of an ascertained sum and that the contention of the Attorney‑General is well founded". In my view the said observation applies with equal force in the instant case. In the case of Commissioner of Excess Profits, Tax v. Ruby General Insurance Co. Ltd. ((1957) 32 I T R 82) their Lordships of the Supreme Court held that however liberal the expression "accruing liabilities" might be considered, it cannot be interpreted so as to take any "liabilities which do not bear the character of debts. The position might be viewed from another aspect. The language used in the Act is debt "owed" and not debt "accrued". A debt might have accrued in the sense that the relationship of creditor and debtor might have become finally established at the relevant point of time as laid down in E. D. Sassoon & Co. Ltd. v. Commissioner of Income‑tax ((1954) 26 I T R 27) but it would not have become "owed" unless, further; it has been quantified and ascertained in a definite sum. Take for example, instalment of rent or of an annuity or of maintenance which has not yet fallen due or a salary or a donation which has not yet become payable on the valuation date. In my view, they are not "debts owed" and could not be deducted by the assessee for computation of his net wealth under the Act. Similarly, a tax due to the municipality by a property owner in respect of future instalments cannot be deducted. Bills of exchange, payable not at sight and which have not matured on the valuation date, should have to be left out of account for the year. So also, guarantee debts, unless they have ripened into an obligation to pay immediately on or before the valuation date, cannot be deducted. A provision, for payment of income‑tax, in the present case, is only a measure taken beforehand to meet a need in future. It is stipulated in advance, or in other words, seeing to things beforehand and nothing more. 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. Mukherjee, J. (as his Lordship then was), delivering the judgment on behalf of the court, in the case of Jabed v. Taher ((1941) 45 C W N 519), that a debt must be a specified and ascertained sum. Under the said Act in another case, viz., Nur Mia v. Noakhali Nath Bank ((1939) 43 C W N 322), the words "debt owing." and "liabilities" were explained by this court in some detail: My Lord has just now referred to the Full Bench decision in Doraisami Padayachi v. Vaithilinga Padapachi ((1916) I L R 40 Mad. 31) arising out of section 25 of the Indian Contract Act and I refrain from repeating the reasonings. The decision in Banchharam Majumdar v. Adyanath Bhattacharjee also discussed by my Lord, has been approved by their Lordships in the Supreme Court in Mukti Lal v. Trustees of the Provident Fund, etc. ((1956) S C R 100). In a case decided by this court, in Secretary of State for India v. Sm. Parijat Debi ((1933) I L R 60 Cal 1135), dealing with section 214 of the Indian Succession Act, it has been held that a sum of money payable in future is not a debt. The said case was affirmed by their Lordships of the Judicial Committee in Secretary of State v. Sm. Parijat Debi ((1936) 40 C W N 185 (P C)) and their Lordships quoted Lord Atkinson in the case of Barnardo's Homes v. Income‑tax Special. Commissioners ((1921) 2 A C 1, 11) as having said that . . . . . "until the claims against the testator's estate for debts, legacies` . . . . etc., have been satisfied, the residue does not come into actual existence. It is a non‑existent thing until that event has occurred. The probability that there will be a residue is not enough. It must be actually accertained." Their Lordships, therefore, held that as the relationship of creditor and debtor did not exist, the terms of section 214 are not applicable. If we then look into section 546(b)(iii) of the Companies Act, 1956, the Legislature itself made a distinction between a "debt" and a "liability capable of resulting in a debt". Then again under the provisions of section 60 of the Code of Civil Procedure, this court held in Haridas v. Baroda Kishore ((1899) I L R 27 Cal. 38) that a sum of money which might or might not, become due, or the payment of which depends upon contingencies which may or may not happen, is not a debt. Their Lordships of the Judicial Committee in dealing with a case, Syud Tuffuzzool v. Rughoonath ((1871) 14 M I A 41) regarding attachment of debts held that the debt must be an "existing debt". From the provisions of the Transfer of Property Act, specially sections 8, 130 and 134 thereof, I do not get much assistance in this regard. Though their Lordships of the Supreme Court in State of U. P. v. Deoman Upadhyaya ((1961) 1 S C R 14) observed that reference to American decisions is not proper, the reason being that of a slippery ground of apparent similarity of expressions or concepts in an alien jurisprudence, but in my view when the approach by a foreign country in a similar case does not differ from our country, I may refer to two Supreme Court decisions of the United States of America, viz., Hopner v. United States' ((1961) 1 S C R 14) and United States v. Ragan (232 U S 37), where their Lordships hold that a debt lies wherever a sum certain is due to the plaintiff or a sum which can readily be reduced to a certainty, requiring no future valuation, to settle its amount. Mr. Mitter further contended that in the Form 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 in Annexure XI or XII, the Legislature thereby meant that the provisions of income‑tax, though it 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 is not a "purely" contingent liability. 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. ((1953) 23 Comp. Cas. 380). I am also unable to accept the argument of Mr. Mitter that the income‑tax is "owed", the moment the money is earned, though it might not be due and payable and that is the meaning sought to be conveyed in section 2(m) of the Act. I am not quarrelling with the proposition that liability to tax' does not depend on assessment but there is a great deal of difference in the meaning of the two expressions "liability to tax" and "debt owed" Under the provisions of section 10(4) of the Income‑tax Act, income‑tax is generally not deductible as a business expense but taxes which are payable irrespective of any profits being earned, are admissible allowances under clause (xv) and subsection (4) does not apply to them. 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 and when demand is made under sections 29 and 45, it then becomes a debt due to the Government. The amount of the provision for payment of income‑tax and super tax, in the instant case, is in my view akin to a debt "growing due" and the same is an apt expression to cover the said contingency. It seem to intend something that in course of time it may ripen into a debt, that is, it is only in an inchoate state at the commencement. In 'the‑instant case when the words "debt owed" have been intentionally used by the Legislature, they mean ascertained or certain amount which is opposed to inchoate, contingent, future, unascertained, uncertain or imperfect obligations. Reference answered accordingly.