1965 PLP 156 (PTD)

M. S. MENON, C. J.-This is a reference under section 27 (1) of the Wealth-tax Act, 1957. Three assessment years are covered by the reference. They are 1957-58, 1958-59 and 1959-60. The questions referred are worded as follows: "Assessment year 1957-58: Whether, in the circumstances and on the facts of the case, the Income-tax Appellate Tribunal was correct in allowing deduction from net taxable wealth of (a) provisions for payment of taxes, (b) reserve in respect of a shipping claim, and (c) provision for lay-off compensation in a tile works? Assessment year 1958-59: Whether, in the circumstances and on the facts of the case, the Income-tax Appellate Tribunal was correct in allowing deductions from the net taxable wealth of (a) provision for payment of taxes, (b) reserve in respect of a shipping claim, (c) provision for lay-off compensation in a tile works, (d) furlough reserve at Quilon, (e) furlough reserve of Calcutta; (f) staff retirement gratuity reserve, and (g) special passage reserve. Assessment year 1959-60: Whether, in the circumstances and on the facts of the case, the Income-tax Appellate Tribunal was correct in allowing the deduction from the net taxable wealth of (a) provision for taxes, (b) reserve in respect of a shipping claim, (c) provision for payment of lay off compensation in a tile works, (d) furlough reserve and (c) special passage reserve?" There can be no doubt that these questions are badly worded. No question of a deduction from the net taxable 'wealth can possibly arise for consideration. The assessment provided by the Act is on the net wealth of the assessee as on the valuation date. Section 3, the charging section, says: "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 April 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule." Section 2 (m) of the Act defines the expression "net wealth" for the purposes of the Act. The definition is: " `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; (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; and (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (XXXIV of 1953), the Expenditure tax Act, 1957 (XXIX of 1957), or the Gift-tax Act, 1958 (XVIII of 1958)- (a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceedings as not being payable by him; or (b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date." The question whether the liability for income taxation can be deducted before arriving at the net wealth of an assessee for the purpose of taxation under section 3 of the Wealth-tax Act, 1957, came up for consideration in Commissioner of Wealth-tax v. Travancore Rayons Ltd. ((1964) 54 I T R 332, 334, 336). This Court said: "The sole question for determination in this reference is whether the income-tax liability of the assessee for the accounting year 1958-assessment year 1959-60-should be deducted in computing the net wealth of the assessee as on the 31st December 1958 . . . . . The answer to the question depends on whether tile income-tax liability for the accounting year 1958--assessment year 1959-60-constitutes a debt owed by the assessee on the valuation date or not. All debts are liabilities; but all liabilities are not debts. One of the essentials of a debt, as pointed out by the Madras High Court in Commissioner of Wealth-tax v. Pierce Leslie & Co. Ltd. (1963) 48 I T R 1005 a case in which a question similar to the one before us was decided in favour of the Department, is `an ascertained or readily calculable amount' . . . . . We entertain no doubt that we must hold that the income-tax liability with which we are concerned did not mature into a debt owed by the assessee earlier than the 1st April 1959, that it is hence not deductible as held by the Appellate Tribunal under section 2 (m) of the Wealth-tax Act, 1957, and that the question referred has to be answered in the negative and against the assessee." The provision for income-tax with which we are concerned amounts to Rs.20,68,525 in the Assessment year, 1957-58, to Rs. 25,51,742 in the assessment year 1958-59 and to Rs. 15,41,934 in the assessment year 1959-60. These are the only amounts in controversy before us. Counsel for the assessee has filed a statement to the effect that the said amounts are made up as follows: Rs, nP. Assessment year 1957-58 (Valuation date. 30-6-1956) (a) Provision relating to assessment years up to 1956-57 (accounting periods up to 30-6-1955) 6,02,143.00 (b) Amount represented by demand under section 18-A of the Indian Income-tax Act, 1922, received on 28-5-1956 7,11,284.75 (c) Balance provision for the assessment year1957-58 (accounting period up to 30-6-1956) 7,55,097.25 Total 20,68, 525.00 Rs, nP. Assessment year 1958-59 (Valuation date 30-6-1957) (a) Provision relating to assessment years up to 1957-58 (accounting periods up to 30-6-1956) 12,33,694.00 (b) Amount represented by demand under section 18-A of the Indian Income-tax Act, 1922, received on 5-6-1957 10,00,125.88 (c) Balance provision for the assessment year 1958-59 (accounting period up to 30-6-1957) 3,18,022.12 Total 25, 51,742.00 Rs, nP. Assessment year 1959-60 (Valuation date 30-6-1958) (a) Provision relating to assessment years up to 1958-59 (accounting period upto 30-6-1957) 8,73,649.00 (b) Amount represented by demand under section 18-A of the Indian Income-tax Act, 1922, received on 21-5-1958 9,34,018.56 Total 18,07,667.56 (c) Provision required but not made 2,65,733.56 Balance 15,41,934.00 In the light of the decision of this Court and of the Madras High Court mentioned above, we must hold that items (a) and (b) of the break-up for the assessment years 1957-58, 1958-59 and items (a) and (b) less Rs. 2,65,733'56 for the assessment year 1959-60 should not be considered as forming part of the net wealth of the assessee on the valuation dates concerned, namely, June 30, 1956, June 30, 1957 and June 30, 1958. The assessee apparently had a contention that the provision of a sum of Rs. 66,000 for the payment of wealth-tax should also be deducted before arriving at the net wealth on the valuation date for the assessment year 1958-59. The sum of Rs. 26,17,742 mentioned by the Tribunal in respect of that year includes this figure. The contention, quite correctly, is not pressed before us. Counsel for the Department submitted that he was not in a position to accept or reject the correctness of the break-up filed by counsel for the assessee and that the reference should be answered only subject to the right of the Department to check the figures and arrive at a conclusion. The submission is justified and we accept the same. The Tribunal has held that the reserve in respect of a shipping claim to the extent it was subsequently decreed and paid-Rs. 8,860-and the provision for a lay-off compensation due under the Industrial Disputes Act, 1947-Rs. 4,361-40should also be deducted before arriving at the net wealth of the assessee on the valuation dates with which we are concerned. The two items apparently constitute debts owed by the assessee on those dates; and we are in agreement with the Tribunal that they should be deducted before arriving at the net wealth to be assessed as contended by the assessee. Regarding the other reserves (d), (e), (f) and (g) of the question referred in respect of the assessment year 1958-59 and (d) and (e) of the question referred in respect of the assessment year 1959-60-we are not satisfied that they were debts or in other words ascertained or readily calculable amounts on the valuation dates with which we are concerned. It follows that they cannot constitute valid deductions before arriving at the net wealth of the assessee for purposes of assessment under the Wealth-tax Act, 1957. The questions referred are answered as above, but, in the circumstances of the case, without any order as to costs. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by subsection (6) of section 27 of the Wealth-tax Act, 1957.