1964 PLP 727 (PTD)

Wealth‑tax‑Computation of net wealth‑Deductions‑Provision for income‑tax and wealth‑tax‑Whether allowable‑Meaning of "Debt owed"‑Wealth‑tax Act, 1957, Ss. 2(m) & 7(2). Liability to pay income‑tax on income earned before the valuation date is a "debt owed" at the time of the valuation date and a provision made for such income‑tax is deductible from the gross wealth for determining the "net wealth" upon which wealth‑tax is levied. Wealth‑tax payable on the net wealth is not however deducti ble in computing the net wealth. Commissioner of Wealth‑tax v. D. C. Basappa (1964) 51 I T R 790 fol. Doorga Prosad v. Secretary of State (1945) 13 1 T R 285 (P C) ref. D. M. Chandrasekhar (Assistant Advocate‑General) for the Commissioner. K. R. Ramamani for the Assessee. [Note : The Bombay High Court has taken the view that liability to pay income‑tax does not become a "debt owed" until the Finance Act authorising the levy of income‑tax on the income concerned is passed and so cannot be deducted in computing the wealth‑tax payable in respect of the accounting year : See Commissioner of Wealth‑tax v. Standard Mills Co. Ltd. (1963) 50 I T R 267]. JUDGMENT HEGDE, J.‑

The assessee is a private limited company. Its total wealth was computed at Rs. 15,89,013 by the Wealth‑tax officer under the Wealth‑tax Act, rejecting the claim of the assessee for a deduction from the above, the provision for income‑tax and wealth‑tax and the amount of proposed dividend on the ground that these liabilities had not become ascertained liabili ties as on March 31, 1959, which was the valuation date. The provision for income‑tax and wealth‑tax amounted to Rs. 5,15,

400. The provision for dividend amounted to Rs. 2,00,

000. But, in this reference, we are not concerned with this provision. The assessee appealed to the Appellate Assistant Commis sioner contending that the liability to the tax attached as soon as the income was earned and that mere justification of the liabilities on a subsequent date did not take them out of the category of deduction allowable under the Wealth‑tax Act. The Appellate Assistant Commissioner rejected the claim holding that the tax liability does not ripen into a debt unless the demand notice quantifying the tax payable was served upon the assessee and that prior to such a service, there was no enforceable right in the Government against the assessee. He relied on the decision in Doorga Prosad v. Secretary of State ((1945) 13 I T R 285 (P C)) and other decisions. He also referred to the amendment to section 2 (m) by clause 20 of the Finance Act. The order of the Appellate Assistant Commissioner is Annexure "A" and forms part of the case. There was an appeal to the Tribunal. The Tribunal, fol lowing the decision of the President of the Tribunal on a difference of opinion between two members, held that provision for taxation was to be deducted for computation of the net wealth under the Wealth‑tax Act. The orders of the President and the Members of the Tribunal in the assessee's case are annexures "B", "B‑l", and "B‑2" and form part of the case. The question of law is " Whether the provision for the income‑tax and wealth‑tax are debts owed or: the valuation date as contemplated under section 2 (m) of the Wealth‑tax Act, and are allowable in the computation of the net wealth" [After setting out the statement of the case as above K. S. Hegde, J. continued : ] For the reasons mentioned in our judgment in T. R. C. No. 1 of 1963 Since reported as Commissioner of Wealth‑tax v. Lt. Col. D. C. Basappa (1964) 51 1 T R 790, which we have just now delivered, we hold that the provision made for the payment of income‑tax is a "debt owed" and the same is deductible from the "gross wealth" to arrive at the "net wealth". But when we come to the provision made for the payment of wealth‑tax, we are faced with certain practical difficulties. The wealth‑tax is leviable on the "net wealth". If the provision made for the payment of wealth‑tax is deductible from the "net wealth", the net wealth determined will have to be changed. This process will have to go on ad infinitum. In other words, the conception of "net wealth" will become an ever receding phenomenon. Further, the contention advanced on behalf of the assessee in this regard does not accord with the pattern of our tax legisla tion. It is a well accepted practice that no tax can be deducted from the income on which the said tax is levied. Hence, our answer to the question submitted for our opinion is that the provision made for the payment of income‑tax is a "debt owed" within the meaning of that expression found in section 2 (m) of the Wealth‑tax Act. But the provision made for the payment of wealth‑tax is not such a "debt" and, therefore, the same is not allowable in the computation of the "net wealth". No costs.