Full Judgment Text
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PETITIONER:
COMMISSIONER OF WEALTH TAX, GUJARAT
Vs.
RESPONDENT:
VIMLABEEN VADILAL MEHTA
DATE OF JUDGMENT21/10/1983
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
VENKATARAMIAH, E.S. (J)
CITATION:
1984 AIR 302 1984 SCR (1) 480
1983 SCC (4) 692 1983 SCALE (2)823
ACT:
Wealth Tax Act-Computation of assessee’s net wealth-
Whether income tax or wealth tax liability created in
consequence of rectification orders passed after the
relevant valuation date can be the subject of a claim to
deduction ?
HEADNOTE:
During the course of the hearing of an appeal against
an assessment order made under the Wealth Tax Act for the
assessment year 1964-65, the respondent who was the
assessee, claimed deduction of an amount in the computation
of net wealth which inter alia included the income tax and
wealth tax liabilities created in consequence of certain
rectification orders made under s. 154 of the Income Tax Act
and s. 35 of the Wealth Tax Act. The rectification order
related to assessment of income tax/wealth tax for the
previous years and had been made after the completion of the
assessment proceedings under the Wealth Tax Act for the
assessment year 1964-65. The deduction claimed was allowed
by the Appellate Assistant Commissioner and his decision was
upheld by the Appellate Tribunal and the High Court.
Dismissing the appeal,
^
HELD: The rectification of an assessment must be
treated on the same basis as an original assessment for the
purpose of a claim to deduction in the computation of the
assessee’s net wealth. The rectification merely quantifies
the true tax liability which had already been crystalized
and become a debt on the last day of the previous year in
the case of income tax liability, and, on the valuation date
in the case of a wealth tax liability. [484 C-D]
Commissioner of Wealth Tax, Gujarat v. Shri Vadilal
Lallubhai (C.A. Nos. 1524 to 1527 of 1973 decided on
21.10.1983) referred to.
When an appeal is filed against an assessment order
before the Appellate Assistant Commissioner, the assessment
case is thrown open and the appellate proceeding constitutes
a continuation of the assessment proceeding. Even if the tax
liabilities, of which a deduction is claimed, are created by
rectification orders or by assessment orders made after the
date of the wealth tax assessment order under appeal, the
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law requires the claim to deduction being considered on the
same basis as if it had been made in the original wealth tax
assessment proceeding. [483 F-H]
481
In the instant case, it is true that the rectification
orders related to tax liabilities which were not claimed by
the assessee in the course of the original assessment
proceeding before the Wealth Tax officer but as the
Appellate Assistant Commissioner permitted the claim to be
made during the hearing of the appeal, there is no reason
why the assessee should be denied consideration of his
claim. [483 H; 484 A]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1423
(NT) of 1973.
From the Judgment and Order dated the 13th December,
1972 of the Gujarat High Court at Ahmedabad in Wealth Tax
Reference No. 21 of 1971.
S.C. Manchanda, B.B. Ahuja and Miss A. Subhashini for
the appellant.
The Judgment of the Court was delivered by
PATHAK, J: This appeal is directed against the judgment
of the Gujarat High Court disposing of a wealth tax
reference and an swearing against the Revenue the following
two questions:
"Whether on the facts and in the circumstances of
the case the assessee is entitled to the deduction of-
(i) income tax liabilities for the assessment years
1962-63, 1963-64 and 1964-65; wealth tax for the
assessment year 1964-65 and gift tax for the
assessment years 1962-63 to 1964-65 as determined
payable on the basis of the assessment orders
passed after the valuation date, and
(ii) income tax liability for the assessment years
1958-59 and 1960-61 and wealth tax liability for
the year 1961-62 created as a result of
rectification orders passed of the relevant
valuation date in determining the value of the net
wealth ?"
In assessment proceedings under the Wealth Tax Act for the
assessment year 1964-65, the respondent assessee claimed a
deduction of Rs. 2,42,535/- in the computation of her net
wealth, on the ground that the amount represented the
assessee’s tax liabilities for different
482
years. The Wealth Tax Officer rejected the claim. An appeal
by the assessee was allowed by the Appellate Assistant
Commissioner, who held the assessee entitled to the
deduction claimed but remanded the case to the Wealth Tax
Officer for verifying the arithmetical accuracy of the
claimed deductions. The Wealth Tax Officer appealed to the
Appellate Tribunal. He contended that the assessee’s claim
to the deduction of income tax liabilities for the
assessment years 1962-63, 1963-64 and 1964-65, the wealth
tax liability for the assessment year 1964-65 and the gift
tax liabilities for the assessment years 1962-63, 1963-64
and 1964-65 determined on the basis of assessment completed
after the valuation date were not admissible deductions in
computing the net wealth, and that in any event, the
deductions should have been allowed on the basis of the
returns filed and not on the basis of the assessment orders.
The Appellate Tribunal rejected the contention in view of
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the judgment of this Court in Commissioner of Income Tax v.
Kesoram Industries Pvt. Ltd. and H.H. Setu Parvati Bayi v.
Commissioner of Wealth Tax, Kerala. The Wealth Tax Officer
also contended that the income tax liability for the years
1958-59 and 1960-61 and the wealth tax liability for the
year 1961-62 created as a result of rectification orders
made after the valuation date were not admissible
deductions. This contention was also rejected by the
Appellate Tribunal. Finally, the Wealth Tax Officer pointed
out that the tax liabilities were not deductible in view of
the provisions of s. 2 (m) (iii) of the Wealth Tax Act. The
Appellate Tribunal observed that this aspect of the case had
not been considered by the Appellate Assistant Commissioner
and, accordingly, the Appellate Tribunal directed the
Appellate Assistant Commissioner to consider the case again
and determine which of the liabilities were covered by the
provisions of s. 2 (m) (iii). On a reference being made to
the Gujarat High Court at the instance of the Revenue on the
questions of law set forth earlier, the High Court held that
both questions were concluded by its judgment in
Commissioner of Wealth Tax, Gujarat II v. Kantilal Manilal,
and answered the questions in the affirmative.
As regards the first question, we have already
expressed our view on the point in our judgment in The
Commissioner of Wealth Tax, Gujarat, Ahmedabad v. Shri
Vadilal Lallubhai etc. in Civil Appeals
483
Nos. 1524 to 1547 of 1973. We need add nothing more on that
point, and answer the question in the affirmative.
The second question raises the point whether the income
tax liability and wealth tax liability created in
consequence of rectification orders passed after the
relevant valuation date can be the subject of a claim to
deduction in the computation of an assessee’s net wealth. In
appears from the record before us that while the Wealth Tax
Officer completed the assessment proceeding for the
assessment year 1964-65 by the assessment order dated
November 23, 1964, the rectification order under s. 154 of
the Income Tax Act for the assessment year 1958-59 was made
on May 13, 1966 and the rectification order under the same
provision for the assessment year 1960-61 was made on
January 1, 1965, and the rectification order under s. 35 of
the Wealth Tax Act for the assessment year 1961-62 was made
on June 10, 1965. In short, the rectification orders were
made after the assessment proceeding had been completed by
the Wealth Tax Officer. It would seem that the claim to
deduction on account of the income tax liabilities and the
wealth tax liability was made in the course of the appeal
before the Appellate Assistant Commissioner. From the
record, it appears also that the income tax liabilities, the
wealth tax liability and the gift tax liabilities claimed as
a deduction were quantified by assessment orders made after
the Wealth Tax Officer had completed the assessment
proceeding. Those assessment orders were apparently brought
to the notice of the Appellate Assistant Commissioner by the
assessee during the hearing of Appeal filed the assessee.
Shri S.C. Manchanda, learned counsel for the Revenue, urges
that the judgment of Gujarat High Court in Kantilal Manilal
(supra) does not conclude the question arising on this claim
because the High Court was concerned with a claim to
deduction on account of income tax, wealth tax and gift tax
liabilities which had arisen before the Wealth Tax Officer
had completed the assessment before him. Be that as it may,
it is well-settled that when an appeal is filed against an
assessment order before the Appellate Assistant
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Commissioner, the assessment case is thrown open and the
appellate proceeding constitutes a continuation of the
assessment proceeding. Even if the tax liabilities, of which
a deduction was claimed, were created by rectification
orders or by assessment orders made after the date of the
wealth tax assessment order under appeal the law requires
the claim to deduction being considered on the same basis as
if it had been made in the original wealth tax assessment
proceeding. It is true that the rectification orders and the
gift tax assessment related to tax
484
liabilities which were not claimed by the assessee in the
course of the original assessment proceeding before the
Wealth Tax Officer, but as the Appellate Assistant
Commissioner permitted the claim to be made during the
hearing of the appeal, we see no reason why the asseesee
should be denied consideration of his claim. And as regards
the quantification of the other income tax and wealth tax
liabilities effected after the Wealth Tax Officer had
completed the original wealth tax assessment proceeding, the
quantification of the liabilities related to claim which had
already been raised before the Wealth Tax Officer in the
course of the original assessment proceeding. As we have
observed in The Commissioner of Wealth Tax, Gujarat,
Ahmedabad v. Shri Vadilal Lallubhai etc.(1) in Civil Appeals
Nos. 1524 to 1547 of 1973, the rectification of an
assessment must be treated on the same basis as an original
assessment for the purpose of a claim to deduction in the
computation of the assessee’s net wealth. The rectification
merely quantifies the true tax liability which had already
been crystalized and become a debt on the last day of the
previous year in the case of an income tax liability, on the
valuation date in the case of a wealth tax liability and on
the last day of the previous year in the case of a gift tax
liability.
In the result, we hold that both the questions set
forth earlier must be answered in favour of the assessee and
against the Revenue. The appeal is therefore dismissed. As
the assessee is absent, there is no order as to costs.
H.L.C. Appeal dismissed
485