Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF WEALTH TAX GUJARAT, AHMEDABAD
Vs.
RESPONDENT:
KANTILAL MANILAL ETC. ETC.
DATE OF JUDGMENT13/03/1985
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
VENKATARAMIAH, E.S. (J)
CITATION:
1985 AIR 924 1985 SCR (3) 297
1985 SCC (2) 343 1985 SCALE (1)446
ACT:
Wealth Tax Act, Section 2 (m) (iii) (a), scope of-New
wealth, computation of-Debt due-Ingredients necessary for
invoking the bar prescribed by Section 2 (m) (iii) (a),
explained-Admissibility of the assessee’s claim for a
deduction of certain sums representing the estimated
liabilities on account of Income Tax and Wealth Tax.
HEADNOTE:
For the assessment years 1961-62 and 1962-63, the
corresponding valuation dates of which were March 31, 1961
and March 31, 1962, assessment orders were made under the
Wealth Tax Act on March 24, 1961 and March 23, 1962
respectively while the notice of demands were served on the
assessee on April 11, 1961 and April 11, 1962 respectively.
Against the said notices of demand the assessee preferred
appeals on May 9, 1961 and May 9, 1962 respectively. For the
purpose of determining the assessee’s net wealth, the
assessee’s claim for a deduction of certain sums
representing the estimated liabilities on account O?’ income
tax and wealth tax was rejected in both assessments by the
Wealth Tax Officer. On appeal by the assessee, the Appellate
Assistant Commissioner of Wealth Tax allowed a part of the
claim. In appeal before the Appellate Tribunal, the Revenue
contended that since the assessee had disputed the wealth
tax liability of Rs. 22,679/- in respect of the assessment
year 1960-61 and the sum of Rs. 39,692/- in respect of the
assessment year 1961-62, he was not entitled to a deduction
of the same, being barred by reason of the provisions of
section 2(m) (iii) (a) of the Wealth Tax Act. The Tribunal
rejected the said contention and held that section 2 (m)(a)
was not attracted as the tax had not become payable on the
relevant valuation dates. The Wealth Tax References made at
the instance of the Revenue were decided in favor of the
assessee by the High Court of Gujarat by its common
judgement in Commissioner of Wealth Tax v. Kantilal Manilal
reported in (1973) 88 I.T.R 125. The present appeal by
special leave arises therefrom.
Dismissing the appeal, the Court
^
HELD: 1.1 In order to invoke the bar prescribed- by
Section 2(m) (iii) (a) of the Wealth Tax Act it is necessary
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for the Revenue to establish that both
298
requirements therein are satisfied, that is to say, that an
amount of the tax is outstanding on the valuation date and
further that the amount is claimed by the assessee in an
appeal as not being payable by him. [302E-F]
1.2 An amount of tax is outstanding if it is payable
and has remained unpaid. In other words, if there is a debt
due and there has been no payment of the debt. There are
three stages in respect of an income tax liability. The tax
liability comes into existence on the last day o f the
previous year relevant to the assessment year. Thereafter
when the assessment proceedings take place an assessment
order is made quantifying the assessable income and
determining the tax payable. Thereupon, a notice of demand
is served for payment of the tax, and the tax then becomes
payable and a debt becomes due to the Revenue.A survey of
the provisions of the Wealth Tax Act contained in Sections
14 to 17 and Section 30 makes it clear that in all material
respects the scheme of the Wealth Tax Act is in this regard
substantially, the same as that incorporated in the Income
Tax Act. The notice of demand requiring payment of the tax,
interest or penalty is issued pursuant to Section 30 of the
Act. If the amount remains unpaid within the periods
specified in the notice the amount of the tax is said to be
outstanding [303D-F]
1.3 Section 2(m)(iii)(a) of the Wealth Tax Act comes
into play only after a demand for payment of tax has been
made. The clause, read in its entirety, speaks of a debt
owed by the assessee represented by an amount of tax
"payable in consequence of any order" passed under the
relevant tax statute and "outstanding on the valuation
dates." [303H; 304A]
1.4 The expression "debt owed" is a debt which the
assessee is under an obligation to pay and, therefore, it
includes both a liability to pay in present as well as a
liability to pay in future an ascertainable sum of money.
Both kinds of liabilities are included within the expression
"debt owed". But Section 2(m)(iii)(a) narrows the scope down
to a liability which exists in present time because the
clause speaks of tax outstanding in consequence of an order
passed under the relevant taxing statute. [304B-C]
1.5 In the present case, the notice of demand in each
case was served after the valuation date had been passed.
There was no demand already subsisting on the respective
valuation dates. As the notices of demand respecting the
wealth tax liability of Rs. 22,679 and Rs. 39,692 were
served on the assessee subsequent to the valuation dates, if
cannot be said that on the respective valuation dates the
amount of tax were outstanding. In the result a material
requirement of Section 2(m) (iii) (a) is not satisfied and
therefore, it cannot be invoked by the Revenue. [304D-E]
Commissioner of Wealth Tax v. Kantilal Manilal, (1973)
88 I.T.R. 125, approved.
Doorga Prasad v. The Secretary of State, (1945) 13
I.T.R. 285, quoted with approval
299
Kesoram Industries & Cotton Mills Ltd. v. Commissioner
of Wealth Tax (Central), Calcutta, (1966) 59 I.T.R. 767,
followed.
1.6 The appeals in the present case, though filed
subsequent to the respective valuation dates, would none-
the-less have sufficed to bring the second requirement of
section 2 (m) (iii) (a) into operation. But for Section 2
(m) (iii) (a) an amount of a tax outstanding on the
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valuation date would constitute a debt owed by the assessee
on the valuation date, and the assessee would be entitled to
claim its deduction in the process of computing his net
wealth. Parliament, however, intended that if the amount of
the tax was challenged by the assessee as not being payable
by him by recourse to any of the statutory remedies
prescribed in the relevant Act, such claim to deduction
would be barred. Plainly, in order to give full effect to
that intent it is immaterial whether the statutory remedy is
being availed of on the valuation date or has been taken
thereafter.A challenge by the assessee that the amount
outstanding is not payable by him is sufficient to bar his
claim to deduction whether the challenge is subsisting on
the valuation date or is initiated after the valuation date
has passed. [305 D; A-C]
Late P. Appauoo Pillai v. Commissioner of Wealth Tax,
Madras, (1973) 91 I.T.R. 138 overtuled.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals NOS. 1311
and, 1312 of 1973.
From the Judgment and Order dated 26/27.6.1972 of the
Gujarat High Court at Ahmedabad in Wealth Tax Reference Nos.
3, 4, 20, 25, 29, 32, 32 & 36 of 1970 and 1 of 1971.
S G. Manchanda, B.B. Ahuja, R.N. Poddar and Miss A.
Shubhashini for the Appellant.
S.T. Desai Mrs. A.K. Verma and K.J. John for the
Respondents.
The Judgment of the Court was delivered by
PATHAK. J. These appeals are directed against the
judgment of the Gujarat High Court disposing of a
wealth tax reference and answering the following
question of law against the Revenue -
"Whether, on the facts and in the circumstances of the
case, the Tribunal was right in holding that the
provisions of S. 2 (m) (iii) (a) were not applicable in
respect of liabili-
300
ties arising under the wealth tax assessments of the
asses see for the assessment years 1960-61 and 1961-62
?"
For the purpose of determining the assessee’s net
wealth in assessment proceedings under the Wealth Tax Act in
respect of the assessment years 1961-62 and 1962-63, the
corresponding valuation dates being March 31, 1961 and March
31, 1962, the assessee claimed a deduction of certain sums
representing the estimated liabilities on account of income
tax and wealth tax. The claim was rejected by the Wealth Tax
Officer in both assessments. On appeal by the assessee the
Appellate Assistant Commissioner of Wealth Tax allowed a
part of the claim. In the appeal pertaining to the
assessment year 1961-62, he allowed a deduction of Rs.
22,679 on account of wealth tax relating to the assessment
year 1960-61, Rs.39,692 on account of wealth tax relating to
the assessment year 1961-62 and Rs. 2,25,053 on account of
income tax for the assessment year 1961 -62. In the appeal
pertaining to the assessment year 1962-63, the Appellate
Assistant Commissioner allowed the total claim of Rs.
9,02,377 comprising a deduction of Rs 39,692 on account of
wealth tax relating to the assessment year 1961-62, Rs.
77,716 on account of wealth tax for the assessment year
1962-63 and the balance on account of income tax for the
assessment year 1962-63. The Revenue appealed to the
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Appellate Tribunal. In the appeal for the assessment year
1961-62 in contended inter alia, that the assessee was not
entitled to a deduction of the wealth tax liability of Rs.
22,679 in respect of the assessment year 1960-61 because he
had disputed the said liability in appeal and, therefore,
the deduction was barred by reason of s. 2(m) (iii) (a) of
the Wealth Tax Act. Similarly, in the appeal for the
assessment year 1962-63, the Revenue urged that the assessee
was not entitled to a deduction of the wealth tax liability
of Rs. 39,692 for the assessment year 1961-62 as he had
disputed that liability in appeal and the deduction was
barred by s. 2(m) (iii) (a) of the Act. The Appellate
Tribunal did not accept the contention of the Revenue and
held that s.2(m) (iii) (a) was not attracted in respect of
those liabilities as they had ‘G not become payable on the
relevant valuation dates. At the instance of the Revenue, a
reference, being Wealth Tax Reference No. 20 of 1970, was
made to the Gujarat High Court for its opinion on the
question of law set forth earlier.
It may be mentioned that another question was also
framed in that reference, and that this reference along with
several other
301
references were disposed of together by the Gujrat High
Court by, its judgment in Commissioner of Wealth Tax v.
Kantilal Manilal.1 Against that judgment corresponding
special leave petitions were filed by the Revenue in this
Court, but all the special leave petitions, except Special
Leave Petitions (Civil) Nos 505 and 506 of 1973, arising out
of Wealth Tax Reference No. 20 of 1970, were dismissed on
the merits, and in respect of these two special leave
petitions the grant of special leave was restricted to the
consideration of the question set forth earlier.
While dealing with the question whether the provisions
of s. 2(m) (iii) (a) of the Wealth Tax Act barred the
deduction of the wealth tax liabilities claimed by the
assessee the High Court held that as the liabilities were
not outstanding on the respective valuation dates s. 2(m)
(iii) (a) was not attracted even though the assessee had
challenged in appeal that the liabilities were not payable
by him.
In these appeals, Shri S.C. Manchanda, appearing for
the Revenue, contends that the High Court has erred insofar
as it has held that the wealth tax liabilities were not
outstanding on the valuation dates. His case is that the bar
imposed by s. 2(m) (iii) (a) operates against the claim to
deduction made by the assessee. Shri S.T. Desai, appearing
for the assessee, urges that s. 2(m) (iii) (a) is not
attracted because no amount of tax was outstanding on the
respective valuation dates and in any event, he says, the
appeals challenging those liabilities were not pending on
the valuation dates, and therefore the further requirement,
according to him, of the statute was not satisfied.
Section 2(m) of the Wealth Tax Act provides:-
"(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 (z this Act, is in
excess of the aggregate value of all the debts owed by-
the assessee on the valuation date other than-
(i) xx xx xx
(1) (1973). 88 I.T.R. 124, z z
302
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(ii) XX XX XX
(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 (34
of 1953), the Expenditure Tax Act, 1957 (29 Or 1957),
or the Gift-tax Act, 1958 (18 of 1958),-
(a) which is outstanding on the valuation date
and is claimed by the assessee in appeal,
revision or other proceeding 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 "
In the process of computing the net wealth, the statute
requires the aggregation of the value of all the debts owed
by the assessee on the valuation date, except those debts
which are specifically described in sub-clauses (i), (ii)
and (iii). We are concerned with sub-clause (iii) (a).A debt
which ordinarily falls within the scope of the substantive
provision of s. 2(m) cannot be taken into account for the
purpose of determining the net wealth if it falls within the
term of sub-clause (iii) (a) of s. 2(m). Sub-clause (iii)
(a) speaks the amount of the tax, penalty or interest
payable in consequence of any order passed under or in
pursuance of any of the tax laws mentioned therein, which is
outstanding on the valuation date and is claimed by the
assessee in appeal, revision or other proceeding as not
being payable by him.
For the assessment years 1961-62 and 1962-63 under
reference, the corresponding valuation dates, as we have
mentioned earlier are March 31,1961 and March 31, 1962
respectively The claim to deduction in the wealth tax
liability for the assessment year 1961-62 relates to Rs.
22,679 representing the wealth tax liability for the
assessment year 1960-61. The assessment order for the
assessment year 1960-61 was made on March 24, 1961 but the
notice of demand was served on the assessee on April 11,
1961. It is apparent that the notice of demand was served
some days after the valuation date, March 31, 1961. In the
wealth tax assessment of the assessment year 1962-63 the
deduction claimed relates to the wealth tax liability of Rs.
39,692 for the assessment year 1961-62. The assessment order
303
on March 23, 1962 but the notice of demand was served on
April 11, 1962 and that notice of demand was also served a
few days after the relevant valuation date, March 31,1962.
Therefore, the notice of demand in each case was served
after the valuation date had passed. There was no demand
already subsisting on the respective valuation dates.
In order to invoke section 2 (m) (iii) (a) the Revenue
must establish that an amount of the tax was outstanding on
the valuation date. An amount of tax is outstanding if it is
payable and has remained unpaid. In other words, if there is
a debt due and there has been no payment of the debt. In a
case under the Indian Income Tax Act, 1922, Doorga Prasad v.
The Secretary of State, (1) the Privy Council laid down that
an income tax liability becomes a debt due when payment of
the tax is demanded by a notice issued under section 29 of
the Act. There are three stages in respect of an income tax
liability. The tax liability comes into existence on the
last day of the previous year relevant to the assessment
year. Thereafter when the assessment proceedings take place,
an assessment order is made quantifying the assessable
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income and determining the tax payable. Thereupon, a notice
of demand is served for payment of the tax, and the tax then
becomes payable and a debt becomes due to the Revenue. That
was the position under the Indian Income Tax Act, 1922 and
continues to be the position under the Income Tax Act,
1961.A survey of the provisions of the Wealth Tax Act will
demonstrate that in all material respects the scheme of the
Wealth Tax Act is in this regard substantially the same as
that incorporated in the Income Tax Act. The provisions for
the assessment are of an assessee are contained in sections
14 to 17A of the Wealth Tax Act. The notice of demand
requiring payment of the tax, interest or penalty is issued
pursuant to section 30 of the Act. If the amount remains
unpaid within the period specified in the notice the amount
of the tax is said to be outstanding.
A question was raised whether for the purposes of
attracting section 2(m) (iii) (a) it is not sufficient that
the tax liability has 6 accrued and it is necessary that a
tax demand should have been made by the assessing authority.
It seems to us that section 2(m) (iii) (a) comes into play
only after a demand for payment of tax has been made. The
clause, read in its entirety, speaks of a debt owed by the
(1) (1945) 13 I.T.R. 285.
304
assessee represented by an amount of tax "payable in
consequence of any order" passed under the relevant tax
statute "outstanding on the valuation date". The expression
"debt owed" has been held by this Court in Kesoram
Industries & Cotton Mills Ltd. v. Commissioner of Wealth Tax
(Central), Calcutta, (1) to mean a debt which the assessee
is under an obligation to pay and, therefore, it includes
both a liability to pay in praesenti as well as a liability
to pay in future an ascertainable sum of money. Both kinds
of liabilities are included within the expression "debt
owed". But when we refer to the clause under consideration,
it narrows the scope down to a liability which exists in
present time. That is so because the clause speaks of tax
outstanding in consequence of an order passed under the
relevant taxing statute. As discussed earlier, tax becomes
payable in consequence of such order when a notice of demand
is served on the assessee.
In the present case, it is clear that as the notices of
demand respecting the wealth tax liability of Rs 22,679 and
Rs. 39,692 were served on the assessee subsequent to the
valuation dates, it can not be said that on the respective
valuation dates the amounts of tax were outstanding. In the
result a material requirement of s. 2 (m) (iii) (a) is not
satisfied and therefore that provision cannot be invoked by
the Revenue.
We now propose to consider the other point in
controversy. As is apparent. if the Revenue desires to
invoke section 2 (m) (iii) (a), it must establish not only
that the amount of the tax, penalty or interest envisaged in
that provision is outstanding on the valuation date but it
must also show that the amount is claimed by the assessee in
appeal, revision or other proceeding as not being payable by
him. The question is whether it is a necessary requirement
of the provision that the appeal, revision or other
proceeding should be pending on the valuation date itself or
it suffices that the appeal, revision or other proceeding is
filed subsequent to the valuation date. In the present case
the appeal against the wealth tax assessment order for the
assessment year 1960-61 was filed on May 9, 1961, and the
appeal against the wealth tax assessment order for the
assessment year 1961 62 was filed on May 9, 1962. Both the
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appeals were filed, therefore, after the respective
valuation dates, March 31, 1961 and March 31, 1962
corresponding to the assessment years 1961-62 and 1962-63
(1) (1966) 59 I.T.R. 767.
305
under reference. But for section 2(m) (iii) an amount of a
tax outstanding on the valuation date would constitute a
debt owed by the assessee on the valuation date, and the
assessee would be entitled to claim its deduction in the
process of computing his net wealth. Parliament, however,
intended that if the amount of the tax was challenged by the
assessee as not being payable by him by recourse to any of
the statutory remedies prescribed in the relevant Act, such
1 claim to deduction would be barred. Plainly, in order to
give full effect to that intent it is immaterial whether the
statutory remedy is being availed of on the valuation date
or has been taken thereafter.A challenge by the assessee
that the amount outstanding is not payable by him is
sufficient to bar his claim to deduction whether the
challenge is subsisting on the valuation date or is
initiated after the valuation date has passed. Accordingly,
we are of opinion that the appeals in the present case,
though filed subsequent to the respective valuation dates,
would nonetheless have sufficed to bring the second
requirement of section 2(m)‘ (iii) (a) into operation. The
contrary view in respect of section 2 (m) (iii) (a) adopted
by the Madras High Court in Late P. Appavoo Pillai v.
Commissioner of Wealth Tax, Madras(4) appears to us to be
incorrect.
However, as in order to invoke the bar prescribed by
section 2 (m) (iii) (a), it is necessary for the Revenue to
establish that both requirements are satisfied, that is to
say, that an amount of the tax is outstanding on the
valuation date and further that the amount is claimed by the
assessee in an appeal as not being payable by him, and the
Revenue has been unable to show that in the present case the
sum of Rs. 22,679 and Rs. 39,692 representing the wealth tax
liabilities for the assessment years 1960-61 and 1961-62
were outstanding on the respective valuation dates
corresponding to the assessment year under reference, the
Revenue must fail.
In the result, the appeals are dismissed.
S.R. Appeals dismissed.
(1) (1973) 91 I.T.R. 130.
306