of Wealth Tax, Lucknow Vs. Raja Vishwanath Pratap Singh
 INSC 492 (3
S.C. (J) Sen, S.C. (J) Verma, Jagdish Saran (J) Sen, J.
JT 1996 (4) 62 1996 SCALE (3)313
Raja Vishwanath Pratap Singh is the son of late Captain Raja Bahadur Ram Gopal
Singh, who was the owner of extensive zamindari and other properties. Ram Gopal
Singh ran into debts. He applied under Section 4 of the U.P.
Estates Act, 1934 for the liquidation of his debts. While his application under
Section 4 was pending, Ram Gopal Singh passed away and his estate was taken
over by the Court of Wards on September 16, 1941. The estate was released on February 16, 1953. All the proceedings pursuant to
the application before the Special Judge after the death of Ram Gopal Singh
went on in the name of the assessee.
the savings of the estate, the Court of Wards invested an amount of Rs.6,11,324/-
in Government securities. The investment fetched an income of Rs.76,000/- per
annum by way of interest. The amount of interest used to be collected by the assessee.
proceedings under the U.P. Encumbered Estates Act, the Special Judge passed a
simple money decree for Rs.30,000,00/- and odd. Since the assessee had been substituted
in the place of his father, the decree was passed against the assessee. When
some of the decree-holders wanted to proceed against the amount of Rs.6,87,000/-
held in Government securities, the assessee opposed the claim of the
decree-holders. The Special Judge held that the decree- holders could not
proceed against this amount which did not form part of the estate of the
deceased Ram Gopal Singh. The decree-holders went on appeal to the High Court
which upheld the order of the Special Judge by an order passed on March 25, 1961.
all these proceedings were going on under the U.P. Encumbered Estates Act,
Wealth Tax Assessment of the assessee was completed for the assessment years
1957-58, 1958-59, 1959-60. However, the proceedings for the assessment years
1960-61 and 1961-62 were pending. In the Wealth Tax Assessment proceeding upto
the assessment year 1959-60, the decretal amount of Rs.30,000/- an odd had beer
treated as 'debt owed' by the assessee. Taking this debt into consideration, it
was held that the assessee was not liable to tax under the Wealth Tax Act. But,
when the judgment of the High Court dated March 25, 1961 came to the knowledge
of the Department that the decree-holders could not proceed against the amount
of Rs. 6,87,000/- and odd held by the assessee in his own name for recovery of
the decretal debt, the Wealth Tax Officer initiated proceedings under Section
17 of the Wealth Tax Act against the assessee for the assessment years 1957-58,
1958-59 and 1959-60.
giving a hearing to the assessee, the assessments were completed by the Wealth
Tax Officer for the aforasaid years of assessment holding that since the decretal
amount of Rs.30,00,000/- could not be recovered from the assessee personally,
it was not a debt owed by the assessee. The sum of Rs. 6,78,000/- constituted
the net wealth of the assessee against which the decretal amount could not be
orders were passed for the assessment years 1960-61 and 1961-62.
appealed to the Assistant Appellate Commissioner who examined the facts of the
case in depth and dismissed the appeals by a consolidated order disposing of
all the five cases.
the points taken before the Appellate Assistant Commissioner was that the assessee
had e pious obligation to discharge the debts contracted by his father and,
therefore, the decretal dues of Rs.30,00,000/- should be treated as 'debt owed'
by the assessee. The Appellate Assistant Commissioner, however, held that under
the Hindu Law the creditors could not proceed against the assets of the assessee
for fulfilling his pious obligation to pay the decretal dues of his father.
was a further appeal to the Tribunal. Before the Tribunal the point of pious
obligation of the son to pay the debts contracted by the father under Hindu Law
was given up.
contended that the aggregate value of the debts of the assessee was more than
Rs.30,00,000/-. If this was deducted from the assets held by the assessee, the
resultant figure would be negative. Therefore, no Wealth Tax was needed to be
paid by the assessee. It was pointed out that Section 2(m) of the Wealth Tax
Act enjoined deduction of debts owed by the assessee. The decrees passed under
the U.P. Encumbered Estates Act were personal decrees against the assessee and,
therefore, the amount had to be deducted from the assets of the assessee as
'debts owed' by the assessee. The payability of the debt was not very material
for this purpose. For this proposition, reliance was placed upon the judgment
of this Court in the case of Kesoram Industries and Cotton Mills Ltd. v.
Commissioner of Wealth Tax (Central), Calcutta, (1969) 59 ITR 767. It was
further argued that a decree could not be passed against a dead person. The
decree in question was actually passed against the assessee. Therefore, it
could not be said that no decree was passed against the assessee personally.
Tribunal rejected all these arguments. The Tribunal held that in order to get
any deduction of any amount on 'debt owed' by the assessee, it will have to be
shown that he was personally liable to pay the debts. In a case where a person
was liable to pay debts only to the extent of property which he had received
from another person, there could be no personal liability to pay the tax. The
creditors could proceed against the assets and recover their dues from the
assets of the deceased. But the creditors could not enforce their claim against
the assessee personally or against the personal assets of the assessee. Since
the creditors could not proceed against the assessee personally for recovery of
their decretal dues, it could not be said that the assessee owed any debt which
had to be deducted from his assets for the purpose of computation of net
wealth. The Tribunal, therefore, dismissed the appeal.
instance of the assessee, two following questions of law were referred to the
High Court under Section 27 of the Wealth Tax Act:-
Whether or the facts and in the circumstances of the case the debts amounting
to Rs.30 lacs and odd, more or less for each of the assessment years under
appeal, were rightly not allowed as a deduction in calculating the net wealth
of the assessee?
Whether on the facts and under the circumstances of the case the provisions of
Section 17 of the Wealth Tax Act were applicable so far as the assessment years
for 1957-58, 1958-59 and 1959-60 are concerned?" The High Court took the
view that the Tribunal misconstrued the expression 'debts owed by assessee' in
Section 2(m) of the Wealth Tax Act. Tribunal had also misunderstood the true nature
of obligation of heir of the deceased debtor to pay his debts. The High Court
referred to Mulla's Hindu Law, 12th Edition, p.426 and observed that the assessee
was liable to pay the debts incurred by his deceased father. But his liability
was restricted to the extent of the property inherited by him from his deceased
father. So his father's debts which may be satisfied from property which he had
inherited from his father 'debts owed by the assessee'. The High Court,
therefore, answered the first question by holding the debt amount to Rs.30,00,000/-
and odd should been allowed as a deduction in calculating the net wealth of the
assessee. As a consequence of the answer given to the first question, the
second question was answered by saying that Section 17 of the Wealth Tax Act
could not be applied for the assessment years 1957-58, 1958- 59 and 1959-60.
fail to see how the High Court went to the question of pious obligation of a
Hindu son for payment of his father's debt. This question was given up before
the Tribunal and no argument was advanced on this point.
the High Court noted that the assessee's liability to pay his father's debt was
restricted to the properties which he had inherited from his father. The
amounts invested in the Government securities were investments made by the
Court of Wards out of savings from the income of the estate in its hands. It
was held by the Special Judge that this property was not available for payment
of the decretal dues obtained by the creditors in the proceedings under the
Estates Act. The High Court in appeal had affirmed that view. Therefore, the
creditors of the deceased Ram Gopal Singh could not proceed against these
Government securities to recover the decretal dues. The Reference Court obviously overlooked these facts in
coming to the conclusion that the assessee had a pious obligation to pay his
father's debts even out of these Government securities.
case of Kesoram Industries and Cotton Mills Ltd.(supra), it was held that 'debt
owed' under Section 2(m) of the Wealth Tax Act could be defined as the
liability to pay in praesenti or in future an ascertainable sum of money.
in praesenti solvendum in future. In that case, the question was whether
liability to pay Income Tax which had not been computed by an assessment order
could be treated to be a present liability and, therefore, a debt. This Court
held that the liability to pay Income Tax arose by virtue of the Income Tax
Act. At the end of the accounting period there was a perfected debt. This was
not a contingent liability. It was a present liability to pay an ascertainable
amount in future. Therefore, it came within the meaning of the phrase 'debts
owed' in Section 2(m) of the Wealth Tax Act on the valuation date.
decision does not come to the aid of the assessee in any way. Under the Wealth
Tax Act, 'net wealth' has been defined as under:
'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 owad by the assessee on the valuation date
which have been incurred in relation to the said assets." It was not the
case of the assessee that he had a personal liability to pay the decretal
amount of Rs.30,00,000 and that it was payable by him ultimately.
decree-holders have been unable to proceed against his assets (the Government
securities of Rs.6,87,000) for the realisation of their decretal dues. It is
not the case of the asseesee that on the relevant valuation date the assessee
was saddeled with a decretal debt and the assessee was under a legal obligation
to pay that amount sooner or later. Having successfully thwarted the attempts
of the decree-holders to proceed against the aforesaid Government securities
and the income arising therefrom, the assessee cannot now be heard to say that
the decretal dues are his debts which are personally payable by him. We are of
the view that the Tribunal had given good reasons for its decision and the
decision of the Tribunal should have been upheld by the High Court.
behalf of the assessee our attention was invited to the provisions of the U.P.
Encumbered Estates Act and also the judgment of the High Court passed on March 25, 1961. It was argued that the judgment
must be understood in the context of the provisions of that Act. It was emphasised
that there was a pious obligation of the assessee to pay off the debts incurred
by his father. This argument had been advanced before the Appellate Assistant
Commissioner, but was not pressed before the Tribunal. Moreover, the obligation
of the son to pay off the debts contracted by his father is limited to the
properties inherited by the son from his father. It is not the case of the assessee
that he has inherited the amount of Rs.6,87,000 held in Government securities
from his father. In any event, it was held by the High Court in its order dated
March 25, 1961 that a decree obtained by the creditors could not be executed
against these Government securities In view of the aforesaid, we answer both
the questions in the affirmative and in favour of the Revenue. The appeals are
allowed. Each party will bear its own costs.