Commissioner of Wealth Tax, Gujarat Vs.
Vimlabeen Vadilal Mehta [1983] INSC 159 (21 October 1983)
PATHAK, R.S.
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 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]
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 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 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.
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