Commissioner of Wealth Tax, Kanpur Vs.
M/S. J.K. Cotton Manufacturers Ltd. [1984] INSC 48 (28 February 1984)
TULZAPURKAR, V.D.
TULZAPURKAR, V.D.
MUKHARJI, SABYASACHI (J)
CITATION: 1984 AIR 946 1984 SCR (3) 37 1984
SCC (3) 393 1984 SCALE (1)445
ACT:
Wealth Tax Act, 1967 Sections 2(m), 4(3), 5
and 6- Wealth tax-Deductions-settlement allowing payment in
instalments-Instalments unpaid and showed in balance sheet as "debt"
owed by assessees-Whether allowable deduction- Whether `debt owed and outstanding'.
Words & Phrases: "all the debts owed
by the assessee"- Meaning of-S. 2 (m) Wealth Tax Act, 1957.
HEADNOTE:
As a result of proceedings taken and
settlement arrived at in 1952 under the Taxation on Income (Investigation
Commission) Act, 1947 certain sums were determined as payable by the
respondents-assessee-companies on its secreted profits, and schemes for the
payment of the said liability by installments were laid down.
The assessee-companies claimed that the
balance of the demand that had remained unpaid was a debt owed by it and should
be allowed as a deduction while computing its net- wealth for the concerned
year of assessment.(1957-58) The Wealth-tax Officer computed the net-wealth of
each company by adopting the figures of assets and liabilities as shown in
their balance-sheets as on their respective valuation dates after making such
adjustments as considered necessary but in both the cases he disallowed the
aforesaid claim for deduction on the ground that the liability was outstanding
for more than 12 months on the valuation dates.
The Appellate Assistant Commissioner
confirmed the disallowance. He took the view that the tax liabilities assessed
by the Income-tax Investigation Commission had no relation to the assets or the
declared wealth of assessee- companies, which were the basis of the wealth-tax
assessment and since the assets on which the said liability was assessed,
namely, the secret profits, were not included in the declared assets the
disallowance was justified.
In further appeals by the assessee-companies
to the Tribunal, the Tribunal confirmed the disallowance on the ground that
sections 2(m) (i), 2 (m) (ii), 5 (1) and 5 (2) indicated a scheme of the Act
which suggested that debts which qualified for deduction in computation of the
net- wealth were only those which were incurred in relation to the assets
declared by the assessee, that is to say, in computing the net-wealth the
principle to be adopted was that when any assets were included the
corresponding debts should be allowed, but that when such assets were excluded
or were liable to be excluded from the net-wealth the corresponding debts
should also be excluded.
38 In the References to the High Court, at
the instance of the assessee-companies the Tribunal's conclusion was overruled
and the High Court opined that the deductions claimed were allowable in
computing the net wealth of the assessee-companies.
In the appeals to this Court, by the Revenue
on the question whether the balance of the payments payable by the companies as
a result of the findings and orders of the Income-Tax Investigation Commission
in the settlements made under the Taxation on Income (Investigation Commission)
Act 1947 are deductible as debts owed by them in determining the net wealth of
the companies.
Dismissing the appeals, ^
HELD: [By the Court] Section 2 (m) (iii)
requires that the tax liability must be one which is "payable in
consequence of any order passed" under any law relating to taxation on
income or profits etc. such liability so payable under an order must remain
"outstanding for a period of more than 12 months on the valuation
date". The expression `outstanding' in section 2 (m) (iii) (a) and(b) will
have to be construed in the background of the phrase "amount of tax
payable in consequence of an order," and in that context it must mean
remaining unpaid after the obligation to pay is incurred.
[48D, 48G] In the instant case, it was the
admitted position before the Tribunal that under the scheme of instalments
sanctioned in the settlements the two sums, in respect thereof deductions were
claimed, had not become due for payment before the valuation dates. The
deductions claimed, therefore, do not fall within the exclusionary part
contained in section 2 (m) (iii) of the Act. [48H-49A] Per Tulzapurkar, J.
The scheme emerging from the key provisions
of the Act, Sections 2 (m), 3 and 4 clearly show that barring those debts which
fall within the exclusionary part of section 2 (m) all other debts owed by the
assessee have to be deducted from the aggregate value of the assets belonging
to him on the valuation date. In order to get disqualified for the purposes of
deduction a debt must fall within the exclusionary part and there is nothing in
the exclusionary part which suggests that the debt must either by relatable to
any asset at all or if it is relatable to any asset, such asset must be
included in the books of accounts or the balance sheet of the assessee before a
deduction in respect thereof is allowed. [45C-D] In the instant cases, the
secret profits admittedly earned by the assessee-companies related to an
assessment year prior to September, 1948 (as proceedings under Taxation on
Income (Investigation Commission) Act. 1947 could be taken only in respect of
the assessment year prior to 1.9.1948) and the tax liability in respect thereof
was determined in 1952, but the valuation dates are 30.6.1956 and 31.12.1956.
[47D] Annamma Paul Perincherry v. Commissioner of Wealth-Tax, Kerala 88 I.T.R.
204 and Commissioner of Wealth-Tax, Kanpur v. J.K. Jute Mills Co.Ltd., 120
I.T.R. 150, approved 39 [Per Sabyasachi Mukharji J.] There is no evidence to
show whether the profits had remained with the assessee-companies either in the
form of assets in the Balance sheet or otherwise. The relevant valuation dates
were much later. Had there been any finding that these profits, in some form,
either as assets in the Balance Sheet or otherwise were with the assessee. It
could have perhaps been examined whether so long as the assessee does not bring
those profits in the computation of the wealth, the assessee would be
disentitled to the deductions of liabilities in respect of the same. These
should have been examined by the Wealth-tax Officer with the aid of the
principles of section 106 and section-114 of the Evidence Act. Had that been
done it could have, perhaps been examined whether by the principle of purposive
interpretation, in order the give effect to the intention of the legislature in
enacting the Wealth Tax and evolving the scheme of settlement under Taxation on
Income (Investigation Commission Act, 1947, whether the assessee was entitled
to the deduction of these two tax liabilities. [50 A-D] Commissioner of
Wealth-Tax, West Bengal III v.
Banarashi Prashad Kedia, 77 I.T.R. 159 and
Commissioner of Wealth-Tax, U.P. and others v. Padampat Singhania, 84 I.T.R.
799, approved.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1179- 1180 (NT) of 1973.
Appeals by Special leave from the judgment
and Order dated the 29th April, 1970 of the Allahabad High Court in W.T.R. Nos.
327 & 330 of 1964.
T. A. Ramachandran, Mrs. Janki Ramachandran,
Miss A. Subhashini and Mrs. Sarla Chandra for the Appellant.
S.T. Desai, B.P. Maheshwari and B.P. Singh
for the Respondents.
The following Judgments were delivered
TULZAPURKAR J, The only question raised in these appeals is whether the two
sums of Rs. 5,49,041 (in the case of M/s J.K. Cotton Ltd.) and Rs. 21,61,788
(in the case of J.K. Jute Ltd.) being the balance of the demands payable as a
result of the findings and orders of the Income-tax Investigation Commission in
the settlements made under the Taxation on Income (Investigation Commission)
Act (30 of 1947) are deductible as debts owed by them in determining the
net-wealth of these companies ? The question arises in these circumstances:
40 M/s. J.K. Cotton Manufactures Ltd., the
assessee, is a limited company engaged in the manufacture of cotton textiles,
etc. and the assessment involved is the wealth-tax assessment for the year
1957-58 based on the valuation date 30.9.1956. It appears that as a result of
proceedings taken and a settlement arrived at in 1952 under the Taxation on
Income (Investigation Commission) Act 1947, a sum of Rs.
15,99,041 was determined as payable by the
assessee company on its secreted profits and a scheme for the payment of the
said liability by instalments was laid down. Out of this, a sum of Rs.
10,50,000 had been paid before the valuation date (30.9.1956) and Rs. 5,49,041
remained unpaid on that date.
The assessee company claimed that the balance
of the demand that had remained unpaid was a debt owed by it and should be
allowed as a deduction while computing its net wealth for the concerned year of
assessment (1957-58).
In the case of M/s. J. K. Jute Mills Co. Ltd.
the assessment involved under the Wealth-tax Act is also for the assessment
year 1957-58 but the valuation date is 31.12.1956. In the case of this company
also as a result of proceeding taken and a settlement arrived at in 1952 under
the Taxation on Income (Investigation Commission) Act 1947 a sum of Rs. 42,93,392
was determined as payable by it on its secreted profits and a scheme for the
payment of the said liability by instalments was laid down. Out of this, a sum
of Rs. 21,31,604 had been paid before the valuation date (31.12.1956) and Rs.
21,61,788 remained unpaid on that date.
The assessee company claimed that the balance
of the demand that had remained unpaid was a debt owed by it and should be
allowed as a deduction while computing its net-wealth for the concerned year of
assessment [1957-58].
The Wealth-Tax officer computed the
net-wealth of each company by adopting the figures of assets and liabilities as
shown in their balance-sheets as on their respective valuation dates after
making such adjustments as he considered necessary but in both, the cases he
disallowed the aforesaid claim for deduction on the ground that the liability
was outstanding for more than 12 months on the valuation dates. The Appellate
Assistant Commissioner confirmed the disallowance of the amounts but for
different a reason. He took the view that the tax liabilities assessed by the
Income-tax Investigation Commission had no relation to the assets or the
declared wealth of the assessee companies, which were the basis of the wealth
tax assessment and since the assets on which the said liability was 41
assessed, namely, the secret profits were not included in the declared assets
the disallowance was justified. In further appeals preferred by the
assessee-companies to the Tribunal, the reasons given by the Wealth-Tax Officer
as well as the Appellate Assistant Commissioner were assailed but without
expressing any view on the validity or otherwise of the reason given by the
Wealth-tax Officer, the Tribunal confirmed the disallowance by substantially
agreeing with the view expressed by the Appellate Assistant Commissioner.
The Tribunal pointed out that in s.2 (m,
which defines 'net wealth', sub-s. (i) excludes debts located outside India in
the case of certain classes of assessees, in whose case assets located out side
India are excluded; that s.2 (m) (ii) bars the deduction of debts secured on or
incurred in relation to exempted assets mentioned in s. 5 (1) and 5 (2);
that s.4 (3) permits the deduction of debts
relating to assets, which do not stand in the name of the assessee, but which
are nevertheless to be included in the net wealth of the assessee by virtue of
the provision in s. 4 (1); that s.6 (1) repeats the provision in s. 2 (m) (i)
excluding the debts located outside India where corresponding assets are
excluded; and according to the Tribunal these provisions indicated a scheme of
the Act which suggested that debts which qualified for deduction in computation
of the net- wealth were only those which were incurred in relation to the
assets declared by the assessee, that is to say, in computing the net-wealth
the principle to be adopted was that when any assets were included the
corresponding debts should be allowed but that when such assets were excluded
or were liable to be excluded from the net-wealth the corresponding debts
should also be excluded. The Tribunal further observed that since in the case
of the two companies it was not disputed on their behalf that the tax demands
made by the Investigation Commission were in respect of secret profits which
were not disclosed in their books of accounts and since it was also conceded
that the assets shown in the balance sheets did not include any assets acquired
out of such secret profits the balance of tax demand (Rs. 5,49,041 in one case
and Rs. 21,61,788 in the other case) was not deductible.
In the References that were made at the
instance of the assessee-companies, the High Court took a contrary view. It
over-ruled the Tribunal's conclusion that the provisions relied upon by it
indicated any scheme leading to the principle that only such debts as were
incurred in relation to the asset declared or disclosed in the books qualified
for deduction because the concerned provisions merely dealt with typical
situations or special categories of assets and no 42 general pattern or scheme
as suggested could be inferred there from. The High Court therefore opined that
the deductions claimed were allowable in computing the net wealth of the
assessee-companies. The revenue has come up in appeals to this Court.
In support of these appeals Counsel for the
revenue raised two contentions before us. In the first place the counsel
canvassed for the acceptance by us of the Tribunal's view that the scheme of
the Wealth Tax Act shows that where a liability is incurred in relation to any
asset, that liability is not deductible if the asset is, for any reason, not
included in the net-wealth and in this behalf provisions contained in sections
2 (m) (i) and (ii), 4 (3), 5 and 6 of the Act were relied upon. By way of
elaboration it was further urged that since under the settlements made under
the Taxation on Income (Investigation Commission) Act, 1947 certain tax
liabilities were determined as payable by the assessee-companies, the assessees
must be taken to have admitted having made secret profits and as such only the
assessees could know about the use or destination thereof and it was for them
to show that became of the secret profits and in the absence of any explanation
from them in that behalf the secret profits must be presumed to be with them as
on the valuation dates and when such was the position if such secret profits or
other assets acquired out of them were not brought into or were not reflected
in the Balance Sheets the tax liabilities in relation thereto could not be
allowed to be deducted. Counsel pointed out that the presumption which he is
seeking to raise against the assessees as above was only a different facet of
the same rule which obtains in Income-tax cases that once a sum is found
credited in the assessee's books then it is for him to prove the nature and
source thereof failing which the cash credit is regarded as his income from
undisclosed source (a rule previously enunciated by judicial decisions which
now finds a statutory recognition in s.68 of the Income-Tax Act, 1961).
Secondly, counsel contended that since the deductions claimed were in respect
of tax liabilities which were outstanding for a period of more than 12 months
on the valuation dates the deductions could not be allowed under s.2 (m) (iii)
of the Act. On the other hand counsel for the assessee-companies supported the
view taken by the High Court on the first contention and as regards the second
it was urged that since the same did not find favour either with the A.A.C. or
with the Tribunal and was not even urged before the High Court the Revenue must
be taken to have given it up as being without any substance. In any event the
tax liabilities herein do not fall within the exclusionary provision contained
in sec. 2 (m) (iii).
43 In order to examine the first contention
it will be necessary to est out the concerned provisions including the charging
provision contained in sec. 3 of the Act. Section 3 provides that there shall
be charged for every assessment year commencing from 1.4.1957 a tax, called
Wealth-tax, in respect of the net-wealth on the corresponding valuation date of
every individual, Hindu Undivided Family and Company at the rate or rates
specified in the Schedule I. "Net- wealth" is defined in s.2 (m)
which runs thus:
2(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 this Act, is in excess of the aggregate value of all the
debts owed by the assessee on the valuation date other than- (i) debts which
under section 6 are not to be taken into account;
(ii) debts which are secured on or which have
been incurred in relation to any property in respect of which wealth-tax is not
chargeable under this Act;
(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 of 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;" Section 4 (1) provides for inclusion
of certain assets in computing the net-wealth of an individual-assets which on
the valuation date are held not by that individual but by the spouse or by a
minor child of such individual to whom they have been transferred by such 44
individual directly or indirectly, otherwise than for adequate consideration,
etc; in other words such assets held by the spouse or the minor are deemed to
be the assets of such individual; and in respect of such deemed assets sub-
sec. (3) provides:
"(3) Where the value of any assets is to
be included in the net wealth of an assessee in accordance with clause (a) of
subsection (1) or sub-section (1A) (a) they shall be deducted from such value
any debts owing on the valuation date by the transferee mentioned in that
clause in so far as such debts are preferable to such assets. and (b) the
provisions of section 5 shall apply in relation to such assets as if such
assets were assets belonging to the assessee." Section 5 exempts certain
assets held by an assessee from being included in his net-wealth and provides
that Wealth- tax shall not be payable by him in respect of those assets and
then follows a list of a large number of such exempted assets. Section 6 deals
with exclusion of assets and debts outside India and provides that in computing
the net-wealth of an individual who is not a citizen of India or of an
individual or a Hindu Undivided Family not resident of India or resident but
not ordinarily resident in India, or of a company not resident in India during
the year ending on the valuation date, the value of assets and debts located
outside India and the value of assets in India of the types specified in cl.
(ii) shall not be taken into account.
The question is whether the aforesaid
provisions of the Act on which reliance has been placed by counsel for the
revenue indicate a scheme of the Act suggestive of the principle that only such
debts as are incurred in relation to the assets declared or disclosed in the
books qualify for deduction in computing the net-wealth of an assessee ? In
other words, do these provisions show that in computing the net-wealth the rule
to be adopted is that when any assets are included while aggregating the total
assets the corresponding debts should be allowed but when such assets are
excluded or are liable to be excluded the corresponding debts should also be
excluded ? 45 On a careful analysis of the aforesaid provisions it seems to us
clear that the key provisions are the charging section and the definition of
the net-wealth given in sec. 2 (m). Under sec. 3 wealth-tax is chargeable on the
net-wealth held by every assessee on the valuation date and 'net- wealth' under
sec. 2 (m) means the excess of the aggregate value of all his assets wherever
located (computed in accordance with the Act) over the aggregate value of all
the debts owed by him on the valuation date other than the debts which fall
within the exclusionary part of sec. 2 (m). The scheme emerging from the key
provisions clearly shows that barring those debts which fall within the
exclusionary part of sec. 2 (m) all other debts owed by the assessee have to be
deducted from the aggregate value of the assets belonging to him on the
valuation date. In other words, in order to get disqualified for the purposes
of deduction a debt must fall within the exclusionary part and there is nothing
in the exclusionary part which suggests that the debt must either be relatable
to any asset at all or if it is relatable to any asset such asset must be
included in the books of accounts or the balance-sheet of the assessee before a
deduction in respect thereof is allowed. If such were the intention of the
Legislature the exclusionary part of sec. 2 (m) would have made a specific
provision in that behalf by adding an appropriate sub-clause therein. In the
absence of such a provision being found in the exclusionary part of sec. 2 (m)
it would be difficult to accept the contention of counsel for the revenue which
in substance requires a restricted meaning being given to the expression 'all
debts' occurring therein in the context of its deducibility under the Act and
the acceptance of such a contention would lead to anomalous results which could
be demonstrated. For instance, where an assessee has taken an over-draft from
the bank for the purpose of carrying on his day to day business and the
over-draft is not utilised for acquisition of any tangible asset for the
business then on the argument of counsel for the Revenue such overdraft would
become disallowable because the liability is not referable to any asset
reflected in his books but obviously under the scheme of sec. 3 read with the
definition of net-wealth under sec. 2 (m) such a liability will have to be
allowed as a debt owed by the assessee in computing his wealth-tax.
Similarly, if a limited company after earning
a certain amount of profits in a year were to distribute the whole of it to its
share-holders by way of dividends, it would be absurd to suggest that the
income-tax payable on such profits would not be allowable as a debt owed by the
assessee in the computation of its net-wealth simply because such profits are
no longer available for being reflected in its books while aggregating its
total assets. In 46 the absence of an appropriate provision in the exclusionary
part of sec. 2 (m) therefore, it is difficult to accept the counsel's contention
that a restricted meaning as suggested should be given to the expression 'all
debts' occurring in sec. 2 (m).
Turning to the other provisions, namely, sec.
2 (m) (i) and (ii), sec. 4 (3) and secs. 5 and 6 of the Act, we are in
agreement with the High Court's view that these provisions deal with typical
situations or special categories of assets. Section 4, for instance, deals with
certain assets which are deemed assets of an individual for computing his
net-wealth-assets held by his or her spouse or minor child, etc. under a
transfer made by him to them otherwise than for adequate consideration and when
such assets, though held by the transferee, are to be included as if belonging
to that individual it is but natural and fair that debts owed by the transferee
on the valuation date in relation to such assets should be deducted while
computing the value of such asset in the hands of the individual and this is
precisely what sec. 4 (3) provides; it is clearly a typical case dealing with
deemed assets. Section 5 has to be read with sec. 2 (m) (ii) and so read the
provision is that debts in relation to exempted assets i.e. assets which are
not chargeable to wealth-tax at all should not be allowed to be deducted;
similarly sec. 6 has to be read with sec. 2
(m) (i) and so read the effect is that both the assets and debts located
outside India of a non-citizen or of an assessee who is non- resident or is a
resident but not ordinarily a resident in India during the year ending on the
valuation date shall not be taken into account in computing the net-wealth of
the assessee. From these particular or special provisions it will be illogical
to deduce any general principle that only such debts as are incurred in
relation to the assets declared or reflect in the books qualify for deduction
in computing the net-wealth of an assessee, especially as in the definition of
'net-wealth' given in sec. 2 (m) there is no warrant for it.
As regards the elaboration of the contention
based on a presumption sought to be raised by counsel for the revenue against
the assessee-companies from the analogy of the presumption arising in
income-tax cases under sec. 68 of the Income-tax Act, 1961, the contention is
fallacious for two reasons. It is true that by reason of the settlement made under
the Taxation on Income (Investigation Commission) Act, 1947 the assessee
companies must be taken to have admitted that they had made secret profits
which were kept out of the books of accounts and it is also true that no
explanation was forthcoming from the assessee companies as to what became of
such 47 secret profits but the question is whether from such absence of
explanation any presumption can be raised that such secret profits were still
retained by them on the valuation date in the circumstances of the case ? In
the first place the analogy of the rule applicable in income-tax cases would be
inapplicable in wealth-tax cases inasmuch as in the former case the unexplained
cash credit item is regarded as income of the assessee from undisclosed source having
accrued to him during the accounting year while in the latter case only the
valuation date is relevant on which date the assets (secret profits) must be
held by the assessee and it will not do that such asset was held by him some
time during the concerned year. Secondly, after a lapse of sufficiently long
period no presumption can be raised that a secret profit earned some time
during the concerned year has continued to be held by the assessee on the
valuation date. In the instant case the secret profits admittedly earned by the
assessee companies related to assessment years prior to September, 1948 (as
proceedings under Taxation on Income (Investigation Commission) Act 1947 could
be taken only in respect of assessment years prior to 1.9. 1948) and the tax
liability in respect thereof was determined in 1952 but we are concerned with
the valuation dates 30.6. 1956 and 31.12.1956 and, therefore, the presumption
as suggested by the counsel cannot be drawn against the assessee companies
after a lapse of 8 long years. In Annamma Paul Perincherry v. Commissioner of
Wealth-Tax, Kerala(1) and Commissioner of Wealth-Tax. Kanpur v. J.K. Jute Mills
Co. Ltd(2)., the Kerala High Court as well as the Allahabad High Court have
taken a similar view that no such presumption can be raised after a lapse of
sufficiently long period and we approve of the said view. In any case, as
stated above, the deductibility of the two tax liabilities in question does not
depend upon whether the assets, in respect whereof such liability has been
determined, are available or not while aggregating the assets of the assessee
companies. The contention of the counsel for revenue, therefore, must fail.
Coming to the second contention the question
is whether the deductions claimed fall within the exclusionary part of sec.
2(m) (iii) of the Act, that is whether the two sums of tax liabilities were
outstanding for more than 12 months on the respective valuation dates ?
According to counsel the expression "outstanding" means remaining
unpaid after becoming due and since the liability to pay income-tax for any
assessment year crystalises on the last day of the previous 48 year and becomes
payable for that assessment year even before it gets quantified, the two tax
liabilities in question which pertained to assessment years prior to 1948, must
be regarded as having become due by the last day of the concerned previous
years and since these were not cleared soon thereafter these were outstanding
since at least 1948 and thus became disallowable. In the alternative counsel
urged that if payability is made to depend upon the date of an order passed
quantifying the same then at least in 1952 these became payable when the order
of the Investigation Commission was passed and more than 12 months had passed
since then. Counsel urged that granting of instalments under the settlement
merely amounted to showing some concessions to the assessee-companies and did
not affect the payability in 1952 of the arrears of tax. In our view, there is
no force in any of these submissions made by counsel. The aspect that the
liability to pay income-tax for any assessment year crystalises on the last day
of the previous year and, therefore, becomes payable on the expiry of the last
day irrespective of quantification of the dues would be irrelevant having
regard to the express language of sec. 2 (m) (iii). Sub-cl.(iii) requires that
the tax liability must be one which is "payable in consequence of any
order passed" under any law relating to taxation on income or profits,
etc. such liability so payable under an order passed must remain
"outstanding for a period of more than 12 months on the valuation
date." The alternative submission that the tax liabilities in the instant
case must be taken to have become payable in 1952 under the Investigation
Commission's order and must be regarded as having remained outstanding since
1952 is equally of no avail for the playability of the dues must depend upon
the terms of the Commission's order and admittedly a scheme for payment of the
dues by installments was provided in the order and each installment would
become payable on the date on which it is directed to be paid. In our view, the
expression 'outstanding' in sec. 2 (m) (iii) (a) and (b) will have to be
construed in the background of the phrase "amount of tax...... payable in
consequence of an order" and in that context it must mean remaining unpaid
after the obligation to pay is incurred. We are informed that similar
construction has been placed on the expression 'outstanding' occurring in sec.
2 (m) (iii) of the Act by the Calcutta High Court in Commissioner of
Wealth-tax, West Bengal III v. Banarshi Prasad Kedia(1) and by the Allahabad
High Court in Commissioner of Wealth-Tax, U.P., and Others v. Padampat
Singhania(2) and we affirm the same. In the instant case it was an 49 admitted
position before the Tribunal that under the scheme of installments sanctioned
in the settlements the two sums, in respect where of deductions were claimed,
had not become due for payment before the valuation dates. It is therefore,
clear that the deductions claimed do not fall within the exclusionary part
contained in sec. 2 (m) (iii) of the Act.
In the result the High Court's view is
confirmed and the appeals are dismissed. There will be no order as to costs
SABYASACHI MUKHARJI, J. On the second aspect, namely whether the deductions of
two sums of Rs. 5, 49, 041 and Rs. 21,61, 788 being the outstanding liabilities
as a result of the determination under settlement arrived at in 1952 under the
Taxation on Income (Investigation Commission) Act, 1947, I respectfully agree
with the views expressed by my learned brother. I adhere to the opinion I
expressed on the expression 'outstanding' in Commission of Wealth-Tax, West
Bengal III v. Banarashi Prasad Kedia(1) which is in consonance with the views
expressed by the Allahabad High Court in Commissioner of Wealth-Tax, U.P. and
Others V. Padampat Singhania(2). I am, therefore, of the opinion that these
deductions do not fall within the exclusionary part contained in Section 2 (m)
(iii) of the Wealth Tax Act, 1957.
On the first contention urged on behalf of
the revenue I would, however, if I may, express my views. I respectfully agree
with my learned brother that from the relevant provisions of the Wealth Tax Act
to which my learned brother has referred, in the facts and circumstances
available in this case, the deductibility of the two tax liabilities in
question does not depend upon whether the assets in respect whereof such
liability has been determined are available or not while aggregating the assets
of the assessee companies.
In the facts of this case, it appears that in
the case of M/s J.K. Cotton Manufacturers Ltd., proceedings were taken under
the Taxation on income (Investigation Commission) Act, 1947 and a settlement
was arrived in 1952 and a sum of Rs. 15,99,041 was determined as payable by the
assessee on its secreted profits and a scheme of payments of such liability by
instalments was agreed upon. Similarly in the case of M/s J.K. Jute Mills Co.
Ltd., a settlement was arrived at in 1952 under the aforesaid Act and a sum of
Rs. 42,93,392 was determined as payable by it on its secreted profits and a
scheme of liquidation of such liability was agreed upon. It is true that as a
result of the admission made by the assessee, the assessee made profits, which
50 year and when we have no material though the income tax liabilities for the
same had been settled in 1952. There is no evidence to show whether these
profits had remained with the assessee either in the form of assets in the
Balance Sheet or otherwise. The relevant valuation dates were much later, 30.
9. 1956 and 31.12. 1956 respectively in the case of the two companies. Had
there been any finding that these profits, in some form either as assets in the
Balance Sheet or otherwise, were with the assessee, it could have perhaps been
examined whether so long as the assessee does not bring those profits in the
computation of the wealth, the assessee would be disentitled to the deductions
of liabilities in respect of the same. These should have been examined by the
Wealth-tax Officer with the aid of the principles of Section 106 and Section
114 of the Evidence Act. But these were not done. It is unfortunate. Had that
been done, it could have, perhaps, been examined whether by the principle of
purposive interpretation in order to give effect to the intention of
legislature in enacting the Wealth Tax Act and evolving the scheme of
settlement under Taxation on Income (Investigation Commission) Act, 1947
whether the assessee was entitled to the deduction of these two tax
liabilities. On the materials on record, I respectfully agree with the
conclusion arrived at by my learned brother on the first contention urged on
behalf of the revenue..
N.V.K. Appeals dismissed.
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