1978 (6) TMI 9 - HC - Wealth-tax

Issues Involved:
1. Whether any part of the tax paid under section 68 of the Finance Act, 1965, was a "debt owed" on the relevant valuation dates within the meaning of section 2(m) of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Tax Paid Under Section 68 of the Finance Act, 1965, as a "Debt Owed":

The primary issue in this case is whether the tax paid under section 68 of the Finance Act, 1965, can be considered a "debt owed" within the meaning of section 2(m) of the Wealth-tax Act, 1957, on the relevant valuation dates.

Background and Facts:

The assessee, a regular taxpayer, disclosed concealed income under section 68 of the Finance Act, 1965, and paid taxes at specified rates. The Wealth Tax Officer (WTO) did not allow the tax paid as a deduction while computing the "net wealth" of the assessee. The assessee appealed, arguing that the tax liability should be considered a "debt owed" and thus deductible.

Tribunal's Decision:

The Tribunal rejected the assessee's contention, stating that the liability to pay tax under section 68 arose only when the assessee opted for voluntary disclosure, and thus, it was not a liability on the relevant valuation dates.

Assessee's Argument:

The assessee argued that the tax paid under section 68 of the Finance Act, 1965, is akin to income-tax payable under the Income-tax Act, and thus should be considered a "debt owed" as per the Supreme Court's decision in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767.

Revenue's Argument:

The revenue contended that the tax paid under section 68 was for a new liability specifically for concealed income disclosed under the Finance Act, 1965, and not under the Income-tax Act. Therefore, it could not be considered a "debt owed" on the relevant valuation dates.

Judicial Precedents:

- Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767: The Supreme Court held that a liability to pay income-tax is a present liability, although it becomes payable after quantification. This principle was argued to apply to the tax paid under section 68.

- Gujarat High Court in CWT v. Ahmed Ibrahim Sahigara [1974] 93 ITR 288: Held that the tax paid under section 68 was a new liability and not deductible as a "debt owed."

- Delhi High Court in CWT v. Girdhari Lal [1975] 99 ITR 79: Dissented from the Gujarat view, holding that section 68 only prescribed a rate of tax for concealed income, which should be considered under the Income-tax Act.

- Allahabad High Court in CWT v. B. K. Sharma [1977] 110 ITR 902: Supported the view that the tax paid under section 68 should be considered a "debt owed," applying the Kesoram Industries principle.

- Calcutta High Court in CWT v. Bansidhar Poddar [1978] 112 ITR 957: Held that section 68 did not impose a new tax but provided a rate for concealed income, aligning with the Kesoram Industries principle.

High Court's Conclusion:

The High Court analyzed the conflicting views and the statutory provisions. It noted that although section 68 of the Finance Act, 1965, created a new liability for concealed income, it was essentially in lieu of the regular income-tax liability. Thus, the tax paid under section 68 should be considered a "debt owed" for wealth-tax purposes.

Final Judgment:

The High Court answered the question in the affirmative, ruling in favor of the assessee. The tax paid under section 68 of the Finance Act, 1965, was considered a "debt owed" on the relevant valuation dates within the meaning of section 2(m) of the Wealth-tax Act, 1957. The deduction allowed would be the amounts specified in the relevant column of the table provided in the judgment.

Costs:

The parties were directed to bear their own costs of the reference.

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