1978 (4) TMI 52 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the tax liability at the rate of 60% prescribed under Section 68 of the Finance Act, 1965, is deductible in arriving at the net wealth of the assessee.

Detailed Analysis:

1. Tax Liability Deductibility under Section 68 of the Finance Act, 1965

The primary question was whether the tax liability at the rate of 60% under Section 68 of the Finance Act, 1965, could be considered a "debt owed" and thus deductible in computing the net wealth of the assessee under Section 2(m) of the Wealth Tax Act, 1957, for the assessment years 1957-58 to 1964-65.

Background: The assessee, a Hindu Undivided Family (HUF) engaged in the manufacture and sale of bidis, made a voluntary disclosure of Rs. 20,60,000 under Section 68 of the Finance Act, 1965. This disclosure included Rs. 3 lakhs as intangible additions, Rs. 17 lakhs as cash earned, and Rs. 60,000 as the value of bullion and coins. The Wealth Tax Officer (WTO) reopened the wealth-tax assessments for the relevant years to include these disclosed assets.

Claim by Assessees: The assessees argued that the tax paid under Section 68(3) of the Finance Act, 1965, amounting to Rs. 10,56,000, should be deducted from their net wealth as it constituted a "debt owed" within the meaning of Section 2(m) of the Wealth Tax Act, 1957. Alternatively, they contended that the tax payable under the respective Finance Acts for those years should be deductible.

Tribunal's Decision: The Tribunal upheld the WTO's and AAC's view that the tax liability under Section 68 of the Finance Act, 1965, did not constitute a "debt owed" on the valuation date within the meaning of Section 2(m) of the Wealth Tax Act, 1957.

Court's Analysis:
- Relevant Provisions: The court examined Section 3 of the Wealth Tax Act, 1957, which charges wealth-tax on the net wealth of every individual, HUF, and company. The term "net wealth" as defined in Section 2(m) includes the aggregate value of all assets minus the aggregate value of all debts owed by the assessee on the valuation date.
- Precedents: The court referred to the Supreme Court's decisions in Kesoram Industries and Cotton Mills Ltd. v. CWT and H. H. Setu Parvati Bayi v. CWT, which held that a liability to pay income-tax or wealth-tax is a present liability and thus a "debt owed" on the valuation date.
- High Court Decisions: The majority view among High Courts, including decisions from the Allahabad and Delhi High Courts, supported the notion that tax liability on disclosed income under Section 68 of the Finance Act, 1965, is a "debt owed" and thus deductible. The Kerala High Court's Division Bench also supported this view, reversing an earlier single judge's decision.

Dissenting View: The court noted a discordant view by Bhagwati C.J. in CWT v. Ahmed Ibrahim Sahigara, who held that Section 68 of the Finance Act, 1965, created a new charge to tax on an ad hoc basis, not intended to lay down a concessional rate under the Income Tax Acts. However, this view was not followed by other High Courts.

Conclusion: The court concluded that the tax liability under Section 68 of the Finance Act, 1965, was indeed a "debt owed" within the meaning of Section 2(m) of the Wealth Tax Act, 1957, and thus deductible in computing the net wealth of the assessees for the relevant assessment years. The Tribunal's decision was overturned, and the question was answered in favor of the assessees.

Final Judgment: The Tribunal was not justified in holding that the tax at the rate of 60% under Section 68(3) of the Finance Act, 1965, was not deductible in arriving at the net wealth of the assessees. There was no order as to costs.