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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. Detailed Analysis: 1. Background and Facts: The assessee, an individual, made voluntary disclosures of concealed income under section 68 of the Finance Act, 1965, totaling Rs. 17,91,193. Tax was paid at flat rates of 57% and 60% on these disclosures. The Wealth Tax Officer (WTO) did not allow any part of the tax paid as a deduction for computing the net wealth of the assessee under section 2(m) of the Wealth-tax Act, 1957. 2. Proceedings Before the Authorities: - The assessee appealed to the Appellate Assistant Commissioner (AAC), relying on the Supreme Court decision in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. The AAC dismissed the appeal. - The assessee then appealed to the Tribunal, arguing that the disclosed income attracted tax at the rates prescribed by the respective Finance Acts and should be deductible as debts owed. The Tribunal rejected this contention. 3. Tribunal's Decision: The Tribunal concluded that the liability to pay tax under section 68 of the Finance Act, 1965, was not a liability for payment of tax on the relevant valuation dates as per the charging sections of the Income-tax Acts. Therefore, no deduction of the proportionate tax paid by the assessee was allowed as a debt owed on the respective valuation dates. 4. High Court's Analysis: - Assessee's Argument: The tax paid under section 68(3) of the Finance Act, 1965, is income-tax payable under the I.T. Act, and thus a debt owed, as per the Supreme Court's decision in Kesoram Industries. - Revenue's Argument: The tax paid under section 68 of the Finance Act, 1965, was a new liability for concealed income and not under the charging sections of the Income-tax Acts. Therefore, it could not be deducted as a debt owed. 5. Case Law Considered: - 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, and the amount of provision for payment of income-tax is a debt owed on the valuation date. - H. H. Setu Parvati Bayi v. CWT [1968] 69 ITR 864: Reiterated the principles laid down in Kesoram Industries. 6. High Court's Judgment: - Kerala High Court in C. K. Babu Naidu v. WTO [1978] 112 ITR 341: Held that section 68 of the Finance Act, 1965, only provided the rate of tax and was a machinery provision, not altering the liability under the I.T. Act. - Gujarat High Court in CWT v. Ahmed Ibrahim Sahigara [1974] 93 ITR 288: Concluded that 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 prescribed a rate of tax and was not a new charge. - Allahabad High Court in CWT v. B. K. Sharma [1977] 110 ITR 902: Supported the assessee's claim for deduction, applying the ratio of Kesoram Industries. - Calcutta High Court in CWT v. Bansidhar Poddar [1978] 112 ITR 957: Held that section 68 did not impose a new tax but prescribed a rate for an existing liability. 7. Conclusion: The High Court, after considering various judgments, concluded that although the tax paid under section 68 of the Finance Act, 1965, was not strictly under the charging sections of the Income-tax Acts, it must be regarded as income-tax paid in lieu of the ordinary charge of income-tax. Therefore, the assessee was entitled to deduct this amount as a debt owed in computing the net wealth. 8. Final Decision: The question was answered in the affirmative and in favor of the assessee, allowing the deduction of the amounts specified in column 7 of the table provided in the judgment. The parties were directed to bear their own costs of the reference.
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