1972 (6) TMI 9 - HC - Wealth-tax

Computing the net wealth of the assessee - claim of the assessee for deduction of the wealth-tax liability What is the liability towards income-tax gift-tax and wealth-tax that can be deducted - applicability of provisions of section 2(m)(iii)(a) demand notice u/s 30 valuation date

Issues Involved:
1. Computation of tax liabilities for income-tax, wealth-tax, and gift-tax in wealth-tax assessments.
2. Determination of deductible tax amounts when assessments are rectified or reopened.
3. Applicability of section 2(m)(iii)(a) of the Wealth-tax Act regarding outstanding tax liabilities.

Detailed Analysis:

1. Computation of Tax Liabilities in Wealth-Tax Assessments:
The core issue addressed is how to compute the liability for income-tax, wealth-tax, or gift-tax when determining the net wealth of an assessee. The court examined whether the liability should be based on the figure computed from the return submitted by the assessee or the figure determined on assessment, especially when the assessment occurs after the relevant valuation date but before the wealth-tax assessment is finalized.

The judgment emphasized that the liability for these taxes is a "present liability" on the last day of the accounting year, even if not quantified by assessment and payable at a future date. This principle was backed by the Supreme Court's decision in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, which defined a "debt" as a present obligation to pay an ascertainable sum of money, even if the exact amount is determined later through assessment.

The court concluded that if the tax liability is assessed before the wealth-tax assessment is completed, the actual amount determined by the assessment should be used rather than the estimate provided by the assessee. This ensures that the liability is quantified accurately as per the statutory provisions.

2. Determination of Deductible Tax Amounts When Assessments are Rectified or Reopened:
The court also addressed scenarios where the tax liability is rectified under section 35 of the Indian Income-tax Act, 1922, or section 154 of the Income-tax Act, 1961, before the wealth-tax assessment is finalized. The judgment clarified that the rectified amount, which corrects any errors in the initial quantification, should be considered for deduction in computing the net wealth.

Similarly, when the assessment is reopened and a fresh assessment is made under section 34 of the Indian Income-tax Act, 1922, or section 147 of the Income-tax Act, 1961, the reassessed tax amount should be used. The court reasoned that reassessment corrects the quantification of the same liability that existed on the relevant valuation date, ensuring that the correct amount is deducted.

3. Applicability of Section 2(m)(iii)(a) of the Wealth-Tax Act:
A specific issue arose regarding the applicability of section 2(m)(iii)(a) of the Wealth-tax Act in Wealth-tax Reference No. 20 of 1970. This section deals with the exclusion of certain tax liabilities from deductions if they are outstanding on the valuation date and are claimed by the assessee in appeal as not being payable.

The court examined whether the wealth-tax liabilities for the assessment years 1960-61 and 1961-62, which were assessed but not demanded by notice until after the relevant valuation dates, could be considered outstanding. The court held that a tax amount becomes payable only when a notice of demand is issued, and since the notices were issued after the relevant valuation dates, the liabilities were not outstanding on those dates. Consequently, these liabilities were deductible in computing the net wealth of the assessee.

Conclusion:
The court concluded that the deduction admissible in computing the net wealth of the assessee should be based on the tax as finally determined on assessment, not on the tax computed according to the return filed by the assessee. The court affirmed that rectified or reassessed tax amounts should be considered for deduction if finalized before the wealth-tax assessment. Additionally, the court clarified that tax liabilities are not outstanding on the valuation date until a notice of demand is issued, impacting the applicability of section 2(m)(iii)(a). The Commissioner was ordered to pay the costs of each reference to the assessee.

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