TMI Blog1962 (10) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... 549 in four instalments, the instalments being payable on the 15th June, 1956, the 15th September, 1956, the 15th December, 1956, and the 15th March, 1957. Prior to the valuation date, the assessee paid the three instalments payable on the 15th June, 1956, the 15th September, 1956, and the 15th December, 1956. On 31st December, 1956, the fourth instalment of ₹ 89,889 had remained unpaid, the same being payable on the 15th March, 1957. On 13th February, 1957, a revised demand was made under section 18A requiring the assessee to pay a sum of ₹ 4,02,068 instead of ₹ 89,889 on the 15th March, 1957. This amount of ₹ 4,02,068 was, duly paid by the assessee. The assessee submitted its wealth-tax return for the year 1957-58. On 26th September, 1957, a demand notice was issued against the assessee under section 23B of the Indian Income-tax Act, 1922, for a sum of ₹ 8,28,576 on the basis of the assessee's return of income after adjusting the advance payments of tax made by the assessee. The Wealth-tax Officer computed the net wealth of the assessee as stated in his assessment order dated 31st January, 1958. The paid up capital was assessed at ₹ 30,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in arriving at the value of fixed assets. In view of these provisions the assessee appropriated ₹ 58,29,794 out of the depreciation fund of ₹ 60,39,883 as against different assets and after taking into account depreciation for the year ended 31st December, 1956, showed the depreciated value of the block at ₹ 37,32,148. The assessee transferred the balance sum of ₹ 2,10,089 from depreciation fund to development and rehabilitation reserve which it created. From the current profit of the year 1956, it transferred a sum of ₹ 89,911 to the development and rehabilitation reserve, making a total of ₹ 3,00,000. In the balance-sheet this sum of ₹ 3,00,000 has been shown by way of development and rehabilitation reserve. The assessee claimed that this sum of ₹ 3,00,000 representing development and rehabilitation reserve should be the amount which the assessee should be held entitled to deduct. The assessee contended before the Wealth-tax Officer that this sum represented the difference between the written down value of the fixed assets as found in the income-tax records and the value of the fixed assets as shown in the balance-sheet. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce payment of tax paid by the assessee on 15th March, 1957, was ₹ 4,02,068. As against this sum of ₹ 4,02,068, the Appellate Assistant Commissioner had allowed a deduction of ₹ 89,889 leaving the balance of ₹ 3,12,179. To this sum was added the amount of tax paid under section 23B in accordance with the demand made on 26th September, 1957, amounting to ₹ 8,28,576. The total of these sums came to ₹ 11,40,755. A further sum of ₹ 54,693 was also claimed on account of the wealth-tax for the assessment year 1957-58. That claim for ₹ 54,693 is not pressed before us. The Tribunal came to the conclusion that the sum of ₹ 11,40,755 was liable to be allowed. The Tribunal has stated that just as income accrued from day to day, the tax liability also accrued simultaneously and that no computation of net wealth was possible without taking into account the liability of taxation on the income which increased the wealth. As regards the question relating to the assets of the assessee being valued at the written down value as on 31st December, 1956, for the purpose of the Income-tax Act, the Tribunal took the view that depreciation in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 15, 1957, is not liable to be allowed as a deduction in computation of the net wealth under section 2(m) of the Wealth-tax Act ? and (3) Whether, on the facts and in the circumstances of the case, when the net value of the assets is determined, under the provisions of section 7(2)(a), the value of depreciable assets as shown in the balance-sheet of the company is liable to be adjusted with reference to the written down value of such assets as per income-tax records? The Commissioner of Wealth-tax has filed an application before us for re-framing the questions on the ground that the questions framed by the Tribunal were vague and did not bring out clearly the points in issue in this reference. The Commissioner desires that we should frame the questions in the following form : (1) Whether, on the facts and in the circumstances of the case, the provision for income-tax which may become due on the profits of the previous year ending on the relevant valuation date is a debt owed by the assessee on the valuation date within the meaning of section 2(m) of the Wealth-tax Act, 1957 (as amended in 1959) ? (2) Whether, on the facts and in the circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. The expression assets appearing in section 2(m ) has been defined by section 2(e) as follows : (e) 'assets' includes property of every description, movable or immovable, but does not include- (i) agricultural land and growing crops, grass or standing trees on such land ; (ii) any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land : Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on the valuation date by the transferee mentioned in that sub-section in so far as such debts are referable to the assets. There are certain other provisions Contained in section 4 to which it is not necessary to refer. There is another section of the Act where under certain assets are exempt from inclusion while ascertaining the net wealth of an individual. That section is section 5. Twenty-one categories of assets have been there set out which are not liable to be included in the net wealth of an assessee. We will have to advert to the same later on. By section 6 a provision is made for exclusion of certain assets and debts. Under the scheme of the Act out of the assets which are liable to be included under section 2(m), a deduction has to be made in respect of the aggregate value of all the debts owed by the assessee on the valuation date other than the debts expressly excluded. It is clear from the aforesaid provisions that save as otherwise expressly provided, on the assets side all types of property including debts owing to the assessee and obligations which others owe to the assessee are liable to be taken into account. The point that arises for consideration in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odities like silver. Whether in such an event an obligation to pay a particular quantity of that article would constitute a debt or not is a question which it is not necessary for us in this case to consider. In the present case the claim for deduction relates only to a claim in respect of money. It would not be out of place to refer to some of the English cases where the expression has come up for consideration. The first case to which we would advert is Webb v. Stenton [1883] 11 QBD 518. It was a case arising under Order XLV, rule 2, of the Supreme Court Rules, in England concerning a garnishee. In that case the judgment debtor was entitled for his life to the income arising from a fund vested in trustees, payable half yearly in February and August. Upon application by the judgment creditor in the month of November for a garnishee order attaching the debtor's share of the income in the hands of the trustees, it appeared that the last half-yearly payment had been made, and that there was no money from the proceeds of the trust property in the hands of the trustees. The question that arose then for consideration was whether there was no debt owing or accruing at the time w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a debt owing or accruing ; but it must be a debt, and a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in presenti, solvendum in futuro. An accruing debt, therefore, is a debt not yet actually payable, but a debt which is represented by an existing obligation. Lord Justice Fry, at page 529, observes as under : I have further no doubt that the word 'indebted' describes the condition of a person when there is a present debt, whether it be payable in presenti or in futuro, and I think that the words 'all debts owing or accruing' mean the same thing. They describe all debita in presenti, whether solvenda in futuro, or solvenda in presenti. The material question which has been argued before us is this : does the meaning go further, and does it include debts which may hereafter arise ? If they may hereafter arise, it is possible also they may not hereafter arise, and it would require explicit words to include such future possible debts . This authority has been strongly relied upon by Mr. Palkhivala on behalf of the assessee to show that the expression debt is sufficiently wide to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as meaning to have to pay, to be under obligation to pay or repay, to be indebted in, or to the amount of . The legislature has in section 4, sub-section (3), also used the words debts owing on the valuation date . Those words have been used in the following context : Where the value of any assets is to be included in the net wealth of an assessee in accordance with clause (a) of sub-section (1), there shall be deducted from such value any debts owing on the valuation date by the transferee mentioned in that sub-section in so far as such debts are referable to the assets . This section provides that where the value of any assets in the hands of the transferee is to be taken into account as therein provided, the value of any debts owing on the valuation date by the transferee in so far as such debts are referable to the assets has to be taken into account. The expression debts owing cannot in this context be given a limited meaning so as to cover only debts which are presently payable. If a person has borrowed monies on the assets and the amount of such debt is payable after the lapse of a particular period of time, there is no reason why such debt should not be deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion C, which relates to all assets, after providing for the total value of all assets located in India, i.e., total of sections A and B, provides as under : Deduct.-Total value of debts in India owing by the company-as per annexure III. When we turn to annexure III which relates to statement of debts located in India owing by the company , we have under the heading description of debts - I. Secured Loans.-(a) Debentures, (b) Loans and advances from banks, (c) Loans and advances from subsidiaries, and (d) Other loans and advances. II. Unsecured Loans.-(a) Fixed Deposits, (b) Loans and advances from subsidiaries, (c) Short term loans and advances, and (d) Other loans and advances. III. Current liabilities.-(a) Sundry creditors, and (b) other miscellaneous items. IV. Ascertained liabilities treated as contingent liabilities. Debentures and fixed deposits referred to in annexure III clearly refer to monies which may be payable at a future date and they are regarded as debts owing by the company. One cannot look at a form with a view to give a meaning to the words used by the legislature in an enactment. In this case, in our view, the language used b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to us where it was attempted to attach unliquidated damages. But in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given. Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore, there was a 'debt' at the material date, though it was not presently payable and the amount was not ascertained. It is not like a case where there is a mere probability of a debt, as, for instance, where a person has to serve for a fixed period before being entitled to any salary, and he has served part of that period at the time the garnishee order nisi is served ... Lord Justice Bankes at pages 516 and 517 in that case has observed as follows : It is well established that 'debts owing or accruing' include debts debita in presenti solvenda in futuro. The matter is well put in the Annual Practice, 1915 (p. 808): 'But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and the case where both the debt and its payment rest in the future'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds : Solvendum in presenti and Solvendum in futuro. Whether a claim or demand is a debt or not, is in no respect determined by a reference to the time of payment. A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt, until the contingency has happened. These words clearly show that a debt is owing even though it is payable at a future time. We shall next refer to the case in Inland Revenue Commissioners v. Bagnall Ltd. [1944] 1 All ER 204, 205, 206.That was a case relating to excess profits tax. For the purpose of calculation of the excess profits tax it was provided by the rules that in the computation of the capital debts were to be deducted from the capital employed in the trade or business during both the standard period and any chargeable accounting period. In that case a claim had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have sought to show, after making reference to the Finance Act of 1939, the reason why the word debt in the context in which the same was used had that particular meaning. It is not necessary for us for the purpose of this case to solve that question. We shall next deal with the case of E.D. Sassoon Co. Ltd. v. Commissioner of Income-tax [1954] 26 ITR 27 . The Supreme Court in that case had to deal with the question about the point of time when managing agency commission became payable to the managing agents of a company. In dealing with the question Bhagwati J. has observed that it was clear having regard to the authorities referred to by him that income may accrue to an assessee without the actual receipt of the same. In the course of his judgment, he has expressed himself at page 51 in terms as follows : If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti-solvendum in futuro : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a calculation which has not yet been made and, it may be, cannot yet be made. After examining the authorities on the subject, the learned judge thereafter proceeded to observe as follows : The question I have to ask myself on the facts of this case is whether, although its payment might be deferred and its amount might not have been calculated and might, at that time, be incapable of calculation, there was, on February 22, any existing debt from the receiver to the company. He observed that it was not correct to say that a receiver for debenture-holders was a debtor to the company from time to time of such sum as may ultimately prove to be the balance in his hands after payment of preferential claims and after the discharge of whatever may be due to debenture-holders in respect of principal and interest. This case does not in any sense support the learned Advocate-General. It on the contrary reiterates that a sum of money need not be presently payable in order to constitute the obligation to pay the same into a debt. It further lays down that even if the amount of the obligation has not been ascertained and is subject to calculation, which had not then been made and coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt to be ascertained. Counsel says that in this case those factors could not be present, because the Law Society, by virtue of the Act and certain regulations made there under, had the power of exercising their discretion in various ways and of exercising it solely at some future time, and counsel says that in those circumstances this cannot be an existing debt. I cannot agree with that submission .... It appears to be clear that, under the regulation, there is in such circumstances an existing debt, because there is a liability on the Law Society having received that money, to pay it over to the assisted person. It may be that, by reason of the regulations, and by reason of certain provisions of the Act, the Law Society have power to deduct further sums from that money in exercise of some charge which they may have arising from the regulation, but that is merely a question of ascertaining the debt which has to be paid over to the assisted person and does not prevent that debt from being an existing debt at the material date. Another case relied upon in the course of the argument was the case of Edmunds v. Edmunds [1904] Probate 362. At page 373 of that judgment Gorell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm or the members of the association individually. It has been strongly urged by the learned Advocate-General on behalf of the revenue that unless and until a Central Act like the Finance Act enacts that income-tax shall be charged for any year at any rate or rates therein specified, there is no liability which accrues under section 3. In his submission it was only when the Finance Act, 1957, was passed that liability for payment of tax for the assessment year 1957-58 arose. He urges that what we have to ascertain is the net wealth of the assessee on 31st December, 1956, i.e., a date prior to the commencement of the Finance Act, 1957. He relies upon the provisions contained in sections 29 and 45 of the Income-tax Act, 1922, in order to show that the liability for income-tax becomes due when a demand is made therefor under section 29 on the completion of the assessment proceedings before the Income-tax Officer. Section 29 provides as under : 29. Notice of demand.-When any tax, penalty or interest is due in consequence of any order passed under or in pursuance of this Act, the Income-tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a debt was owing within the meaning of section 2(m) of the Wealth-tax Act. In this connection it would not be out of place to refer to a decision of the House of Lords in the case of Whitney v. Commissioners of Inland Revenue [1926] AC 37. No doubt that was a case which arose under the provisions relating to income-tax then prevailing in England. But the observations therein made can be said equally to apply to the Indian Income-tax Act, 1922, which to a large extent has drawn its inspiration from the provisions of the English statute. Lord Dunedin, in the course of his speech, observes, at page 52 in that case as under : My Lords, I shall now permit myself a general observation. Once that it is fixed that there is liability, it is antecedently highly improbable that the statute should not go on to make that liability effective. A statute is designed to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. Now, there are three stages in the imposition of a tax : there is the declaration of liability, that is the part of the statute which determines what persons in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Privy Council observed at page 495 : 'The argument which has been used in favour of the appeal seems to involve the fallacy that liability to tax attached to the income in the previous year. This is not so. No liability to tax attached to the income of this company until the passing of the Act of 1925, and it was then to be taxed at the rate appropriate to a company.' The same view was taken by their Lordships of the Judicial Committee in Maharajah of Pithapuram v. Commissioner of Income-tax [1945] 13 ITR 221 (PC). Lord Thankerton in delivering the judgment of the Board made these observations at page 223 : 'It should be remembered that the Indian Income-tax Act of 1922, as amended from time to time, forms a code which has no operative effect except so far as it is rendered applicable for the recovery of tax imposed for a particular fiscal year by a Finance Act. This may be illustrated by pointing out that there was no charge on the 1938-39 income either of the appellant or his daughters, nor assessment of such income until the passing of the Indian Finance Act of 1939, which imposed the tax for 1939-40 on the 1938-39 income and authorised th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in the previous year. That is not so. No liability to tax attached to the income of this company until the passing of the Act of 1925, and it was then to be taxed at the rate appropriate to a company. These observations were made with a view to show that the tax was payable by the company in respect of the income of the unregistered association and that the liability did not attach to the income in the hands of the unregistered association as the Finance Act 13 of 1925 under which the liability was to be assessed was not in existence at the time when the income accrued to the unregistered association. These observations shorn of their context cannot be utilised for the purpose of saying that until the passing of the relevant Finance Act, there is no obligation whatsoever incurred by an assessee in connection with his income. There are observations made in several cases which clearly indicate what is the nature of the liability in connection with income-tax under the provisions of the Income-tax Act. In the case of Chatturam v. Commissioner of Income-tax [1947] 15 ITR 302 (FC), the Federal Court had to deal with the question as to when liability to pay tax arose. At p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed as follows : ... the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed. These observations of the Privy Council completely support the argument of Mr. Palkhivala that the liability arises by virtue of the charging section and it arises at the close of the previous year. It may be pertinent to note that at the close of the previous year the relevant Finance Act may not even have been enacted. In the case of Chhaturam Horilram Ltd. v. Commissioner of Income-tax [1955] 27 ITR 709; [1955] 2 SCR 290the Supreme Court has dealt with this question. After setting out the provisions of section 3 of the Indian Income-tax Act, 1922, Jagannadhadas J. who delivered the judgment of the court has observed at page 716, as follows : It is by virtue of this section that the actual levy of the tax and the rates at which the tax has to be computed is determined each year by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... super-tax on the amount payable at a rate representing the average of the rates applicable to the estimated total income of the assessee under that head. Where a deduction has been made in respect of salaries during the accounting year 1956, it could only be in respect of the tax payable for the assessment year 1957-58 and when salary is being paid during the year 1956, it would be at a time when the Finance Act applicable to the assessment year 1957-58 not merely would not be in operation but could not have been enacted. Sub-section (3) similarly provides that the person responsible for paying any income chargeable under the head interest on securities shall, unless otherwise prescribed in the case of any security of the Central Government, at the time of payment, deduct income-tax but not super-tax on the amount of the interest payable at the maximum rate. This deduction would equally be in respect of tax for the subsequent assessment year and would be a deduction made at a time when the Finance Act applicable to that assessment year may not have been on the statute book. Sub-section (5) of section 18 provides that any deduction made and paid to the account of the Central Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 5, twenty-one different species of property from the incidence of the wealth-tax. It has for instance exempted one house belonging to the assessee exclusively used by him for residential purposes and situate in any place with a population not exceeding ten thousand and which is more than five miles distant from any area for which there is a municipality the population whereof exceeds ten thousand. It has excluded rights under any patent or copyright belonging to the assessee. It has excluded the right or interest of the assessee in any policy of insurance before the moneys covered by the policies become due and payable to the assessee. It has excluded the right of the assessee to receive a pension or other life annuity in respect of past services under an employer. It has excluded furniture, household utensils, wearing apparel, provisions and other articles intended for the personal or household use of the assessee. It has excluded the tools and implements used by the assessee for the raising of agricultural produce. It has excluded tools and instruments necessary to enable the assessee to carry on his profession or vocation, subject to a maximum of twenty thousand r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a present obligation does not become a contingent liability merely because it is possible that as a result of any condition subsequent that liability may become extinct or may be deemed to be discharged. There is a difference between a condition which makes a liability contingent and a condition which makes an existing liability extinct. There may be a condition precedent to the attachment of any obligation and there may be a condition subsequent which may result in the discharge, defeasance or extinction of any existing obligation. If the legislature could possibly at any time absolve persons from payment of tax that would be a condition subsequent. Merely because there was such a bare possibility, it could not be said that there was no existing obligation. As a matter of fact, the Indian Income-tax Act is a permanent Act on the statute book. So long as the Act remains on the statute book the liability to tax is always there. The legislature has been so careful as to provide even for a circumstance where for any length of time there may not be a Finance Act on the statute book after the commencement of a particular assessment year. The legislature has by section 67B enacted as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in various authorities quoted above, we are of the view that there is not merely a moral certainty but a legal certainty of tax and that the liability imposed under section 3 of the Income-tax Act is an obligation which attaches as soon as the accounting year ends and it can be said that the obligation at the end of the accounting year has ripened into a debt which is owing within the meaning of section 2(m). We shall now proceed to deal with a very important unreported judgment bearing on the question delivered by a Division Bench of the Calcutta High Court in the case of Kesoram Cotton Mills Ltd. v. Commissioner of Wealth-tax Since reported in [1963] 48 ITR 31 (Matter No. 173 of 1960). The judgment is dated 20th July, 1962, and is not yet reported. The question which we have to deal with in the present reference directly arose for determination in that case. A Division Bench consisting of Justice Mitter and Justice Laik has taken the view that the liability for payment of income-tax and super-tax cannot be regarded as a debt owing within the meaning of section 2(m) of the Wealth-tax Act on the valuation date. After setting out the various provisions of the Wealth-tax Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dyanath Bhattacharjee [1909] ILR 36 Mad. 936 and the decision in Webb's case (Supra), to which we have already referred, Mr. Justice G.K. Mitter came to the following conclusion [1963] 48 ITR 31, 40 : To merit deduction in the computation of net wealth the liability must not only be a debt but one solvendum in praesenti. There is no discussion of the subject as to why a debt which is not solvendum in praesenti but solvendum in futuro should not be regarded as a debt owing within the meaning of section 2(m). The learned judge seems to be drawing a distinction between the expression debt owing and debt accruing and has relied upon the decision in Webb's case (Supra) as laying down that it is only where a debt is accruing that it can be said that it may be solvendum in futuro ; otherwise in all other cases it should be a debt solvendum in praesenti. The learned judge has, in the course of his observations, stated as under [1963] 48 ITR 31 , 42, 44 : In our case a debt accruing will not be within the section ; it must be debt owed. We have already referred to various cases which deal with the meaning of the expression debt and we have also referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or imperfect obligations. With respect to the learned judge we are unable to accept the conclusion to which they have arrived at on this point. This is sufficient to dispose of the first question. We shall next deal with another aspect of the matter based on the provisions contained in section 7(2)(a). Section 7 provides as under : 7. Value of assets how to be determined.-(1) The value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. (2) Notwithstanding anything contained in sub-section (1),- (a) Where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as the circumstances of the case may require. (b) Where the assessee carrying on the business is a company not resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole has to be ascertained, as the subsequent words require this value to be ascertained having regard to the balance-sheet of such business. It is urged that the words as a whole govern the word assets and what is required to be determined is the value of the assets as a whole. Mr. Palkhi-vala, on the other hand, says that the method of valuation laid down in subsection (2) is entirely distinct and different from the method of valuation employed in sub-section (1). He says that the words net value of the assets of the business have been deliberately used in order to convey that what is required to be done is to find out the value of the assets of the business as a whole after deducting the liabilities of the business. It is urged that the words net value of the assets of the business as a whole have a distinct meaning in accountancy and that those words implied that one has to value the assets of the business as a whole after deducting the liabilities of the business. It is urged that the words as a whole do not govern assets but govern business. There is considerable force in the argument advanced on behalf of the respondent in this connection. The words net value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the assets of the business considered as a whole after taking into account the liabilities of the business. What is sought to be provided by section 7(a)(1) is what is known as the global method of valuation. There are two different methods generally adopted to arrive at a global valuation from the balance-sheet of a company. This global method of valuation has been well understood as is shown by the questions referred. One of the questions which has been referred to us is in the terms following : Whether, on the facts and in the circumstances of the case, and in the case of a business valued under section 7(2)(a) of the Wealth-tax Act, the sum of ₹ 11,40,755 being the provision for taxation is liable to be allowed as a deduction under the provisions of section 2(m) of the Wealth-tax Act, 1957, as debt owed by the assessee on the valuation date ? It is admitted by both the sides that the Wealth-tax Officer has proceeded under section 7(2)(a) whilst assessing the assessee to wealth-tax, the assessee being a company which has been carrying on business and which has maintained accounts of such business regularly. As stated by the Wealth-tax Officer in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions mentioned is Provision for Taxation . Part II of Schedule VI which deals with Requirements as to Profit and Loss Account provides by rule 3 as under : The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account :.......... (vi) The amount of charge for Indian income-tax and other Indian taxation on profits, including, where practicable, with Indian income-tax any taxation imposed elsewhere to the extent of the relief, if any, from Indian income-tax and distinguishing, where practicable, between income-tax and other taxation. The balance in profit and loss account after providing for proposed allocations, namely, dividends, bonus or reserves, is liable to be shown under the head Reserves and surplus on the liabilities side of the balance-sheet. In view of the requirements relating to the balance-sheet and profit and loss account, it is urged that liability on account of income-tax and super-tax is liable to be taken into account in ascertaining the net v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was a liability which has to be taken into account when proceeding under section 7(2). In dealing with this argument we have to bear in mind the fact that section 7(2) is applicable not merely to companies governed by the provisions of the Companies Act, 1956, which have to prepare balance-sheets in accordance with the provisions of the Act but is also applicable to individuals who are assessees and who carry on a business. In the case of a company which carries on a business and has a balance-sheet prepared in connection with that business, the net value of the assets of such business as a whole will have to be determined as provided in section 7(2) and in such a case, on a plain reading of section 7(2), the liability in respect of tax would be a liability which will have to be taken into account in ascertaining the net value of the assets of such business. It would be somewhat anomalous if in the case of a company which carries on business and prepares its balance-sheet, the liability for tax has to be taken into account but in the case of an assessee other than a company, such a liability is not intended by the legislature to be taken into account. The construction which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation to take in determining the value of an asset. We shall next deal with a case falling under section 7(2). Under section 7(2) when the net value of assets of a business as a whole has to be determined regard should be had to the balance-sheet of such business. In numerous balance-sheets it is found that several assets are shown at cost. The price at which the same are shown could not possibly be in such circumstances the price which such asset would fetch if sold in the open market on the valuation date. No doubt there is a power given to the Income-tax Officer to make such adjustments as the circumstances of the case may require. It is urged that this power has to be exercised in order that the price of assets as shown in the balance-sheet may equate with the written down value of such assets as appearing in the records of the income-tax department. There is no warrant for such a conclusion. The written down value may be far from the real value of the asset on the valuation date. There cannot be any hard and fast rule in this matter and the Wealth-tax Officer is under no obligation to consider the written down value as the proper value of an asset. What the legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates specified in sub-section (1)(a) as have not expired or in one sum if only the last of such dates has not expired : Provided that the assessee may send a revised estimate of the tax payable by him before any one of the dates specified in sub-section (1)(a) and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments. It is urged that where a notice has been issued under section 18A for advance payment of tax, the liability for payment of the same is not absolute and that it is open to an assessee who estimates that a lesser amount would be payable by him to proceed as laid down in sub-section (2). The mere fact that it is open to an assessee to proceed under sub-section (2) would not result in the amount which he is required to pay under the notice served upon him under section 18A(1) not becoming a debt owing by him, unless and until he takes the proceedings required under sub-section (2). Sub-section (2) represents a provision where under a liability which has attached under section 18A(1) may be either reduced or may be extinguished. A condition subsequent, the fulfilment of which may result i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wering the same if the true answer to question No. 1 is different from the one given by us. Question No. 2 as reframed will be as follows : Whether, on the facts and in the circumstances of the case, ₹ 89,889 being the last instalment of advance tax due under section 18A as per the subsisting demand as on the valuation date though payable on 15th March, 1957, is not liable to be allowed as a deduction ? Our answer to that question is in the affirmative. As regards the third question the value of the depreciable assets as shown in the balance-sheet of a company is not necessarily liable to be adjusted with reference to the written down value of such assets as per the income-tax records. In the present case no evidence has been led to show that the value of the assets as shown in the balance-sheet is not the true value of the assets or that circumstances exist which require that adjustment should be made in the valuation as shown in the balance-sheet. On the facts and in the circumstances of the case, the value of the depreciable assets as shown in the balance-sheet of the company is not liable to be adjusted with reference to the written down value of such assets ..... X X X X Extracts X X X X X X X X Extracts X X X X
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