TMI Blog1980 (9) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... or taxation is in excess over the tax payable with reference to the book profits in accordance with the law applicable thereto within the meaning of clause (ii)(e) of Explanation II to rule ID of the Wealth-tax Rules, 1957 ? So far as question No. 1 is concerned, both the learned advocates of the respective sides are agreed that it requires to be reframed to highlight the real question in controversy. We have, accordingly, reframed the question as under: " Whether the Tribunal was right in law in holding that the amount of Rs. 76,857 representing income-tax refund likely to be due to the assessee on the basis of the returns filed by the assessee, did not form part of his taxable asset under section 2(e) of the Wealth-tax Act, 1957, on the valuation date ? " Now, to look at a few relevant facts leading to the present proceedings. The assessee is an individual. The relevant assessment year is 1970-71 and the valuation date is 31st March, 1970. The assessee held 137 shares in Bipin Silk Mills (P.) Ltd. The shares of the said company were not quoted on the stock exchange. The assessee valued the shares at Rs. 2,500 per share for the assessment year in question. The WTO valued the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance-sheet should not be treated as an asset and the provision for taxation in the balance-sheet should be treated as a liability in computing the value of equity shares of the said company on the valuation date. Since the Tribunal held that the valuation shall be fixed after following r. ID, it also held that the valuation as worked out under r. ID should be adjusted so as to exclude advance tax paid from the assets of the company and at the same time the WTO may consider whether the provision for taxation, if any, is in excess of the tax payable with reference to the book profits but without making any adjustment in advance tax paid, if the advance tax paid is shown not as a deduction from the provision for taxation as an asset. Thus, the Tribunal accepted the contention raised by the assessee in his cross-objections. It is, thereafter, that the revenue sought a reference on two questions of law for the opinion of this court, under s. 27(1) of the W.T. Act, and accordingly, these two questions came to be referred to us by the Tribunal at its instance. As stated above, we have refrained question No. 1 for our consideration and we now proceed to deal with the merits of the referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the income of the previous year by way of deduction at the source or advance payment before the assessment year has commenced. Since, at that stage, it would not be known as to what would be the total income of the assessee for the previous year and what would be the rate at which it would be chargeable to tax, the I.T. Act has adopted a special basis and a special rate for the computation of income-tax to be deducted at source or paid in advance. So far as the other three stages of payment of income-tax are concerned, they all arise after the commencement of the assessment year. There is in the first place a provision enacted in s. 140A for self-assessment by the assessee. This provision requires the assessee to pay earlier within thirty days of furnishing the return and now forthwith the tax payable on the basis of the return " as reduced by any tax already paid under any provision of the Act ". If the assessee fails to make such payment, he renders himself liable to penalty within a maximum limit of fifty per cent. of the amount of tax which he was required to pay on the basis of the return. The income-tax chargeable in respect of the income of the previous year is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed, it was the rate fixed by that Act; if the Finance Act was not yet passed, it was the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever was more favourable to the assessee. All the ingredients of a " debt " were present ; it was a present liability of an ascertainable amount. In that light, it was held that the amount of the provision for payment of income-tax and super tax in respect of the year of account ending March 31, 1957, was a " debt owed " within the meaning of s. 2(m) on the valuation date, that is, March 31, 1957, and was as such deductible in computing the net wealth. Thus, a payment of advance tax, which is also part and parcel of the income-tax, results in the discharge of the personal liability which the assessee had incurred and as a tax payable, it was a debt owed by him, which was even otherwise available for deduction under s. 2(m) of the W.T. Act. Against the background of the aforesaid settled legal position, we have to consider the question which is posed for our consideration as to whether the likelihood of certain income-tax refund which may be available to the assessee in future, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown above that liability to pay income-tax or even advance tax would by itself be a debt owed by an assessee, and as such its value will be liable to be deducted before arriving at the net wealth as per definition in s. 2(m). Now, if such liability is discharged by the assessee and he has discharged his debt by actual payment of advance tax, it can by no stretch of imagination be held that the refund of the amount which was actually paid as advance income-tax would be converted into a real asset in the hands of the assessee. It is true that in the balance-sheet such actual payment may be shown as an asset but in substance and reality, it is not an asset at all. Even this was intended by the rule making authority when rules under the W.T. Act of 1957 were framed. In this connection, it will be necessary to have a reference to rr. ID, 2A and 2D. So far as r. ID is concerned, and it is the subject-matter of the second question which is referred to us for our opinion in the present proceedings, it provides that the market value of an unquoted equity share of any company, other than an investment company or a managing agency company, shall be determined as per the procedure laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of his submission that this amount would form part of the assets on the relevant valuation date, placed strong reliance on a decision of the Supreme Court in Neptune Assurance Co. Ltd. v. Life Insurance Corporation of India [1963] 48 ITR 144 (SC) ; 33 Comp Cas 289. In the aforesaid case, the Supreme Court was concerned with the interpretation of s. 7 of the Life Insurance Corporation Act, 1956. The question posed for the consideration of the Supreme Court was as to whether the right to receive a refund of income-tax was covered by the provisions of s. 7 of the LIC Act, 1956. The appellant before the Supreme Court in the aforesaid case was an insurer which carried on both life insurance and other kinds of insurance business. During the calendar years 1954-55 and 1955-56, which were the previous years for the assessment years 1955-56 and 1956-57, respectively, certain sums became due to the appellant as interest on securities, wherefrom income-tax was deducted at source under s. 18(3) of the Indian I.T. Act, 1922, and as dividends on shares which were grossed up by an amount which had to be treated as tax paid thereon under s. 16(2) and s. 49B of that Act. In the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the I.T. Act earlier mentioned, which was in excess of the tax payable by it for each of these years. The assessment only particularised the amounts; it did not create the right, for, the right came into existence as soon as, according to the relative Finance Act, it became ascertainable that the tax deducted at source or treated as paid on its behalf had exceeded the tax payable. That right, therefore, was an asset contemplated by s. 7 of the Act of 1956. The aforesaid observations make it clear that the Supreme Court held that the right to get the income-tax refund was available to the appellant, insurance company, on the basis of the wording of s. 7 of the LIC Act. Section 7 of the said Act, which was referred to by the Supreme Court, read as under : " '7. (1) On the appointed day there shall be transferred to and vested in the Corporation all the assets and liabilities appertaining to the controlled business of all insurers. (2) The assets appertaining to the controlled business of an insurer shall be deemed to include all rights and powers, and all property, whether movable or immovable, appertaining to his controlled business, including, in particular, cash ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o stretch of imagination, be treated as an asset of the assessee which belonged to him. On the contrary, on the valuation date, by payment of advance income-tax for the concerned assessment year, the assessee had discharged his legal obligation or debt owed by him to the Central Govt. In that view of the matter, it cannot be said that the future possibility of getting refund from the advance tax paid can ever be treated as an asset of the assessee for the purpose of computation of his net wealth under the Act. It represented a mere chance to get an asset in future, may be years after the relevant valuation date when the assessment proceedings under the I.T. Act would get finalised. We, therefore, hold that this amount of Rs. 76,857 was not an asset at all in the hands of the assessee on the relevant valuation date, especially against the background of the admitted fact that on the relevant Valuation date, the assessment proceedings for the very assessment years were still pending. Even assuming, however, that the mere likelihood of obtaining refund, in future, of the income-tax paid for the concerned assessment years can be characterised as an asset in the hands of the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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