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TMI Blog1978 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1964-65, for which the previous year was S.Y. 2019. The assessments for these two years were, however, pending. Thereafter, Parliament enacted the Finance Act, 1965, which, inter alia, provided for voluntary disclosure of certain income under s. 68 of the said Act. Taking advantage of the scheme, the assessee first made a voluntary disclosure on 30th March, 1965 (though dated 27th March, 1965), of an income of Rs. 16,16,193. He made a subsequent disclosure on 19th May, 1965 (though dated 17th May, 1965), of a further income of Rs. 1,75,000. Thus, the total disclosure was in the aggregate amount of Rs. 17,91,193. With regard to the amount initially disclosed, viz., Rs. 16,16,193, the assessee was liable to pay tax at the flat rate of 57 % of the amount disclosed, which was duly paid before the stipulated date. With regard to the further disclosure of Rs. 1,75,000, he was liable to pay income-tax at the flat rate of 60% which was also paid before the stipulated date. The aggregate tax so paid totalled Rs. 10,26,230. Now, according to the first disclosure, the income of Rs. 16,16,193 was represented by the total assets held by the assessee on 15th November, 1963. Again, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------- Net wealth I.T. according to Tax at 57% Tax claimed assessed Finance Acts (as or 60% as per as earned income) sec. 68 of the deduction Finance Act, (being " debt 1965 owed") 5 6 7 8 --------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. Rs. 14,74,645 11,19,534 8,47,644 8,47,644 14,75,342 11,21,072 8,48,782 8,41,686 14,58,246 11,21,460 8,49,070 8,41,232 14,69,947 11,32,092 8,56,940 8,39,071 14,86,992 12,25,912 8,88,592 8,57,698 15,56,438 13,39,520 9,36,387 8,86,732 16,82,106 14,22,182 9,95,874 8,31,845 16,86,522 15,15,292 10,26,230 9,47,003 16,92,030 13,01,610 10,26,230 10,26,230 ---------------------------------------------------------------------------------------------------------------------------------------------------- Being aggrieved by this disallowance, the assessee preferred an appeal to the AAC. Before the AAC reliance was placed on the decision of the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Act, although at the rate fixed by s. 68(3) of the Finance Act and, therefore, the matter would be squarely covered by the decision of Kesoram Industries and Cotton Mills Ltd.'s case [1966] 59 ITR 767 in which the Supreme Court had held that this was a debt owed which was liable to be allowed as a deduction in computing the net wealth for the purpose of levy of wealth-tax. In other words, it was submitted that s. 68 of the Finance Act, 1965, was not the charging section but merely prescribed the procedure for assessment of concealed income and the rate of tax. According to this submission, the charging section remains what it was under the Income-tax Acts, i.e., s. 3 of the Indian I.T. Act, 1922, or s. 4 of the I.T. Act, 1961. According to this submission, the income-tax liability of the assessee was assessed and quantified in 1965 in the manner provided under s. 68 of the Finance Act which would qualify the amount paid as income-tax under the provisions as a deduction allowable, which deduction fell squarely within the ratio of the Supreme Court decision in Kesoram Industries and Cotton Mills Ltd.'s case [1966] 59 ITR 767. On the other hand, counsel on behalf of the revenue s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Finance Acts only gave the rate for quantifying the tax, and (iv) that a liability to pay income-tax was a present liability though the tax became payable after it was quantified in accordance with ascertainable data. It was held further that there was a perfect debt at any rate on the last day of the accounting year and not a mere contingent liability. It was observed that the rate was always easily ascertainable ; if the Finance Act was 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. On these considerations, it was concluded that the amount of the provision for payment of income-tax and super-tax in respect of the year of account ending 31st March, 1957, was a debt owed within the meaning of s. 2(m) on the valuation date, viz., 31st March, 1957, and was as such deductible in computing the net wealth. This view was subsequently reiterated (for wealth-tax liability) by the Supreme Court in H. H. Setu Parvati Bayi v. CWT [1968] 69 ITR 864. In the matter before us we are concerned with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons. We need not examine this decision further inasmuch as the decision of the learned single judge was subsequently set aside in appeal by a Division Bench of the Kerala High Court in C. K. Babu Naidu v. WTO [1978] 112 ITR 341. The Division Bench of the Kerala High Court has observed whilst in allowing the appeal that if the provisions of s. 68 of the Finance Act, 1965, are read along with s. 4 of the I.T. Act, 1961, the irresistible conclusion would be that the Finance Act, 1965, only provided the rate of tax that is to be imposed and the same was considered to be only a machinery provision to provide for what was envisaged under s. 4 of the I.T. Act, 1961. According to the Division Bench, the provision for voluntary disclosure did not alter the liability of the assessee, a liability which arose and stemmed from the existence of the I.T. Act containing the charging section, viz., s. 4. In the view of the appeal court of the Kerala High Court, therefore, the matter fell squarely within the ratio of the decisions of the Supreme Court in Kesoram Industries and Colton Mills Ltd.'s case [1966] 59 ITR 767 and Setu Parvati Bayi's case [1968] 69 ITR 864, and was required to be decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied. The important words in sub-section (1) are ' charged income-tax '. These words show that sub-section (1) imposes a charge to income-tax on the concealed income disclosed by the assessee. Now, it may be argued that these words are used in the same sense in which the words ' income-tax shall be charged ' are used in the various Finance Acts. They have reference to charge of income-tax under the Income-tax Act but that charge has to be made in accordance with the rate specified in sub-section (3). What sub-section (1) seeks to provide is that the disclosed income shall be charged to tax under the Income-tax Act not at the rate laid down in the Finance Act but at the rate specified in sub-section (3). The emphasis in sub-section (1) is on the prescription of the rate at which the income-tax is to be charged and not on charging, which is done by the Income-tax Act. But this argument cannot prevail because it is contrary to the provisions of section 68 as also against the scheme of the Income-tax Act. In the first place, the charge under the Income-tax Act is on the total income of the previous year and not on any particular item of income. Section 3 of the Indian Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncealed income disclosed by the assessee would cease to be liable to be included in his total income for the purpose of assessment under the I.T. Act. This was obviously because it had already borne tax under s. 68. Thus, according to the Division Bench (p. 295) : " This item of income having been subjected to a distinct and separate process of assessment under section 68 is taken out of the purview of assessment under the Income-tax Act. " On these considerations, the Division Bench came to the conclusion that the tax paid on concealed income disclosed by the assessee under s. 68 was not in satisfaction of any liability under s. 3 of the Act of 1922 or under s. 4 of the Act of 1961 but in satisfaction of a new liability. It was, therefore, of the opinion that it cannot be deducted as a debt owed by the assessee on the last day of the relevant accounting year. A Division Bench of the Delhi High Court in CWT v. Girdhari Lal [1975] 99 ITR 79, dissented from the view expressed by the Gujarat High Court in Ahmed Ibrahim Sahigara's case [1974] 93 ITR 288, observing that the amount which a person declared under s. 68 of the Finance Act, 1965, represented the assessee's income which in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Division Bench of the Allahabad High Court in CWT v. B. K. Sharma [1977] 110 ITR 902, where, without referring to the judgment of the Delhi High Court, the learned judges of the Allahabad High Court considered the statutory provisions. They examined the judgment of the Gujarat High Court in Sahigara's case [1974] 93 ITR 288, and expressly differed therefrom. The Division Bench of the Allahabad High Court upheld the allowance of deduction to the assessee applying the ratio of Kesoram Industries and Cotton Mills Ltd.'s case [1966] 59 ITR 767. In the reference before the Allahabad High Court the assessee concerned had made a voluntary disclosure of his concealed income of rupees five lakhs under s. 68 of the Finance Act, 1965. It was the assessee's case that he had earned this income during a number of years in the past, and in the wealth-tax returns for the assessment years 1960-61 and 1961-62, he included in his net wealth the sum of Rs. 2,25,000 in the first year and the sum of 2,80,000 in the next year out of the concealed income. The WTO accepted the amounts; but when subsequently before the AAC, the assessee claimed deduction on account of the income-tax payable on the two am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the appropriate time and evaded the tax does not mean that he was not liable to pay the tax. As stated earlier, the liability to pay income-tax arises when the income is earned and not when it is disclosed or discovered. The quantification and determination of tax may be delayed because of the attempt of the assessee to conceal it from the department but his liability remains. " The position as expounded by the Allahabad High Court in respect of the normal income-tax liability for the amount of concealed income was not seriously disputed at the bar by counsel for the revenue. But it was urged that the position would be different in respect of payment of income-tax under s. 68 of the Finance Act, 1965, and the same or similar considerations as would be available for the ordinary liability of income-tax under ss. 3 and 4 of the I.T. Acts of 1922 and 1961, respectively, read with the relevant Finance Acts for the assessment years in question would not be available for application to the payment of income-tax under s. 68 of the Finance Act, 1965. In dealing with such a contention, the Allahabad High Court observed : " It is not disputed that if the assessee had been assessed to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute the Finance Act, 1965, a machinery provision like the usual Finance Acts for every year of account. Here again, the Allahabad High Court seems to have missed or avoided giving consideration to certain provisions to be found in s. 68 which have been considered by the Gujarat High Court, particularly sub-s.(6) of the Finance Act, 1965, which provides that if certain conditions are satisfied, the item of concealed income disclosed, on which income-tax as provided by s. 68(3) has been paid, would be excluded from the total income of the assessee for a particular year of account. This would seem to suggest that this is a different liability which is being provided for and a new and distinct charge and, further, that until the conditions specified are fully met, the original liability and charge under s. 3 and s. 4 would continue to remain. The last of the decisions cited at the bar in which almost all the earlier judgments have been considered and a conclusion reached in favour of the assessee is the decision of the Calcutta High Court in CWT v. Bansidhar Poddar [1978] 112 ITR 957. In the said decision, it was observed by the Calcutta High Court that s. 68 of the Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down by section 68 of the Finance Act. All the ingredients of a debt are present in such a case. " It was submitted by learned counsel for the revenue that the view propounded by the Gujarat High Court was the correct view and that it was impossible on a careful reading of the provisions of s. 68 of the Finance Act, 1965, to hold that this was a mere machinery section which provided for the rate, a special rate at which income-tax was to be charged on one item of total income. On the other hand, counsel on behalf of the assessee submitted that the view expressed and the conclusion reached by the Gujarat High Court had been considered and expressly dissented from subsequently by three High Courts, viz., the Delhi High Court in Girdhari Lal's case [1975] 99 ITR 79, the Allahabad High Court in B. K. Sharma's case [1977] 110 ITR 902 and the Calcutta High Court in Bansidhar Poddar's case [1978] 112 ITR 957. He submitted that the view in favour of the assessee which had been arrived at on several different processes of reasoning by the three High Courts was the correct view. In the alternative, it was urged that even if it be regarded that two views were possible in the matter, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered and accepted as income-tax paid in lieu of the ordinary charge of income-tax under the I.T. Acts. This submission was made on the footing that the court may not be prepared to accept the principal contention that this was income-tax charged under the I.T. Act quantified by a special rate. It was urged that even if it be regarded as a composition of the ordinary liability of income-tax at an amount less than the ordinary, normal income-tax liability and even though quantified on a different footing, the assessee would be entitled in the computation of his net wealth to deduct this lesser figure even though it may not be strictly considered to be the income-tax charged under s. 3 or s. 4 of the two I.T. Acts. It was submitted that an amount paid in lieu of such charge was liable to be considered in the same manner as the tax charged under the I.T. Acts. It is this consideration and reason which seems to us to have principally appealed to the Allahabad and the Calcutta High Courts in their decisions. Looked at from this angle, it appears to us that although it is not possible to say that the amount of income-tax paid under s. 68 of the Finance Act 1965, is income-tax under the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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