Commissioner of Wealth-tax vs Meghji Girdharlal

P.D. Mulye, J.—The Wealth-tax Appellate Tribunal, Indore Bench, Indore, at the instance of the Revenue, namely, the Commissioner of Wealth-tax, M.P., Bhopal, has made this reference u/s 27(1) of the Wealth-tax Act for the opinion of this court on the following question of law:

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing deduction of wealth-tax liability as determined by the assessment order passed by the Wealth-tax Officer in computing the taxable wealth of the assessee thereby including therein liability which is outstanding on the valuation date and is claimed by the assessee in appeal, etc., as not being payable by him ? "

The facts giving rise to this reference as per the statement of the case received may be stated, in brief, thus : The dispute relates to the deduction of wealth-tax liabilities in computing the taxable wealth of the assessee. The Wealth-tax Officer did not allow any of these liabilities presumably on the ground that neither they had been quantified on the valuation dates nor had they been accepted as such by the assessee. Since the assessee was agitating the matter in appeals, the Commissioner of Wealth-tax (Appeals) allowed deduction for cumulative liability in respect of undisputed wealth-tax only, for determination of the taxable wealth of the assessee-respondent.

The assessee went up in second appeal before the Tribunal. According to the Tribunal, the charge of wealth-tax as per terms of Section 3 is imposed on the net wealth of the assessee computed on the valuation date after adjusting the debts owed by the assessee on that date and unlike the Income Tax Act, the Wealth-tax Act prescribed the rate of tax in the Schedule and it was evident that by virtue of Section 3, the liability to wealth-tax got crystallised on the valuation date and not on the first date of the assessment year. The Tribunal further held that a debt owed within the meaning of Section 2(m) of the Wealth-tax Act could be defined as a liability to pay in future an ascertainable sum of money. The Tribunal, consequently, held that the Commissioner of Wealth-tax (Appeals) erred in allowing the cumulative liability of the undisputed wealth-tax only as deduction from the total wealth in place of one as determined by the order of the Wealth-tax Officer.

The learned members of the Tribunal in paras 19 to 27 of the impugn- ed order have given valid reasons supported by authority for deciding the said point in favour of the assessee. Hence, this reference at the instance of the Revenue.

At the hearing of this reference, learned counsel for the Revenue, Shri R. C. Mukati frankly submitted that the question referred for the opinion of this court has to be answered in favour of the assessee in view of the Supreme Court decisions reported in Commissioner of Wealth Tax, Madras Vs. K.S.N. Bhatt, , Commissioner of Wealth Tax, Gujarat, Ahmedabad Vs. Vadilal Lallubhai and Others, and Commissioner of Wealth-tax, Gujarat Vs. Smt. Vimlaben Vadilal Mehta, .

In the case of Commissioner of Wealth Tax, Madras Vs. K.S.N. Bhatt, , it has been held that in computing the net wealth of the assessee for wealth-tax, the liabilities towards Income Tax, wealth-tax and gift-tax, which crystallise on the relevant valuation date as determined in the respective assessment orders as liabilities, are to be deducted even though those assessment orders are finalised after the valuation date. The quantification effected by an assessment order may be varied as the Income Tax, wealth-tax and gift-tax case is carried in appeal to the Appellate Assistant Commissioner, or thereafter to the Appellate Tribunal, and indeed even in reference later to the High Court or subsequent appeal to the Supreme Court. It is the quantification of the tax liability by the ultimate judicial authority which will determine the amount of the debt owed by the assessee on the valuation date. So long as such ultimate determination indicates the existence of a positive tax liability, there is a debt owed by the assessee on the valuation date even though such determination may be subsequent, in point of time, to the valuation date. If, however, it is found on such ultimate determination that there is no tax liability, it cannot be said that, merely because originally a tax liability had been determined and stood existing on the valuation date, there was a debt owed by the assessee. If the finding is that there was no tax liability, it must be held that there was no debt owed by the assessee on the valuation date.

In the case of Commissioner of Wealth-tax, Gujarat Vs. Smt. Vimlaben Vadilal Mehta, , it has been held that rectification of an assessment must be treated on the same basis as an original assessment for the purpose of a claim to deduction of liabilities towards Income Tax, wealth-tax and gift-tax in the computation of the assessee''s net wealth. The rectification merely quantifies the true tax liability which had already been crystallised and became a debt on the last day of the previous year in the case of an Income Tax liability, on the valuation date in the case of a wealth-tax liability and on the last day of the previous year in the case of a gift-tax liability.

It has been further held that it is well settled that when an appeal is filed against an assessment order before the Appellate Assistant Commissioner, the assessment is thrown open and the appellate proceeding constitutes a continuation of the assessment proceeding. Even if the tax liabilities, of which a deduction was claimed, were created by rectification orders or by assessment orders made after the date of the wealth-tax assessment order under appeal, the law requires the claim to deduction being considered on the same basis as if it had been made in the original wealth-tax assessment proceedings.

Similar is the view taken in the case of Commissioner of Wealth Tax, Gujarat, Ahmedabad Vs. Vadilal Lallubhai and Others, .

In view of these decisions, the question has to be answered in favour of the assessee and against the Department.

Accordingly, the question referred to us for our opinion is answered in favour of the assessee and against the Department. The reference is answered accordingly with no order as to costs.