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Commissioner of Wealth-tax, Bombay City-i Vs. Keshardeo S. Morarka - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWealth-tax Reference No. 16 of 1966
Judge
Reported in[1977]107ITR576(Bom)
ActsWealth Tax Act, 1957 - Sections 2
AppellantCommissioner of Wealth-tax, Bombay City-i
RespondentKeshardeo S. Morarka
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateNone
Excerpt:
.....- - it is well settled position in law that liability in respect of tax payable is a debt and such amount of debt is to be deducted in computing the net wealth of an assessee that can be subjected to tax under the wealth-tax..........one-third of the claim on the footing that in case the assessee discharged the whole of the decretal debt he would have a right of contribution regarding the two-thirds from the other judgment-debtors. this order of the wealth-tax officer was confirmed in appeal by the appellate assistant commissioner. in appeal by the assessees before the tribunal, the tribunal accepted the contention of the assessees. the tribunal pointed out that as the liability under the decree was joint and several each of the judgment-debtors will be liable to pay the full amount of the decree to the decree-holder though he may have a right of contribution from other judgment-debtors in case he paid the amount. as each of the judgment-debtors including the assessees was liable to pay the full amount under.....
Judgment:

Kantawala, C.J.

1. In this reference seven questions are referred to for our determination. Questions Nos. 1 to 5 are referred to at the instance of the assessee. As however, nobody appears on behalf of the assessee in this reference in spite of service, none of the said five questions needs to be answered. The remaining two questions are referred to at the instance of the revenue and they are as under :

'(6) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 39,162 representing the decretal amount in respect of the decree passed against the assessee and others was admissible deduction in computing the net wealth of the assessee (7) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of the sum of Rs. 1,42,320 being the tax on the additional income disclosed by the assessee to the department ?'

2. These questions relate to the assessment year 1957-58, the corresponding valuation date being November 2, 1956. A decree for Rs. 39,162 was passed against the two assessees and two other persons. One of the four judgment debtors was one Shrinivas Rampratap who died in or about the year 1949, and the liability under the decree was joint and several in respect of the three surviving judgment-debtors. On behalf of the assessee the whole of the decretal amount was claimed as debt while the Wealth-tax Officer only allowed one-third of the claim on the footing that in case the assessee discharged the whole of the decretal debt he would have a right of contribution regarding the two-thirds from the other judgment-debtors. This order of the Wealth-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. In appeal by the assessees before the Tribunal, the Tribunal accepted the contention of the assessees. The Tribunal pointed out that as the liability under the decree was joint and several each of the judgment-debtors will be liable to pay the full amount of the decree to the decree-holder though he may have a right of contribution from other judgment-debtors in case he paid the amount. As each of the judgment-debtors including the assessees was liable to pay the full amount under the the decree it was a debt due by the assessees on the valuation date and the assessees were entitled to deduction of the entire amount.

3. It was urged by Mr. Joshi on behalf of the revenue that both the taxing authorities were right in merely permitting a deduction of one-third of the decretal debt in view of the fact that even though any one of them may be called upon to discharge the debt in full he had a right of contribution from the other two. That being the position, the whole of the decretal amount cannot be treated as a debt but only one-third of the amount can be so treated.

4. It is not possible for us to accept this contention of Mr. Joshi on behalf of the revenue. When a deduction in respect of a debt is claimed by an assessee, the question to be considered is, what is the quantum of the debt that the particular assessee may be called upon to pay in law and if legally and validly he can be called upon to discharge the whole of the decretal debt, then it will be a debt due by him for which deduction can be claimed in wealth-tax return. The right of contribution will only arise if the debt was discharged, but it cannot be said that merely because there is a right of contribution in case the whole dent was discharged, the entire amount due and payable under the decree ceases to be a decretal debt. Thus, in our opinion, the Tribunal was justified in permitting the deduction of the whole of the decretal debt of Rs. 39,162. Accordingly, question No. 6 is answered in the affirmative.

5. So far as question No. 7 is concerned, before the valuation date the assessee voluntarily disclosed addition income on which the liability for tax was of Rs. 1,42,320 and the claim for deduction was made in respect of this amount of tax payable on the income so voluntarily disclosed. The Tribunal, following the decision of this High Court in Standard Mills' case [1953] 50 ITR 267, has allowed the deduction and it is against this order that the present question is raised.

6. So far as question No. 7 is concerned, no substantial submission has been made by Mr. Joshi. It is well settled position in law that liability in respect of tax payable is a debt and such amount of debt is to be deducted in computing the net wealth of an assessee that can be subjected to tax under the Wealth-tax Act. Thus, the Tribunal was right in permitting the deduction in respect of Rs. 1,42,320 being the amount of tax payable on the additional income voluntarily disclosed by the assessee. Accordingly, our answer to question No.7 is in the affirmative. As nobody appears on behalf of the assessee there will no order as to costs.


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