1. The assessee is a private limited company. Its total wealth was computed at Rs. 15,89,013 by the Wealth-tax Officer under the Wealth-tax Act, rejecting the claim of the assessee for a deduction from the above the provision for income-tax and wealth-tax and the amount of proposed dividend on the ground that these liabilities had not become ascertained liabilities as on March 31, 1959, which was the valuation date.
2. The provision for income-tax and wealth-tax amounted to Rs. 5,15,400.
3. The provision for dividend amounted to Rs. 2,00,000. But, in this reference, we are not concerned with this provision.
4. The assessee appealed to the Appellate Assistant Commissioner contending that the liability to the tax attached as soon as the income was earned and that mere justification of the liabilities on a subsequent date did not take them out of the category of deduction allowable under the Wealth-tax Act.
5. The Appellate Assistant Commissioner rejected the claim holding that the tax liability does not ripen into a debt unless the demand notice quantifying the tax payable was served upon the assessee and that prior to such a service, there was no enforceable right in the Government against the assessee. He relied on the decision in Doorga Prosad v. Secretary of State and other decisions. He also referred to the amendment to section 2(m) by clause 20 of the Finance Act. The order of the Appellate Assistant Commissioner is annexure 'A' and forms part of the case.
6. There was an appeal to the Tribunal. The Tribunal, following the decision of the President of the Tribunal on a difference of opinion between two members, held that provision for taxation was to be deducted for computation of the net wealth under the Wealth-tax Act. The orders of the President and the Members of the Tribunal in the assessee's case are annexures 'B', 'B-1', and 'B-2' and form part of the case.
7. The question of law i :
'Whether the provision for the income-tax and wealth-tax are debts owed on the valuation date as contemplated under section 2(m) of the Wealth-tax Act, and are allowable in the computation of the net wealth?'
8. For the reasons mentioned in our judgment in T.R.C. No. 1 of 1963, which we have just now delivered, we hold that the provision made for the payment of income-tax is a 'debt owed' and the some is deductible from the 'gross wealth' to arrive at the 'net wealth.'
9. But when we come to the provision made for the payment of wealth-tax, we are faced with certain practical difficulties. The wealth-tax is leviable on the 'net wealth'. If the provision made for the payment of wealth-tax is deductible from the 'net wealth', the net wealth determined will have to be changed. This process will have to go on ad infinitum. In other words, the conception of 'net wealth' will become an ever receding phenomenon. Further, the contention advanced on behalf of the assessee in this regard does not accord with the pattern of our tax legislation. It is a well accepted practice that no tax can be deducted from the income on which the said tax is levied. Hence, our answer to the question submitted for our opinion is that the provision made for the payment of income-tax is a 'debt owed' within the meaning of that expression found in section 2(m) of the Wealth-tax Act. But the provision made for the payment of wealth-tax is not such a 'debt' and, therefore, the same is not allowable in the computation of the 'net wealth'.
10. No costs.