1. This is a reference under the Wealth-tax Act by the Income-tax Appellate Tribunal, Allahabad Circle, Allahabad, at the instance of the Commissioner of Wealth-tax, Lucknow. Along with the statement of the case the Tribunal has referred this question :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the unpaid income-tax liability was allowable as a debt within the provisions of the Wealth-tax Act ?'
2. The assessment years are 1957-58, 1959-60, 1960-61, 1961-62 and 1962-63, The assessee is an individual. During the war he earned certain income which was concealed from the income-tax authorities. A notice under Section 34(1A) of the Income-tax Act, 1922, was issued to him. Thereafter, there was a settlement under Section 34(1B) of the Income-tax Act. The settlement was signed by the assessee and his two brothers on January 17, 1957. It appears from the first clause of the settlement that the assessee and the department settled the figure of the concealed income between 1940-41 and 1946-47 at Rs. 1,33,57,833. After making certain allowable deductions, it was agreed by Clause (5) that the income-tax payable by the assessee would be Rs. 31,92,353. Clause (6) provides that the said sum shall be paid by the assessee in five instalments. The first fourinstalments are of six lakhs of rupees and the last instalment is of Rs. 7,92,353. It was agreed that the first instalment would be payable on February 28, 1957 ; the second instalment on February 28, 1958; the third instalment on February 28, 1959 ; the fourth instalment on February 28, I960, and the last instalment on December 31, 1960. It is not necessary to refer to the other clauses of the settlement. The Central Board of Revenue passed an order in accordance with the settlement on May 1, 1957. In the preamble of the order it is stated :
' And whereas the said terms of settlement have been considered by the Central Board of Revenue and approved by the Central Government;
And whereas the Central Board of Revenue have, after such consideration and approval, accepted the said terms of settlement .... '
3. Clause (iii) of the order provides that the amount of Rs. 31,92,353 shall be paid ' in the manner and according to the instalments stipulated in the annexure ' to the order. Clause (iv) of the order provides that the first instalment of Rs. 6,00,000 'which fell due on the 28th February, 1957 ' shall be paid within one month of the receipt of the order by the assessee.
4. As the settlement was between the assessee and his two brothers on the one side and the Central Board of Revenue on the other side, the assessee sought to deduct one-third of Rs. 31,92,353 from the gross wealth shown by him as debt owed by him. This was resisted by the department. But the Income-tax Appellate Tribunal allowed the deduction. Hence this reference.
5. Dr. R. R. Misra, on behalf of the department, has urged two points for our consideration. Firstly, he has submitted that as the order of the Central Board of Revenue under Section 34(1B) of the Income-tax Act was passed on May 1, 1957, the amount of tax which the assessee asserts to be due by him on the valuation date for the assessment year 1957-58 was not at all due on the valuation date. According to him the liability was not in existence on the valuation date. It came into being only when the Central Board of Revenue passed the order under Section 34 (1B) on May 1, 1957. The other argument relates to the remaining assessment years. The argument is that as the total amount of tax had not been paid by the assessee for a period of more than twelve months on the valuation date, no deduction could be made. On both the questions the Tribunal held against the department. On the first question the Tribunal says :
' According to us the fact of assessee's signing the terms and conditions proposed by the Board on January 17, 1957, has set art rest all controversies as to the nature, amount and years of income. It is interesting to note that the terms and conditions did not only settle the amount of escaped income but also the tax liability and the mode in which the samewas sought to be paid. This, therefore, hardly leaves any scope for speculation suggested by the department. '
6. The Tribunal went on to add :
' The order in this ' case had admittedly been passed on May 1, 1957, i.e., after a month of the valuation date. In the premises we have no hesitation in holding that the income-tax liability in this case was ascertainable on January 17, 1957, i.e., before the valuation date. '
7. The first passage in the judgment of the Tribunal records a finding of fact that the terms of the settlement were proposed by the Central Board of Revenue and were accepted by the assessee on January 17, 1957. Dr. Misra has submitted that the finding of fact is without support of any evidence. He says that there is no evidence on the record to show that the Central Board of Revenue had proposed the terms of the settlement. We can hardly enter into this question at this stage. No such question has been referred to us. We, accordingly, accept the finding of fact.
8. In passing it may be noted that the various clauses of the settlement always open with the words 'it is agreed'. Those words lend support to the finding of fact recorded by the Tribunal. We have already spoken about the order of the Central Board of Revenue dated May 1, 1957. In the preamble of the said order it is said that the Central Board of Revenue have accepted the terms of the settlement and accordingly the Central Board of Revenue ' hereby orders as follows'. The phrase ' accepted the said terms of settlement ' also shows that a contract had come into being before the date of the order. As no other date is suggested for the coming into existence of the contract, it should be accepted that it came into existence on January 17, 1957.
9. Since the proposal of the Central Board of Revenue was accepted by the assessee on January 17, '1957, there came into existence a contract between the parties. The contract brought into being a liability dischargeable by the assessee. No doubt, the Central Board of Revenue passed an order under Section 34(1B) on May 1, 1957, but in the circumstances of the case it seems to us that it was not more than a formality. The contract had already come into being on January 17, 1957. The figure of the income-tax concealed was settled. The tax was settled and the mode of payment of the the tax was settled. Law looks to the substance and not the mere form, of matter. So we think that there was a debt owed by the assessee on March 31, 1957, which is the valuation date for the assessment year 1957-58.
10. The answer to the second question turns on the construction of Clause (iii) of Section 2(m) of the Wealth-tax Act. Although this prevision was inserted in the Act in 1959, it is expressly retrospective. Section 2(m)(iii) materially reads:
' ' Net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets,wherever located, belonging to the assessee on the valuation date . . . is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than . ..
(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure-tax Act, 1957 (29 of 1957), Gift-tax Act, 1958 (18 of 1958),--
(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or
(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date. '
11. We have already mentioned that by virtue of the settlement order under Section 34(1B), the assessee was required to pay Rs. 31,92,353, The amount was payable in five instalments. It is a fact that only the instalments were paid as and when they fell due: the whole amount did not stand paid up on the relevant valuation dates for the assessment years 1959-60, 1960-61, 1961-62 and 1962-63. The argument of the assessee before the Tribunal was and here is that the sum due by him minus the instalments paid in the relevant years was a ' debt owed ' by him on the relevant valuation dates and that accordingly he is entitled to deduct the said balance of amount in accordance with the main part of Section 2(m) of the Wealth-tax Act, while his net wealth is being calculated. The argument of the department is that it is true that it would be a ' debt owed ' by the assessee on the valuation date, but no deduction can be made on account of Clause (iii)(b) of Section 2(m). Which of these arguments should be accepted will depend on the true import of the word ' outstanding ' in Sub-clause (b) of Clause (iii) of Section 2(m). So it is really a question of construction.
12. Three principles of construction should be borne in mind while construing the said word. Firstly, Sub-clause (b) of Clause (iii) is an exceptionto the main part of Section 2(m). Ordinarily, an exception is strictly construed against the person benefited by it. Secondly, we have to examinethe context of Sub-clause (b). Thirdly, the object underlying Clause (iii) isalso to be seen. Indeed, the modern practice in the construction of statutesis to accept such construction as will tend to accomplish the object of thestatute. Now-a-days courts pay more attention to this principle than tothe rule of context.
13. The word ' outstanding ' has got several meanings. According to the ' Words and Phrases ', permanent edition, volume 30, page 555, it means: ' remaining untouched, uncollected, unpaid, or constituting aneffective obligation'. According to Bowler's Law Dictionary, page 882, it means 'unpaid, uncolleeted, remaining untouched'. These meanings would show that the word ' outstanding ' may refer in some contexts to the obligation itself, and in other contexts to the fact that the obligation incurred is due for discharge or payment, and is not discharged or paid. According to Dr. Misra, in the context of Clause (iii), it refers to the obligation itself ; according to the assessee it refers to the fact that the obligation has fallen due for discharge or payment and has not been discharged or paid. If the first meaning is accepted, the asscssee will not he entitled to make deductions ; if the second meaning is accepted, the assessee will be entitled to deductions
14. As Clause (iii)(b) is an exception to the main part of Section 2(m), ordinarily the meaning suggested on behalf of the assessee should be accepted as it makes a lesser cut in the scope of the phrase ' debts owed ' in the main part of Section 2(m) and is against the department. In the Finance Bill, 1959, Clause (2) provides for insertion of Clause (iii)(b) in Section 2(m). While moving the Bill, the mover of the Bill explained his purpose behind Clause (2). He stated that Clause (2) was introduced to make it clear that taxes which are disputed and taxes which are in arrears for more than a year are not to be deducted as debts in the computation of the net wealth of an assessee. So his object was not to deduct taxes in arrears in the computation of the net wealth of an assessee. It seems to us that the mover of the Bill has made explicit only the secondary object of the provision before us. The primary object appears to be to quicken speedy collection of the tax in arrears. An assessee, who wants the tax in arrears to be deducted from the aggregate of assets in the computation of his net wealth, should pay up the arrears within twelve months of the valuation date of the assessment year. If he does not pay it up before the said date, he would not get the benefit of the main part of Section 2(m). We shall construe Sub-clause (b) of Clause (iii) in the light of this primary object. We may also state here that we are required in this case to consider the case of an assessee, who is assessed to tax under Section 34(1B). We are considering only a narrow question as to whether the assessee, who is required to pay a sum of money under Section 34(1B) of the Income-tax Act in instalments, can get the benefit of the main part of Section 2(m), even though on the valuation date of a particular assessment year he has paid only an instalment and not the whole sum of money due under Section 34(1B). We emphasize this aspect of the case. It may be that payment of tax in instalments in cases other than the cases covered by Section 34(1B) may be a privilege or a concession granted by the assessing authority, but in the case under Section 34(1B) it cannot be said that a privilege or a concession has been granted to the person who is called upon to pay some amount in instalments. Under Section 34(1B), a sum of moneyis payable under and in accordance with the settlement arrived at between the assessee and the department. Neither of them can say that any clause of the settlement is by way of privilege or concession to the other. A settlement is the result of bargain struck between the parties.
15. Keeping the primary object in mind, it appears to us that it is not fair to construe the word ' outstanding ' as meaning a debt or obligation. As a sum of money in the instant case was payable in various instalments, the assessee became liable to pay the instalments as and when they fell due. Until an instalment has fallen due for payment, it cannot be said that the amount of instalment was outstanding, nor can it be said that the whole sum of money payable under Section 34(1B) was outstanding.
16. The matter may be looked at from another angle. The object of the main part of Section 2(m) is to find out the real net wealth of the assessee. For that purpose it is necessary to deduct the debts owed by the assessee from his gross wealth. Although he had not paid the whole sum of money for more than twelve months on the valuation date of an assessment year, there is no doubt that the debt is owed by him. It looks rather harsh to disallow deduction of the debt merely because he has not paid the whole of it within twelve months of the valuation date, even though the settlement does not require him to pay the entire amount within the said period and allows him to pay the amount in instalments. The disallowance of the debt will give an unreal estimate of his net wealth and that, as already stated, is not the object of the main part of Section 2(m).
17. Dr. Misra has urged strenuously that the context of Sub-clause (a) stands against the construction suggested by the assessee. He says that in Sub-clause (a) the word ' outstanding ' refers to the entire amount of tax and not to the instalments. But we are not as sure as he. It seems to us that there, too, the word 'outstanding ' is susceptible of the construction suggested by the assessee. Clause (iii) uses the expression ' payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits or the Estate Duty Act or the Expenditure-tax Act or the Gift-tax Act '. The word ' payable ' is descriptive of the orders passed under various specified Acts. Sub- Clause (a) may be amplified to read in this manner:
' The amount of the tax payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, the Expenditure-tax Act or the Gift-tax Act which is outstanding on the valuation date and which is claimed by the assessee in appeal, revision or other proceedings as not being payable by him. '
18. There are thus three requirements: firstly, the amount of the tax should be payable under any of the Acts specified in the maiu part of Clause (iii); secondly, the amount of tax should be outstanding on thevaluation date; and, thirdly, the outstanding amount of tax, partially or wholly, should be claimed by the assessee in appeal, revision or other proceeding as not being payable by him. So only the outstanding tax which is disputed in appeal, revision or other proceedings is not to be allowed as a deduction under the main part of Section 2(m). As a sum of money under Section 34(1B) in the instant case is payable by instalments under a settlement, the outstanding amount of tax on the material valuation date of an assessment year would be the instalment payable on or before that date.
19. As far as Section 34(1B) of the Income-tax Act is concerned, Sub-clause (a) of Clause (iii) of Section 2(m) is not at all applicable. No appeal, revision or other proceedings can be instituted in respect of the sum of money payable under Section 34(1B). If the tax is payable in instalments, only the instalment which has fallen due during the pendency of the appeal will be deducted as debt from the gross wealth of the assessee. We find nothing in the context of Sub-clause (a) to persuade us to reject the construction of the word ' outstanding ' in Clause (b) as suggested on behalf of the assessee.
20. The construction which we are persuaded to accept has already been accepted by the Calcutta High Court in Commissioner of Wealth-tax v. Banarashi Prasad Kedia,  77 I.T.R. 159 (Cal.). The Calcutta High Court said:
' In the context in which it has been used, the expression ' outstanding ' means an amount which the assesssee was obliged to pay prior to the valuation date and has not been paid. An amount which the assessee had a right to pay subsequent to the valuation date cannot be outstanding on the valuation date. '
21. In the result our answer to the question referred to us is in the affirmative. The assessee shall get costs, which we assess at Rs. 200. Counsel's fee to be taxed accordingly.