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Smt. Josephine Pinto Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Civil Case No. 204 of 1983
Judge
Reported in[1986]158ITR674(MP)
ActsIncome Tax Act, 1961 - Sections 256 and 256(1); Wealth Tax Act, 1957 - Sections 2
AppellantSmt. Josephine Pinto
RespondentCommissioner of Income-tax
Appellant AdvocateA.K. Chitale, Adv.
Respondent AdvocateR.C. Mukati, Adv.
Excerpt:
- - he further submitted that though the liability might not have been quantified as well, the same was very much in existence and may be allowed which was finally quantified......liability on the valuation dates. the assessee had claimed deductions pertaining to the income-tax liability as per details given below : asstt. year.wealth returned/wealth assesseddt. of filing of i.t. ret./dt. ofi.t. asstt. orderi.t.finally determinedpayments made1971-7298,514 24-2-1975 30,043(inclusive of rs. 14,524 for a.y. 1970-71 for whichreturn was filed on 24-2-1975 and the assessment was made on 18-3-977).nil.1,31,83018-3-19771972-731,44,24524-2-1975 2,08,05020-3-197831,279nil.1973-746,4625-1-1976 99,8001-3-197625,508nil.1974-75(-)57,34030-3-1977 1,21,32030-3-197739,986nil.3. the assessee's claim in the different wealth-tax assessment years is as below : assessment yearincome-tax payable as quantified by assessment.....
Judgment:

P.D. Mulye, J.

1. By this reference made under Section 27 of the Wealth-tax Act read with Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal, Indore, has called 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 correct in interpreting the word ' outstanding ' with reference to Section 2(m)(iii)(a) of the W.T. Act and accordingly whether the disallowance of the tax liability on this ground was justified '

2. The facts giving rise to this reference, as per the statement of case received may be stated, in brief, thus : The assessee, Smt. Josephine Pinto, a citizen of India, is assessed as an individual and the assessment years involved are 1971-72 to 1974-75. The relevant valuation dates are December 31, 1970, December 31, 1971, December 31, 1972, and December 31, 1973, respectively. The assessment orders dated February 24, 1979, indicatethat the returns of wealth-tax for all these years were filed on June 23, 1978. The Wealth-tax Officer disallowed the assessee's claim in respect of income-tax liabilities observing that the amounts claimed are not admissible in view of the provisions of Section 2(m)(iii) (a) and (b) of the Wealth-tax Act, 1957, and that further the liability claimed was not an ascertained liability on the valuation dates. The assessee had claimed deductions pertaining to the income-tax liability as per details given below :

Asstt. year.

Wealth returned/wealth assessed

Dt. of filing of I.T. ret./Dt. ofI.T. Asstt. order

I.T.finally determined

Payments made

1971-72

98,514

24-2-1975

30,043(inclusive of Rs. 14,524 for A.Y. 1970-71 for whichreturn was filed on 24-2-1975 and the assessment was made on 18-3-977).

Nil.

1,31,830

18-3-1977

1972-73

1,44,245

24-2-1975

2,08,050

20-3-1978

31,279

Nil.

1973-74

6,462

5-1-1976

99,800

1-3-1976

25,508

Nil.

1974-75

(-)57,340

30-3-1977

1,21,320

30-3-1977

39,986

Nil.

3. The assessee's claim in the different wealth-tax assessment years is as below :

Assessment year

Income-tax payable as quantified by assessment order

Rs.

1971-72

30,043

1972-73

61,322

1973-74

86,830

1974-75

1,26,816

4. Thus, the assessee claimed deduction in respect of income-tax liability in respect of these years to the tune of Rs. 3,05,011. This claim of the assessee was negatived for all these years.

5. The assessee, therefore, filed an appeal before the Appellate Assistant Commissioner of Wealth-tax, who by his consolidated order dated February 26, 1981, dismissed the same. The assessee thereafter approached the Income-tax Appellate Tribunal, Indore, which by its order dated February 12, 1982, also dismissed the same. Thereafter, the assessee submitted an application before the Tribunal with a prayer to refer the following questions of law :

' 1. Whether, on the facts and circumstances of the case, the Tribunal was justified and considered that there was no debt outstanding against the assessee on the valuation dates relevant to assessment years 1971-72 to 1974-75

2. Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the different assessment orders passed under the Income-tax Act were irrelevant and, therefore, of no consequence

3. Whether, on the facts and circumstances of the case, the Tribunal was correct in interpreting the word ' outstanding ' with reference to Section 2(m)(iii)(a) of the W.T. Act and accordingly whether the disallowance of the tax liability on this ground was justified '

6. However, the Tribunal thought it proper to refer to this court only one question as mentioned above.

7. According to the learned counsel for the assessee, the question framed and referred to this court by the Tribunal requires reframing and accordingly by an application LA. No. 5347 of 1984, dated November 7, 1984, the assessee has prayed that the question of law be modified as suggested by him as under :

' Whether, on the facts and in the circumstances of the case, the applicant-assessee is entitled to deduction of income-tax assessed after the assessment years in question, for the purpose of computation of her net wealth, on a true interpretation of the expression ' debt owed ' in Section 2(m) of the Wealth-tax Act '

8. This application was opposed on behalf of the Revenue. It was, therefore, directed that this application shall be considered at the time of hearing of the petition.

9. The learned counsel for the assessee submitted that the income-tax assessment of the applicant for the year 1971-72 was made on March 18, 1977, the income-tax assessment for 1972-73 was made on March 20, 1978, the income-tax assessment for 1973-74 was made on March 1, 1976, andthe income-tax assessment for 1974-75 was made on March 30, 1977. She did not file any appeal to challenge these assessments. She, therefore, claimed deduction of income-tax so assessed in her wealth-tax assessment for the aforesaid assessment years under Section 2(m) of the Wealth-tax Act. He, therefore, submitted that the question referred to this court by the Tribunal requires reframing and that is why he has suggested the refrained question as stated above. Further, according to the learned counsel for the assessee, this question does not relate to questions of fact only as there is no factual dispute so far as the present reference is concerned. He, therefore, submitted that the question in issue is whether the applicant-assessee is entitled to deduction of income-tax in respect of the assessment years in question in the wealth-tax returns.

10. In support of this submission, the learned counsel for the assessee placed reliance on the decisions in CIT v. Breach Candy Swimming Bath Trust : [1955]27ITR279(Bom) and Chandulal Surajmal v. CIT : [1962]44ITR448(All) . In Breach Candy Swimming Bath Trust's case : [1955]27ITR279(Bom) , which is a Division Bench judgment of the Bombay High Court, it has been held as under (p. 293) :

' Now, in our opinion, the real object of making a reference, stating a case and raising questions, is to bring out the real controversy between the Department and the assessee, so that the High Court under its advisory jurisdiction can give an opinion on which the Tribunal can act; and there can be no dispute that the High Court has ample jurisdiction to alter and reformulate questions submitted by the Tribunal in order to bring out the real controversy between the parties. Now, what is the real controversy between the parties in this case The contention of the assessee is that it is not liable to pay tax on the income derived from certain activities carried on by the trust because the trust is a charitable institution, and the contention of the Department is that this income is not exempt from tax. Therefore, what we have to consider is, looking to the provisions of the Income-tax Act, whether this income is or is not exempt from tax. It is not necessary for the assessee to suggest under what particular section of the Act the income is exempt. That is a matter of a legal argument which can always be advanced in this court. Therefore, the proper question which the Tribunal should have framed and submitted to us was whether this particular income is exempt from taxation. It would be open to the Tribunal in the statement of the case to point out under which section in its opinion it is exempted. But we would not be bound necessarily to take the same view as the Tribunal. In order to uphold the exemption, it would be open to us if that question was raised to say that although we do not agree with the Tribunal that the income is exempt under the particular provision of the law on which the Tribunalhas relied, it is still exempt from taxation under some other provision. We cannot accept Mr. Joshi's contention that our jurisdiction is confined within such narrow bounds as to permit us only to decide whether the exemption falls under Section 4(3)(ia) or not and if our view is that it does not fall under Section 4(3)(ia), even though the assessee may be entitled to exemption under some other provision of law, it is not open to us to express that opinion. It is true that before we decide whether the assessee is entitled to exemption under some other provision of the law, all the necessary facts must be before us. It would not be possible for us to exercise our advisory jurisdiction without a proper statement of the case, and if any facts are not stated which would be necessary to be stated in order to decide the real controversy between the parties, we could call for a supplemental statement of the case; but it is not suggested by Mr, Joshi that in this case all the necessary facts are not stated. Therefore, what we have to decide is whether on the facts stated, the assessee is entitled to exemption from tax, under the relevant provision of the Income-tax Act, and if we come to the conclusion that the relevant provision of the Income-tax Act is Section 4(3)(i) and not Section 4(3)(ia), it is open to us to do so under our advisory jurisdiction. '

11. Similarly in the decision in Chandulal Surajmal's case : [1962]44ITR448(All) , which is a Division Bench judgment of the Allahabad High Court, it has been held that (headnote) :

' Where the Tribunal commits an obvious error in framing the questions stated to the court by tying them up to a provision of law not applicable to the case, the court should reframe the questions deleting the reference to the law not applicable, and answer the substantial question of law that does arise by reference to the law applicable. '

12. The learned counsel for the assessee, therefore, submitted that it is not now necessary for the assessee to approach the Tribunal again requesting it to reframe the question of law as proposed by it on the basis of the real controversy involved herein. He, therefore, submitted that the question referred by the Tribunal, in fact, does not arise as such, but the real question, looking to the controversial facts, is that as proposed by him.

13. On this point, the learned counsel for the Revenue submitted that, no doubt, there is no dispute so far as the questions of fact are concerned, but he submitted that even in a case where out of the questions proposed to be referred to this court only some are referred, even in respect of those questions which have not been referred by the Tribunal, the assessee is required to approach this court again, but the question cannot be reframed in the manner suggested by the assessee.

14. It is not in dispute that under the Wealth-tax Act an assessee is liable to pay tax on his net wealth, which is defined in Section 2(m) of the Wealth-tax Act, as under :

' (m) ' 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, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-

(i) debts which under Section 6 are not to be taken into account ;

(ii) debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under this Act; and

(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), or the 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. '

15. A bare reading of this definition would indicate that in a case under the Income-tax Act in which the assessee has not preferred any appeal against the assessment, he is entitled to a deduction in wealth-tax in respect of those assessments under the provisions of the Wealth-tax Act and, in our opinion, this is the controversy raised by the assessee. Therefore, in our opinion, in fact, the question referred by the Tribunal, considering the facts and circumstances of the case does require modification as no question of interpreting the word ' outstanding' with reference to Section 2(m)(iii)(a) of the Wealth-tax Act arises and, therefore, the prayer of the assessee to reframe the question as proposed by him has to be allowed.

16. Thus, in our opinion, it is not necessary for us to answer the question referred by the Tribunal as the same does not arise, considering the facts and circumstances of the case and that has to be reframed as proposed by the petitioner. Normally, this court is required to give its opinion on the question as framed and referred to it by the Tribunal unless, of course, the question referred did not require to be answered either by reason ofthe fact that it was merely academic in nature or by reason of the fact that it did not arise out of the Tribunal's order. In some cases, however, the question referred for opinion may be required to be reframed. Therefore, we propose to answer to following question of law :

' Whether, on the facts and circumstances of the case, the applicant-assessee is entitled to deduction of income-tax assessed after the assessment years in question, for the purpose of computation of her net wealth, on a true interpretation of the expression ' debt owed ' in Section 2(m) of the Wealth-tax Act '

17. As regards the merits of the case, there is no dispute that the assessee is entitled to the deduction of income-tax as determined in order to find out the net wealth of the assessee and, therefore, it is a ' debt owed '. It is no doubt true that the returns were filed by the assessee after the valuation date, but the time of accrual for the income-tax liability arose not on the valuation date, but the same was quantified at a later date. The learned counsel for the assessee, therefore, contended that the quantification of tax liability is altogether different from the existence of such liability and that' outstanding ' for twelve months should not be counted on the basis of assessment order, demand notice and that, in fact, such claims should be considered on the basis of existence of the liability after expiry of the relevant accounting period. He further submitted that though the liability might not have been quantified as well, the same was very much in existence and may be allowed which was finally quantified.

18. In CWT v. Kantilal Manilal : [1973]88ITR125(Guj) , it has been held that (headnote) :

' The liability to pay income-tax, gift-tax or wealth-tax is a ' debt ' owed by the assessee on the relevant valuation date within the meaning of Section 2(m) of the Wealth-tax Act, 1957. The liability which exists in praesenti on the relevant valuation date is the liability to pay tax on the total income as determined in accordance with the provisions of the Income-tax Act or tax on gift in accordance with the provisions of the Gift-tax Act or tax on net wealth determined in accordance with the provisions of the Wealth-tax Act. The liability is not ascertained on the relevant valuation date and has to be quantified. For the purpose of quantification of the liability, a machinery of assessment is provided by each relevant statute. The process of assessment is nothing but a process of quantification of the tax liability and nothing that is done or may be done in the process of quantification can be regarded as a contingency. The deductions admissible in computing the net wealth of the assessee are in respect of the taxes as finally determined on assessment under the respective enactments and not the taxes as computed in accordance with the returns filed by the assessee.'

19. It has further been held that (headnote) :

' If an amount of tax falls within the description given in Section 2(m)(iii)(a) of the Wealth-tax Act, 1957, it would not be deductible even though it is a debt owed by the assessee on the relevant valuation date. This clause lays down two requirements ; one is that the amount of tax payable in consequence of any order passed under or in pursuance of any of the fiscal statutes there specified including the Wealth-tax Act must be outstanding on the relevant valuation date and the other is that it must be claimed by the assessee in appeal, revision or other proceeding as not being payable by him. According to its ordinary connotation, the word ' outstanding ' means ' though payable but not paid '. When the amount of tax is payable but is not paid, it would be outstanding.'

20. To similar effect is another decision in CWT v. Moon Mills Ltd. : [1973]88ITR427(SC) .

21. In the decision in CWT v. K.S.N. Bhatt : [1984]145ITR1(SC) , it has been held by the Supreme Court that (headnote) :

' 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.'

22. To the similar effect is the decision reported in the same volume (Vol. 145) at page 7 (CWT v. Vadilal Lallubhai), where the decision in CWT v. K, S. N. Bhatt : [1984]145ITR1(SC) , is considered and followed andthere is another decision in the same volume :it page 11 (CWT v. Vimlaben Vadilal Mehta] of the Supreme Court, where the decision in CWT v. Kantilal Manilal : [1973]88ITR125(Guj) , has also been considered.

23. Thus, after considering the case law on this point referred to above, we are of the opinion that the question refrained referred to above, has to be answered in favour of the assessee and against the Department. Our answer, therefore, is that :

' On the facts and circumstances of the case; the applicant-assessee is entitled to deduction of income-tax assessed after the assessment years in question, for the purpose of computation of her net wealth, on a true interpretation of the expression ' debt owed ' in Section 2(m) of the Wealth-tax Act. '

24. The reference, as modified, is answered accordingly with no order as to costs.


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