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Smt. Josephine Pinto Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Indore
Decided On
Judge
Reported in(1982)1ITD615Indore
AppellantSmt. Josephine Pinto
RespondentWealth-tax Officer
Excerpt:
.....order on the point and further mentioned that in case the interpretation sought to be made by the learned assessee's counsel is accepted, then the same will result in a very absurd situation and the implementation of the act will in fact render impracticable. he further mentioned that finalisation of income-tax returns were prerequisite to enable the assessee to make a claim under the wealth-tax act. he submitted that since no inference was warranted, therefore, the consolidated impugned order be confirmed.9. in reply, shri nagar invited attention to page 137 of kantilal manilal's case (supra) for extending scope and meaning of the word "outstanding".10. the rival arguments have been heard and consolidated impugned order examined in the light of grounds of appeal and assessment orders......
Judgment:
1. The appellant-assessee by these four appeals challenges the consolidated appellate order dated 26-2-1981 of Shri P.N. Pathak, the learned AAC, for the assessment years 1971-72, 1972-73, 1973-74 and 1974-75, inter alia, on the following identical grounds: 1. That the learned AAC erred in confirming the disallowance of tax liabilities of Rs. 30,043 which were ascertained liabilities after completion of assessment as permissible under Section 2(m) of the Wealth-tax Act, 1957 ("the Act").

2. That the learned AAC erred in observing that because the returns were filed after relative valuation date pertaining to the assessment year 1971-72, the tax liabilities though finally quantified cannot be claimed as deduction. He erred in holding that such income-tax liabilities accrued and arose much beyond the valuation date. In fact, the time of accrual was earlier than the valuation date but the same was quantified at later date.

3. That the learned AAC ought to have applied the decision of their Lordships of the Gujarat High Court in the cases of CWT v. Kantilal Manilal [1973] 88 ITR 125 and CWT v. Jayantilal Amratlal [1976] 102 ITR 105. He ought to have considered that the process of assessment is a process of quantification of tax liabilities and tax so finally determined, though much after the valuation date, is legally allowable as debt owed within the meaning of Section 2(m) of the Act.

2. All the four appeals are against a consolidated order. The parties, facts and circumstances and the issue involved are common. For the sake of convenience, therefore, we propose to dispose of all the four appeals by this single order.

3. The appellant-assessee is a resident individual/citizen of India and the assessment years involved are 1971-72 to 1974-75. The relevant valuation dates are 31-12-1970, 31-12-1971, 31-12-1972 and 31-12-1973, respectively. A perusal of the assessment orders dated 24-2-1978 shows that the returns of wealth were filed on 23-6-1978. The learned WTO, Shri G.W. Sane, disallowed the assessee's claim in respect of tax liabilities observing that the amounts claimed are not admissible in view of the provisions of Section 2(m)(iii)(a) and (b), and further that the liability claimed was not an ascertained liability on the valuation dates. The deductions claimed appear to pertain to the income-tax liabilities as per the details given below :--------------------------------------------------------------------------------Assessment Wealth return- Date of filing Income-tax finally Payments madeyear ed/Wealth ass- of income-tax determined essed return/date of(1) (2) (3) (4) (5)--------------------------------------------------------------------------------1971-72 98,514 24-2-1975 30,043 (inclusive of Nil 1,31,830 18-3-1977 Rs. 14,524 for the assessment year1972-73 1,44.245 24-2-1975 31,279 Nil 2,08,050 20-03-19781973-7 6,462 5-1-1976 25,508 Nil 99,800 1-3-19761974-75 (- )57,340 30-3-1977 39,986 Nil 1,21,320 30-3-1977 The appellant's claim in the different wealth-tax assessment years is as below :Assessment year Income-tax payable as quantified by assessment1971-72 30,0431972-73 61,3221973-74 86,8301974-75 1,26,816 The total claim appears to be to the tune of Rs. 3,05,011 with respect to all the years. Since the assessee's claim was negatived during all the years under consideration, the assessment orders, referred to above, were thereafter challenged by the assessee. Shri P.O. Nagar, the learned counsel on behalf of the assessee, argued the case before the learned AAC on the basis of the ratio in the case of V.C. Handi v. WTO [1980] 122 ITR 506 (Kar.), in the case of Kesoram Industries & Cotton Mills Ltd. v. CUT [1966] 59 ITR 767 (SC) and finally in the case of Moti Lal Padampat Sugar Mills Co. (P.) Ltd. v. CWT [1970] 77 ITR 583 (All.). The learned AAC confirmed the assessment orders with the following observations : in the case of the appellant, the relevant income-tax returns were filed for the assessment years 1970-71 to 1972-73 on 24-2-1975, for 1973-74 on 5-1-1976 and for 1974-75 on 30-3-1977. In this context it would be relevant to mention that in the income-tax assessment order dated 1-3-1976 for the assessment year 1973-74, it is clearly stated that the return was filed by the assessee on 5-1-1976 and he claimed to have filed original return on 12-6-1973 vide acknowledgement No. 1385, but it was found that on said date, i.e., 12-6-1973, some other Dak was filed by some other person, which is evident from the income-tax receipt register and, therefore, the ITO concluded that the return for the assessment year 1973-74 is filed on 5-1-1976.

Similarly, for the assessment year 1974-75, the ITO in his order dated 30-3-1977 has said that the return was received on 30-3-1977 and no verification of the assessee's claim of the original filed on 27-7-1974 could be made. Thus, according to the appellant himself, these income-tax liabilities accrued and arose much beyond the valuation date.

4. The learned AAC as well conceded that provisions were also not made by the assessee during the relevant accounting periods and, therefore, the learned WTO was justified in rejecting the assessee's submissions.

5. By the present four appeals before us, the appellant-assessee now challenges the consolidated order of the learned AAC on the identical grounds mentioned above. On behalf of the appellant, Shri P.O. Nagar, very systematically and consistently raised all the contentions. He must have been raising since the learned WTO's stage (sic) and further mentioned that quantification of tax liability is altogether different from the existence of such liabilities and that outstanding for 12 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.

6. He continued that though the liability might have not been quantified as well the same was very much in existence and may be allowed that only which was finally quantified (sic). Shri Nagar further mentioned that "outstanding" appearing in the relevant section of the Wealth-tax Act should be construed and interpreted to mean that the outstanding was after the expiry of the accounting period ; absence of assessment order and demand notice notwithstanding.

7. For assistance, Shri Nagar relied upon the ratio in the following decisions in Kesoram Industries & Cotton Mills Ltd. (supra), Kantilal Manilal (supra) and V.C. Handi (supra). In fact, these cases were relied upon by him before the learned AAC also.

8. On behalf of the respondent-revenue, Shri N.H. Rughani, the learned departmental representative, supported the impugned order on the point and further mentioned that in case the interpretation sought to be made by the learned assessee's counsel is accepted, then the same will result in a very absurd situation and the implementation of the Act will in fact render impracticable. He further mentioned that finalisation of income-tax returns were prerequisite to enable the assessee to make a claim under the Wealth-tax Act. He submitted that since no inference was warranted, therefore, the consolidated impugned order be confirmed.

9. In reply, Shri Nagar invited attention to page 137 of Kantilal Manilal's case (supra) for extending scope and meaning of the word "outstanding".

10. The rival arguments have been heard and consolidated impugned order examined in the light of grounds of appeal and assessment orders. The assessee filed the return of income-tax on 24-2-1975, 5-1-1976 and 30-3-1977 and the assesments were framed on 8-3-1977, 23-3-1978, 1-3-1976 and 30-3-1977 for the assessment years 1971-72, 1972-73, 1973-74 and 1974-75, respectively. The relevant valuation dates are 31-12-1970, 31-12-1971, 31-12-1972 and 31-12-1973, respectively. The assessee made the claim before the learned WTO under Section 2(m)(iv)(a) and (b). For proper appreciation of the said provision, the relevant portion is reproduced as below : (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- (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 consequent 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." A careful examination, analysis and diagnosis of item (a) shows as if the "outstanding" liability on the valuation date, should have been finally accepted by the assessee, i.e., on appeal, revision or rectification be pending disposal (sic). In this connection it is pertinent to mention that in the assessee's case, the liabilities were challenged since the assessment orders referred to above were accepted by the assessee. But the date of orders being as they are, outstanding does not appear to be on the relevant valuation dates and, therefore, the assessee's case is not supported by this item (a). In term of item (b), the liability which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than 12 months on the valuation date. It simply appears to me that no doubt, the liability is not unchallenged but the same should not be outstanding for more than 12 months on the valuation dates (sic). The valuation dates, in the present appeals, are not in dispute. However, the confusion remains on the scope of the word "outstanding". In our view, for being anything outstanding, to start with, there should be an assessment order and in the said assessment order, the liability should have been pinpointed or say quantified and on the basis of such pinpoint and quantification, the demand notice should have been attempted by the revenue on the assessee. No payment in such circumstances appear to be outstanding. However, for such a conclusion we derive support from the ratio in the case of Kantilal Manilal (supra), wherein their Lordships, inter alia, observed as under : "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. In Doorga Prosad v. Secretary of State [1945] 13 ITR 285, the Judicial Committee of the Privy Council held that the amount of income-tax determined by the order of assessment became payable only when the notice of demand is issued to the assessee. The scheme of the Wealth-tax Act is in material respects identical with that of the Income-tax Act so far as charge, assessment and levy of tax are concerned and what the Judicial Committee has said in regard to payability of income-tax must apply equally in regard to payment of wealth-tax. Therefore, the amount of wealth-tax determined by the order of assessment does not become payable by the assessee until the notice of demand is issued under Section 30 of the Wealth-tax Act. Where (he notice of demand is issued after the relevant valuation date, the amount of wealth-tax did not become payable before the relevant valuation date and, therefore, cannot be said to be outstanding on the relevant valuation date for the purpose of Section 2(m)(iii)(a) of the Act." (p. 126). Thus, keeping in view the various dates, it is possible to infer that in fact nothing happened on 31-12-1970 to 31-12-1973, i.e., relevant valuation dates. The dates of filing the return and the assessment orders are all the dates subsequent to the valuation dates. No doubt, the wealth-tax assessments were framed on 24-2-1978 but reference being to the valuation date, the different assessment orders are, therefore, irrelevant and, therefore, of no consequence.

11. The assessee's reliance on the ratio in the case of Kesoram Industries & Cotton Mills Ltd. (supra) appears to be of no help to the assessee. In the said case, no doubt, their Lordships of the Supreme Court considered that on 31-3-1977 the director's proposed dividends but the same was sanctioned on 27-11-1977 and, therefore, the provision became "debt" only after general meeting of the shareholders of the company. In the said ratio, their Lordships conceded that on the valuation date in that case, nothing had happened beyond a mere recommendation by the directors as to the amount that might be distributed as dividend, there was no debt owed by the company to the shareholders on that date. In terms of the said ratio, the liability is said to arise only when the Finance Act becomes operative on the first day of April of the assessment year either by enactment of the Act or by virtue of Section 294 of the Income-tax Act. Thus, in our view, the liability does not by itself automatically occur and the same is, in fact, attributable to some process other than mere ending of the accounting period, may be, an assessment order and demand notice, etc.

(sic), ft may be instantly mentioned that the ratio in the case of Kesoram Industries & Cotton Mills Ltd. (supra) is well considered by their Lordships of the Gujarat High Court in Kantilal Manilal's case (supra). Now, we take up the case of V.C. Handi (supra). On the basis of dales, the facts appears to be distinguishable and in the case of the assessee before us, there was no liability on the valuation dates and, therefore, the ratio does not appear to help the assessee.

12. In view of our preceding discussions, we are of the considered view that the claims of the assessee were rightly negatived by the WTO and such action of the WTO was correctly confirmed by the learned AAC.13. On the "provision" aspect of the matter discussed by the learned AAC, we do not want to comment upon, since we are in a position to confirm the impugned order on the basis that there was no outstanding liability on the various valuation dates. With these observations, we confirm the impugned order.


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