1 & 2. [These paras are not reproduced here as they involve minor issues].
3. Ground Nos. 4 and 5 : These are to the effect that the AAC erred in confirming the disallowance of interest charged under various sections of the Income-tax Act, 1961('the 1961 Act') which the assessee claimed as a debt. For the assessment year 1975-76, the WTO allowed as a debt only income-tax liability for the income declared for that year. With regard to the assessment year 1976-77, he did dot allow the income-tax liability as, according to him, there was no income-tax liability as per the income-tax return for that year.
4. The AAC noticed that the income-tax assessments for 1966-67 to 1969-70 were completed only on 5-3-1979, that the income-tax assessments for 1970-71 and 1971-72 were completed on 22-3-1978, that the income-tax assessment for 1973-74 was completed on 18-3-1977, that for 1974-75 was completed on 9-2-1977 and that the one for 1975-76 was completed on 5-3-1979. He also found that since these tax liabilities were not outstanding by issue of demand notices on the relevant valuation dates sub-clause (iii) of Section 2(m) of the Wealth-tax Act, 1957 ('the Act') was not attracted and that these liabilities have to be treated as allowable debts for computing the net wealth with regard to both the assessment years. This finding has been accepted by the department. The dispute in the present appeals relates only to the interest payable with regard to the tax demands. The assessee claimed the interest amounts also as debts. This was disallowed by the AAC for the reason that the interest does not become a charge on the asset on the valuation dates and cannot, therefore, be treated on par with the tax liability which is a charge.
5. It was contended by the learned representative for the assessee that the liability for interest arose along with the tax assessments, that the demand for tax and the demand for interest were both made by the same demand notice, that there is no justification to make a differentiation between the two, that the interest liability as also part and parcel of the tax liability and that the same should also be treated as a debt. The assessee has also filed a statement showing the interest levied under the various income-tax assessments.
6. On the other hand, it was contended by the learned departmental representative that while the income-tax is charged on the income, the interest has not been so charged, that the interest becomes a liability only when it is quantified, that till quantification there was no outstanding liability and that as the assessments were completed only subsequent to the valuation dates, the interest amounts cannot be treated as a liability. In support of the contention, it was pointed out by the learned departmental representative that with regard to the interest, the ITO had powers of reduction or waiver and that the liability will be crystallised only when the ITO demands the interest and not before.
7. In the present case, the income-tax liabilities were quantified subsequent to the relevant valuation dates. The demand for interest was made along with the demand for tax. The statement filed by the learned representative for the assessee shows that the interest demanded was under Section 139(1) of the 1961 Act, proviso (iii) under Section 217 of the 1961 Act and under Section 139(8). Under proviso (iii) to Section 139(1) and under Section 139(8), interest is payable for the delay in the filing of the return after a particular period. Under Section 217, interest is payable from the first day of April next following the financial year in which the advance tax was payable up to the date of the regular assessment. Under all these provisions, no order levying interest is required to be passed. The levy of interest is automatic. As soon as the default is committed in the filing of the return or in the payment of advance tax, interest becomes payable. The rate of interest is also ascertainable from the relevant sections. The quantification alone remains to be done. The meaning of the expression 'debt owed' is now well settled by the ruling of the Supreme Court in the case of Kesoram Industries & Cotton Mills Ltd. v. CWT  59 ITR 767. It has been held by the Supreme Court that a debt is a present obligation to pay an ascertainable sum of money, whether the amount is payable immediately or in future, that a liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data and that it is a perfected debt at any rate on the last day of the accounting year and not a contingent liability. In our view, these observations are applicable in the case of interest also which fastens to the tax automatically by the provisions in the statute. The contention that there is a charge for the income-tax and that there is no charge for the interest does not seem to be correct. The 1961 Act does not create a charge upon any particular asset in the sense in which the expression 'creation of charge' is understood in the context of the Transfer of Property Act, 1882. As far as the 1961 Act and the Act are concerned, the word 'charge' appears to have been used in connection with tax only in the sense of levying or imposing the tax. If this be so, the provisions of the 1961 Act also levy interest if the events prescribed therefor have occurred.
8. The learned departmental representative placed much emphasis on the fact that the interest under the sections mentioned earlier could be reduced or waived by competent authorities. This, in our view, does not seem to affect the position. The position would have been different if the interest becomes leviable only by the order of a competent authority. As pointed out, the interest in the present case is levied automatically by the provisions of the statute, it is true that competent authorities have been given powers to waive or reduce the amount. This power is normally exercised on the receipt of a request by the affected party for reduction or waiver of the interest. Even assuming that the powers would be exercised suo moto, the reduction or waiver is effected after the liability has arisen and after the interest has fastened itself to the tax payable. The fact that a competent authority can reduce or remit the interest on a future date, does not mean that interest had not become leviable or chargeable. In fact, the powers of remission can come into existence only after the liability to interest has arisen. We are, therefore, of the view that when interest is payable on any tax amount by the operation of the statute, the Liability for the interest amount is in the same position as the liability for the tax and is, therefore, a debt owed by the assessee.
9. What we have stated above does not mean that all the amounts outstanding, as mentioned in the statement filed by the assessee, could be treated as debts. In deciding whether the interest amount can be treated as a debt, the following matters will have to be borne in mind.
Although the amount of interest is quantified later, the interest should have begun to run during a period prior to the valuation date.
It is possible that interest may have begun to run only from a subsequent date by the application of the relevant provisions. In such cases, the same cannot be treated as a liability. In other words, the interest must actually relate to and should run for a period prior to the relevant valuation date. Similarly, only the interest amount that has accumulated up to the relevant valuation date and not for any subsequent period can be treated as the liability as on the relevant valuation date. As the necessary particulars for working out the interest liability on the above basis are not available, we would leave it to the WTO to work out the actual amount of interest that can be treated as a debt owed by the assessee on the relevant valuation date in the light of the principles set out above. The grounds are, therefore, decided in favour of the assessee to the extent indicated above.