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Commissioner of Income-tax (Central) Vs. Vijay Kumar Behal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberWealth-tax Reference No. 2 of 1969
Judge
Reported in[1971]81ITR202(P& H)
ActsWealth Tax Act, 1957 - Sections 2
AppellantCommissioner of Income-tax (Central)
RespondentVijay Kumar Behal
Appellant Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Respondent AdvocateNone
Cases ReferredH.H. Setu Parvati Bayi v. Commissioner of Wealth
Excerpt:
- sections 100-a [as inserted by act 22 of 2002], 110 & 104 & letters patent, 1865, clause 10: [dr. b.s. chauhan, cj, l. mohapatra & a.s. naidu, jj] letters patent appeal order of single judge of high court passed while deciding matters filed under order 43, rule1 of c.p.c., - held, after introduction of section 110a in the c.p.c., by 2002 amendment act, no letters patent appeal is maintainable against judgment/order/decree passed by a single judge of a high court. a right of appeal, even though a vested one, can be taken away by law. it is pertinent to note that section 100-a introduced by 2002 amendment of the code starts with a non obstante clause. the purpose of such clause is to give the enacting part of an overriding effect in the case of a conflict with laws mentioned with the..........aredifferent. they are partners in the same firms. the assessment year is1960-61, and the relevant valuation date is 31st march, 1960. we onlypropose to deal with the facts in wealth-tax reference no. 2 of 1969. itis not disputed that our decision in this reference will govern all the other references. 2. the assessee, vijay kumar behal of ludhiana, was a partner in messrs. pearl hosiery mills and messrs. pearl woollen mills, ludhiana. the income-tax officer found during the assessment proceedings for the years 1959-60 and 1960-61 that the said firms had undervalued their stocks and thereby concealed their income. it was also found that the said concealed income had been introduced in the books of account in the form of hundi loans which in fact were fictitious. ultimately, the firms.....
Judgment:

D.K. Mahajan, J.

1. This order will dispose of Wealth-tax ReferencesNos. 2, 3, 4, 5 and 7 of 1969. The assessees in all these references aredifferent. They are partners in the same firms. The assessment year is1960-61, and the relevant valuation date is 31st March, 1960. We onlypropose to deal with the facts in Wealth-tax Reference No. 2 of 1969. Itis not disputed that our decision in this reference will govern all the other references.

2. The assessee, Vijay Kumar Behal of Ludhiana, was a partner in Messrs. Pearl Hosiery Mills and Messrs. Pearl Woollen Mills, Ludhiana. The Income-tax Officer found during the assessment proceedings for the years 1959-60 and 1960-61 that the said firms had undervalued their stocks and thereby concealed their income. It was also found that the said concealed income had been introduced in the books of account in the form of hundi loans which in fact were fictitious. Ultimately, the firms surrendered the concealed income for assessment. These assessments were completed in July, 1956. For the assessment years 1959-60 and 1960-61, the assessee's share of the concealed income of the firms was included in his total income and he was assessed to income-tax accordingly. When the assessment of the assessee was done for purposes of wealth-tax for the year 1960-61, his share of concealed income was included in his total wealth. No allowance was madefor income-tax payable on the said concealed income. The assessee claimed that the tax payable could not be included in the total wealth, being a debt owed by him to the income-tax department on the relevant valuation date, viz., March 31, 1960. The assessee relied on the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd v. Commissioner of Wealth-tax, [1966] 59 I.T.R. 767 : [1966] 2 S.C.R. 688 (S.C.).The Wealth-tax Officer negatived this contention. The view of the Wealth-tax Officer was that the tax due on concealed income was not a debt owed by the assessee and, thus, could not be allowed as a deduction in determining his net wealth for the assessment year 1960-61.

3. The assessee, who was dissatisfied with this decision, went up in appeal to the Appellate Assistant Commissioner of Wealth-tax, B-Range, Amritsar. The Appellate Assistant Commissioner upheld the order of the Wealth-tax Officer and dismissed the appeal.

4. The assessee then preferred a further appeal TO the Income-tax Appellate Tribunal. The Tribunal relied upon the decision of the Supreme Court in Kesoram Industries case and allowed the assessee's claim. The relevant part of the decision of the Tribunal is quoted below :

'In the case of Kesoram Industries and Cotton Mills Ltd., the appellant-company had, in its balance-sheet for the year ending March 31, 1957, shown a certain amount as provision for payment of income-tax and supertax in respect of that year of account. The question was whether that amount was a 'debt owed' within the meaning of Section 2(m) of the Wealth-tax Act, 1957, as on March 31, 1957, which was his valuation date, and as such deductible in computing the net wealth of the appellant-company. Subba Rao J. (as he then was), delivering the majority judgment of the court, held that the word 'owe' meant to be under an obligation to pay, that it did not really add to the meaning of the word 'debt' and that 'debt owed' within the meaning of Section 2(m) could be defined as the liability to pay in present or in future an ascertainable sum of money. His Lordship further observed as follows :

'A liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The rate is always easily ascertainable. If the Finance Act is passed, it is the rate fixed by that Act; if the Finance Act has not yet been passed it is the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favourable to the assessee. All the ingredients of a 'debt' are present. It is a present liability of an ascertainable amount.

It was further held that the amount of provision for payment of income-tax and super-tax in respect of the year of account ending March 31, 1957, was a debt owed within the meaning of Section 2(m) of the Act on the valuation date, viz., March 31, 1957, and was as such deductible in computing the net wealth of the company as on the valuation date.'

It appears to us that the above decision cannot be distinguished from the case in hand as has been done by the wealth-tax authorities. The principles laid down by the Supreme Court are applicable irrespective of the intention of the assessee on the relevant valuation date. The liability to pay tax is based on the earning of income and not on the intention to disclose it or conceal it. Respectfully following the above decision of the Supreme Court, we hold that the assessee is entitled to deduction of tax payable on concealed income assessed for the year under consideration.'

5. The Commissioner of Wealth-tax being dissatisfied with the order of the Tribunal applied under Section 27(1) of the Wealth-tax Act, 1957, praying that the following question of law be referred for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the determination of the assessee's net wealth, the assessee was entitled to deduction of income-tax payable by him on the concealed income included in his wealth ?'

6. This application was allowed and the aforesaid question of law has been referred to this court for its opinion.

7. Mr. Awasthy, learned counsel for the Commissioner of Wealth-tax, contends that the decision of the Tribunal is erroneous and the liability to tax on the income that had not been disclosed could not be equated with the liability on disclosed income. We are unable to agree with this contention. As a matter of fact, it does not matter whether the tax is payable on disclosed income or undisclosed income. The liability to pay tax arises on true income and true income will include both disclosed and undisclosed income. In any event, the matter stands concluded by the two decisions of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax and H.H. Setu Parvati Bayi v. Commissioner of Wealth-tax, [1968] 69 I.T.R. 864 (S.C.).In the latter case, their Lordships held that:

'... the liability to pay wealth-tax crystallises on the valuation date and not on the first day of the assessment year, though the tax is levied and becomes payable in the relevant assessment year. The wealth-tax liability of an assessee on the valuation date for the assessment year beginning on the 1st of April following, is a 'debt owed' within the meaning of Section 2(m) of the Act, and should be deducted from the estimated value of the assets as on the valuation date.'

8. This reasoning fully covers the present case; It may be mentioned that their Lordships of the Supreme Court in Kesoram Industries case,pointed out, while dealing with the provisions of the Income-tax Act, that 'the tax liability at the latest will arise on the last day of the accounting year'. On parity of reasoning, therefore, the decision in H.H. Setu Parvati Bayi v. Commissioner of Wealth-tax will fully cover the present case.

9. What has been stated above can be supported on the basis of Section 2(m) of the Wealth-tax Act. Section 2(m) is quoted below for facility of reference and, on its true interpretation alone, the decision of the Tribunal must stay:

'2(m) In this Act, unless the context otherwise requires--'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, the Expenditure-tax Act, 1957, or the Gift-tax Act, 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.'

10. Undoubtedly the tax liability is a debt. It has to be deducted from the wealth of the assessee in order to arrive at the net wealth. This debt, so far as the present case is concerned, does not fall in the exceptions provided in Section 2(m).

11. For the reasons recorded above, we answer the question referred to us in the affirmative, that is in favour of the assessee and against the revenue. As there is no representation for the assessee, there will be no order as to costs.


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