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Commissioner of Wealth-tax Vs. Raj Paul Chawla - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberW.T.R. No. 17 of 1973
Judge
Reported in[1979]117ITR574(Delhi)
ActsWealth Tax Act, 1957 - Sections 2; Finance Act, 1965 - Sections 68
AppellantCommissioner of Wealth-tax
RespondentRaj Paul Chawla
Appellant Advocate B.N. Kirpal, Adv
Respondent AdvocateNone
Excerpt:
direct taxation - assessment order - section 2 of wealth tax act, 1957 and section 68 of finance act, 1965 - income tax liability under section 68 on amount in question is debt owed on relevant valuation dates for all assessment years in question - order to be passed before tax can be said to be outstanding - no assessment order passed - tax amount not payable within meaning of section 2 (m) (iii) - assessed entitled to deduction of income tax payable on income disclosed under section 68. - - it refers to the stage of 'payability'.the sense of section 2(m)(iii) is clearly apparent when its sub-clauses (a) and (b) are read with it......of the case, the tribunal was right in holding that in the determination of the assessed's net wealth the assessed was entitled to deduction of income-tax payable by him on the income disclosed under section 68 of the finance act, 1965?'2. the assessse in question, shri raj paul chawla, was a partner in the firm, m/s. diwan chand chawla & co., and the assessment years in question are the years 1960-61, 1961-62 and 1962-63. no return had been filed by the assessed originally, but subsequently he made a voluntary disclosure under section js8 of the finance act, 1965, showing rs. 87,000 as his undisclosed income; on that basis he became liable to pay tax amounting to rs. 52,200 some time after march, 1965. after the settlement of the income-tax, liability, proceedings regarding the.....
Judgment:

Dalip K. Kapur, J.

1. The Income-tax Appellate Tribunal, Delhi, has referred the following question for decision of this court under Section 27(1) of the Wealth-tax Act, 1957 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the determination of the assessed's net wealth the assessed was entitled to deduction of income-tax payable by him on the income disclosed under Section 68 of the Finance Act, 1965?'

2. The assessse in question, Shri Raj Paul Chawla, was a partner in the firm, M/s. Diwan Chand Chawla & Co., and the assessment years in question are the years 1960-61, 1961-62 and 1962-63. No return had been filed by the assessed originally, but subsequently he made a voluntary disclosure under Section jS8 of the Finance Act, 1965, showing Rs. 87,000 as his undisclosed income; on that basis he became liable to pay tax amounting to Rs. 52,200 some time after March, 1965. After the settlement of the income-tax, liability, proceedings regarding the wealth-tax were taken up and for the three years in question returns showing net wealth of Rs. 1,66,695, Rs. 1,63,230 and Rs, 1,92,442 were submitted. These figures were calculated after including the sum of Rs. 87,000 and deducting there from the tax liability of Rs. 52,200. The WTO added back the tax liability for each of the years on the ground that this amount was not to be deducted.

3. On appeal to the AAC, the assessed succeeded in getting the deduction claimed by him. The department then appealed to the Tribunal on thefooting that the tax liability did not exist on the valuation date for each ofthe three assessment years and only arose after the assessed had exercisedhis option to make a voluntary disclosure under the Finance Act of 1965.It was contended that the liability to pay tax under Section 68 of the FinanceAct was independent of the original tax liability. It was further the caseof the department that Section 68 of the Finance Act, 1965, superseded the provisions of the Income-tax Act and hence the assessed could not claim anydeduction on account of income-tax liability as that liability had beenreplaced by a different kind of tax liability. The Tribunal, however, upheldthe order of the Appellate Assistant Commissioner and dismissed the appeals.

4. The reasoning of the Tribunal was on the basis that if the income did in fact exist then the tax liability also existed even if the income was not disclosed. What had happened was that the assessed postponed the acceptance of that liability and took advantage of a concessional scheme in scaling down his liability. But the position as far as the valuation dates were concerned was not changed, because the voluntary disclosure scheme of 1965 did not change the essential nature of the liability. It merely substituted a new liability for the assessed's original liability. It exonerated the assessed from penalty and gave him a concession in the matter of rates. But the liability was not different in its essential nature from the original liability imposed by the Income-tax Act. The Tribunal applied the decision of the Punjab High Court in CIT v. Vijay Kumar Behal [1971] 81 ITR 202 in preference to the decision of the Kerala High Court reported as C. K. Babu Naidu v. WTO : [1971]82ITR410(Ker) .

5. The question for decision posed to us is somewhat similar to the question that was answered by this court in CWT v. Girdhari Lal : [1975]99ITR79(Delhi) . In that case also there had been a disclosure under Section 68 of the Finance Act, 1965, and it was held by this court that the income-tax liability paid as a result of the disclosure under Section 68 of the Finance Act, 1965, was a debt under Section 2(m) of the W.T. Act, 1957, existing on the valuation dates for the relevant assessment years which were 1959-60 to 1964-65. The facts of that case show that there was a firm of which Nath Mal and Girdhari Lal were partners in equal shares. The disclosure showed that Rs. 9,48,858.85 was an undisclosed income as existing on 10th November, 1958, half of the amount, i.e., Rs. 4,74,429, was included in the wealth-tax assessment of each of the partners. The assessed claimed that the tax liability on this amount which was Rs. 2,94,658 should be deducted and only the balance amount should be included in the net wealth. This court accepted the assessed's claim and held that the income-tax liability under Section 68 of the Finance Act on the amount in question was a debt owed on the relevant valuation dates for all the assessment years in question. We seeno reason to differ from this view and accept this part of the conclusion, namely, that the income-tax liability was a debt owed on the relevant valuation dates.

6. It is now necessary to look at another aspect of this question. Before doing so, it is necessary to set out the definition of 'net wealth' given in Section 2(m) of the W.T. Act, 1957. It reads as follows :

' '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 assessed 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 assessed 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 assessed in appeal, revision or other proceeding as not being payable by him; or

(b) which, although not claimed, by the assessed as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date.'

7. The effect of this definition is to make the net wealth which is assessable to wealth-tax under Section 3 of the Act the balance existing after deducting the debts from the assets. For this purpose, however, certain types of debts are not to be deducted as stated in the latter part of the definition. We are only concerned for this part of the question with the definition appearing in Sub-clause (iii). One of the contentions raised before us is that the income-tax was payable on the sum of Rs. 87,000 even though it was not disclosed in the assessment year 1960-61 of which the valuation date was 31st March, 1960. This contention is based on the language of this sub-clause which is that the amount of 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, etc. The contention is that the tax may be payable in consequence of an order or it may be payable in consequence of a law even if there is no order. On a careful reading of the section, it appearsthat the section can be read in the manner contended for by learned counsel for the department. But, as it can also be read as meaning that an order of assessment is necessary before the liability arises, it is preferable in our view to read the section as applying only to the cases in which an order of assessment has been passed. For this matter, it is necessary to note that for the purpose of applying this provision, not only should the amount be payable but it should be either challenged in appeal, revision or other proceedings as not being payable or, alternatively, it should be outstanding for a period of more than twelve months on the valuation date. We think that the proper meaning to be given to the section is that there must be an order of assessment before the amount of tax can be said to be outstanding for a period of more than twelve months. As appears from the facts stated in this case, the income was disclosed to have arisen during the period relating to the financial year ending on 31st March, 1960. Hence, the tax even if payable without an order of assessment could not be said to be outstanding for a period of more than twelve months on 31st March, 1960. But, on 31st March, 1961, and on 31st March, 1962, which are the valuation dates for the subsequent two assessment years, it could be said that the tax was outstanding for a period of more than twelve months. However, as there was no order imposing tax, can it legitimately be said that the tax was outstanding for a period of more than twelve months The answer to this question depends on the way in which the section is to be read. In our view, the section has to be read, if ambiguous, in favor of the assessed and, thereforee, it requires an order to be passed before the tax can be said to be outstanding. This is also the view taken by the Allahabad High Court in Swadeshi Cotton Mills Ltd. v. CWT : [1971]81ITR482(All) . The Bench there observed as follows (pp. 485-86):

'Section 2(m)(iii) treats of an amount which is 'payable'. It does not contemplate a liability which has merely arisen in the sense considered in Kesoram Industries & Cotton Mills Ltd. : [1966]59ITR767(SC) and becomes payable subsequently upon assessment and demand. It refers to a liability which is of the nature of a present debt, an amount which is payable in consequence of an order passed under or in pursuance of any of the enactments mentioned. It refers to the stage of 'payability'. The sense of Section 2(m)(iii) is clearly apparent when its Sub-clauses (a) and (b) are read with it. The construction which learned counsel for the Commissioner wishes us to place on Section 2(m)(iii) cannot be accepted.'

8. On the same reasoning, we are of the view that the tax amount was not payable within the meaning of Section 2(m)(iii) for the simple reason that no assessment order had been passed. It so happens that the order was passed some time in March, 1965, as has been stated in the statement of the case. It was only after that date that the amount could be said to be payable.

9. Consequent to the reasoning set out above, it has to be held, followingthe two judgments referred to, that the question referred to us has to beanswered in the affirmative, in favor of the assessed and against thedepartment. There will be no order as to costs as there has been noappearance for the assessed.


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