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Commissioner of Wealth-tax Vs. Girdhari Lal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberWealth-tax Reference Nos. 2 and 3 of 1971
Judge
Reported in[1975]99ITR79(Delhi)
ActsFinance Act, 1965 - Sections 68, 68(1) and 68(3); Wealth Tax Act, 1957 - Sections 2; Income Tax Act, 1961; Income Tax Act, 1922
AppellantCommissioner of Wealth-tax
RespondentGirdhari Lal
Appellant Advocate R.H. Dhebar, Adv
Respondent Advocate G.C. Sharma, Adv.
Cases Referred and H.H. Setu Parvati Bayi v. Commissioner of Wealth
Excerpt:
direct taxation - deductions - section 68 of finance act, 1965 and section 2 of wealth tax act, 1957 and income tax act, 1961 - assessed disclosed voluntarily certain amount under section 68 of finance act - assessed claimed permissible deduction - amount disclosed voluntarily not charged to income - tax required to be taken as 'total income' of assessed - legislature did not intend to treat disclosure distinct - amount declared by assessed partakes character of total income assessable under income-tax act 1922 or 1961 - liable to assessment under charging sections of two acts - - 7. we have first to determine the implications of the voluntary disclosure made by the assessed under section 68 of the finance act, 1965. the relevant portions of section 68 are reproduced below :68. (1).....ansari, j.1. in wealth-tax reference no. 2/71, the following question has been referred to this court by the income-tax appellate tribunal, delhi bench (hereinafter referred to as ' the tribunal ') under section 27(1) of the wealth-tax act, 1957 (hereinafter called ' the act '):' whether, on the facts and in the circumstances of the case, the tribunal was justified in law in holding that the income-tax liabilities in respect of the half share of the assessed of the income-tax paid by the firm on the amounts disclosed voluntarily under section 68 of the finance act, 1965, is a debt under section 2(m) of the wealth-tax act, 1957, on the dates of valuation for the assessment years 1959-60 to 1964-65 '2. in wealth-tax reference no. 3/71, the following question has been referred by the.....
Judgment:

Ansari, J.

1. In Wealth-tax Reference No. 2/71, the following question has been referred to this court by the Income-tax Appellate Tribunal, Delhi Bench (hereinafter referred to as ' the Tribunal ') under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter called ' the Act '):

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income-tax liabilities in respect of the half share of the assessed of the income-tax paid by the firm on the amounts disclosed voluntarily under Section 68 of the Finance Act, 1965, is a debt under Section 2(m) of the Wealth-tax Act, 1957, on the dates of valuation for the assessment years 1959-60 to 1964-65 '

2. In Wealth-tax Reference No. 3/71, the following question has been referred by the Tribunal under Section 27(1) of the Act:

' Whether, on the facts and in the circumstances of the case, the amount of Rs. 2,84,658 claimed by the assessed in respect of the amount of unassessed income disclosed voluntarily by it under Section 68 of the Finance Act of 1965 is a permissible deduction in the computation of the net wealth of the assessed as on the valuation dates corresponding to the assessment years 1959-60 to 1964-65, particularly in view of the fact that the assessed's share of the undisclosed income, namely, Rs. 4,74,429, has been included as part of the net wealth of the assessed for each of these assessment years ?'

3. Although the questions referred in each of the cases are differently worded, in substance, they are the same questions and the facts out of which these questions arose are also the same in both the cases. thereforee, both these wealth-tax references are disposed of by a common judgment.

4. Shri Nath Mal and Girdhari Lal (who will be hereinafter referred to as 'the assesseds') are partners of the firm of M/s. Nath Mal Girdhari Lal having equal shares. On May 31, 1965, the firm of Nath Mal Girdhari Lal made a voluntary disclosure of its income under Section 68 of the Finance Act of 1965 in the following terms:

' We are enclosing herewith voluntary disclosure of undisclosed income under clause 68 of the Finance Bill, 1965, in the prescribed form. The disclosure relates to undisclosed income and cash credits entered in our books from Samvat 2015-16 dated November 10, 1958 (sic) amounting to Rs. 9,48,858 paise 95 (Rs. Nine lakhs, forty-eight thousand eight hundred fifty-eight and paise ninety-five only) including interest of Rs. 1,93,858.95 on these credits up to the above date.'

5. Along with the letter which contained the above disclosure, the firm enclosed a bank guarantee for a sum of Rs. 5,69,315.40, being the tax at 60% calculated on the above sum of Rs. 9,48,858.95. The firm also declared that the balance amount of Rs. 3,79,543.55 would be taken by the assesseds in their account books. The voluntary disclosure made by the firm was accepted by the department.

6. On receiving information of the voluntary disclosure made by the firm, the Wealth-tax Officer reopened the wealth-tax assessments of the assesseds for the assessment years 1959-60 to 1964-65, under Section 17 of the Act. The Wealth-tax Officer then included a sum of Rs. 4,74,429 being one-half of the amount disclosed by the firm by its declaration dated May 31, 1965, in the net wealth of each of the assesseds for the assessment years 1959-60 to 1964-65. The assesseds claimed that the tax liability on the amount so included amounting to Rs. 2,84,658 should be deducted and that only the balance of the amount should be included in the net wealth of the assesseds. The Wealth-tax Officer rejected this claim of the assesseds on the ground that the liability for the payment of tax did not arise before 1965 when the Finance Act was promulgated and the declarations were made by the firm there under and that during the assessment years 1959-60 to 1964-65, the tax liability was only in the nature of a contingent liability. The assesseds preferred appeals before the Appellate Assistant Commissioner, Wealth-tax, and claimed deduction of the tax liability. But the Appellate Assistant Commissioner agreed with the view taken by the Wealth-tax Officer and confirmed the assessments made by the latter. The assesseds thereupon preferred second appeal before the Tribunal and claimed deduction of the tax liability on the strength of the decisions of the Supreme Court in the cases of Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, : [1966]59ITR767(SC) and H.H. Setti Parvati Bayi v. Commissioner of Wealth-tax, : [1968]69ITR864(SC) . The assesseds' claim was opposed by the department on the ground that in respect of the amount which was voluntarily declared by the firm under Section 68 of the Finance Act of 1965, the tax liability did not arise under the normal provisions of the Income-tax Act and that the tax liability arose only under the provisions of Section 68 of the Finance Act of 1965. The Tribunal accepted the contention of the department to the extent that the tax liability in respect of the amount declared by the firm could not be said to have arisen before March 1, 1965, and that the Finance Act of 1965 provided for a machinery and also a tax liability in respect of certain items which were quite independent of the provisions of the Income-tax Act. The Tribunal, however, did not accept the further contention of the department that for that reason the deductions claimed by the assesseds did not represent a debt owed within the meaning of Section 2(m) of the Act on each of the valuation dates relevant to the assessment years under reference. The Tribunal held that though the declaration was made by the firm in May, 1965, the Wealth-tax Officer had taken the view that since the declaration pertained to cash credits which appeared in the books of account in earlier Samvat years, the disclosure had brought to light wealth that was in existence already though disguised in the form of a liability of the assessed in respect of cash credits and that once it was postulated that the assesseds had certain income for the assessment year 1959-60, it followed that they were entitled on the basis of the decisions of the Supreme Court referred to above to claim a deduction in respect of the tax liability that would be due thereon under the Income-tax Act. The Tribunal, thereforee, allowed the assesseds claim but, at the instance of the revenue, has referred the two questions to this court under Section 27(1) of the Act.

7. We have first to determine the implications of the voluntary disclosure made by the assessed under Section 68 of the Finance Act, 1965. The relevant portions of Section 68 are reproduced below :

' 68. (1) Where any person makes a declaration in accordance with Sub-section (2) in respect of the amount representing income-

(a) which he has failed to disclose in a return of income for any assessment year filed by him before the 1st day of March, 1965, under the Indian Income-tax Act, 1922 (11 of 1922), or the income-tax Act, 1961 (43 of 1961), or

(b) which has escaped assessment for any assessment year for which an assessment has been made before the 1st day of March, 1965, under either of the said Acts, or

(c) for the assessment of which no proceeding under either of the said Acts has been taken before the 1st day of March, 1965,

he shall, notwithstanding anything contained in the said Acts, be charged income-tax at the rate specified in Sub-section (3) in respect of the amount so declared if he-- ....

(2) The declaration shall be made to the Commissioner, and shall specify the period required to be specified under Clause (ii) of Sub-section (1), contain the name, address and signature of the person making the declaration and also full information in respect of the following matters, namely-

(a) whether he was assessed to income-tax or not and, if assessed, the name of the income-tax circle in which he was assessed ;

(b) the amount of income declared, giving where available, details of the financial year or years in which the income was earned and the amount pertaining to each such year; . . . .

Provided that the declaration shall be of no effect unless it is made after the 28th day of February, 1965, and before the 1st day of June, 1965.

(3) The rate of income-tax chargeable in respect of the amount referred to in Sub-section (1) shall be sixty per cent. of such amount:

Provided that if before the 1st day of April, 1965, the tax on the amount declared is paid by the declarant at the rate of fifty-seven per cent. of such amount he shall not be liable to pay any further tax on such amount. (5) Any amount of income-tax paid in pursuance of a declaration made under this section shall not be refundable in any circumstances, and no person who has made the declaration shall be entitled, in respect of any amount so declared or any amount of tax so paid, to reopen any assessment or reassessment made under the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), . ... or claim any set-off or relief in any appeal, reference, revision or other proceeding in relation to any such assessment or reassessment.

(6) (a) Any amount declared by any person under this section in respect of which the tax referred to in Sub-section (3) is paid shall not be included in his total income for any assessment under any of the Acts mentioned in Sub-section (5), if he credits in the books of account, if any, maintained by him for any source of income or in any other record, the amount declared as reduced by the tax paid thereon under this section. (b) A credit made under Clause (a) shall be intimated to the Income-tax Officer.'

8. The language of Sub-section (I) of Section 68 of the Finance Act, 1965, clearly indicates that the amount which a person declares under Section 68 represents his income which in the ordinary course was assessable under the Indian Income-tax Act, .1922, or the Income-tax Act, 1961. Such income had escaped assessment in the earlier years, because of the reasons mentioned in Clauses (a), (b) and (c) of Sub-section (1) of Section 68 of the Finance Act, 1965. Such income would have been assessable at the rates prescribed in the Finance Acts of the earlier years to which such income related, but by virtue of Section 68 of the Finance Act, 1965, such income would now be assessed at the concessional rate of 60% of the amount declared. The character of the amount declared under Section 68(1) is that of the total income of an assessed which is assessable under the charging sections of the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, as the case may be. Unless the said amount represents the total income of a person which is assessable under the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, it cannot be subjected to tax only by reason of Section 68 of the Finance Act, 1965. The Finance Act of 1965 like the Finance Act of every year only prescribes the rate of tax which has to be charged. The Finance Acts cannot impose a tax on any amount which is not the total income of a person under the Indian Income-tax Act of 1922, or the Income-tax Act, 1961, nor do the Finance Acts subject to tax any income which is not chargeable under the charging sections of the Indian Income-tax Act, 1922, or the Income-tax Act, 1961.

9. The scope of the Finance Acts vis-a-vis the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, has been explained by the Supreme Court in Commissioner of Income-tax v. Khatau Makanji Spinning and Weaving Co. Ltd., : [1960]40ITR189(SC) In that case the assessed-company declared excess dividends amounting to Rs. 1,87,691. The Income-tax Officer calculated additional income-tax on it at 5 annas in the rupee after deducting income-tax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent. less rebate of one anna in the rupee as allowed by the Finance Act, 1951. This additional tax amounted to Rs. 21,115-4-0. This additional tax was levied under the provisions of the Finance Act, 1951, the tax was levied on the total income, but two provisos modified the rate under certain circumstances. By the first proviso, a rebate of one anna per rupee was given to a company which paid dividends less than 9 annas in the rupee out of its profits. By the second proviso, the rebate disappeared and an additional income-tax had to be paid on dividends in excess of that limit, paid in the year. There was also an Explanationn in the said Act according to which, 'the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year, as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year '. The assessed challenged the levy of this additional tax before the Bombay High Court in the form of three questions which were compressed by the High Court in the following one question, namely :

' Whether additional income-tax has been legally charged under Clause (ii) of the proviso to Paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951, as applied to the assessment year 1953-54 by the Indian Finance Act, 1953, read with Section 3 of the Indian Income-tax Act '

10. The High Court answered this question in the negative and, in doing so, made the following observations :

'... Section 3 of the Indian Income-tax Act lays down the liability to tax, and it puts the tax on the total income of the previous year. The method of computing this total income is also to be found in the Finance Act. The Finance Act merely provides the rate applicable to the income so found the Finance Act in providing that additional income-tax should be paid upon the accumulated profits of the previous years goes beyond the purpose for which the Central Act is passed every year, and cannot stand by itself without the support of Section 3 of the Indian Income-tax Act. . . . the Finance Act had 'misfired', because it did not resort to legislation which would have confirmed to the object for which the Finance Act was passed every year . . . There were several methods open to the legislature to achieve that purpose but that it had not resorted to any of them .... The legislature could have achieved this object by one of three methods. It could have treated the excess dividend declared by the company as a notional income and made it a part of the total income of the previous year. . . The ambit of Section 3 is clear and the ambit is that the tax to be levied must be a tax on income and the power of Parliament is equally clear and that is to fix the rate at which income-tax is to be charged upon the total income of the previous year of the assessed. In our opinion, the provision of the Finance Act travels beyond the ambit of Section 3, and if Parliament has done so then no effective charge can be made on the total income of the previous year of the assessed under the provisions of the Finance Act which deals with additional tax on excess dividend.'

11. It was contended before the Supreme Court that it was not necessary to look only to Section 3 of the Indian Income-tax Act but also to the provisions of the Finance Act through which Parliament could impose a new tax, if it so pleased. The Supreme Court rejected this contention with the following observations :

' The learned Chief Justice, with respect, very rightly pointed out that the Income-tax Act puts the tax on income or something which it deems to be income. In other words, the tax deals with income and income only. It further provides that this tax shall be collected at a particular rate on the total income for which provision shall be made in an yearly Central Act.'

12. After referring to the provisions of the Finance Act, 1951, the Supreme Court pointed out that :

' What the Finance Act fails 'to do is to make them ' total income ', so as to take in the - rate which is prescribed for the total income in the proviso. Unless the Finance Act stated that after the working out of the fiction the profits of the back year or years shall be deemed to be a part of the total income of the previous year under assessment, the purpose of the Act clearly fails. Income-tax is a tax on income of the previous year, and it would not cover something which is not the income of the previous year; or made fictionally so. The Finance Act could have gone further, as pointed out by the learned Chief Justice in the extract quoted, and made the profits a part of the total income of the previous year under assessment, but it did not do so. The Finance Act could have also resorted to some other fiction, which might conceivably have met the case ; but it has failed to do so. Even if one considers the dividends as having come out of the profits of preceding years, they do not become the income of the relevant previous year, and unless the Finance Act expressly laid down that it should be taxed as part of the total income, the purpose is not achieved.'

13. The character of the amount declared under Section 68(1) is further clarified in a similar statute, namely, Finance (No. 2) Act, 1965. The relevant portions of Section 24 of this latter Act read as follows:

'24. (1) Subject to the provisions of this section, where any person makes, on or after the 19th day of August, 1965, and before the 1st day of April, 1966, a declaration in accordance with Sub-section (2) in respect of the amount representing income chargeable to tax under the Indian Income-tax Act, 1922 (XI of 1922), or the income-tax Act, 1961 (XLIII of 1961), for any assessment year commencing on or before the 1st day of April, 1964-

(a) for which he has failed to furnish a return within the time allowed under Section 22 of the Indian Income-tax Act, 1922 (XI of 1922), or Section 139 of the Income-tax Act, 1961 (XLIII of 1961), or

(b) which he has failed to disclose in a return of income filed by him on or before the 19th day or August, 1965, under the Indian Income-tax Act, 1922 (XI of 1922), or the Income-tax Act, 1961 (XLIII of 1961), or

(c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under either of the said Acts to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment,

he shall, notwithstanding anything contained in the said Acts, be charged income-tax in accordance with Sub-section (3) in respect of the amount so declared...

(3) Income-tax shall be charged on the amount of the voluntarily disclosed income--... of Part I of the First Schedule to the Finance Act, 1965 (X of 1965), as if such amount were the total income of the declarant...'

14. The words ' in respect of the amount representing income chargeable to tax under the Indian Income Tax Act, 1922, or the Income Tax Act, 1961' appearing in Sub-section (1) of Section 24 of the Finance (No. 2) Act, 1965, and the words '' as if such amount were the total income of the declarant ' appearing in Sub-section (3) of Section 24 of the said Act are intended to bring Section 24 in conformity with the rule laid down by the Supreme Court in the case of Khatau Makanji Spinning and Weaving Co. Ltd., referred to above. Although the words quoted by us appearing in Sub-sections (1) and (3) of Section 24 of the Finance (No. 2) Act of 1965 are not present in Section 68 of the Finance Act, 1965, the absence of these words does not, in our opinion, make any difference to the character of the amount declared in Section 68 of the latter Act. These words which have been introduced in Sub-sections (1) and (3) Of Section 24 of the Finance (No. 2) Act of 1965, in our opinion, only clarify the position which existed even under Section 68 of the Finance Act, 1965. We cannot construe Section 68 of the Finance Act, 1965 as not being in conformity with the rule laid down by the Supreme Court in Khatau Makanji Spinning and Weaving Co. Ltd.'s case.

15. Mr. Dhebar, learned counsel of the revenue, has contended that the amount declared in Section 68(1) of the Finance Act, 1965, does not have the character of total income within the meaning of the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, and that the amount so declared is not assessable by virtue of the charging sections of the said Acts and that the said amount is distinct from the total income of an assessed and the said amount is assessable only under Section 68(1) of the Finance Act, 1965. In other words, according to the learned counsel, Section 68(1) of the Finance Act, 1965, itself is a charging section distinct from the charging sections of the Indian Income-tax Act, 1922, and the Income-tax Act, 1961. A similar contention had been advanced by the learned counsel in Rattan Lal v. Income-tax Officer, : [1975]98ITR681(Delhi) (C.W. No. 927/73, decided on March 1, 1974). Both of us were parties to the said judgment. This contention was not accepted by us. We held that:

' The amount voluntarily disclosed is not charged to income-tax as such, but is required to be taken as 'the total income' of the declarant for levying income-tax thereon, because income-tax under Section 4 of the 1961 Act is charged in respect only of the 'total income' ...The use of the words ' as if it were the total income of the declarant' introduced in Sub-section (3) a ' legal fiction ' implying that an imaginary state of affairs is to be treated as real. Whatever, thereforee, be the manner of computing the amount declared, it has by the said legal fiction to be treated as the total income as defined in Section 2(45). There is nothing else in Sub-section (3) or any other provisions in the Finance Act from which it could be said that the expression 'total income' used in that Act is something different from the same expression when defined and used in the 1961 Act...There is nothing in the Finance Act to show that the income-tax referred to therein was intended by the legislature to be an income-tax of a kind different from the one levied under the 1922 or 1961 Acts. The contention of Mr. Dhebar that the income-tax levied under the Finance Act is altogether a different variety of income-tax and, thereforee, its imposition does not involve double taxation of income has no basis.'

16. In that case, Mr. Dhebar had relied upon a judgment of the Gujarat High Court in Manilal Gafoorbhai Shah v. Commissioner of Income-tax : [1974]95ITR624(Guj) in which it was held that:

' Sub-section (1) of Section 24 (of the Finance (No. 2) Act of 1965) makes it clear that the declarations which are expected to be made under Sub-section (2) are with regard to the income which was chargeable to tax either under the Income-tax Act of 1922 or under the Income-tax Act of 1961, but which was not disclosed at the proper time.'

17. The High Court, however, proceeded to observe that the assessment of the declared income in the hands of the declarant did not prevent the department from assessing the same income in the hands of another person if it was subsequently discovered that the income so declared was really not the income of the declarant but was the income of the other person. While agreeing with the view of the Gujarat High Court that the amount declared in Sub-section (1) of Section 24 of the Finance (No. 2) Act of 1965 represented income which was chargeable either under the Indian Income-tax Act of 1922 or the Income-tax Act of 1961, we, however, did not agree with the further observations of the High Court that the assessment of such income in the hands of the declarant did not prevent the department from assessing the same income in the hands of another person. In our view, the Gujarat High Court had not appreciated the full implications of the non-obstante clause in Sub-section (1) or the legal fiction created by Sub-section (3) of Section 24 of the said Act.

18. Mr. Dhebar has referred in the present case to another judgment of the Gujarat High Court in Commissioner of Wealth-tax v. Ahmed Ibrahim Sahigara : [1974]93ITR288(Guj) and also to a decision of the Kerala High Court in C. K. Babu Naidu v. Wealth-tax Officer : [1971]82ITR410(Ker) . We shall first examine the decision of the Kerala High Court. In that case, the assessed had made a voluntary disclosure under Section 68(1) of the Finance Act, 1965, and in that declaration, the assessed had stated that the amount declared represented his undisclosed income in the earlier years. On the basis of the disclosure made by the assessed, the Wealth-tax Officer reopened the wealth-tax assessments of the assessed of these earlier years and sought to treat the amounts declared by the assessed as his net wealth on the valuation dates relevant to the earlier years. The assessed claimed that deduction must be made of the income-tax liability on the said amounts. This claim was rejected by the Wealth-tax Officer as well as by the Commissioner of Wealth-tax. The assessed, thereforee, filed writ petitions in the High Court. The claim of the assessed was rejected by the High Court also. The High Court gave the following reasons :

'Section 68 of the Finance Act is a special provision to compound the income-tax liability in respect of an income which an assessed may choose to disclose under the scheme envisaged by the said provision. By such a disclosure he does not incur a liability to pay any tax under the said section. He may comply with the provisions of that section and avail himself of the concession given there under and discharge the liability to pay income-tax in respect of the income so disclosed under the relevant Income-tax Act. If he takes advantage of this scheme and pays the tax accordingly, his assets would be reduced to the extent of the amount of tax paid by him.'

19. We are in respectful agreement with these reasons given by the Kerala High Court. In our view, these reasons should legitimately lead to the conclusion that the income-tax liability for the amounts which have been treated as the assets of the assessed amounts to a debt owed on the relevant valuation dates within the meaning of Section 2(m) of the Act. But the learned judge proceeds to draw a different conclusion. He observed :

' The amount of tax so paid is not a debt owed by him of the valuation date for the purpose of determining the net wealth under the Wealth-tax Act. It may happen that the assessed borrowed the whole or part of the amount of tax paid under the above scheme, then it would be a debt owed by him on the valuation date, to the extent it is outstanding on that date.'

20. We have to confess, and we do so with the utmost respect, that weare wholly unable to See how this conclusion can be reached from the reasons already given by the learned judge. The learned judge proceeded to observe as follows :

' If the assessed, after making the disclosure, does not comply with the conditions of Section 68 of the Finance Act, 1965, and avail of the concession there under, he would be assessed in respect of that income for the relevant assessment years under the relevant Income-tax Act. If he did not make any disclosure at all, the undisclosed income may be discovered and assessed in accordance with the relevant Income-tax Act. In both these circumstances, different considerations arise ; the tax liability arises in respect of the income so assessed on the last date of the previous year to which the assessment relates. That liability would be a debt owed by him on the above date, and has to be deducted from the amount of income so assessed in determining the net wealth.'

21. We are respectfully of the view that these observations can lead only to one conclusion, namely, that the amount declared by the assessed under Section 68 of the Finance Act, 1965, partakes of the character of total income assessable under the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, that it is liable to assessment only under the charging sections of the said two Acts and that, thereforee, the tax liability on the amount declared would be a debt owed within the meaning of Section 2(m) of the Act.

22. In the decision of the Gujarat High Court relied upon by Mr. Dhebar, the facts were slightly different not only from the facts of the case before the Kerala High Court but also from the facts of the present case before us. The assessed made a declaration on May 31, 1965, disclosing concealed income of Rs. 7,00,000. The declaration contained a statement by the assessed that this concealed income was earned during the previous years relevant to the assessment years 1957-58 to 1964-65, and it was to be found in hundi transactions appearing in the books of account of the Bombay branch of the assessed. The assessed, however, did not allocate the total concealed income amongst different assessment years but showed it in a lump sum figure in the declaration. After making this declaration, the assessed paid the amount of income-tax computed at the rate of 60% of the amount declared by him. The Wealth-tax Officer, thereafter, reopened the assessments of the assessed to wealth-tax for the assessment years 1959-60 to 1964-65, on the ground that he had reason to believe the wealth of the assessed -had escaped assessment for these assessment years. The assessed claimed that if this concealed income was to be included in the computation of net wealth, the liability for income-tax in respect of such concealed income which was settled and paid at the rate of 60% under Section 68 must be deducted in arriving at the real wealth of the assessed. This claim was negatived by the Wealth-tax Officer and by the Appellate Assistant Commissioner. The assessed, thereupon, carried the matter further in appeal to the Tribunal. The Tribunal took the view that theliability to pay income-tax on the concealed income arose by reason of thecharging provisions contained in Section 3 of the Indian Income-tax Act,1922, or Section 4 of the Income-tax Act, 1961, and the latest date on whichit must be said to have arisen was the last day of the relevant accountingyear in which the concealed income was earned. There was nothing in Section 68 of the Finance Act, 1965, said the Tribunal, which displaced thisliability under Section 3 of the Indian Income-tax Act, 1922, or Section 4 ofthe Income-tax Act, 1961, or created a new liability for payment ofincome-tax which did not exist prior to the enactment of the Finance Act,1965. The Tribunal pointed out that the liability to pay income-tax wasalways there by reason of Section 3 of the Indian Income-tax Act, 1922, or Section 4 of the Income-tax Act, 1961, and it was only in order to induceassesseds to come forward to make voluntary disclosures of concealedincome so that this existing liability to pay income-tax could be realised,that the legislature gave certain concessions to the assesseds by enacting Section 68 of the Finance Act, 1965. No new liability to pay income-taxwas created by Section 68 of the Finance Act, 1965, it merely provided fora concessional quantification of the existing tax liability with a view tobringing black money representing concealed income to the surface. TheTribunal accordingly accepted the contention of the assessed and held that' in computing the net wealth of the assessed, income-tax paid by him onthe disclosed income should be deducted from his total wealth during therespective previous years'. The revenue challenged this finding of theTribunal before the Gujarat High Court. The High Court while observingthat it was no doubt true that the charge to income-tax was imposed by Section 3 of the Indian Income-tax Act, 1922, or Section 4 of the Income-tax Act, 1961, and the liability to pay income-tax arose under that provision at the latest on the last day of the relevant account year (videKesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax),however, expressed the view that the amount declared under Section 68(1)of the Finance Act, 1965, did not partake of the character of total incomewithin the meaning of the Income-tax Acts and that the tax paid by theperson making the declaration under Section 68 of the Finance Act, 1965,was not in the nature of the quantification of the liability charged under Section 3 of the Indian Income-tax Act, 1922, or Section 4 of the Income-tax Act, 1961. The High Court gave the following reasons for its view:' If we examine the language of Section 68 of the Finance Act, 1965,it is clear that it does not provide for quantification, at a concessional rate,of the liability under Section 3 of the Indian Income-tax Act, 1922, or Section 4 of the Income-tax Act, 1961, and payment of income-tax under section 68 is not in satisfaction of that liability........The important words in Sub-section (1) are 'charged income-tax*. These words show that Sub-section (1) imposes a charge to income-tax on the concealed income disclosed by the assessed. Now, it may be argued that these words are used in the same sense in which the words ' income-tax shall be charged ' are used in the various Finance Acts. They have reference to charge of income-tax under the Income-tax Act, but that charge has to be made in accordance with the rate specified in Sub-section (3). What Sub-section (1) seeks to provide is that the disclosed income shall be charged to tax under the Income-tax Act not at the rate laid down in the Finance Act but at the rate specified in Sub-section (3). The emphasis in Sub-section (1) is on the prescription of the rate at which the income-tax is to be charged and not on charging, which is done by the Income-tax Act. But this argument cannot prevail because it is contrary to the provisions of Section 68 as also against the scheme of the Income-tax Act. In the first place, the charge under the Income-tax Act is on the total income of the previous year and not on any particular item of income. Section 3 of the Indian Income-tax Act, 1922, as also Section 4 of the Income-tax Act, 1961, do not levy the charge of income-tax on a particular item of income. The concept of a charge on a particular item of income is completely alien to the Income-tax Act. In fact, it would be wholly inappropriate under the Income-tax Act to speak of quantification of tax liability on a particular item of income. The charge of income-tax referred to in Sub-section (1) of Section 68 cannot, thereforee, be construed to mean charge of income-tax under the Income-tax Act. Secondly, payment of income-tax under Section 68 has no reference to any assessment year. It is outside the pale of assessment for any particular assessment year. Clause (b) of Sub-section (2) does contemplate that the assessed may give details of the financial year or years in which the disclosed income was earned and the amount pertaining to each year but that is expected to be given only ' where available ' and, thereforee, there may be cases--the present being one of them--where the disclosed income may not be related to any particular financial year or years. The chargeability to income-tax under the Income-tax Act would break down in such cases, because the whole basis of the charge under the Income-tax Act is the total income of the previous year and if the disclosed income is not related to any particular year or years, it cannot be included as part of the total income of a particular previous year so as to be brought to tax. Yet, under Section 68, it would be chargeable to income-tax irrespective of the financial year or years in which it was earned. Thirdly, the disclosed income is chargeable to income-tax under Section 68 without taking into account any deductions or allowances which would be permissible, if the charge were under the Income-tax Act. These three circumstances clearly show that Section 68 is not intended to lay down a concessional rate at which income-tax may be charged under the Income-tax Act. It does not provide a method of quantification of the liability to income-tax under the Income-tax Act. It enacts a new charge to tax, on an ad hoc basis, on disclosed income irrespective of the assessment year in which it was earned.'

23. With respect, we find ourselves wholly unable to agree with the reasons of the learned judges of the Gujarat High Court. If Section 68(1) of the Finance Act is to be construed as charging to tax an amount which is not the total income of the assessed and also as subjecting to tax the said amount not under the charging sections of the Income-tax Acts of 1922 or 1961 but under the Finance Act, 1965, then Section 68 itself is liable to be held as being ultra virus as held by the Supreme Court in the case of Khatau Makanji Spinning and Weaving Co. Ltd. It is now well-settled that the presumption in respect of any piece of legislation should be in favor of its constitutionality rather than against it. If the provisions of Section 68 of the Finance Act, 1965, are construed in the manner we have construed them, namely, that the amount declared under Section 68(1) represents the income of the assessed which in the ordinary course is assessable under the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, and that the tax which is charged on the said amount under Section 68(3) of the Finance Act, 1965, partakes the character of income-tax which is charged under Section 3 of the Indian Income-tax Act, 1922, or Section 4 of the Income-tax Act, 1961, then Section 68 of the Finance Act, 1965, will not suffer from the vice of unconstitutionality. As we have observed earlier, the provisions of Section 68 of the Finance Act, 1965, are, in substance, similar to the provisions of Section 24 of the Finance (No. 2) Act of 1965. The amount declared by the assessed in the present case under Section 68(1) of the Finance Act, 1965, has the same character as that of the total income assessable under the Income-tax Acts and the tax paid by him at the rate prescribed by Sub-section (3) of Section 68 of the Finance Act has the character of income-tax which is payable by virtue of the charging provisions of the Income-tax Acts.

24. If, thereforee, the amount declared by the assessed under Section 68(1) of the Finance Act, 1965, was the assessed's concealed income which had escaped assessment under the Income-tax Acts and if this concealed income had been brought to the surface by virtue of the voluntary disclosure made by the assessed, then the tax paid by him under Sub-section (3) of Section 68 of the Finance Act is income-tax which is payable under the Income-tax Acts, although at the rate fixed by Sub-section (3) of Section 68 of the Finance Act, 1965. The Supreme Court has held in the cases of Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax and H.H. Setu Parvati Bayi v. Commissioner of Wealth-tax that the tax which is payable on the total income is a debt owed within the meaning of Section 2(m) of the Act. Acting on the disclosure made by the assesseds the Wealth-tax Officer treated the income declared by the assesseds under Section 68(1) of the Finance Act, 1965, as the income which had accrued to the assesseds during the assessment year 1959-60 itself and which became their net wealth on the valuation date relevant to that assessment year. The tax liability on this amount which had not been discharged by the said valuation date was a debt owed and it had to be deducted from the income declared by the assesseds in order to arrive at the assesseds' net wealth for the assessment year 1959-60. As this tax liability still remained undischarged in the subsequent years under reference, it continued to be a debt owed and, thereforee, it was liable to be deducted from the gross wealth of the assesseds on the valuation dates relevant to the subsequent years also.

25. In view of the above discussion, the questions in both the wealth-tax references are, thereforee, answered in the affirmative, i.e., in favor of the assesseds and against the revenue. There shall be no order as to costs.


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