1. In this wealth-tax reference, the assessee must, in our opinion, succeed except to a part of its claim. It is a private limited company with its registered office at Madurai. For the assessment year 1959-60, it returned a net wealth of Rs. 47,76,173 as on December 31, 1958, the valuation date. This was arrived at after a deduction of Rs. 30,00,000 claimed to be the provision made for taxes due for the year ended with the valuation date. The Wealth-tax Officer declined to allow the deductions and on appeal a sum of Rs. 10,47,930 was allowed to be deducted. Both the assessee and the department appealed to the Tribunal, which, in effect, restored the order of the Wealth-tax Officer.
2. Of the three questions, the first is :
' Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,15,768, representing the balance of tax for the year ending December 31, 1954, and the sum of Rs. 3,18,129, representing the balance of tax for the year ending December 31, 1957, are allowable deductions in the computation of the net wealth under the Wealth-tax Act '
3. This and the other two questions, which we shall presently reproduce, turn on whether the taxes for which provision has been made in the assessment year are debts owed by the assessee under Section 2(m) of the Wealth-tax Act, 1957. That term is defined to mean the aggregate value of the assets owed by the assessee on the valuation date, which is in excess of the aggregate value of the debts owed by him on that date. The computation of the aggregate value of the assets, as well as the debts owed by the assessee, has to be made in accordance with the provisions of the Act. Clause (m) of Section 2 mentions three categories of debts, which will be excluded from the aggregate value of debts. These three items will not be regarded as debts owed by the assessee on the valuation date. We are, in the present case, concerned with the third item, which is the amount of tax, penalty or interest payable in consequence of any order passed under, or in pursuance of the Act, or any law relating to taxation of income or profits, or the Estate Duty Act, 1953, the Expenditure-tax Act, 1957, or 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. The Tribunal was of the view that, so far as the first part of the first question is concerned, the assessment had not become final by reason of an appeal in respect of that amount before the Appellate Assistant Commissioner. Since then, the appeal has been disposed of on February 14, 1959, and the tax in the sum mentioned in the first part of the question, that resulted by disposal of the appeal, was paid on March 5, 1959. Learned counsel for the assessee relies on Section 35 and contends that this amount should have been allowed to be deducted by means of rectification of a deemed mistake. Section 35 relates to rectification of mistakes and, as it originally stood, it provided for rectification of certain types of mistakes apparent from the record. This is retained as Sub-section (1), and Sub-sections (2) to (8) were introduced by Section 32 of the Act 46 of 1964 with effect from April 1, 1965. Sub-section (2) is as follows :
' Where the amount of tax, penalty or interest determined as a result of the first appeal or revision against the order referred to in Sub-clause (iii) of Clause (m) of Section 2 is paid within six months of the date of the order passed in such appeal or revision, the Wealth-tax Officer may, notwithstanding anything to the contrary in this Act, rectify the assessment by allowing a deduction to the extent the tax, penalty or interest so paid stood disallowed therein as if such rectification were a rectification of a mistake apparent from the record. '
4. Counsel for the assessee is right in his submission that the first question satisfies the requisites of Sub-section (2). Deduction of the amount was disallowed, as we said, under Section 2(m)(iii)(a). An appeal was preferred, in which the amount due as income-tax for the year ended December 31, 1954, was ascertained and that has also been paid within six months of the date of the order. The revenue, however, says that the amendment of 1964 came subsequent to the order of the Tribunal, which is dated August 26, 1963, and that the Tribunal had, therefore, no occasion to consider the assessee's claim under Section 35(2). But we think the question does arise from the order of the Tribunal, though of course it had no opportunity to consider the question from the point of Sub-section (2). The further point of the revenue is that even so the assessee's remedy lay by an independent application to the Wealth-tax Officer to rectify the mistake. There appears to be some support for this view to be derived not merely from the language of Sub-section (2), but also from the succeeding sub-sections. Subsection (5) clearly says that where an amendment is made under Section 35, an order shall be passed in writing by the wealth-tax authority concernedor the Tribunal, as the case may be. The Tribunal may be competent to make the order in an appeal arising out of the order of the Wealth-tax Officer on the question of rectification of a mistake or a deemed mistake. Under Sub-section (8), the power of amendment will extend to matters not considered and decided in a proceeding by way of an appeal or revision relating to an order referred to in Sub-section (1). There is also a period of limitation prescribed by Sub-section (7) for effecting rectification. We are of opinion, therefore, that the revenue appears to be correct in its contention that the remedy of the assessee is a separate application for rectifying the deemed mistake.
5. The question as to whether a provision for an income-tax deduction is a debt owed by the assessee is concluded by Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax. Prior to this decision there was apparently no unanimity of view on that question either between the Tribunals or some of the High Courts. The Supreme Court in that case held that a certain amount shown in the balance-sheet of a limited liability company as provision for payment of income-tax and super-tax in respect of the particular year of account was a debt owed within the meaning of Section 2(m) of the Wealth-tax Act as on the valuation date and that, as such, it was deductible in computing the net wealth of the company. The court, after an elaborate consideration of the point, summarised its view at page 784 :
' A debt is a present obligation to pay an ascertainable sum of money, whether the amount is payable in praesenti or in futuro : debitum in praesenti, solvendum in futuro. But a sum payable upon a contingency does not become a debt until the said contingency has happened. A liability to pay income-tax is a present liabilty 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. '
6. Shah J. dissented, but the difference lay on a very narrow point. According to him, on the terms of Section 3 of the Income-tax Act, 1922, there was only a liability to be taxed and that liability became effective not later than the year of account. The learned judge was of opinion that the liability did not give rise to any obligation to pay a sum of money either determined or detenninable in the light of factors existing on that date,for, the liability to pay tax arose only when the Finance Act became operative on the first day of April of the assessment year either by the enactment of an Act or by reason of Section 67B of the Income-tax Act, 1922. Having regard to the majority view, it was to be taken as settled that liability to income-tax as on the valuation date, the exact quantum of which is determinable after that date, is deductible in computing the net wealth as on such date of valuation. It follows that the first part of the first question should be answered in favour of the assessee, but we must point out that the effect of this is that the assessee will have to seek his remedy independently under Section 35(2).
7. The second part of the first question is directly covered by Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, : 59ITR767(SC) . This amount was disallowed by the Tribunal on the ground that the assessment for 1958-59 was completed only on January 31, 1959, and, therefore, the liability to income-tax could not be considered to be a debt owed by the company on the valuation date. This view is clearly wrong. The liability for the sum of Rs. 3,18,129, which was, of course, quantified later, was outstanding on the valuation date and this sum was not the subject-matter of any appeal or revision and was never disputed by the assessee. The second part of the first question is, therefore, answered in favour of the assessee.
8. For convenience, we shall next deal with the third question under reference :
' Whether the tax due under Section 18A on the basis of the assessee's own estimate could not be regarded as a debt owed within the meaning of Section 2(m) of the Wealth-tax Act '
9. The Tribunal's view in dealing with the sum of Rs. 3,53,657 as advance tax was that, though there was a demand under Section 18A on April 29, 1958, the assessee madeitsown estimate of the balance under that section, and, therefore, the provision under this head could not be regarded as a debt owed by the assessee. This point is also directly covered by authority. In Commissioner of Wealth-tax v. Standard Vacuum Oil Company Ltd., : 59ITR569(SC) the Supreme Court held that the amounts covered by notices of demand under Section 18A of the Income-tax Act in respect of advance tax were debts owed within the meaning of Section 2(m) of the Wealth-tax Act on the valuation date. That was, of course, where a demand has been made and there was no step taken by the assessee under Section 18A(2). But, on the principle of this judgment, no distinction can be made between tax paid on demand under Section 18A(1) and that paid under Sub-section (2) or Sub-section (3) of that section. In each one of these cases, it is an advance tax the failure to the payment of which in accordance with the statutory provisionswill render the assessee to be a defaulter in respect of the same. In each of these cases it is a debt owed, whether it is a case of an advance tax demanded by notice or it is a case of liability to advance tax on the assessee's own estimate. The third question is answered in favour of the assessee. In fact, learned counsel for the revenue has conceded so much, and, quite rightly too.
10. The second question is related to provision for corporate additionalsuper-tax under Section 23A of the Income-tax Act, 1922, and it is asfollows :
' Whether the provision made for tax payable under Section 23A where no order under Section 23 A had been passed before the valuation date is an allowable deduction in the computation of the net wealth.'
11. The sum involved in this question is Rs. 12,68,797. Deduction of this amount was disallowed by the Tribunal on the view that, before an order was passed under Section 23A, the liability to tax under that section could not be said to have ripened into a debt. For the assessee it is argued that a liability under Section 23A is not distinguishable from liability to income-tax or super-tax, personal or corporate. We are told the liability to pay additional super-tax under Section 23A springs .not from the order which the Income-tax Officer may make, but from Section 23A itself. This view is vigorously countered by Mr. Balasubrahmanyan, for the revenue, who relies strongly on M. M. Parikh, Income-tax Officer v. Navanagar Transport and Industries Ltd., : 63ITR663(SC) and contends that, in view of this decision, the question is concluded in favour of the revenue.
12. Section 23A confers power to assess companies to additional super-tax on undistributed income in certain cases. It appears that in most tax systems of advanced States in the world there is regulation of accumulation of undistributed corporate profits, considered either as unhealthy from certain economic points of view or as opening up avenues for evasion of higher personal tax liability. The policy of the section, as it originally existed or even as amended in 1955 and 1957, seems to be to deter the corporate bodies of the type, which fall within the ambit of the section, from accumulating the undistributed profits beyond a certain limit. To effectuate that policy, where the accumulation exceeded the legitimate limit, a certain proportion of the accumulation was deemed by law to be distributed as dividends to shareholders and the deemed dividend was included in the total income of the shareholder, either directly in his assessment or by reopening the same. This process evidently suffered from administrative and other inconvenience. The section, therefore, has been amended twice since 1955, and, as it stands now, the deemed distribution of excessive accumulation over the prescribed limit to the shareholders is substituted by another deeming provision, according to which, the undistributed balance in excess over the prescribed limit is subject to additional supertax in the hands of the corporate body itself. But the liability to additional super-tax will arise only, if, in the opinion of the Income-tax Officer, the conditions therefor laid down by Section 23A are satisfied. Whether those conditions are satisfied or not will depend on the assessment by the Income-rtax Officer of the particular facts and circumstances on several aspects, which will have a bearing upon the question. It seem to us, therefore, that the liability to corporate additional super-tax does not charge itself directly by force of Section 23A, unlike the charge on total income under Sections 3 and 4. So far as personal or corporate total income is concerned, the liability to income-tax or super-tax comes into existence at the end of the accounting year, though it may remain to be quantified and demanded at a later date. But can it be said that the position is the same under Section 23A Learned counsel for the assessee asserts that there is no difference in the matter of liability between income-tax and super-tax on the one hand and corporate additional super-tax on the other. At first sight the contention may appear to have force, but on a closer consideration of Section 23A we are unable to accept the contention for the assessee. The structure of Section 23A and the manner in which the liability to additional super-tax arises thereunder leave no room for doubt that the liability is not charged automatically by statutory force but arises only from an order of the Income-tax Officer, which he will make only after consideration of and decision on various factual factors to be found by him. That appears to be the view in M. M. Parikk, Income-tax Officer v. Navanagar Transport and Industries Limited. It is true that the primary question decided there was whether an order under Section 23A was an order of assessment within the meaning of Section 34(3). Learned counsel for the assessee argues that the decision is an authority only for that proposition. In our opinion, it is impossible to agree with him. A decision on the main proposition does involve the consideration as to how the liability under Section 23A arises in contrast under Sections 3 and 4. Dealing with that matter the Supreme Court says thus :
' There is however a vital difference between the assessment of tax under Section 23 and imposition of liability under Section 23A. Tax liability quantified by an order under Section 23 is a charge statutorily imposed by Sections 3 and 4 of the Act. It is true that the statutory liability is, till the last day of the year of account, ambulatory, but the charge is still a statutory charge on income. The function of the Income-tax Officer is to compute the taxable income and to crystallize the charge on the taxable income. Under Section 23A there is no statutory charge inrespect of additional super-tax and the liability is imposed by the order of the Income-tax Officer. Source of the liability to pay additional super-tax is not in Sections 3 and 4 of the Act; it lies and arise's out of the order of the Income-tax Officer. Before imposing liability for additional super-tax, the Income-tax Officer has to determine whether the company is one to which the provisions of Section 23A apply; he has also to determine whether the company has distributed within twelve months immediately following the expiry of the previous year the statutory percentage of the total income of the company as reduced by the taxes and levies prescribed therein; he has also to determine whether, having regard to the loss incurred by the company in the earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable. It is after making these enquiries that the Income-tax Officer may make the order directing payment of additional super-tax at the rates prescribed. The process to be followed is not the process of assessment, but of determining whether the liability should be charged and imposed.' (Underlining is ours.)
13. By these weighty observations the Supreme Court considered the scope and effect of Section 23A and expressed the view that, since the liability under Section 23A arose only from the order of the Income-tax Officer made under that provision, such an order could not be regarded as an order of assessment made under Sections 3 and 4 of the Income-tax Act. We are of opinion that, on principle, M. M. Parikh, Income-tax Officer v. Navanagar Transport and Industries Limited, without doubt, covers the second question and we must, therefore, answer it, against the assessee. There will be no order as to costs.