1. The assessee in this case owned movable and immovable properties. He was also running a motor bus service under the name and style of ' K. Ratna Motor Service '. He was also a partnerin a firm called ' Ratna Studio'. In respect of the valuation date, March 31, 1957, he filed a return under the Wealth-tax Act showing a net wealth of Rs. 2,42,692. The assessee had claimed, among other things, a deduction of Rs. 1,67,279 as representing the liability for payment of income-tax in respect of the assessment years 1955-56 to 1957-58. The Wealth-tax Officer held that this amount did not represent a final ascertained liability as on March 31, 1957, and as such it was not an allowable deduction.
2. The assessee appealed to the Appellate Assistant Commissioner in respect of the said sum as well as other items which were disputed by him. We are not concerned in this reference with the other items of dispute. The Appellate Assistant Commissioner, however, allowed deduction in a sum of Rs. 17,456 towards the liability for income-tax and disallowed the claim for the balance.
3. The assessee, thereafter, went in appeal before the Tribunal, and the Tribunal, without much discussion, had expressed:
' In view of the amendment to Section 2(m) the assessee is not entitled to any deduction, as he has been disputing the assessment. It has also been held by the Madras High Court that provisions towards tax liability are not debts owed. The assessee had claimed a deduction of Rs. 1,67,279 in arriving at the net wealth as on March 31, 1957. The Wealth-tax Officer was justified in disallowing the whole of the amount.'
4. At the instance of the assessee the following question has been referred to this court under Section 27(1) of the Wealth-tax Act:
' Whether, on the facts and in the circumstances of the case, the disallowance of the claim for deduction of Rs. 1,49,823 as debts owed by the assessee, on the valuation date is in accordance with law '
5. Section 2(m) of the Wealth-tax Act, as amended by the Finance Act of 1959, roads as follows :
' 2(m). '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, .....
(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 proceedings 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,'
6. As per the amended provision it has of course to be shown by the assessee that the amount claimed as deduction towards income-tax liability is a debt which was owed by him on the valuation date. The amounts claimed as outstanding due? to the income-tax department towards the liability for income-tax in respect of the three years in question are these :
7. As regards the assessment year 1955-56 the income-tax assessment hasbeen made on January 28, 1957, and the assessee has been served with anotice of demand on February 4, 1957, and the due date fixed for paymentof the tax under the notice was March 10, 1957. The assessee has challengedpart of the assessment order in an appeal filed on March 4,1957. As regardsthe assessment year 1956-57 the date of assessment was February 28, 1957,and the notice of demand had been served on the assessee on March 8,1957,and the due date for payment of the tax was fixed as March 20, 1957. Theassessee had filed an appeal on April 6, 1957, challenging a part of theassessment order. With reference to the assessment year 1957-58, it isseen that the order of assessment was on January 25, 1958, that is longafter the valuation date, March 31, 1957. As already stated, the Tribunal,without giving any specific finding as to whether the amounts in respect ofwhich deduction is claimed were outstanding on the valuation date, hasgenerally stated that the assessee has been disputing the assessments andas such the liability cannot be taken as debts owed.
8. As regards the assessment year 1957-58, the assessment under the Income-tax Act itself came to be made after the valuation date. But, as per the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, : 59ITR767(SC) f there was a present liability to pay tax for that assessment year, though the tax was payable after it was quantified in accordance with ascertainable data in the assessment year, that liability to pay income-tax becomes a perfected debt at any rate on the last day of the accounting year and that, therefore, it cannot be treated as a contingent liability after that date. Therefore, as on the valuation date, the income-tax liability for the yeai 1957-58 would have to be taken as a debt owed even though the amount of tax liability was quantified by the assessment order made on January 25, 1958.
9. As regards the tax liability for the year 1956-57, it is seen that on the valuation date the amount of tax assessed was not disputed and that it was only at a later stage the assessee filed an appeal. Section 2(m) refers to all the debts owed by the assessee on the valuation date. Therefore, even though the assessee challenged the assessment order later, on the valuation date there was a debt owed by the assessee and, therefore, he can claim the deduction in respect of the income-tax levied and payable on the valuation date for the year 1956-57.
10. With reference to the year 1955-56, the position is slightly different. As against a part of the assessment order the assessee had filed an appeal on March 4,1957, long before the valuation date, and, therefore, it could be said that the assessee was challenging a portion of his liability to income-tax. In relation to that part of the assessment which has not been appealed against by the assessee, it has to be taken that the amount not appealed against was a debt owed. The mere fact that the assessee had filed an appeal will not mean that the entire tax liability had been disputed, unless the appeal filed by him covers the entire amount of income assessed in his hands. Therefore, it has to be enquired into as to what was the quantum of tax liability disputed by the assessee in the appeal. But the Tribunal, as already stated, has not made any distinction between the various years and has not dealt with the question independently for each of the years, nor has it ascertained the amount of tax disputed in the appeals filed by the assessee. It has not also considered the relevancy of the date of filing of the appeals vis-a-vis the valuation date. Having regard to the fact that we cannot sustain the ground on which the Tribunal disallowed the claim of the assessee for deduction in entirety, we have to answer the reference technically in the negative and in favour of the assessee.
11. The result is that the Tribunal will have to consider this question afresh in the light of the assessment and appeal proceedings in respect of each of the years and give relief to the assessee wherever the liability has been found to be outstanding without being questioned by the assessee on the valuation date. There will, however, be no order as to costs.