Per Shri A. Krishnamurthy, Judicial Member - These two appeals are by the assessee, Shri Rm. Arunachalam, pertaining to his wealth-tax assessments for the two years 1976-77 and 1977-78. The two appeals involving common and identical disputes are disposed of by this consolidated order.
2. The objections of the assessee in these appeals are against the refusal of the departmental authorities to allow by way of deduction as debts two amounts (I) of Rs. 26,855 being the wealth-tax liability of late Smt. Ar. Umayal Achi taken over by the assessee, and (2) of Rs. 1,04,065 being the estate duty liability of the estate of late Umayal Achi. The contention of the assessee raised and argued before us is that these liabilities are not tax liabilities consequent on any assessment made on the assessee and, therefore, they are not prohibited from deduction as debt in computing the principal value of the estate under section 2(m) (iii) of the Wealth-tax Act, 1957 (the Act). The learned counsel for the assessee, however, at the time of hearing of the appeal, stated that the decision of the Allahabad High Court in the case of Smt. Prem Lata Agarwal v. CWT : 142ITR586(All) , relied on by the Commissioner (Appeals), prima facie, negatives the contention of the assessee and as that appears to be the only decision on this question, that decision would evidently have to be followed. The learned departmental representative supported the order of the Commissioner (Appeals) and also strongly relied on the decision of the Allahabad High Court in Smt. Prem Lata Agarwals case (supra). He further submitted that even if the intention to exclude the tax liabilities disputed or outstanding for more that one year was in of respect of liabilities arising from the assessment of the assessee personally, such intention must be clearly expressed in the words used and what is unexpressed by the Legislature must be taken as unintended. He referred to and relied for his proposition on the decision of the Gujarat High Court in Ranchhodbhai Bhaijibhai Patel v. CIT : 81ITR446(Guj) . He then submitted that as the Allahabad High Court decision in Smt. Prem Lata Agarwals case (supra) is the only decision on this question as stated by the learned representative for the assessee, that decision should be followed as held in the Bombay High Court decision in CIT v. Smt. Godavaridevi Saraf : 113ITR589(Bom) .
3. On a consideration of the facts and the circumstances of the case as well as the submissions of the parties, we hold that so far as the estate duty liability of Rs. 1,04,065 arising from the death of Umayal Achi is concerned, the assessee is not entitled to the deduction of the same even on the basis of the plain language of section 2(m) (iii) and the ratio of the decision of the Allahabad High Court in Smt. Prem Lata Agarwals case (supra). But with regard to the wealth-tax liability of late Umayal Achi, according to us, the assessee is entitled to deduction of the same and the ratio of the decision of the Allahabad High Court will not be applicable. According to the decision of the Supreme Court in Kesoram Industries & Cotton Mills Ltd. v. CWT : 59ITR767(SC) , income-tax liability is a debt within the meaning of section 2(m), which an assessee owes as on the last day of the previous year notwithstanding that the liability has been quantified or determined subsequently in as assessment made on the assessee. It was, therefore, held that the tax liability was eligible for deduction as a debt owed by the assessee in computing the net wealth for the relevant assessment year. That decision, therefore, related to a liability arising to the assessee by virtue of the statutory provision, namely, the Income-tax Act, 1961, which was required to be discharged by the assessee. Now, coming to the Allahabad High Court decision, the facts in that case touching upon this question are that a certain amount was determined as income-tax liability payable by a HUF for certain number of assessment years and such a liability was outstanding. Though the liability related to HUF, it was held that in respect of a liability outstanding against HUF, it can be enforced against the coparceners of the family to the extent of the family property in their hands and that it did not mean that it is not the liability of each such member of the coparcenary. It was found that the assessee was claiming the entire liability on the basis that it was joint and several liability and it was observed that though it is correct that liability to satisfy the tax in respect of the assessment of income of a HUF has to be restricted to the estate of the family and it cannot be enforced against the member of the family, nonetheless it is a liability of an ascertained sum of money against the members of the family. In other words, as we understand this principle, the tax liability of the HUF is coterminous with the liability of the 3individual members even at the time of its determination. Therefore, liability in that case even though as of the HUF has to be regarded as tax liability owned by the individual member, the particular assessee in that case. In our view, a liability to tax of an assessee, which does not attach to any other person either under the income-tax law or under the general law, cannot be regarded as a liability to tax hit by the provisions of section 2(m) (iii). In order that the tax liability contemplated under section 2(m) (iii) should retain the character as a tax liability, there must be, according to us, a liability in respect of the person claiming it as a deduction right from the creation thereof by the statute or under the general law, such as the liability to a firms tax in the case of a partner where under general law there is a joint and several liability in respect of debts of the firm or in the case of member of an AOP, a member of HUF, etc. It does not refer to a case where tax outstanding against an assessee or a person is either taken over by some other person or devolves on the heirs or successors. The intention of the prohibition contained in section 2(m) (iii) against deduction to be allowed in respect of such tax liability is brought out in the Allahabad High Court decision in Smt. Prem Lata Agarwals case (supra). The relevant portion is reproduced below :
'... It is evident that the purpose of this sub-clause is to force the assessee, after the assessment, to pay the tax within one year. If the assessee challenges the amount of tax assessed by way of appeal, reference or revision, he cannot be allowed on the one hand, to take advantage of the tax levied on him and claim a deduction therefor from the value of his assets and at the same time deny his liability to pay the tax to the department. Similarly, after assessment, he cannot be allowed to let the liability under the assessment outstanding for more than twelve months on the relevant valuation date and still claim deduction for it.' (p. 593)
The above purpose would clearly show that the person who can be enforced to pay the tax liability within a period of one year or not dispute it in appeal, etc., can only be either the assessee on whom the assessment is made or any other person who is liability to pay such tax in law right from the time the liability is created. It cannot obviously refer to a person who acquires the property from another assessee either by taking over the same or inheriting it after a lapse of more than a year or a number of years. In such a case he does not have opportunity to pay the liability within a year or not to dispute it.
4. In the present case the wealth-tax liability was undoubtedly related to the deceased and was a personal liability. It did not constitute a liability of the assessee on the relevant valuation date or when the assessment was made and the assessee inherited it after the death of his mother. It therefore, ceased to have the character of a tax liability within the meaning of section 2(m) (iii) but was a debt outstanding against the estate of the deceased mother.
5. Apart from the above consideration, there is another aspect on this point. The estate inherited by the assessee from the mother, Smt. Umayal Achi, can only be taken as the net value of the estate inherited after excluding all the debts and encumbrances attaching to the estate and it cannot be regarded as consisting of number of asset and debts owed or outstanding by the assessee to be claimed as a deduction from the total value of the assets. From this angle also it is clear to us that the wealth-tax liability of Smt. Umayal Achi cannot from part of the net wealth of the assessee.
6. So far as the estate duty liability is concerned, it is undisputed that it is a liability of the assessee as an accountable or one of the accountable persons entitled to the estate of the deceased and as admittedly it has not been discharged or paid within the stipulated period of one year contemplated under section 2(m) (iii) the assessee is not entitled to deduction.
7. In the result, the appeals are partly allowed.