VEERASWAMI J. - This reference arises under section 27(1) of the Wealth-tax Act, 1957, the following being the questions for decision :
'1. Whether, on the facts and in the circumstances of the case, the provision of Rs. 5,78,076, Rs. 5,25,657 and Rs. 1,94,471 made in respect of taxes were deductible in the computation of net wealth as on 31st March, 1957, 31st March, 1958, and 31st March, 1959, respectively ?'
2. Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,95,958, representing the difference in the amount of initial depreciation allowed but not written off in the books was rightly disallowed in the competition of the net wealth under section 7(2) (a) for the valuation dates March 31, 1957 and March 31, 1958 ?
3. Whether, on the facts and in the circumstances of the case, the sum of Rs. 36 lakhs as on 31st March, 1957 and Rs. 15 lakhs as on 31st March, 1958, representing the arrears of tax payable to department were deductible in the computation of the net wealth of the assessee as on 31st March, 1957, and 31st March, 1958, respectively ?'
Practically all the questions are now covered by authority, except the first part of the third question. We shall, therefore, briefly notice the facts which will have a bearing only on the first part of the third question. The assessee is a public limited company, which has been assessed to wealth-tax for the assessment years 1957-58 to 1959-60. In respect of the assessment years 1944-45 to 1946-47, under the Income-tax Act as well as the Excess Profits Tax Act, the aggregate tax due from the assessee was determined in the appeal disposed of by the Appellate Assistant Commissioner on January 17, 1957. Including the tax assessed for the subsequent two years, the total tax due was Rs. 58,50,399. There were certain proceedings in 1956-57 for settlement of these arrears and ultimately in May, 1957, they were scaled down to Rs. 38,56,227.19. The assessee, however, for the purpose of the Wealth-tax Act, restricted its claim to Rs. 36 lakhs, which it sought to deduct from the value of the assets as on the valuation date, namely, March 31, 1957. This amount was, according to the settlement, payable in installments of five lakhs and by March 31, 1958, three instalments fell due, amounting to Rs. 15 lakhs. For the assessment year 1958-59, this amount was sought by the assessee to be deducted from the value of the assets. The Wealth-tax Officer disallowed the first claim on the ground that as on March 31, 1957, the date of valuation, the assessee was all along disputing the tax demanded and refusing to acknowledge liability therefor and that the actual settlement of tax arrears took place only after that date. For the next year too the claim for deduction of Rs. 15 lakhs was disallowed on the ground that it became due only after the date of valuation. The assessee failed in further stages of the revenue and also before the Tribunal.
It is conceded for the revenue that the first question is covered by Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax, this question is, therefore, answered in favour of the assessee. The second question too is covered by the same authority. The point here is the assessee having not exhibited in its balance-sheet a part of the initial depreciation and not having taken into account the value of the assets as on the valuation date, it was entitled to allowance on that part, in computing the value of the assets. The assessee having not shown this fact in the balance-sheet, the revenue would be justified in proceeding on the basis that the balance-sheet, as it was, fairly and truly represented the value of the assets mentioned therein. Following Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax, the second question is answered against the assessee.
So far as the third question is concerned, namely, whether the sum of Rs. 15 lakhs as on March 31, 1958, was entitled to allowance as a debt, this is covered by Commissioner of Wealth-tax v. G. D. Naidu, and to this extent the third question is answered in favour of the assessee. The assessee must, however, fail on the first part of the third question in so far as it relates to Rs. 36 lakhs as on March 31, 1957. On that date, the assessee was disputing liability to that amount and under section 2(m) it could not be considered as a debt for the purpose of allowance in computing the aggregate value of the assets. With reference to section 35(2), an argument is addressed for the assessee that the assessment order should be reopened and rectification entered therein that the sum of Rs. 36 lakhs would be eligible for allowance. Obviously, this provision will have no application, for, the sum of Rs. 38,56,227.19 was arrived at by settlement and not as a result of any first appeal or revision against the order referred to in sub-clause (iii) of clause (m) of section 2. We consider, therefore, that the sum of Rs. 36 lakhs was rightly disallowed in the assessment year 1957-58. This part of the question is answered against the assessee. There will be no order as to costs.