Skip to content


Commissioner of Wealth-tax Vs. Phipson and Company Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberWealth-tax Reference Nos. 397, 399 and 401 of 1965
Judge
Reported in[1973]92ITR549(Cal)
ActsWealth Tax Act, 1957 - Section 2
AppellantCommissioner of Wealth-tax
RespondentPhipson and Company Private Ltd.
Appellant AdvocateB.L. Pal and ;Ajoy Mitra, Advs.
Respondent AdvocateR.N. Dutt and ;R.N. Bajoria, Advs.
Cases ReferredStandard Mitts Co. Ltd. v. Commissioner of Wealth
Excerpt:
- .....ltd, v. commissioner of wealth-tax, [1963] 48 i.t.r. 31 (cal.).. with regard to, however, the pension payable to persons who had already retired the tribunal was ofthe opinion that this item did not remain a mere liability, but had matured into a debt which was payable in praesenti to the persons concerned. in such a view of the matter so far as the amount of pension payable to persons who had already retired from the company was concerned the tribunal was of the opinion that this amount had to be excluded from the net wealth of the assessee. thereafter, the aforesaid question has been referred to this court as directed by this court.4. the principles upon which these deductions have to be made are now well-settled by the decision of the supreme court in the case of kesoram.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 27(3) of the Wealth-tax Act, 1957, the following question has been referred to this court:

'Whether, on the facts and in the circumstances of the case, theTribunal was right in holding that the amount provided by the assessee inits accounts for payment of pension to persons who had already retiredwas a debt owed by the assessee on the valuation date within the meaningof Section 2(m) of the Wealth-tax Act and was as such to be excluded fromthe net wealth of the assessee '

2. The reference arises out of the wealth-tax assessment made on the assessee-company for the assessment years 1957-58, 1958-59 and 1959-60, the relevant valuation dates being the last day of the calendar years 1956, 1957 and 1958. In the course of assessment proceedings before the Wealth-tax Officer the assessee's representative claimed, inter alia, that the provisions for pension as shown on the liabilities side of the balance-sheet drawn as on the above relevant valuation dates should be deducted in computing the net wealth as defined in Section 2(m) of the Wealth-tax Act, 1957, read with Section 7(2) of the said Act, which provided that in the case of an assessee carrying on business for which regular accounts were maintained, the Wealth-tax Officer might, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets as a whole having regard to the balance-sheet of such business-as on the valuation date and making such adjustments therein as the circumstances of the case might require. The Wealth-tax Officer, however, negatived the claim on the ground that provision for pension represented nothing but reserve, and held that it could not be considered as a debt owed by the company.

3. There was an appeal before the Appellate Assistant Commissioner. It was contended that amounts provided towards the pension should not have been added back by the Wealth-tax Officer. The Appellate Assistant Commissioner, however, agreed with the Wealth-tax Officer and held that making provision for pension would not create any liability in the real sense and according to him only definite and ascertained liabilities could be deducted in working out the net wealth of a company carrying on business. The assessee-company, thereafter, preferred an appeal before the Tribunal. The Tribunal in respect of this aspect of the matter observed that so far as the payment of pension was concerned the amount could be divided into three categories, namely, (a) amounts payable as pension to persons who had already retired, (b) amount payable as pension to persons who had completed 15 years of service or exceeded the age of 45 years, and (c) amount payable as pension to persons who had not completed 15 years of service. The Tribunal was of the opinion that the last two categories although comprised of wealth set apart for payment of pension, still the assessee was not to make the payment immediately and, as such, it was not a debt solvendum in praesenti. These two categories of provisions in respect of pension, therefore, according to the Tribunal, could not be excluded from the net wealth of the assessee and reliance was placed by the Tribunal on the decision of this court in the case of Kesoram Cotton Mills Ltd, v. Commissioner of Wealth-tax, [1963] 48 I.T.R. 31 (Cal.).. With regard to, however, the pension payable to persons who had already retired the Tribunal was ofthe opinion that this item did not remain a mere liability, but had matured into a debt which was payable in praesenti to the persons concerned. In such a view of the matter so far as the amount of pension payable to persons who had already retired from the company was concerned the Tribunal was of the opinion that this amount had to be excluded from the net wealth of the assessee. Thereafter, the aforesaid question has been referred to this court as directed by this court.

4. The principles upon which these deductions have to be made are now well-settled by the decision of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd, v. Commissioner of Wealth-tax, : [1966]59ITR767(SC) .. There the Supreme Court observed that 'debt owed' should be deducted within the meaning of Section 2(m) and the expression 'owed' meant to be an obligation to pay, and it did not really add any meaning to the word debt. According to the Supreme Court, the expression 'debt owed' within the meaning of Section 2(m) of the Wealth-tax Act 1957, could be denned as a liability to pay in praesenti or in future an ascertainable sum of money. Therefore, we have to consider whether it was a debt owed on the relevant valuation date. It appears from page 32 of the paper book that the scheme stipulated that a pension scheme should forthwith be established for the benefit of such of the existing employees of the company on its covenanted staff as from time to time might be declared by the directors eligible to the benefit of such scheme and for such employees of the company on its covenanted staff as may thereafter be engaged, who by the terms of their employment were declared eligible to the benefit of such scheme upon and subject to the terms and conditions mentioned, namely:

' (a) Every employee entitled to the benefit of the pension scheme shall be paid a pension as from the date of termination of his service provided he shall have served the company for a continuous period of not less than 15 years or have attained the age of 45 years.

(b) No pension will be paid to any employee who is dismissed for dishonesty or misconduct.

(c) The pension payable to any employee who shall become entitled to 'the same shall be such annual sum determined as hereinafter set out and payable by equal quarterly instalments over such period as the directors may determine but in any event over a period of not less than 12 years.

(d) In the event of any employee dying prior to the expiration of the period for which the board shall have determined any pension to be payable to him then the pension payable to him in respect of the unexpired portion of the same period shall be paid to his executors, administrators and assigns.

(e) In the event of any employee entitled to the benefit of the pension scheme dying whilst in the service of the company then there shall be paid to his executors, administrators and assigns such pension as would have been granted to such employee had he not died and his service with the company terminated on the day of his death.

(f) The annual sum payable by way of pension to every 'employee who shall become entitled to a pension (other than an employee) whose pension has to be determined as provided in clause (g) below shall be determined on the basis of the following formula. . . . . '

5. The said scheme was introduced by the resolution passed by the directors on the 15th of March, 1951. Now, it is clear that in respect of the persons who had been declared eligible for pension and who had completed the service without being dismissed for dishonesty or misconduct and had completed either 15 years of service or attained 45 years of age would be entitled to enforce the payment of pension against the company. Therefore, in respect of the pension to these persons the company had on the relevant valuation dates a liability to pay pension in praesenti to these persons. Therefore, the provision made for this contingency was a debt owed within the meaning of Section 2(m) of the Wealth-tax Act, 1957. Reliance was placed, however, by counsel for the revenue on the decision of the Supreme Court in the case of Standard Mitts Co. Ltd. v. Commissioner of Wealth-tax, : [1967]63ITR470(SC) .. There in the assessment to wealth-tax the assessee had claimed that in computing its net wealth a certain estimated amount should be deducted on account of liability for gratuity to its workmen and staff in accordance with certain awards of the industrial court and the labour appellate tribunal made before the relevant valuation date. Under the awards gratuity was payable to an employee at certain specified and varying rates, (i) on his death while in service, (ii) on his voluntary retirement or resignation after 15 years' continuous service, and (iii) on termination of service after a certain specified period. It was also provided that gratuity was not to be paid to an employee who was dismissed for misconduct or dishonesty. It was held by the Supreme Court that the liability of the assessee to pay gratuity to its employees on determination of employment was a mere contingent liability which arose only when the employment of the employee was determined by death, incapacity, retirement or resignation. The liability did not exist in praesenti ; as such the amount could not be claimed as a debt in computing the net wealth. It is clear from the facts of the aforesaid judgment that the Supreme Court was considering the case of persons who had not retired and, therefore, had only a right to claim gratuity on retirement. The Supreme Court was not considering the case of persons who had already earned the right to get gratuity on retirement or on the fulfilment of the conditions mentioned' inthe gratuity scheme. It may also be observed that it was conceded bycounsel for the assessee in that case before the Supreme Court that theliability to pay gratuity to the employees whose services were not determined at the relevant year of account was merely contingent since aroseon the happening of certain events, such as death, personal incapacity,voluntary retirement or resignation and on that account it was not a debtwithin the meaning of Section 2(m) of the Act. Therefore, the SupremeCourt was considering the case of employees whose services had not beenterminated and right to get the gratuity from the relevant valuation date had not matured. In the instant case, the Tribunal has made a distinctionbetween persons who have right to get pension as mentioned in the pensionscheme and the persons who have already on fulfilment of those conditionsretired and have earned a right to pension creating necessary obligation onthe part of the company to pay the pension.

6. In view of the aforesaid feature of this case and in view of theprinciples laid down by the Supreme Court, we are, therefore, of the opinion that the Tribunal came to a correct conclusion and the question'referred to this court must be answered in the affirmative and in favour ofthe assessee.

7. There will be no order as to costs.

Hazra, J.

8. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //