ivil Appeal Nos
1524 47 of 1973
From the Judgment and Order dated 13121972 of the Gujarat High Court in Wealth Tax References Nos
6 to 11 13 15 17 18 2224 and 25 of 1971 34 39 and 40 of 1970 20 and 42 of 1971 22 35 414243  38 of 1970
SC Manchanda BB Ahuja and Miss A Subhashini for the Appellant
FS Nariman Mrs AK Verma and KJ John for the Respondents
In Civil Appeal No 1524 of 1973 the facts are these
In the computation of his net wealth for the assessment year 1962 63 the corresponding valuation date being March 31 1962 the assessee claimed a deduction in respect of debts which included amounts representing estimated liabilities on account of income tax and wealth tax for the assessment year 1962 63
The Wealth Tax Officer rejected the claim on the ground that as those liabilities were claimed on the basis of an estimate they could not be regarded as 487 debts owed on the valuation dates
In appeal before the Appellate Assistant Commissioner of Wealth Tax the assessee claimed the deduction of a larger sum on account of income tax wealth tax and gift tax liabilities
The Appellate Assistant Commissioner scrutinised the data placed before him and allowed part of the deductions claimed
The Revenue now appealed to the Appellate Tribunal and contended that the deductions on account of income tax wealth tax and gift tax liabilities for the assessment year 1962 63 should have been allowed on the basis of the respective returns filed by the assessee and not on the basis of the final assessment as the assessment orders were made after the valuation date
The Appellate Tribunal rejected the contention and dismissed the appeal
At the instance of the Revenue the Appellate Tribunal referred the case to the Gujarat High Court for its opinion on the question of law set forth earlier
Similar references were made in other cases and all of them were disposed of by a common judgment of the High Court dated December 13 1972
The High Court relying on its earlier judgment in Commissioner of Wealth Tax vs Kantilal Manilal1 held that the deduction admissible in computing the net wealth of the assessee must be calculated on the basis of the tax as finally determined on assessment though the assessment may have been made subsequent to the valuation date and not on the basis of tax computed in accordance with the returns filed by the assessee
In these appeals it is contended on behalf of the Revenue that the High Court has erred and that on a true construction of section 2 m of the Wealth Tax Act defining the expression net wealth the tax liability disclosed by the assessee in his returns should be taken as representing the debt owed by the assessee on the valuation date
Now it is settled law that an income tax liability becomes crystallized on the last day of the previous year corresponding to the particular assessment year and a wealth tax liability becomes crystallized on the valuation date corresponding to the particular assessment year
In each case the liabilities are perfected debts on the last day of previous year or the valuation date as the case may be
See Kesoram Industries and Cotton Mills Ltd vs Commissioner of Wealth Tax Central Calcutta2 and HH Setu Parvati Bayi vs Commissioner of Wealth Tax Kerala3 Likewise we think a gift 488 tax liability becomes crystallized and therefore a perfected debt on the last day of the previous year relevant to the particular assessement year
See Commissioner of Wealth Tax Madras vs KSN Bhatt 1 The object and purpose of the assessment procedure prescribed by the relevant tax statute be it the Income Tax Act the Wealth Tax Act or the Gift Tax Act is to quantify the precise amount of the tax liability
The process is initiated ordinarily by the assessee filing a tax return and thereupon the asssessment machinery swings into motion
The tax return is scrutinised by the assessing authority and in accordance with the procedure detailed in the relevant statute the assessing authority proceeds to determine the true figure in its opinion of the asseessee s taxable income or taxable wealth or total value of the taxable gifts depending on whether it is a case of income tax wealth tax or gift tax
The assessment order made by the assessing authority specifies the assessed income wealth or value of the gifts and on that the corresponding tax liability is computed followed by a notice of demand
The assessment order may be subjected to consideration in appeal before the Appellate Assistant Commissioner and thereafter the case may be carried in second appeal to the Appellate Tribunal in reference to the High Court and ultimately in appeal before this Court
At every stage the endeavour of the authority tribunal or court is to adjudicate on questions which will lead in the final result to a true determination of the tax liability
There may be cases where the assessment finally made may be reopened in accordance with the procedure and subject to the conditions stated in the relevant statute
There may also be cases where a rectification of apparent errors is effected pursuant to jurisdiction granted by the relevant statute
Both these proceedings are similarly intended for the true quantification of the tax liability
When in the course of a wealth tax assessment the assessee makes a claim to deduction on account of income tax wealth tax and gift tax liabilities subsisting as debts owed by him on the valuation date it is the final quantification of the particular tax liability which must be taken into account
Where the wealth tax assessment so made is carried in appeal we have no doubt that the appellate authority will take into account the ultimate quantification of the tax liability even though such ultimate quantification has been reached after the relevant valuation date and during the pendency of the wealth tax appeal
489 Upon the aforesaid considerations we are of opinion that the High Court has acted rightly in holding that in computing the net wealth of the assessee the deduction admissible must be calculated on the basis of the tax as finally quantified on assessment even though the assessment may have been made subsequent to the valuation date
Once an assessement order is passed the data disclosed by the assessee in his return is no longer determinative of the assessee s tax liability becomes in law it stands superseded by the assessment order
The appeals are dimissed with costs
HSK Appeals dismissed


Summary:
The assessee while computing his net wealth claimed a deduction in respect of debts which included amounts representing estimated liabilities on account of income tax wealth tax and gift tax
The Wealth Tax Officer rejected the claim on the ground that as those liabilities were claimed on the basis of an estimate they could not be regarded as debts owed on the valuation date
In appeal the Appellate Assistant Commissioner allowed part of the deductions claimed
The Revenue s appeal to the Appellate Tribunal was dismissed
On a reference being made the High Court held against the Revenue
In this Court the Revenue contended that on a true construction of sec
2 m of the Wealth Tax Act defining the expression net wealth the tax liability disclosed by the assessee in his returns should
be taken as representing the debts owed by the assessee on the valuation date
Dismissing the appeals  HELD It is settled law that an income tax liability becomes crystallized on the last day of the previous year corresponding to the particular assessment year and a wealth tax liability becomes crystallized on the valuation date corresponding to the particular assessment year
In each case the liabilities are perfected debts on the last day of the previous year or the valuation date as the case may be
Likewise a gift tax liability becomes crystallized and therefore a perfected debt on the last day of the previous year relevant to the particular assessment year
487 F G 488 A Kesoram Industries and Cotton Mills Ltd vs Commissioner of Wealth Tax Central Calcutta   HH Setu Parvati Bayi vs Commissioner of Wealth Tax Kerala  and Commissioner of Wealth Tax Madras vs KSN Bhatt Civil Appeals Nos 384 to 387 of 1978 Judgment delivered on October 21 1983 referred to
When in the course of a wealth tax assessment the assessee makes a claim to deduction on account of income tax wealth tax and gift tax liabilities 486 subsisting as debts owed by him on the valuation date it is the final quantification of the particular tax liability which must be taken into account
Where the wealth tax assessment so made is carried in appeal there is no doubt that the appellate authority will take into account the ultimate quantification of the tax liability even though such ultimate quantification has been reached after the relevant valuation date and during the pendency of the wealth tax appeal
488 F G