Case: Commissioner of Wealth Tax, Kanpur Vs. Messrs J.K. Cotton Manufacturers Limited

that they had made secret profits which were kept out of the books of ac counts and it is also true that no explanation was forthcoming from the assessee companies as to what became of such secret profits but the question is whether from such absence of explanation any presumption can be raised that such secret profits were still retained by them on the valuation date in the circumstances of the case ? In the first place the analogy of the rule applicable in income-tax cases would be inapplicable in wealth-tax cases inasmuch as in the former case the unexplained cash credit item is regarded as income of the assessee from undisclosed source having accrued to him during the accounting year while in the latter case only the valuation date is relevant on which date the assets (secret pro fits) must be held by the assessee and it will not do that such asset was held by him some time during the concerned year. Secondly, after a lapse of sufficiently long period no presumption can be raised that a secret profit earned some time during the concerned year has continued to be held by the assessee on the valuation date. In the instant case the secret profits admittedly earned by the assessee companies related to assessment years prior to September, 1948 (as proceedings under Taxation on Income (Investigation Commission) Act 1947 could be taken only in respect of assessment years prior to 1.9. 1948) and the tax liability in respect thereof was determined in 1952 but we are concerned with the valuation dates 30.6. 1956 and 31.12.1956 and, therefore, the presumption as suggested by the counsel cannot be drawn against the assessee companies after a lapse of 8 long years. In Annamma Paul Perincherry v. Commissioner of Wealth-Tax, Keral a(1) and Commissioner of Wealth-Tax. Kanpur v. J.K. Jute Mills Co. Ltd(2)., the Kerala High Court as well as the Allahabad High Court have taken a similar view that no such presumption can be raised after a lapse of sufficiently long period and we approve of the said view. In any case, as stated above, the deducibility of the two tax liabilities in question does not depend upon whether the assets, in respect whereof such liability has been determined, are available or not while aggregating the assets of the assessee companies. The contention of the counsel for revenue, therefore, must fail.Coming to the second contention the question is whether the deductions claimed fall within the exclusionary part of sec. 2(m) (iii) of the Act, that is whether the two sums of tax liabilities were outstanding for more than 12 months on the respective valuation dates ? According to counsel the expression "outstanding" means remaining unpaid after becoming due and since the liability to pay income-tax for any assessment year crystalises on the last day of the previous year and becomes payable for that assessment year even before it gets quantified, the two tax liabilities in question which pertained to assessment years prior to 1948, must be regarded as having become due by the last day of the concerned previous years and since these were not cleared soon thereafter these were outstanding since at least 1948 and thus became disallowable. In the alternative counsel urged that if payability is made to depend upon the date of an order passed quantifying the same then at least in 1952 these became payable when the order of the Investigation Commission was passed and more than 12 months had passed since then. Counsel urged that granting of installments under the settlement merely amounted to showing some concessions to the assessee-companies and did not affect the payability in 1952 of the arrears of tax. In our view, there is no force in any of these submissions made by counsel. The aspect that the liability to pay income-tax for any assessment year crystalises on the last day of the previous year and, therefore, becomes payable on the expiry of the last day irrespective of quantification of the dues would be irrelevant having regard to the express language of sec. 2 (m) (iii). Sub-cl.(iii) requires that the tax liability must be one which is "payable in consequence of any order passed" under any law relating to taxation on income or profits, etc. such liability so payable under an order passed must remain "outstanding for a period of more than 12 months on the valuation date." The alternative submission that the tax liabilities in the instant case must be taken to have become payable in 1952 under the Investigation Commissions order and must be regarded as having remained outstanding since 1952 is equally of no avail for the payability of the dues must depend upon the terms of the Commissions order and admittedly a scheme for payment of the dues by installments was provided in the order and each installment would become payable on the date on which it is directed to be paid. In our view, the expression outstanding in sec. 2 (m) (i ii) (a) and (b) will have to be construed in the background of the phrase "amount of tax...... payable in consequence of an order" and in that context it must mean remaining unpaid after the obligation to pay is incurred. We are informed that similar construction has been placed on the expression outstanding occurring in sec. 2 (m) (iii) of the Act by the Calcutta High Court in Commissioner of Wealth-tax, West Bengal III v. Banarshi Prasad Kedia(1) and by the Allahabad High Court in Commissioner of Wealth-Tax, U.P., and Others v. Padampat Singhania(2) and we affirm the same. In the instant case it was an admitted position before the Tribunal that under the scheme of installments sanctioned in the settlements the two sums, in respect where of deductions were claimed, had not become due for payment before the valuation dates. It is therefore, clear that the deductions claimed do not fall within the exclusionary part contained in sec. 2 (m) (iii) of the Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]In the first place the analogy of the rule applicable in income-tax cases would be inapplicable in wealth-tax cases inasmuch as in the former case the unexplained cash credit item is regarded as income of the assessee from undisclosed source having accrued to him during the accounting year while in the latter case only the valuation date is relevant on which date the assets (secret pro fits) must be held by the assessee and it will not do that such asset was held by him some time during the concerned year. Secondly, after a lapse of sufficiently long period no presumption can be raised that a secret profit earned some time during the concerned year has continued to be held by the assessee on the valuation date. In the instant case the secret profits admittedly earned by the assessee companies related to assessment years prior to September, 1948 (as proceedings under Taxation on Income (Investigation Commission) Act 1947 could be taken only in respect of assessment years prior to 1.9. 1948) and the tax liability in respect thereof was determined in 1952 but we are concerned with the valuation dates 30.6. 1956 and 31.12.1956 and, therefore, the presumption as suggested by the counsel cannot be drawn against the assessee companies after a lapse of 8 long years. In Annamma Paul Perincherry v. Commissioner of Wealth-Tax, Keral a(1) and Commissioner of Wealth-Tax. Kanpur v. J.K. Jute Mills Co. Ltd(2)., the Kerala High Court as well as the Allahabad High Court have taken a similar view that no such presumption can be raised after a lapse of sufficiently long period and we approve of the said view. In any case, as stated above, the deducibility of the two tax liabilities in question does not depend upon whether the assets, in respect whereof such liability has been determined, are available or not while aggregating the assets of the assessee companies. The contention of the counsel for revenue, therefore, must fail.Coming to the second contention the question is whether the deductions claimed fall within the exclusionary part of sec. 2(m) (iii) of the Act, that is whether the two sums of tax liabilities were outstanding for more than 12 months on the respective valuation dates ? According to counsel the expression "outstanding" means remaining unpaid after becoming due and since the liability to pay income-tax for any assessment year crystalises on the last day of the previous year and becomes payable for that assessment year even before it gets quantified, the two tax liabilities in question which pertained to assessment years prior to 1948, must be regarded as having become due by the last day of the concerned previous years and since these were not cleared soon thereafter these were outstanding since at least 1948 and thus became disallowable. In the alternative counsel urged that if payability is made to depend upon the date of an order passed quantifying the same then at least in 1952 these became payable when the order of the Investigation Commission was passed and more than 12 months had passed since then. Counsel urged that granting of installments under the settlement merely amounted to showing some concessions to the assessee-companies and did not affect the payability in 1952 of the arrears of tax. In our view, there is no force in any of these submissions made by counsel. The aspect that the liability to pay income-tax for any assessment year crystalises on the last day of the previous year and, therefore, becomes payable on the expiry of the last day irrespective of quantification of the dues would be irrelevant having regard to the express language of sec. 2 (m) (iii). Sub-cl.(iii) requires that the tax liability must be one which is "payable in consequence of any order passed" under any law relating to taxation on income or profits, etc. such liability so payable under an order passed must remain "outstanding for a period of more than 12 months on the valuation date." The alternative submission that the tax liabilities in the instant case must be taken to have become payable in 1952 under the Investigation Commissions order and must be regarded as having remained outstanding since 1952 is equally of no avail for the payability of the dues must depend upon the terms of the Commissions order and admittedly a scheme for payment of the dues by installments was provided in the order and each installment would become payable on the date on which it is directed to be paid. In our view, the expression outstanding in sec. 2 (m) (i ii) (a) and (b) will have to be construed in the background of the phrase "amount of tax...... payable in consequence of an order" and in that context it must mean remaining unpaid after the obligation to pay is incurred. We are informed that similar construction has been placed on the expression outstanding occurring in sec. 2 (m) (iii) of the Act by the Calcutta High Court in Commissioner of Wealth-tax, West Bengal III v. Banarshi Prasad Kedia(1) and by the Allahabad High Court in Commissioner of Wealth-Tax, U.P., and Others v. Padampat Singhania(2) and we affirm the same. In the instant case it was an admitted position before the Tribunal that under the scheme of installments sanctioned in the settlements the two sums, in respect where of deductions were claimed, had not become due for payment before the valuation dates. It is therefore, clear that the deductions claimed do not fall within the exclusionary part contained in sec. 2 (m) (iii) of the Act.