Case: H. H. Sethu Parvathi Bai Vs. Commissioner of Wealth Tax, Kerala

1. These appeals are brought, by special leave, from the judgment of the High Court of Kerala dated June 28, 1966, inx Referred Case No. 6 of 1965 For the assessment years9 to1 thex Officer,, Trivandrum, completed the assessment of the appellant tox as follows:73, 36, 30372, 47, 52274, 31, 760The appellant took the matter in appeal to the Appellate Assistant Commissioner of, Trivandrum, and contended that the liability tox andx as mentioned below should be deducted in computing the net wealth of the appellant as on the relevant valuation dates corresponding to the respective assessmentsAssessment year Amount of Amount of Total taxliability claimed liability claimed claimedNil 1, 33, 127 1, 33, 127Nil 1, 37, 995 1, 37, 9951, 07, 102 1, 56, 691 2, 63, 7932. The Appellate Assistant Commissioner rejected the claim of the appellant. Against the order of the Appellate Assistant Commissioner the appellant preferred an appeal to thex Appellate Tribunal, Madras. The Tribunal by its order dated March 15, 1963, allowed the claim of the appellant holding that the liability tox should be deducted in computing the net wealth of the appellant for the respective years. At the instance of the Commissioner of, Kerala, the Appellate Tribunal stated a case to the High Court under section 27(1) of thex Act, 1957 (27 of 1957), hereinafter referred to as the "Act", on the following questions of law"(1) Whether, on the facts and in the circumstances of this case, the liability towardsx calculated on the basis ofx returns filed by the assessee is an admissible deduction under section 2(m) of thex Act for the purpose of computation of the net wealth of the assessee for the assessment years0 and) Whether, on the facts and in the circumstances and the provisions of section 7(2), the deletion of Rs. 5 , 13, 390, Rs. 3, 17, 448 and Rs. 9, 19, 809 representing the difference between the market value and the book value of the quoted shares held by Narayanan Investment Trust (P.) Ltd. in computing the value of the shares of that company as on August 16, 1957, August 16, 1958 and August 16, 1959, was justified?(3) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law to hold that an amount of Rs. 7, 00, 000 being the provision made fortaxandshown in thet as on August 16, 1957, should be allowed as a deduction in computingp value of the shares in Messrs. Narayanan Investment Trust (P.) Ltd.?"3. After hearing the reference the High Court answered the secondandthe third questions in favour of the appellantandagainst the department. With regard to the first question, the High Court took the view that theliability of a particular year could not be deducted as a liability for that year but could be deducted in subsequent years subject to the provisions of section 2(m) of the Act. In the course of its judgment, the High Court observed that the liability forfor the year9 commenced only on April 1, 1958,andnot earlier than thatandthere was hence no liability towardsfor the year9 as on March 31, 1958. But any liability towards58 which was in existence as on March 31, 1958, must be taken into account in determining the assets as on that date which could be charged under section 3 of the Actfor the year. The Act was brought into force on April 1, 1957. Section 3 of the Act imposes a charge for every financial year commencing onandfrom April 1, 1957, fortaxin respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided familyandcompany at the rate or rates specified in the Schedule. The expression "valuation date" by section 2(q) means in relation to any year for which an assessment is to be made the last day of the previous year as defiled in clause (11) of section 2 of thex Actif an assessment were to be made under that Act for that year. "Net wealth." as defined in section 2(m) of the Act at the relevant time meant the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in the net wealth as oil that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date. It is manifest that charge of theunder the Act is, according to the terms of section 3, imposed on the net wealth of the assessee computed on the valuation date after adjusting the debts owed by the assessee on that dateandpermitted to be taken into account. Unlike theAct, thex Actprescribes the rate oftaxin the Schedule,andit is evident that by virtue, of section 3 of the Act the liability to paygets crystallized on the valuation date,andnot on the first day of the year of assessmen

Reasoning: In our opinion, the argument put forward on behalf of the appellant ismust be accepted as correct. The reason is that the present case is governed by the principle laid down by this court in Kesoram IndustriesandCotton Mills Ltd. v. Commissioner of. In that case, they had, in itst for the period ending March 31, 1957, shown a certain amount as provision for payment ofin respect of that year of accountIt was held by the majority judgment of this court that the debt was a present obligation to pay an ascertainable sum of money, whether the amount was payable in praesenti or in futuro debitum in praesenti, solvendum in futuro. A liability to payx wastherefore a present liability though it became payable after it was quantified in accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting yearandnot a contingent liability. The rate is always easily ascertainable. If the Finance Act is passed, it is the rate fixed by that Act ; if the Finance Act is not passed, it is the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favourable to the assessee. All the ingredients of a "debt" are presentandtherefore it is a present liability of an ascertainable amount. It was further held that the amount of provision for payment ofin respect of the year of account ending March 31, 1957, was a " debt owed" within the meaning of section 2(m) of the Act on the valuation date, viz., March 31, 1957,andwasas such deductible in computing the net wealth of thecompany as on the valuation date. It is manifest that the language of the charging section 3 of the Act is in pari materia with the language of the charging section 3 of theAct, 1922. In the case of, the rates are prescribed in the Schedules to the Act itselfandthe liability to pay,becomes crystallized on the valuation date, though thetaxis leviedandbecomes payable in the relevant assessment year. We accordingly hold that theliability of the appellant on the valuation date, viz., on March 31 for the assessment year April 1 followingwasa "debt owed" within the meaning of section 2(m) of the Actandshould be deducted from the estimated value of the assets as on the valuation, date. To put it differently, so far as assessment year9 is concerned, therewasa liability, imposed on the appellant to pay thex onMarch 31, 1958, whichwasthe valuation date,andso the amount ofx should be deductedfrom the estimated value of the assets as on that date in determining the assetse for the assessment year. We accordingly hold that the first question referred to the High Court must be answered in favour of the appellantandthat in the factsandcircumstances of the case, the liability towardsx calculated on the basis ofx returnfiled by the appellant is an admissible deduction under section 2(m) of the Act for the purpose of computation of the net wealth of the appellant for the assessment yearsn behalf of the respondent Mr. B. Sen referred to the decision of the Mysore High Court in Commissioner ofv. Amco Batteries (P.) Ltd.andof the Punjab High Court in Raja Sir Harinder Singh Brar Bans Bahadur v.x Officer,, Bhatinda, in which itwasheld that liability of the assessee tox onthe valuation datewasnot a debt owed within the meaning of section 2(m) of the Act, hence, the liability tocould not be deducted in computing the net wealth of the assessee as on the relevant valuation date. For the reasons already expressed we hold that the view taken by the Mysoreandthe Punjab High Courts as to the interpretationandlegal effect of sections 2(m)and3 of the Act is not correct