AHMED IBRAHIM SAHIGRA DHORAJI versus COMMISSIONER OF WEALTH TAX, GUJARAT

Citation: [1981] 3 S.C.R. 402 · Decided: 07-04-1981 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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402 
AHMED IBRAHIM SAHIGRA DHORAJI 
v. 
COMMISSIONER OF WEALTH TAX, GUJARAT 
April 7, 1981 
( R. S. PATHAK AND E.S. VENKATARAMIAH, JJ.] 
Wealth Tax Act, 1957-Section 2(m)-Finance Act, 1965 gave incentives for 
voluntary disclosute of concealed income·-Assessee declared large amount of such 
income and paid tax as provided by Finance Act-Tax so paid-Whether an 
allowable deduction as "debt owed" under the Wealth Tax Act. 
As part of a measure to mop up unaccountt!d money on which no income tax 
had been paid, an incentive scheme was prepared by the Government under 
which a person disclosing such income was required to pay a specified rate of tax 
without attracting the penal provisions of the Income Tax Act. Section 68 of the 
Finance Act, 1965 provided that a person making a voluntary disclosure of his 
income in accordance with the provisions of the section would be charged income 
tax at a specified rate notwithstanding anything contained in the Income Tax 
. Act. 
The assessee had a large sum of such unaccounted money in his possession. 
Without allocating the total sum amongst the different assessment years, he 
declared that he had a sum of Rs. 7 lakhs in his possession which was earned by 
him during the assessment years 1957-58 to 1964-65. Income Tax in respect of 
this income computed in accordance with section 68 of the Finance Act was 
paid by him . 
In the wealth tax returns filed by him in response to the notice issued by the 
Wealth Tax Officer for re-assessment consequent on the disclosure of his wealth 
the assessee claimed deductions of income-tax paid under section 68 of the 
Finance Act. But the Wealth Tax Officer disallowed the claim holding that since 
the assessee had not shown the liability to pay income tax in his balance 
sheets for the respective years the deductions claimed by him could not be allowed 
in any of the assessment years. 
The Appellate Assistant Commissioner dismissed the assessee's appeal. The 
Tribunal, on the other hand, held that the liability constituted a "debt owed" 
because in truth and substance, it was a liability under the Income Tax Act, 1922 
or 1961 and not a new liability created by the Finance Act, 1965. 
On reference the High Court held in favour of the Revenue on the ground 
that section 68 of the Finance Act enacted a new charge of tax on an ad hoc 
A.l.S. DHORAJI v. C.W.T. 
403 
basis on disclosed income and, therefore, it was not a "debt owed" which could 
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be allowed as a deduction under the Wealth Tax Act. 
On behalf of the Revenue it was contended that since the tax paid by the 
assessee under the voluntary disclosure scheme was in discharge of a liability 
created for the first time by the Finance Act, 1965 it was not an allowable 
deduction under the Wealth Tax Act. 
Allowing the appeal, 
HELD : The assessee was entitled to claim deduction of income tax paid 
on the amounts added to his total wealth under section 2 (m) of the Wealth 
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Tax Act in the course of the assessment proceedings. (418 BJ 
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I. Merely because the amounts were disclosed in a declaration under 
section 68 of the Finance Act, they did not cease to be incomes not already 
charged to income tax. 
Although the Finance Act merely I evied a fixed rate of 
tax in respect of all the income disclosed without allowing deductions, exemptions 
and such other allowances which are allowable under the Income Tax Acts, its 
function was no more than that of an an nu a 1 Finance Act despite the fact that 
it made certain alterations in regard to the filing of declaration and computation 
of taxable income. (414 G-H] 
2. 
The nature of the declaration which was dependent on the volition of 
the declarant and the fact that the liability to tax the amount was contingent 
upon the willingness of the declaranl to disclose the amount would not make a 
difference because such voluntary disclosure, even in the absence of section 68, 
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would have exposed the assesseee lo assessment or reassessment. The voluntary 
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character of the declaration cannot alter the character of the tax. [415 A-BJ 
3. 
The true position is that the amount declared has the liability to pay 
income tax embeded in it on the valuation date but only the ascertainment of 
that liability is postponed to a future date. (417 CJ 
Jn the instant case its determination was allowed to be done in accordance 
with the provisions of section 68. 
Even though this section was a complete code 
in itself it was only

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