COMMISSIONER OF WEALTH TAX, KANPUR versus M/S. J.K. COTTON MANUFACTURERS LTD.

Citation: [1984] 3 S.C.R. 37 · Decided: 28-02-1984 · Supreme Court of India · Bench: V.D. TULZAPURKAR · Disposal: Dismissed

Judgment (excerpt)

' 37 
COMMISSIONER OF WEALTH TAX? KANPUR 
v. 
M/S. J.K. COTTON MANUFACTURERS LTD. 
February 28, 1984 
(V. D. TULZAPURKAR AND SABYASACHI MUKHARJI, JJ.] 
W•alth Tax Aci. 1967. Sections 2(m), 4(3), 5 and 6-W1a/th tax-Deduc· 
tions-Sett,ement allowing payment in instalments-Instalments unpaid and 
showed i~ balance sheet,as "debt"' owed by assessees-- Whether allawable dedifc- · 
ct ion-Whether 'debt owed and outstanding' . 
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,_\A 
. Words & Phrases : "al/ the debts . owed by th1 assessee"-M,aning of-
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S. 2 (m) Wealth ·Tax Act, 1957. 
As a result of proceedings taken and 'settlement arrived at in 1952 · 
under the Taxation on Income (lnvestigiltion COmmission) Act, 1947 certain 
sums were determinecl as payable by 'the respondents·assessee-ccimpii.nies on 
its secreted profits, and schemes for the payment of the said liability l!y 
instalments were I;iid dowh. 
. . 
The assessee:-companies claimed th3.t the balance of the demand 
that had remained unpaid was a debt owed by it and should be "allowed 
as a deduc~ion .. while computing its D.et .. wealth for t~e concerned year of 
assessment (1957-58). 
The Wealth-tax Officer computed the net-wealth. of each company by 
adopting the figures of assets and liabilities as shown ih their balance-sheets 
E 
as on their respective valuation dates after making sucQ 4<lj_u_:ttpie'nts _as 
considered necessary but in both the cases he disallowed the aforesaid claim 
for deduction on the ground that the liability was outstandina for more than 
12 mon!Hs on the valuation dates. 
· 
· 
The Appellate Assistant Commissioner confirmed the disallowancc. 
He took the view that the tax liabilities assessed by the Income-tax Investi-
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ga\ion Commission had no relatjon to .the assets or the declared wealth of 
assesseC<ompan_ies, which were the basis of the wealth.tax assessment and r. 
since the assets_ on which. the said liability.was aSscssedJ namely, the secret 
profits, were not included in the declared assets the disallowance was 
. 
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justified. 
. . 
In further appeals ,by the- assessee-co111panies to the Tribunal, the 
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Tribunal conJirmed the !lisallo,..aoce .011 the ground that sections 2 <m) (i), 2 
(ml (ii), 5, (!)and S (21. inpicated a scheme of the Act which ~u&gested that 
!lebts which qualified for deduction in . c<!lll.lluta.tion of the net-wealtq w.ere 
only those which were incurred in. relation to the assets declared by tho · 
assessee, that is to say, In, COD)P,Utlpg. ~he netcfealth the principle to be 
adopted was that when an)' assets were included the i:orresponding!lebts 
should be allowed, but that when such assets· were e~cluded or were liable to 
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be excluded from the net'wealth the"eotresponding debts should also be 
ogluded. 
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• 
'B 
:D 
' SUPREME dotlllt REPORTS 
(1984] 3 s.c.R.. 
In the Refer~i:ces to the ·High Court, at the instance of the assessee .. 
companies the Tribunil's conclusion was overruled and the High Court opined 
that the deductions claimed were allowable in cpn1p~ting the net wealth of 
the assessee-compan ies. 
In the appeals to this Court; by the Rev~nue on the question whether 
the balance of the payments payable by the Companies~s 3 result of the 
findings and orders of the Income-Tax Investigation Commission in the 
set~lements made u'nder the Taxation on Income {Investigation Commission) 
Act 1941 are ~eductable as, debts owed by them in determining the net wealth 
of the companies. 
Dismissing the appeals, 
· HELD : [BY the Court] 
Section 2 \Ill) .. \iii) i'equires that lhe tax liability must be one which is 
"payable in consequence of any· order Passed" -under any \~w ·relating to 
taxation on income or ~rofits etc. such- li11bilitY so payable under an order 
must ·remain "outstanding for a period br more than 12 n19ntbs0n the 
valuation_ date". The expression 'outstandh_1g' in section 2 _(n1) (iii) la)· and 
(b) will have_to be construed in tpe-background of the phrase "amount of tax 
,, .... payble in consequence Of an O_Cd~r,"· arid in that Context it ffiust Inean 
· remainfng unPaid affer the obligation to pay is in~urred. [48D, 48G] 
In the instant. case, it was· the, admitted p_osition before the Tribunal 
that µnd~r the scheme of instalments sanctionCc\ ip the, settlements· lhe two. 
sums, in respect thereof deductions were claimed, had not becon1e due for'· . 
payn1ent before the valuation dates. 
Th~ deductions cl~itned, thcrCfore,
1 
~do_· 
riot fall within the exclusionary part containe.d in section 2 (i

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