COMMISSIONER OF WEALTH TAX, MADRAS versus K. S. N. BHATT

Citation: [1984] 1 S.C.R. 490 · Decided: 21-10-1983 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

Judgment (excerpt)

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,490 
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COMMISSIONER OF WEALTH TAX, MADRAS 
v. 
K. S. N. BHATT 
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October 21, 1983 
[R.S. PATHAK AND E.S. VENKATARAMIAH, JJ.] 
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Wealth Tax Act, 1957 (27 of 1957)-Sections '2(m). 2(g) and 3-Wealth 
tax-Liability of-Crystallieses on the valuation date/or the relevant assessment 
year-Computing net weaiJh-Tax liability' on valuation date-Whether ded~ctib!e 
as 'debt owed' • 
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Gift Tax Act, 1958(/Bof1958)-Sections 2,3, 13 and 15-Gift tax-L/iabi-
lity of-Crystallises on the last date of the previous year. 
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Income Tax' Act, 1961 (43 of 1961) Section 80B.-lncbme tax-Liability 
of-Crystallises on.the last date relevant to the assessment year. 
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In assessment proceedings under the Wealth Tax Act for four assessment 
years the assessee claimed a deduction in the computation of his net wealth on 
account of income tax, wealth tax and ·gift tax liabilities. The Wealth Tax 
.Officer allowed only part of the deducti.ons claimed The appeal of the assessee 
was disniissed by the Appe!Jate Assistant Commissioner of Wealth Tax. In 
the second appeal before the· Appellate Tribunal, the assessee filed statements 
showing particulars of the income tax, wealth tax and gift tax liabilities in 
respect of the different assessment years. The Revenue contended that the 
income tax liability and the gift tax liability for one of the assessment yearS 
[1965'66] liad been cancelled by the Appellate Assistant Commissioner .in 
appeals against the assessment orders and those appellate orders of the Appel~ 
late Assistant Commissioner having becoine finill in ·view of the dismissal of 
. the Reverfue's appeals by the Appellate Tribunal, there was no outstanding 
demand on acCount of income tax and girt tax for that year and that therefore 
these two items do not constitute ''debts owed' by ·the asSessee and so would 
not qualify for deduction under section 2(m) of the_ Wealth- Tax Act. The 
Apppllate Tribunal fOllo\ving two jud"gments of this Court {CommiS.tioner of 
Income Tax v. Keshoram Industries Pvt. Ltd. (1966} 59 I.T.R. 767 and H.H. Setu 
Parvati Bayiv. Commissioner of Wealth Tax Kera/a (1969) 69 I.T.R. 864J, held 
that so long as the liability to pay the tax had arisen before the r!'levant valua· 
tion dates it was immaterial that the assessments were quantified. after the 
valuation of dates, that the question whether a debt was owed by the assessee 
must: be examined with-reference to the position obtaining on the valuation dat~ 
and that nothing happebing subsequently could be consislcred in computing the 
net wealth. 
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· C. W. T. V. K. S. N. BHATT 
• 491 
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The High Court having refused te call for a reference from the Appellate 
Tribunal under section 27(3) of the Act the Revenue appealed to this ~ourt. 
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Allowing the appeals in part .. 
HELD : 1. Whether a debt. was owed by the assessee on the valuation -
date would depend on the fact that a liability had already crystallised under the 
relevant (axing statute on the valuation date .. [494 DJ 
.2. An income tax liability. crystallises on the last day of the previous 
year relevant _to the assessment· year under the Income Tax Act, a wealth tax 
liability crystallises on the valuation date for the releVant assessm~nt year 
· under the Wealth Tax Act and a gift tax liability crystallises on the last day of~ 
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the previous year for the relevant assessment year under the Gift Tax Act. 
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[494 E] 
3. The quantification of the income tax, wealth tax or gift tax liability 
is determined bY a cofrespbnding.assessment order, and even ift~e assessment-
·order is made after the vaiuatioD. date relevant to the wealth tax assessment in 
which the claim to 4eduCtion is made, there is a debt owed ~y the assessee on· -
ihe valuation date. It is the quantification of the tax liability by the ultimate 
judicial authority which will determine the amount of the tlebt owed b)' the 
assessee on the valuation date. 
SO long as such ultimate determination indi~ 
cates the existence of a positive tax liability, it must be held that there is a debt 
owed by the assessee on the valuation date even though ~uch determination 
may be subsequent in point of time to the valuation date. If, however, it is 
found on such ultimate determination that there is no tax liability it cannot 
be said that merely because originally a tax liability could· be envisaged there 
was a debt owed by the assessee.. (495 B-E] 
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4. Section 2(m) (iii) (a) denies de

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