LexKESORAM INDUSTRIES & COTTON MILLS LTD. versus COMMISSIONER OF WEALTH TAX, (CENTRAL) CALCUTTA
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KESORAM JNDUSTRIES & COTION MILLS LTD. v. COMMISSIONER OF WEALTH TAX, (CENTRAL) CALCUTTA November 24, 1965 [K. SUBBA RAO, J.C. SHAH AND S. M. SIKRI, JJ.] Wealth Tax Act (27 of 1957), ss. 2(m) and 1-Provision for paying dnco1ne-tax-lf deductible debt~Provision for payn1ent of dividend- When deductible-Scope of s. 1. In the profit and loss account of the, appellant company for the ac- · counting year ending 31st 'March 1957, a certain sum of money \Vas shown as the amount of dividend proposed to be distributed for that :year; and its balance-sheet as on that date showed the value of its fixed . assets and another sum as a provision for tax liability under the Income- tax Act, 1922. In computing the net wealth for the purposes of Wealth 'Tax Act, 1957, the Wealth Tax Officer accepted the said valuation cf the fixed assets under s. 7(2) of the Act, rejecting the appeUant's pica that •each item shotild be valued at the 1narkct rate under s. 7 ( 1). He also disallowed the c1aim of the appellant in respect of the proposd dividend atlci estimated tax liability on the ground that the said items were not debts within the meaning of s. 2(m) of Act, on the valuation date 31st March 1957. The, order was confirmed by the, Appellate Tribunal .and by the High Court on a reference to it. In appeal to this Court, B c D HELD : (i) The Wealth Tax Officer was justified in taking the value E <Of the assets of the assessee as shown in its balance-sheet on the relevant -valuation aate [693 Fl Under s. 7, in the. case of an assessee. carrying on business, the Wealth Tax Officer may determine the net value of the assets of the business as a whole, having regard to the balance-sheet of the business as on the ·valuation date, and, when the assessee himself had shown the net value ,of the assets at a figure, the Officer rightly accepted it. It was open F to the asse'5ee to convince, the authorities that the: figure was inilated for acceptable. reasons but no such attempt was made. [693 B, F, G) (ii) As on ihe valuation date nothing further happened than a recom- mendation by the directors as to the amount that might be distributed as -dividend, 'it could not be held that there was any debt owed by the assessee to the share-holders on the valuation date. Therefore, the amount set ·apart as proposed dividena by the directors was not a debt owed by the 6 ·con1pany on the valuation date and therefore was not deductible in com· puling the assessee's net wealth under s. 2(m); [694 El (iii) (Per Subba Rao and Sikri JJ). The liability to pay the tax is a debt within the meaning of s. Z(m) and it arose on the valuation date during the accounting year and therefore, was deductible in computing the -net wealth of the: assessee. [708 HJ Under s. 3 of the Wealth Tax Act, the net wealth of the assessee is H nssessable as on the valuation date, at the rate or rates specified in the Schedule to the. Act. "Net wealth" is the. amount by which the aggre- ~ate value of the assets if ·the assessee as on the said date is in excess • • • • " -~ ' '· A B c E KESORAM INDUSTRIES v. COM.MR •. W. TAX. of the aggregate value of the debts owed by it. A debt owed withilli the meaning of s. 2(m) can be defined as. a liability to• pay in praesemi or in futuro an ascertainable sum of money. A debt is a present obligation to· pay an ascertainable sum of money, whether the amount is payable inc praesenti or in f11t11ro, debitunz in praeseuti,. solve11d1un itt futuro. But a sum payable upon a contingency does not become a debt until the said contingency has happened. A liability to pay income.·tax. is a present liability though it becomes payable after it is quantified in accordance with ascertainable data. Und·er ss. 3 and 67B of the Income·tax Act. the assessee is liable to· pay income1-tax. and supper-tax on its income: ascertained during the accounting year ending with 31st March, at the rates prescribed under the Finance Bill or the· previous Finance Act, \Vhichever is less. The, tax is to be: charged in accordance with, and sub- ject to, the provisions of the Inc6me-tax Act; but the charge will be in accordance with the rates prescribed, under the Finance Act. The primary object of the Finance Act is only to prescribe tho rates so that the tax can be charged under the Income-tax Act. Section 67B also shows that the charging section is only s. 3 of the Inc.,me-tax Act and that s. 2 of
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