STANDARD MILLS CO. LTD. versus COMMISSIONER OF WEALTH-TAX, BOMBAY CITY

Citation: [1967] 1 S.C.R. 768 · Decided: 06-10-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Case Partly allowed
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Judgment (excerpt)

• 
STANDARD MILLS CO. LTD. 
v. 
COMMISSIONER OF WEALTH-TAX, BOMBAY CITY 
October 6, 1966 
A 
[J.C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.j 
B 
Wealth Tax Act (27 of 1957), ss. 2(m) and 7(2)(a)-Claim regardillg 
deductions of estimated inc()me tax and gratuity payable to employees under 
awards-If a/fowab/e. 
In the computation of th; net wealth of the appellant-company under 
s. 2(m) of the Wealth Tax Act 1957, two de,ductions were claimed by the 
company : (i) the amount of estimated in.come tax for the assessment 
year, and (ii) the amount of gratuity pay~ble by the company to its em-
ployees under certain industrial awards. 
HELD : The first claim was allowable but not the second. [776 DJ 
• 
Under s. 2(m) of the Act, the Wealth Tax Officer must first determine 
the aggregate value of all the assets belonging to the assessee on the valu,-
ation date, and then determine the aggregate value of all the debts owed 
by the assessee on the valuation date. 
Excess of the aggregate value of 
the assets over the debts is the ne.t wealth. 
But on the terms of the awards 
the liability to pay gratuity did not exist in praesenti : it was contingent 
upon the determination of employment by death,. incapacity, retirement 
or resignation of the employee, . and not b'efore. Therefore, it was not a 
debt owned by the assessee on the valuation date. [772 C-D; 775 HJ 
Nor could the appellant-company claim the deduction under .. 7(2)(a) 
of the Act. The aggregate value of the assets must be computed in ac-
cordance with the provisions of s. 7. But in the aggregation of the value 
of all the debts owned by the assessee on the valuation date, s. 7 has not 
operation. Section 7 does not deal with the computation of net wealth 
but only with the determination of the net value of the assets as a whole, 
[776 A-CJ 
Kesorani Industries and Cotton Mills Ltd. v. Coniniissioner of- Wealth 
Tax (Centrr.l) (Calcutta), [1966] 2 S.C.R. 688, followed. 
. Observations Contra in Commissioner of Wealth Tax, Gujarat v. A.jit 
Mills Ltd. 55 l.T.R. 556 and Commissioner of Wealth Tax Gujarat v. New 
Rajpur Mills 56 I.T.R. 544, disapproved. 
Souther.n Railway of Peru v. Owen (Inspector of Ta:tes) [1957] A.C. 
334, explamed. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. l 129of1965. 
Appeal from the judgment and order dated April 15, 16, 17, 
1963 of the Bombay High Court in Wealth Tax Reference 
No. 2 of 1961. 
R. J. Ko/ah, N. D. Karkhanis and 0. C. Mathur, for the 
appellant. 
' 
B. Sen, R. Ganapathy Iyer and R. N. Sachthey, for the res-
pondent. 
768 
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STANDARD MILLS V. COMMR. W. TAX (Shah, /.) 
769 
The JUdgment of the Court was delivered by 
Shah, J. For the assessment year 1957-58 the 
appellant 
Company claimed in proceedings for assessment of wealth-tax 
that the following four amounts be deducted in the computation of 
i~s net wealth: 
(1) Rs. 29,44,421 in· respect of. income-tax liability 
relating to the assessment -year 1957-58. This amount 
included Rs. 2,95,869 representing the last instalment of 
advance tax under s. ISA in respect of which a notice 
of demand had been issued. 
(2) Rs. 3, 70,083 in respect of business profits tax · 
liability. 
(3) Rs. 20,23,500 in respect of proposed dividend. 
(4) Rs. 25,02,675 "on account of accrued liability for 
gratuity to workmen and staff as per the award of Industrial 
Court and Labour Appellate Tribunal." 
The claim was rejected by the Wealth-tax Officer. The Appellate 
Assistant Commissioner accepted the claim of the appellant Com-
pany in respect of the last instalment of the advance tax for which a 
notice of demand had been issued, and rejected the claim in respect 
of the rest. The Income-tax Appellate Tribunal upheld the claim 
of the appellant Company in respect of the !st, 2nd and the 4th 
items and rejected the claim in respect of the 3rd item. 
At the instance of the Commissioner, the following four 
questions were referred to the High Court of Judicature at Bombay 
under s. 27(1) of the Wealth-tax Act 27 of 1957: 
"(!) Whether on the facts and circumstances of this 
case the last instalment of advance tax in the sum of Rs. 
2,95,869 paid by the assessee after the valuation date in 
accordance with the notice of demand dated 20-10-1956 is 
an admissible deduction under 
Sections 7(2) and 2(m) 
of the Wealth-tax Act for the purpose of computation of the 
net wealth of the assessee for the assessment year 1957-58? 
(2) Whether on the facts and c
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