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PETITIONER: COMMISSIONER OF WEALTH TAX, LUCKNOW

       Vs.

RESPONDENT: RAJA VISHWANATH PRATAP SINGH

DATE OF JUDGMENT:       03/04/1996

BENCH: SEN, S.C. (J) BENCH: SEN, S.C. (J) VERMA, JAGDISH SARAN (J)

CITATION:  JT 1996 (4)    62        1996 SCALE  (3)313

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T SEN, J.      The assessee Raja Vishwanath Pratap Singh is the son of late Captain Raja Bahadur Ram Gopal Singh, who was the owner of extensive zamindari and other properties. Ram Gopal Singh ran into  debts. He  applied under  Section 4  of  the  U.P. Encumbered Estates  Act, 1934  for the  liquidation  of  his debts. While  his application  under Section  4 was pending, Ram Gopal Singh passed away and his estate was taken over by the Court  of Wards  on September  16, 1941.  The estate was released on  February 16, 1953. All the proceedings pursuant to the  application before the Special Judge after the death of Ram Gopal Singh went on in the name of the assessee.      Out of  the savings  of the  estate, the Court of Wards invested  an   amount  of   Rs.  6,11,324/-   in  Government securities. The  investment fetched an income of Rs.76,000/- per annum by way of interest. The amount of interest used to be collected by the assessee.      In the  proceedings under  the U.P.  Encumbered Estates Act, the  Special Judge passed a simple money decree for Rs. 30,000,00/- and odd. Since the assessee had been substituted in the  place of  his father,  the decree was passed against the assessee.  When some  of the  decree-holders  wanted  to proceed  against   the  amount   of  Rs.6,87,000/-  held  in Government securities, the assessee opposed the claim of the decree-holders. The  Special Judge  held  that  the  decree- holders could  not proceed against this amount which did not form part of the estate of the deceased Ram Gopal Singh. The decree-holders went on appeal to the High Court which upheld the order  of the  Special Judge by an order passed on March 25, 1961.      While all  these proceedings  were going  on under  the U.P. Encumbered  Estates Act,  Wealth Tax  Assessment of the assessee was  completed for  the assessment  years  1957-58, 1958-59,  1959-60.   However,  the   proceedings   for   the assessment years  1960-61 and  1961-62 were  pending. In the

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Wealth Tax  Assessment proceeding  upto the  assessment year 1959-60, the  decretal amount of Rs.30,000/- an odd had beer treated as  ’debt owed’  by the  assessee. Taking  this debt into consideration,  it was  held that  the assessee was not liable to  tax under  the Wealth  Tax  Act.  But,  when  the judgment of  the High Court dated March 25, 1961 came to the knowledge of  the Department  that the  decree-holders could not proceed  against the  amount of  Rs. 6,87,000/-  and odd held by  the assessee  in his  own name  for recovery of the decretal debt,  the Wealth Tax Officer initiated proceedings under Section  17 of the Wealth Tax Act against the assessee for the assessment years 1957-58, 1958-59 and 1959-60.      After giving a hearing to the assessee, the assessments were completed  by the  Wealth Tax Officer for the aforasaid years of  assessment holding  that since the decretal amount of Rs.30,00,000/-  could not  be recovered from the assessee personally, it  was not a debt owed by the assessee. The sum of Rs. 6,78,000/- constituted the net wealth of the assessee against which  the decretal  amount could  not be  set  off. Similar orders  were passed for the assessment years 1960-61 and 1961-62.      The  assessee   appealed  to  the  Assistant  Appellate Commissioner who examined the facts of the case in depth and dismissed the  appeals by  a consolidated order disposing of all the five cases.      One of  the points taken before the Appellate Assistant Commissioner was that the assessee had e pious obligation to discharge the debts contracted by his father and, therefore, the decretal  dues of  Rs.30,00,000/- should  be treated  as ’debt  owed’   by  the  assessee.  The  Appellate  Assistant Commissioner, however,  held that  under the  Hindu Law  the creditors could  not  proceed  against  the  assets  of  the assessee for  fulfilling his  pious obligation  to  pay  the decretal dues of his father.      There was  a further appeal to the Tribunal. Before the Tribunal the point of pious obligation of the son to pay the debts contracted by the father under Hindu Law was given up. It was  contended that  the aggregate  value of the debts of the assessee  was more  than  Rs.30,00,000/-.  If  this  was deducted from the assets held by the assessee, the resultant figure would  be negative.  Therefore,  no  Wealth  Tax  was needed to  be paid  by the assessee. It was pointed out that Section 2(m)  of the  Wealth Tax  Act enjoined  deduction of debts owed  by the  assessee. The  decrees passed  under the U.P. Encumbered  Estates Act  were personal  decrees against the assessee  and, therefore,  the amount had to be deducted from the  assets of  the assessee  as ’debts  owed’  by  the assessee. The  payability of  the debt was not very material for this  purpose. For this proposition, reliance was placed upon the  judgment of  this Court  in the  case  of  Kesoram Industries and  Cotton Mills  Ltd. v. Commissioner of Wealth Tax (Central),  Calcutta, (1969)  59 ITR 767. It was further argued that  a decree  could not  be passed  against a  dead person. The  decree in  question was actually passed against the assessee. Therefore, it could not be said that no decree was passed against the assessee personally.      The Tribunal rejected all these arguments. The Tribunal held that  in order  to get  any deduction  of any amount on ’debt owed’  by the  assessee, it will have to be shown that he was personally liable to pay the debts. In a case where a person was  liable to  pay  debts  only  to  the  extent  of property which  he had  received from  another person, there could be no personal liability to pay the tax. The creditors could proceed against the assets and recover their dues from the assets  of the  deceased. But  the creditors  could  not

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enforce their  claim  against  the  assessee  personally  or against the  personal assets  of  the  assessee.  Since  the creditors could  not proceed against the assessee personally for recovery  of their  decretal dues,  it could not be said that the  assessee owed  any debt  which had  to be deducted from his  assets for  the  purpose  of  computation  of  net wealth. The Tribunal, therefore, dismissed the appeal.      At  the   instance  of   the  assessee,  two  following questions of  law were  referred to  the  High  Court  under Section 27 of the Wealth Tax Act:-      "1. Whether or the facts and in the      circumstances of the case the debts      amounting to  Rs.30 lacs  and  odd,      more  or   less  for  each  of  the      assessment years under appeal, were      rightly not  allowed as a deduction      in calculating  the net  wealth  of      the assessee?      2. Whether  on the  facts and under      the circumstances  of the  case the      provisions of  Section  17  of  the      Wealth Tax  Act were  applicable so      far as  the  assessment  years  for      1957-58, 1958-59  and  1959-60  are      concerned?"      The  High   Court  took  the  view  that  the  Tribunal misconstrued the  expression ’debts  owed  by  assessee’  in Section 2(m)  of the  Wealth  Tax  Act.  Tribunal  had  also misunderstood the  true nature  of obligation of heir of the deceased debtor to pay his debts. The High Court referred to Mulla’s Hindu Law, 12th Edition, p.426 and observed that the assessee was  liable  to  pay  the  debts  incurred  by  his deceased father.  But his  liability was  restricted to  the extent of  the property  inherited by  him from his deceased father. So  his father’s  debts which  may be satisfied from property which  he had inherited from his father ’debts owed by the  assessee’. The  High Court,  therefore, answered the first question  by holding the debt amount to Rs.30,00,000/- and odd  should been  allowed as  a deduction in calculating the net  wealth of  the assessee.  As a  consequence of  the answer given  to the first question, the second question was answered by  saying that  Section 17  of the  Wealth Tax Act could not be applied for the assessment years 1957-58, 1958- 59 and 1959-60.      We fail  to see how the High Court went to the question of pious  obligation of  a Hindu  son  for  payment  of  his father’s  debt.  This  question  was  given  up  before  the Tribunal  and  no  argument  was  advanced  on  this  point. Moreover, the High Court noted that the assessee’s liability to pay  his father’s  debt was  restricted to the properties which he had inherited from his father. The amounts invested in the  Government securities  were investments  made by the Court of  Wards out of savings from the income of the estate in its  hands. It  was held  by the  Special Judge that this property was  not available for payment of the decretal dues obtained by  the creditors in the proceedings under the U.P. Encumbered  Estates  Act.  The  High  Court  in  appeal  had affirmed that view. Therefore, the creditors of the deceased Ram Gopal  Singh could  not proceed against these Government securities to recover the decretal dues. The Reference Court obviously overlooked these facts in coming to the conclusion that the assessee had a pious obligation to pay his father’s debts even out of these Government securities.      In the case of Kesoram Industries and Cotton Mills Ltd. (supra), it  was held that ’debt owed’ under Section 2(m) of

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the Wealth  Tax Act could be defined as the liability to pay in praesenti  or in  future an  ascertainable sum  of money. Detitum in  praesenti solvendum in future. In that case, the question was  whether liability  to pay Income Tax which had not been computed by an assessment order could be treated to be a  present liability  and, therefore,  a debt. This Court held that the liability to pay Income Tax arose by virtue of the Income  Tax Act.  At the  end of  the accounting  period there was  a perfected  debt.  This  was  not  a  contingent liability.  It   was  a   present  liability   to   pay   an ascertainable amount  in future.  Therefore, it  came within the meaning  of the  phrase ’debts  owed’ in Section 2(m) of the Wealth Tax Act on the valuation date.      This decision  does not come to the aid of the assessee in any  way. Under the Wealth Tax Act, ’net wealth’ has been defined as under:      "2(m).  ’net   wealth’  means   the      amount by which the aggregate value      computed  in  accordance  with  the      provisions of  this Act  of all the      assets, wherever located, belonging      to the  assessee on  the  valuation      date, including  assets required to      be included in his net wealth as on      that date  under this  Act,  is  in      excess of  the aggregate  value  of      all the  debts owad by the assessee      on the  valuation date  which  have      been incurred  in relation  to  the      said assets."      It was not the case of the assessee that he had a personal  liability   to  pay   the   decretal   amount   of Rs.30,00,000 and that it was payable by him ultimately. The decree-holders have been unable to proceed against his assets  (the Government  securities of  Rs.6,87,000) for the realisation  of their  decretal dues. It is not the case of the  asseesee that  on the  relevant valuation  date  the assessee was  saddeled with a decretal debt and the assessee was under  a legal  obligation to  pay that amount sooner or later. Having  successfully thwarted  the  attempts  of  the decree-holders to  proceed against  the aforesaid Government securities and  the income  arising therefrom,  the assessee cannot now  be heard  to say  that the decretal dues are his debts which  are personally  payable by  him. We  are of the view that  the Tribunal  had  given  good  reasons  for  its decision and  the decision  of the Tribunal should have been upheld by the High Court.      On behalf  of the assessee our attention was invited to the provisions  of the  U.P. Encumbered Estates Act and also the judgment  of the High Court passed on March 25, 1961. It was argued  that the  judgment must  be  understood  in  the context of  the provisions  of that  Act. It  was emphasised that there was a pious obligation of the assessee to pay off the debts  incurred by  his father.  This argument  had been advanced before  the Appellate  Assistant Commissioner,  but was  not   pressed  before   the  Tribunal.   Moreover,  the obligation of the son to pay off the debts contracted by his father is  limited to  the properties  inherited by  the son from his  father. It is not the case of the assessee that he has inherited  the amount  of Rs.6,87,000 held in Government securities from his father. In any event, it was held by the High Court  in its  order dated March 25, 1961 that a decree obtained by  the creditors  could not  be  executed  against these Government securities      In view  of the aforesaid, we answer both the questions

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in the affirmative and in favour of the Revenue. The appeals are allowed. Each party will bear its own costs.