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PETITIONER: AHMED IBRAHIM SAHIGRA DHORAJI

       Vs.

RESPONDENT: COMMISSIONER OF WEALTH TAX, GUJARAT

DATE OF JUDGMENT07/04/1981

BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) PATHAK, R.S.

CITATION:  1981 AIR 1562            1981 SCR  (3) 402  1981 SCC  (3)  77        1981 SCALE  (1)694  CITATOR INFO :  RF         1981 SC1759  (23)

ACT:      Wealth Tax  Act, 1957-Section  2(m)-Finance  Act,  1965 gave  incentives   for  voluntary  disclosure  of  concealed income-Assessee declared  large amount  of such  income  and paid tax  as provided  by Finance Act-Tax so paid-Whether an allowable deduction  as "debt  owed "  under the  Wealth Tax Act.

HEADNOTE:      As part  of a  measure to  mop up  unaccounted money on which no  income tax  had been paid, an incentive scheme was prepared by  the Government  under which a person disclosing such income  was required  to pay  a specified  rate of  tax without attracting  the penal  provisions of  the Income Tax Act. Section  68 of  the Finance  Act, 1965  provided that a person  making   voluntary  disclosure   of  his  income  in accordance with  the provisions  of  the  section  would  be charged income  tax  at  a  specified  rate  notwithstanding anything contained in the Income Tax Act.      The assessee  had a large sum of such unaccounted money in his  possession. Without allocating the total sum amongst the different  assessment years,  he declared  that he had a sum of Rs. 7 lakhs in his possession which was earned by him during the  assessment years  1957-58 to 1964-65. Income Tax in respect  of  this  income  computed  in  accordance  with section 68 of the Finance Act was paid by him.      In the  wealth tax  returns filed by him in response to the  notice  issued  by  the  Wealth  Tax  officer  for  re- assessment consequent  on the  disclosure of  his wealth the assessee claimed deductions of income-tax paid under section 68 of the Finance Act. But the Wealth Tax officer disallowed the claim  holding that since the assessee had not shown the liability to  pay income  tax in  his balance sheets for the respective years  the deductions claimed by him could not be allowed in any of the assessment years.      The  Appellate  Assistant  Commissioner  dismissed  the assessee’s appeal.  The Tribunal,  on the  other hand,  held that the  liability constituted  a "debt  owed"  because  in truth and substance, it was a liability under the Income Tax Act, 1922  or 1961  and not  a new  liability created by the

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Finance Act, 1965.      On reference  the High  Court held  in  favour  of  the Revenue on  the ground  that section  68 of  the Finance Act enacted a new charge of tax on an ad hoc 403 basis on disclosed income and, therefore, it was not a "debt owed" which could be allowed as a deduction under the Wealth Tax Act.      On behalf  of the  Revenue it  was contended that since the tax  paid by the assessee under the voluntary disclosure scheme was in discharge of a liability created for the first time by  the Finance  Act, 1965  it  was  not  an  allowable deduction under the Wealth Tax Act.      Allowing the appeal, ^      HELD: The  assessee was  entitled to claim deduction of income tax  paid on  the amounts  added to  his total wealth under section  2 (m)  of the Wealth Tax Act in the course of the assessment proceedings. [418 B] C      1. Merely  because the  amounts  were  disclosed  in  a declaration under  section 68  of the  Finance Act, they did not cease  to be  incomes not already charged to income tax. Although the  Finance Act  merely levied a fixed rate of tax in respect  of all  the income  disclosed  without  allowing deductions, exemptions  and such  other allowances which are allowable under  the Income  Tax Acts,  its function  was no more than  that of  an annual  Finance Act  despite the fact that it  made certain alterations in regard to the filing of declaration and computation of taxable income. [414 G-H]      2. The nature of the declaration which was dependent on the  volition  of  the  declaring  and  the  fact  that  the liability  to   tax  the  amount  was  contingent  upon  the willingness of  the declaring  to disclose  the amount would not make  a difference  because such  voluntary  disclosure, even in  the absence  of section  68, would have exposed the assesseee  to  assessment  or  reassessment.  The  voluntary character of  the declaration  cannot alter the character of the tax. [415 A-B]      3. The  true position  is that  the amount declared has the liability  to pay  income tax  embedded  in  it  on  the valuation date  but only the ascertainment of that liability is postponed to a future date. [417 C]      In the instant case its determination was allowed to be done in  accordance with  the provisions of section 68. Even though this  section was  a complete  code in  itself it was only a scheme which provided a method for the liquidation of an already  existing income  tax liability which was present on the relevant valuation date. [417 D]      4. Nor  did the  absence of  allocation of  the  amount disclosed amongst different assessment years detract the tax from being  called a  tax on  income because such allocation would not  achieve any  additional purpose  in the scheme of section 68  This section is in the nature of a package deal. The net  result achieved  was that the declarant was treated as having  discharged all  his liability  in respect of such income under the income tax law. [415E] 404      5. The  finding of  the  High  Court  that  section  68 created a  fresh charge  is incompatible with the foundation of the very reassessment proceedings under section 17 of the Wealth Tax Act. [415 H]      6. Moreover  section 68,  at more than one place stated that what  was pay  able was income tax which clearly showed that what was payable under the section was income tax. [412 B-C]

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    C.I.T. v.  Khalau  Makanji  Spinning  and  Weaving  Co. Ltd.,40 I.T.R.  189. Madurai  District  Central  Cooperative Bank Ltd. v. Third I.T.O. 101 I.T.R. 24, distinguished.      C. K.  Bahu Naidu v. Wealth Tax Officer, 112 ITR 34; C. Ii T  v. GirdhariLal,  99 ITR  79; C.W.T. v. B.K Sharma, 110 I.T.R. 902;  C.W.T. v.  Bansidhar Poddar.  112 ITR 957; D.C. Shah v. C.W.T., 117 ITR 348; Bhagwandas Jain v. Addl. C.W.T. 116 ITR  347 and  Bhagwanidas Binani v. C.W.T., 124 ITR 783, approved.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal Nos.  1217 1222 of 1973.      Appeals by  certificate from  the  Judgment  and  order dated 21.12  1972 of  the Gujarat  High Court  in Wealth Tax Reference No. 2 of 1969.      V. S.  Desai, Shardul  S. Shroff  and H. S. Parihar for the Appellant.      S. T.  Desai, P.  A. Francis and Miss A. Subhashini for the Respondent.      The Judgment of the Court was delivered by      VENKATARAMIAH, J. On the basis of a certificate granted under section  29(1) of the Wealth-tax Act 1957 (hereinafter referred to  as the  Act )  the appellant  has  filed  these appeals against  the judgment  and order  dated December  21 1972 of the High Court of Gujarat in Wealth-tax Reference No 2 of  1969. The  questions referred  to the High Court under section 27  of the Act by the In come-tax Appellate Tribunal Ahmedabad Bench read thus:      "(1) Whether on  the facts  and in the circumstances of           the case  the liability  in respect  of income-tax           payable on  the concealed  income disclosed by the           assessee pursuant to section 68 of the Finance Act           1965 is  deductible  under  section  2(m)  of  the           Wealth-tax Act 1957 in computing the net wealth of           the assessee for the 405           assessment years 1959-60 1960-61 1961-62 1962-63 A           1963-64 and 1964-65.      (2)  Whether the Tribunal was right in holding that the           liability to pay tax on the amount disclosed under           section 68 of the Finance Act 1965 arose not under           that Finance Act but under section 3 of the Indian           Income-tax Act 1922.      Having regard  to the  assessment years in question the second question should be read as including within its scope also the  question whether the Tribunal was right in holding that the  liability to pay tax on the amount disclosed under section 68  of the  Finance Act,  1965 arose  not under that Finance Act but under section 4 of the Income-tax Act 1961.      The assessee  who is the appellant in these appeals had been assessed  on the basis of his returns of net wealth and the  statements   filed  therewith   in  the  status  of  an individual to  wealth-tax under  section 16(3)  of  the  Act during the  assessment years  1957-58 t  1964-65 on  various dates between January 15 1960 and July 14 1964. Subsequently the assessee  made a  disclosure under  section  68  of  the Finance Act  1965 (hereinafter  referred to  as the  Finance Act)   of Rs.7,00,000  which had  been shown  as having been covered by  some hundi  transactions with a concern known as M/s Abdul Razack & Co. in his books of account at the Bombay branch  of  his  business.  Alongwith  the  declaration  the assessee filed  a statement  that this  concealed income had

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been earned  by him  during the  assessment years 1957-58 to 1964-65. He however did not allocate the total sum disclosed amongst different  assessment years  but showed it in a lump sum. The  amount of  income-tax was  computed at  60% of the total concealed income and it was paid as contemplated under section 68  of  the  Finance  Act.  The  Wealth-tax  officer thereafter reopened  the  assessments  or  the  assessee  to wealth-tax for  assessment years  1957-58 to  1964-65 on the ground that  he had reason to believe that certain wealth of the assessee  had escaped  assessment during  the said years and that  his belief  was founded  on the disclosure made by the assessee  under section  68 of  the Finance  Act. We are concerned in  these appeals  only with  the assessment years 1959-60 to 1964-65. On scrutiny it was found on the basis of peak cash  credits in  each assessment year that the amounts covered by hundies were as under: 406      Assessment  years                     Peak cash credits       1959-60                                RS. 4,57,465/-       1960-61                                RS. 5,59,8231-       1961-62                                RS. 6,38,325/-       1962-63                                RS. 6,82,974/-       1963-64                                RS. 7,01,578/-       1964-65                                RS. 7,01,578/-      As can  be seen  from the  above statement the assessee had substantial sums with him in the years in question which had  not   been  disclosed   earlier.  Since  these  amounts constituted the  wealth which  was  liable  to  tax  on  the respective valuation  dates the  assessee filed  returns  of wealth for  the above mentioned years in compliance with the notices issued  to him  and in  the course of the assessment proceedings he claimed the deduction for income- tax payable by him  in respect  of the sums which had been progressively earned by  him from  year to  year and  which were liable to income tax under the relevant income tax law in force during the years relying upon the decision of this Court in Kesoram Industries and  Cotton Mills  Ltd v. Commissioner of Wealth- tax (Central), Calcutta. The Wealth-tax officer however held that since in his balance selects the assessee had not shown the liability to pay income-tax the deduction of the amounts claimed could  not be allowed in any of the assessment years and accordingly  the orders  of reassessment  were passed by him after  disallowing the  claim made  by the  assessee. He however included  the sums  mentioned in the above statement in the  net wealth  of the  respective assessment  years and determined the  wealth-tax  payable  by  the  assessee.  The appeals filed  by the  assessee against  the orders  of  the Wealth-tax   officer    before   the   Appellate   Assistant Commissioner  were  dismissed.  On  further  appeal  to  the Income-tax Appellate-Tribunal  the Tribunal  held  that  the deduction claimed  in respect of each assessment year was in truth and  substance a liability under the Indian Income-tax Act 1922  or the  Income-tax Act 1961 as the case may be and not a new liability created by the Finance Act and therefore it constituted a debt owed by the assessee on the respective valuation dates  within the  meaning of  section 2(m) of the Act and  that the  deduction claimed should be allowed while computing the net wealth 407 of  the  assessee.  Accordingly  the  Tribunal  allowed  the appeals of  the assessee.  Thereafter at the instance of the Commissioner  of  Wealth-tax  the  Tribunal  referred  under section 27  of the  Act the two questions mentioned above to the High  Court. After  hearing the  parties the  High Court answered both the questions in the negative and in favour of

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the Revenue  by its  judgment dated  December 21  1972. On a certificate granted by the High Court under section 29(1) of the Act the assessee has come up in appeal to this Court.      The relevant part of section 2(m) of the Act reads:           "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           owed by  the assessee  on the valuation date other           than      In the case of Kesoram Industries and Cotton Mills Ltd. (supra.) this Court has held that income-tax other than that falling under  clause (iii)  of  section  2(m)  of  the  Act payable on the valuation date is a debt owed by the assessee and hence  is  deductible  from  the  total  wealth  of  the assessee while determining the net wealth for the purpose of levying wealth-tax.      The principal  question which  arises for consideration in these  appeals relates  to the  true character of the tax paid by  the assessee in the proceedings under section 68 of the Finance  Act and  the applicability  of the ratio of the decision of this Court in the case of Kesoram Industries and Cotton Mills  Ltd. (supra).  Since it  is contended  by  the assessee that  the tax  so paid  was the  tax which  he  was liable to  pay under  the relevant  income-tax law  in force during the  assessment years  in question and it is urged by the Department  that the  said payment was in discharge of a liability created  for the  first time by the Finance Act it is necessary  to examine the provisions of section 68 of the Finance Act  in some  detail in so far as they relate to the question involved in this case. The relevant part of section 68 of  the Finance Act which came into force on March 1 1965 reads: 408      "68.  Voluntary  disclosure  of  income-(1)  Where  any person makes  a declaration  in accordance  with sub-section (2) in respect of the amount representing income-      (a)  which he  has failed  to disclose  in a  return of           income for any assessment year filed by him before           the first  day of  March  1965  under  the  Indian           Income-tax Act 1922 (Xl of 1922) or the Income-tax           Act 1961 (XLIII of 1961) or      (b)  which has  escaped assessment  for any  assessment           year for  which an assessment has been made before           the 1st day of March 1965 under either of the said           Acts or      (c)  for the  assessment of  which no  proceeding under           either of  the said Acts has been taken before the           1st day of March 1965,      he shall notwithstanding anything contained in the said      Acts be charged income-tax at the rate specified in sub      section (3) in respect of the amount so declared if he-      (i)  pays the  amount of  income-tax as computed at the           said rate or      (ii) furnishes adequate  security for the payment there           of in  accordance with  sub-section (4)  and under           takes to  pay such  income-tax within a period not           exceeding  six   months  from   the  date  of  the           declaration as may be specified by him therein or      (iii)On or  before the  31st day  of May 1965 pays such           amount as  is not less than one-half of the amount           of income-tax  as computed  at the  said  rate  or

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         furnishes adequate security for the payment there-           of in  accordance  with  sub-section  (4)  and  in           either case assigns any shares in or debentures of           a joint  stock company  or mortgages any immovable           property in  favour of  the President  of India by           way o  f security  for the  payment of the balance           and undertakes  to Fay  such  balance  within  the           period referred to in clause (ii). 409      (2)  The declaration  shall be made to the Commissioner           and  shall  specify  the  period  required  to  be           specified under  clause (ii)  of  sub-section  (1)           contain the  name address  and  signature  of  the           person  making   the  declaration  and  also  full           information in  respect of  the following  matters           namely:- B           (a)  Whether he  was assessed to income-tax or not                and if  assessed the  name of  the Income-tax                Circle in which he was assessed.           (b)  The amount  of income  declared giving  where                available details  of the  financial year  or                years in  which the income was earned and the                amount pertaining to each such year.           (c)  Whether the amount declared is represented by                cash  (including   bank   deposits)   bullion                investments in  shares debts  due from  other                persons commodities  or any  other assets and                the name  in which  it is  held and  location                thereof:           Provided that  the  declaration  shall  be  of  no      effect unless it is made after the 28th day of February      1965 and before the Ist day of June 1965. F      (3)  The rate  of income-tax  chargeable in  respect of           the amount referred to in sub-section (1) shall be           sixty per cent of such amount:           Provided that  if before the Ist day of April 1965      the tax on the amount declared is paid by the declarant      at the  rate of  fifty seven per cent of such amount he      shall not  be liable  to pay  any further  tax on  such      amount.      (4)  A person shall not be considered to have furnished           adequate security  for the  payment of the tax for           the purposes of sub-section (I) unless the payment           is guaranteed  by a  scheduled bank  or the person           makes an  assignment in favour of the President of           India of  any security  of the  Central  or  State           Government.           Explanation-For the  purposes of  this sub-section      where an assignment of Government securities is made in 410      favour of  the President  the amount  covered  by  such      assignment shall  be the market value of the securities      on the date of the assignment.      (5)  Any amount  of income-tax  paid in  pursuance of a           declaration made  under this  section shall not be           refundable in  any circumstances and no person who           has made  the declaration  shall be  entitled i  n           respect of any amount so declared or any amount of           tax  so   paid  to   reopen  any   assessment   or           reassessment made  under the Indian Income-tax Act           1922 (XI  of 1922)  or  the  Income-tax  Act  1961           (XLIII of 1961) or the Excess Profits Tax Act 1943           (XV of  1940) or the Business Profits Tax Act 1947           (XXI of  1963) or  the Companies  (Profits) Surtax           Act 194  (VII of  1964) or  claim any  set-off  or

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         relief in  any appeal  reference revision or other           proceeding in   relation  to any such assessment -           or reassessment.      (6)  (a) Any  amount declared  by any person under this           section in respect of which the tax referred to in           subsection (3)  is paid  shall not  be included in           his total  income for  any assessment under any of           the  Acts  mentioned  hl  sub-section  (5)  if  he           credits in  the books of account if any maintained           by him  for any  source of  income or in any other           record the  amount declared  as reduced by the tax           paid thereon under this section...      Section 68(1)  of the  Finance Act  provides that where any person  makes a  declaration in  accordance with section 68(2) in respect of any amount represent n g income which he has failed  to disclose  in his  return or which has escaped assessment for  any assessment  year for which an assessment has been  made before  March 1, 1965 under either of the two Acts namely  the Indian  Income-tax Act 1922 and the Income- tax Act 19 1 or for the assessment of which no proceeding is taken before March 1, 1965 he shall notwithstanding anything contained in the said Acts be charged income-tax at the rate specified in  sub-section (3)  thereof  in  respect  of  the amount so  declared. If  he pays the amount of income-tax as computed at the said rate or furnishes adequate security for the payment  thereof  in  accordance  with  sub-section  (4) thereof and  undertakes to  pay such  income-tax within  the period specified  in the  section he  would be absolved from the liability under the relevant law of in 411 come-tax. The  declaration should  however be filed with the particulars  mentioned   in  section  68(2).  Section  68(3) provides that  the rate  of income-tax chargeable in respect of the  amount referred to in the declaration shall be sixty percent of  such amount  provided that  if the  tax is  paid within April  1, 1965  the tax  payable would be fifty seven percent. Sub-section  (5) of  section 68  of the Finance Act provides that  any amount of income-tax paid in pursuance of a  declaration   made  under   that  section  shall  not  be refundable in  any circumstances nor a declarant is entitled in respect  of any  amount declared  or tax  paid thereon to reopen any  assessment or reassessment made under the Indian Income-tax Act  1922 or Income-tax Act 1961 or any other Act mentioned therein.  He cannot  also  claim  any  set-off  or relief in  any appeal reference revision or other proceeding in relation  to any  such assessment or reassessment. Clause (a) of  sub-section (6)  of section  68 grants immunity from proceedings under the Acts mentioned in section 68(5) to the assessee by providing that any amount declared by any person under section  68 in respect of which the tax referred to hl sub-section (3) thereof is paid shall not be included in his total income for any assessment under any of the assessments made under  any of the Acts mentioned in section 68(5) if he credits in the books of account if any maintained by him for any source  of income  or hl  any other  record  the  amount declared as  reduced by  the tax  paid thereon under section 68.      On an  examination of  the several provisions contained in section  68 of the Finance Act it becomes clear that they had been  enacted as  a part  of the measures adopted with a view to  unearthing unaccounted  money in  possession of the members of  the public on which income-tax had not been paid and also  to create  an incentive  to such  persons to  make disclosure of  their unaccounted  incomes  and  to  pay  tax thereon at  the specified  rate without the liability to pay

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any interest  thereon or  penalties for  non-compliance with the law  of income-tax.  The declaration  to be  riled by  a person under  section 68 is about an amount representing his income earned  in an earlier accounting period which has not been subjected  to  tax  in  the  ordinary  course  although income-tax was  payable hl  respect of  it. If the declarant pays tax at the rate specified in sub-section (3) of section 68 he would be absolved from any further liability to tax on such income.  The declaration  has to  be  made  before  the Commissioner  of  Income-tax  and  it  should  contain  full information namely  whether he was assessed to income-tax or not and  if assessed  the name  of the  Income-tax circle in which he was assessed the 412 amount of  income declared giving w ere available details of the financial  year or  years in which the income was earned and the  amount pertaining to each such year and whether the amount declared  is  represented  by  cash  (including  bank deposits) bullion  investment in shares debts due from other persons commodities  or any  other assets  and the  name  in which it  is held  and the location thereof. Section 68 also states at  more than one place that what is payable pursuant to a  declaration is  income-tax. Section  68  (1)  contains words such as he shall notwithstanding anything contained in the said Acts be charged income tax at the rate specified in sub-section (3) . if he pays the amount of income-tax at the said rate  and undertakes  to pay  such income-tax . Section 68(3) contains the words: the rate of income-tax chargeable. Section 68(5)  refers to:  (a) any amount of income-tax paid and section  68(7) contains  the words:  paid the income-tax under this section . These words show that Parliament was of the view  that what was payable under section 68 was income- tax.      The points  of difference  between any Finance Act that may be  passed annually  fixing the  rates of income tax and section 68 of the Finance Act however relate to (i) the time within which  and the  manner in which information in regard to the  income  is  to  be  furnished  (ii)  the  method  of computation of  taxable income  and E(iii)  the rate  of tax payable on  such income. The declaration which is equivalent to a return to be filed under the Indian Income-tax Act 1922 or Income-tax  Act 1961 need not contain all the particulars that have  to be  furnished in  such return. The declaration can be  filed during  the period  mentioned  in  proviso  to section 68(2).  There  is  no  provision  to  claim  various deductions exemptions  set off etc. in respect of the income disclosed in  the declaration as in the case of income shown in an  ordinary return.  Since the  rate of tax is a uniform one and  does not  vary  with  the  quantum  of  the  income disclosed there  is no  need to  trace it  to  any  specific assessment year.  Further the declaration is a voluntary one and  it  is  not  pursuant  to  any  notice  issued  by  the Department.      The question  is whether  these distinguishing features make  the   amount  disclosed   in  a  declaration  anything different from  the income  of an  assessee and the tax paid under section 68 anything different from a tax on income. In other words  does section  68 impose  a new  charge  on  the income  of   the  declarant   for  the   first  time  wholly independent of  the levy  under  section  3  of  the  Indian Income-tax Act  192’ or section 4 of the Income-tax Act 1961 ? The High 413 Court has  given the  following reasons for holding that the tax paid under section 68 is not tax on income payable under

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the Indian  Income-tax Act 1922 and Income-tax Act 1961: (i) the charge  under the  Income-tax Act is on the total income of the  previous year  and not  on any  particular  item  of income but  that is  not so under section 68,(ii) payment of tax under section 68 has no reference to any assessment year and unless it is correlated to an assessment year it can not be ordinary  income-tax and  (iii) the  disclosed income  is chargeable to  tax without  allowing  usual  deductions  and without providing for any procedure for qualification.      The High  Court  proceeded  to  hold  that  section  68 enacted a  new charge of tax on an ad hoc basis on disclosed income irrespective  of the  assessment year in which it was earned. The  disclosure of concealed income coupled with the payment of  tax as contemplated in clause (i) of sub-section (1) according to the High Court not only created a charge of tax but  also satisfied  it. In  its view  the disclosure of concealed income  coupled with  furnishing of  security  and undertaking as  contemplated in  clause (ii)  created a  new charge of  tax and  when the  undertaking was carried out by payment of  tax the liability arising from the charge of tax was satisfied.      one basic fallacy underlying the conclusion of the High Court that  a new  charge is  being levied  under section 68 appears to  be the assumption that the amount in question in respect of which tax is payable under that provision was not liable to  income-tax earlier.  lt should  be borne  in mind that the  declaration contemplated  under section  68  is  a declaration in  respect of income of earlier years which had been concealed  and on  which tax  was  payable  during  the relevant assessment  years in the ordinary course. Section 3 of the  Indian Income-tax  Act 1922 and section 4 of Income- tax Act  1961 which  are couched  more or  less in  the same language state  that where  any Central  Act enacts that inc me-tax shall  be charged  for any  year at any rate or rates income-tax at  that rate or those rates shall be charged for that year  in accordance  with and subject to the provisions of the  relevant Act  in respect  of the total income of the previous year  or previous years as the case may be of every person. Now  it is  well settled  by a  series  of  judicial decisions that  the liability to income-tax arises by virtue of the  charging section  in the relevant Income-tax Act and it arises not later than the close of the previous year even though the  rate of  tax for  the year  of assessment may be fixed  after   the  close  of  the  previous  year  and  the assessment has  necessarily to  be made  after the  previous year. 414 The quality  of chargeability  of any  income to  tax is not dependent upon  the passing  of the  Finance Act  though its quantification may  be governed  by the  provisions  of  the Finance Act  in respect  of any assessment year vide Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax. Messers Chatturam Horilram  Ltd. v.  Commissioner of  Income-tax and Ors. and  Kalwa Devadattam  & Ors.  v. The  Union of India & Ors. In the case of Kesoram Industries and Cotton Mills Ltd. (supra) Subba  Rao J.  (as he then was) summarised the legal position thus :-           To summarize:  A debt  is a  present obligation to      pay an  ascertainable sum  of money, whether the amount      is  payable  in  prasenti  or  in  futuro:  debitum  in      prsesenti, solvendum  in 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.

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    There is  a perfected  debt at any rate on the last day      of the  accounting year and not a contingent liability.      The  rate  is  always  easily  ascertainable.  If  tile      Finance Act  is passe  l it  is the  rate fixed by that      Act; if  the Finance  Act has not yet been passed it is      the  rate  proposed  in  Finance  Bill  pending  before      Parliament or  the rate  in force in the preceding year      whichever is  more favourable  to the assessee. All the      ingredients of  a debt  are present.  It is  a  present      liability of an ascertain able amount.      It is  thus clear  that it- the assessee had brought to the notice  of  the  Department  in  the  usual  course  the existence of  incomes which  were later  on  declared  under section 68  they would  have been  taxed during the relevant assessment year.  Hence merely because they are disclosed in a declaration  filed under  section 68, they cannot cease to be income  not already  charged for  income tax.  It is true that the  Finance Act in question merely levied a fixed rate of tax  in respect  of  all  the  income  disclosed  without allowing  deductions   exemptions  and   set-off  under  the relevant income-tax  law yet  its function  was no more than that of  a Finance  Act passed  annually even though it made certain alterations with regard to filing of declaration and computation of taxable income 415      It was  however urged  on behalf of the Department that the   nature of the declaration which was dependent upon the volition of the declarant and the fact that the liability to tax the  amount mentioned  therein was  contingent upon  the willingness of the declarant to disclose the amount ought to make a  difference. We  do not  think so  because  any  such voluntary disclosure  by an  assessee even in the absence of section 68  would have  exposed  him  to  an  assessment  or reassessment as the case may be being made in respect of the sum  disclosed  as  part  of  the  income  of  the  relevant assessment year  and of course with the additional liability to payment  of interest and levy of penalty and perhaps with the right  to claim  deductions if  any  admissible  in  the circumstances  of   the  case   and  the  benefit  of  other procedural  rights.   The   voluntary   character   of   the declaration cannot therefore alter the character of the tax. There is  also no  substance in  the contention  that in the absence of  the allocation  of the  amount disclosed amongst different assessment  years the tax payable under section 68 cannot be  termed as a tax on income because such allocation would not  achieve any  additional purpose  in the scheme of section 68  Irrespective of  the other income which may have been determined in an ordinary proceeding under the relevant law of  income-tax a  fixed rate  of tax  is  payable  under section 68(3)  and hence  the amount disclosed being treated as the  income of  any particular  year would  not make  any difference regarding  the quantum  of tax.  Nor is there any other purpose to be served by such allocation. Section 68 is in the  nature of a package deal but the net result achieved is that  the declarant  is treated  as having discharged all his liability  in respect  of  the  said  income  under  the income-tax law.      There is  one other  circumstance which  may be noticed here. The  tax levied  under section 68 can be only a tax on income. If  we hold  it otherwise  it may  become a  tax  on wealth itself.  The basis  of the  liability in this case is the admission made by the declarant that the amount declared was his  income earned  in previous years but concealed from the knowledge  of the  Department. In these circumstances it cannot be  said that the amount declared under section 68 is

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not income which was not taxable under the Indian Income-tax Act 1922  or the Income-tax Act 1961 as the case may be. The finding of  the High  Court that  section 68 created a fresh charge is  incompatible with  the  foundation  of  the  very reassessment proceedings  under section  17 of  the Act. The basis of  these proceedings  is the  information  which  the Wealth-tax officer acquired 416 from the declaration filed by the assessee in this case that the  assessee   was  in   possession  of  unaccounted  funds represented   by    the   non-genuine   hundis   which   had progressively reached  the level  of Rs. 7,01,578 during the assessment year  1964-65 from  the level  of Rs. 4,57;465 in 1959-60 by  gradual accumulation  of income.  But  for  this assumption in the absence of any other material reassessment under the Act would have been possible only in the last year in which  the disclosure  was made.  That however is not the case here.      The High Court in support of its view has relied on the decision of  the Kerala  High Court  though not  the  reason given in  support of  that decision  in C.  K. Babu Naidu v. Wealth-tax Officer. That decision has since been reversed in appeal by a Division Bench of that Court in C. K. Babu Naidu v. Wealth-tax  Officer, ’A’ Ward, Calicut & anr in which the Kerala High  Court has  held  that  the  liability  for  tax arising under  section 68  of the  Finance Act  was  nothing other than  the liability  under  the  Income-tax  Act  1961 itself and accordingly has allowed the deduction of tax paid under section  68 as  a debt  owed on the valuation date. In Commissioner of  Wealth-Tax, Haryana,  H.P. &  Delhi-III  v. Girdhari Lal,  Commissioner of  Wealth-tax v.  B. K  Sharma, Commissioner of  Wealth tax,  West Bengal-III,  Calcutta  v. Bansidhar Poddar,  D. C.  Shah v. commissioner of Wealth-tax Mysore and  Shri Bhagwandas  Jain v.  Addl. Commissioner  of Wealth-tax, M.  P.,  the  High  Courts  of  Delhi  Allahabad Calcutta Karnataka and Madhya Pradesh have accepted the view that the tax paid under section 68 of the Finance Act should be treated  as a  debt owed  for purposes of determining net wealth as  denied in section 2(m) of the Act. The High Court of  Bombay   has  also   recalled  the  same  conclusion  in Bhagwandas Binani  v.  Commissioner  of  Wealth-tax,  Bombay City-III but  in doing  so it observed that it appears to us that although  it is  not possible to say that the amount of income-tax paid  under section 68 of the Finance Act 1965 is income-tax under the charging sec- 417 tion 3  or section 4 of the I.T. Acts it must be regarded as income-tax paid  in lieu  of such  income-tax and  would  be entitled to  the same  considerations  as  lavished  by  the Supreme Court on the ordinary charge of income-tax. The High Court of  Bombay appears  to take the view as the High Court of Gujarat  has done in the decision under appeal that a new liability is  created by section 68 but it however would not have any  adverse effect  on the  right of  the assessee  to claim the  deduction. While  we approve  of  the  conclusion reached by  the High  Court of  Bombay we feel that the said decision to  the extent  it attempts  to follow  the  reason given by  the Gujarat  High Court to hold that the liability under section  68 is  a fresh  liability is not correct. The true position  is that the amount declared has the liability to pay  income-tax imbedded  in it on the valuation date but only the  ascertainment of  that liability is postponed to a future date.  In  the  instant  case  its  determination  is allowed to  he done  in accordance  with the  provisions  of section 68.  Even though  it  may  appear  to  be  itself  a

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complete code  it is  only a  scheme which provides a method for  the  liquidation  of  an  already  existing  income-tax liability which  was present on the relevant valuation date. The view  does not in any way To counter to any observations made by  this Court  in Commissioner  of Income-Tax,  Bombay City I  v. Khatau  Makanji Spinning  and Weaving Co. Ltd. In that case  this Court  was concerned  with the validity of a charge  levied  by  the  Finance  Act  1951  in  respect  of dividends distributed in excess of the specified limit under clause (ii)  of the  proviso to  Paragraph of  Part I of the First Schedule to that Act as applied to the assessment year 1953-54 by  the Finance  Act  1953.  This  Court  held  that income-tax was  a tax  on income of the previous year and it would not  cover some  thing which was not the income of the previous year  or made  fictionally so  and according to the scheme of  that provision  it was impossible to say that the additional income-tax  was  properly  laid  upon  the  total income because  what was  actually taxed was never a part of the total  income of  the previous  year. This  decision  is clearly distinguishable  from the present case where what is taxed is  the income  which was ordinarily liable to tax but which had not been included in the return of the assessee or which had  escaped assessment  or  which  was  still  to  be assessed to income-tax under the relevant Income-tax Act. It was in  fact a  part of the total income though not assessed till the  declaration was  made. Merely because it is stated that the rate of tax charged on the 418 amount declared is sixty per cent or fifty-seven per cent as the case  may be it does not cease to be a part of the total income. This is not a case where what was not in fact income had been  converted into  income by section 68. For the same reason the  Department cannot  derive any  support from  the observations made  by this Court in Madurai District Central Co-operative  Bank   Ltd.  v.   Third  Income  tax  officer, Madurai.(l) We  are therefore  of the view that the assessee was entitled to claim deduction of income tax payable on the amounts added  to his total wealth under section 2(m) of the Act in the course of the reassessment proceedings.      In the result these appeals are allowed the judgment of the High Court is set aside and the questions referred to it are answered  in  the  affirmative  and  in  favour  of  the assessee.  The   Department  will   pay  the  costs  of  the appellant-assessee Hearing fee one set. P.B.R.                                    Appeals allowed. 419