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PETITIONER: COMMISSIONER OF WEALTH TAX (CENTRAL)CALCUTTA

       Vs.

RESPONDENT: M/S.  STANDARD VACUUM OIL CO.  LTD.

DATE OF JUDGMENT: 25/10/1965

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1966 AIR  995            1966 SCR  (2) 317  CITATOR INFO :  MV         1966 SC1370  (54)  R          1969 SC 612  (12)

ACT: Wealth  Tax  Act (27 of 1957), ss. 2(m) and 3-Debt  owed  on valuation  date-If includes advance tax due under s. 18A  of Income-tax Act, 1922.

HEADNOTE: Demands in respect of the payment of tax under s. 18A of the Income  Tax  Act were made against the  respondent  for  two years, and the final installment for each of the two  years, was outstanding on the respective valuation dates as defined under  s.  (q) of the Wealth Tax Act,  1957  The  respondent claimed that the arrears of tax as determined as per  notice under  s.  18A constituted a debt, owned by  it  within  the meaning  of  s.  2(m)  of the Wealth  Tax  Act,  as  on  the valuation  date, and that the amounts should be  allowed  as deduction in determining its net wealth under the Wealth Tax Act.   The Appellate Tribunal referred the question  to  the High  Court and the High Court answered it in favour of  the respondent. In appeal to this Court by the Commissioner of Wealth Tax, HELD : The High Court was right in answering the question in favour of the respondent. A debt is owed when an order is passed under s. 18A(1) and a notice  of  demand  is sent.  The amount  mentioned  in  the notice begins to be owed till a new figure is substituted by the  assessee under S. 18A(2).  Till a new estimate is  made by  the  assessee the amount is ascertained and there  is  a statutory  liability  on  the assessee  to  pay  the  amount mentioned  in  the order under s. 18A(1) of the  Income  Tax Act.  Since, on the valuation dates in the present  appeals, the respondent had not taken any action under s. 18A(2), the amounts  mentioned in the notices of demand were debts  owed within s. 2(m) of the Wealth Tax Act on the valuation dates. [321 B-C]

JUDGMENT:

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CIVIL   APPELLATE   JURISDICTION  -   Civil   Appeals   Nos. 627 to 628 of 1964. Appeals  from the judgment and order dated May 14,  1962  of the  Calcutta  High Court in Wealth Tax Matter  No.  154  of 1960. A.   V. Viswanatha Sastri, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for the appellant. T.   A.  Ramachandran, J. B.  Dadachanji, O. C.  Mathur  and Ravinder Narain, for the respondent. The Judgment of the Court was delivered by Sikri,  J. Two questions were referred to the High Court  by the  Appellate  Tribunal under s. 27 of the Wealth  Tax  Act (XXVII 318 of  1957).  We are only concerned with the  second  question which reads as follows :               "Whether on the facts and in the circumstances               of  the case, in computing the net  wealth  of               the assessee, the arrears of tax as determined               as per notice under Section 18A of the  Indian               Income  Tax Act for the two  assessment  years               under consideration constitute a debt owed  by               the  assessee  within the meaning  of  section               2(m) of the Wealth Tax Act as on the valuation               date The  facts  and circumstances of the case  are  as  follows. Demands in respect of the payment of tax under s. 18A of the Indian Income Tax Act were made against the respondent  com- pany, M/s.  Standard Vacuum Oil Co. Ltd., for the two  years ending  December 31, 1956 and December 31, 1957, by  notices of demand dated May 28, 1956 and May 31, 1957, respectively. The final instalment of the amount of Rs. 47,69,653 for each of the two years was outstanding on the respective valuation daters.  The assessee claimed that the demand for such,  tax should be allowed as deduction in determining the net wealth of  the  assessee under the Wealth Tax Act.   The  Appellate Tribunal  held  that this sum should be  deducted  from  the total   computation  of  wealth  if  the  said  amount   was outstanding for less than a year.  It further held that  the demand created under s. 18A of the Income Tax Act was a debt owed  by  the  assessee, and it  directed,  the  Wealth  Tax Officer to ascertain "whether the demand referred to in this case was outstanding for less than one year on the valuation date and if so, he will allow the same as a deduction."  The High Court, following its decision in Assam Oil Co. Ltd.  v. Commissioner of Wealth Tax (Central), Calcutta(1),  answered the question in favour of the assessee.  The Revenue  having obtained  certificates of fitness from the High Court  filed these appeals in this Court. Mr.  Viswanatha  Sastri, learned counsel  for  the  Revenue, contends that on a true interpretation of s. 18A the  amount which  is payable under it is not an ascertained  amount  as the assessee can estimate the amount which he should pay  as advance tax.  He says that the section contemplates more  or less the opening of a running account between the State  and the assessee and the exact amount is not finalised till  the 15th of March each year, which is the last date by which the assessee  has  to  exercise his option  to  pay  the  amount demanded  or  a lesser sum.  He says that  the  debt  really becomes a debt on the 15th of March when (1)  48 I.T. 49                             319 no  option  is exercised to pay a lesser sum.  In  order  to appreciate  the  contentions of the learned  counsel  it  is necessary  to  consider the  relevant  statutory  provisions

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first of the Wealth Tax Act and then of the Income Tax  Act. Section  2(m) of the Wealth Tax Act defines "net wealth"  as follows : .lm15 "  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 this 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,- (i)  debts  which under section 6 are not to be  taken  into account; and (ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth-tax  is not payable under this Act. Section 2(q) defines ’valuation date’ as "in relation to any year  for which an assessment is to be made under  this-Act, means the last day of the previous year as defined in clause (1  1) of section 2 of the Income-tax Act if  an  assessment were  to be made under that Act for that year".  It  is  not necessary  to  set  out  the  proviso  to  this  definition. Section 3 is the charging section which read& as follows               Subject  to the other provisions contained  in               this  Act,  there shall be charged  for  every               financial  year  commencing on  and  from  the               first  day of April, 1957, a tax  (hereinafter               referred  to as wealth-tax) in respect of  the               net wealth on the corresponding valuation date               of  every individual, Hindu  undivided  family               and company at the rate or rates specified  in               the Schedule." The  question  with which we are concerned  is  whether  the amounts  directed to be paid by notices of demand dated  May 28, 1956 and May 31, 1957, are "debts owed" by the  assessee within  s. 2(m) on the respective valuation dates.  Now  the notices of demand were issued under s. 18A(1) of the  Income Tax Act.  The exact notices of demand which were issued  are not on record, but the learned counsel drew our attention to the  form  of  notice prescribed  under  the  Act.   Section 18A(1), inter alia, provides that the Income Tax Officer may "by  order in writing, require an assessee to pay  quarterly to the credit of the Central Govern- L2Sup.  CI/66 -- 7 32 0 ment  on the 15th day of June, 15th day of  September,  15th day  of  December  and  15th day  of  March  in  that  year, respectively, an amount equal to one-quarter of the  income- tax  and super-tax payable on so much of such income  as  is included in his total income of the latest previous year  in respect of which he has been assessed." It is not  necessary to  refer to the rate at which he has to calculate the  tax. Sub-section  (2) of S. 18A enables an assessee to  formulate his  own estimate of the tax payable by him if he  considers that  the income is less than on which he has been  required to pay tax, but he has to send this revised estimate ,of the tax payable by him before any one of the dates specified  in sub-s. (1)(a) and adjust excess or deficiency in respect  of any instalment already paid in a subsequent instalment or in subsequent  installments.   It is this provision  which  Mr. Sastri  relies on strongly to show that the demand under  S. 18A(1) is not a debt owed, within s. 2(m) of the Wealth  Tax Act.   He  further refers to sub-s. (5) which  provides  for payment of simple interest by the Central Government for any amount   paid  by  the  assessee  in  accordance  with   the

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provisions  of S. 18A.  He says that this shows that  it  is really  the Government which ultimately becomes  the  debtor and  there  is  no question of any debt being  owed  by  the assessee.  He further urges that the word "debt" connotes  a ,definite  fixed  amount  and  does  not  include  merely  a liability to pay a sum which is not ascertained. In  our opinion, the High Court was right in  answering  the question  in  favour,  of  the  assessee.   Section  18A(10) provides  that  if the assessee does not  submit  a  revised estimate under sub-s. (2) of s. 18A, and he does not pay  on the specified date any instalment of tax that he is required to  pay  under  sub-s.  (1), he shall be  deemed  to  be  an assessee  in  default  in  respect  of  such  instalment  or instalments,  and if he does submit a revised  estimate  but does  not pay an instalment in accordance therewith  on  the date or dates specified in sub-s. (1), he shall be deemed to be  an assessee in default in respect of such instalment  or instalments.   Under sub-s. (11) any sum paid  or  recovered from  the assessee in pursuance of the provisions of S.  18A is  given  credit  towards the tax due  in  respect  of  the appropriate year.  We cannot find any substantial difference between advance tax paid under the provisions of s. 18A  and tax  due  and  paid under a demand notice  passed  after  an assessment.   The  only difference is that if the  facts  so warrant, the assessee is enabled to pay less than the amount demanded by the Income Tax Officer.  But till a new estimate is  made  by the assessee, the amount  is  ascertained  :and there  is a statutory liability on the assessee to  pay  the amount 3 21 mentioned  in  the order under s. 18A.  We  agree  with  the observations  of the Gujarat High Court in  Commissioner  of Wealth-Tax  v.  Raipur  Manufacturing  Company(1)  that   "a condition subsequent, the fulfilment of which may result  in the  reduction  or even extinction of liability,  would  not have  the effect of converting the liability which  attaches under such notice under s. 18A into a contingent liability." In  our  opinion,  a debt is owed when an  order  tinder  s. 18A(1)  is passed and a notice of demand sent.   The  amount mentioned  in the notice begins to be owe till a new  figure is substituted by the action of the assessee.  On the valua- tion dates in these appeals, the assessee had not taken  any action   under  s.  18A(2)  and  consequently  the   amounts mentioned in the notices of demand were debts owed within s. 2(m) of the Wealth Tax Act on the valuation dates. In the result we agree with the Calcutta High Court that the answer to the question referred to it should be in favour of the assessee.  The   appeals,   therefore,  fail   and   are dismissed with costs, one     set of hearing fee. Appeals dismissed. (1) 52 I.T.R. 482 at p. 522 322