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PETITIONER: COMMISSIONER OF WEALTH TAX, GUJARAT, AHMEDABAD

       Vs.

RESPONDENT: VADILAL LALLUBHAI ETC.

DATE OF JUDGMENT21/10/1983

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

CITATION:  1984 AIR  157            1984 SCR  (1) 485  1983 SCC  (4) 697        1983 SCALE  (2)821

ACT:      Wealth  Tax  Act,  1957-sec.  2(m)-Definition  of  ’net wealth’-Interpretation of.  Income tax,  wealth tax and gift tax  liabilities   are  debts  on  the  valuation  date  and deductions in respect of those liabilities are to be allowed on the basis of their final quantification on assessment.

HEADNOTE:      The assessee  while computing  his net wealth claimed a deduction  in   respect  of  debts  which  included  amounts representing estimated liabilities on account of income tax, wealth tax and gift tax. The Wealth Tax Officer rejected the claim on  the ground  that as those liabilities were claimed on the  basis of  an estimate  they could not be regarded as debts owed  on the  valuation date.  In appeal the Appellate Assistant  Commissioner   allowed  part  of  the  deductions claimed. The  Revenue’s appeal to the Appellate Tribunal was dismissed. On  a reference  being made  the High  Court held against the  Revenue. In  this Court  the Revenue  contended that on  a true construction of sec. 2 (m) of the Wealth Tax Act defining  the expression  "net wealth" the tax liability disclosed by the assessee in his returns should. be taken as representing the debts owed by the assessee on the valuation date.      Dismissing the appeals, ^      HELD: It  is settled  law that  an income tax liability becomes crystallized  on the  last day  of the previous year corresponding to  the  particular  assessment  year,  and  a wealth tax  liability becomes  crystallized on the valuation date corresponding  to the  particular assessment  year.  In each case  the liabilities  are perfected  debts on the last day of  the previous year or the valuation date, as the case may be. Likewise, a gift tax liability becomes crystallized, and therefore  a perfected  debt, on  the last  day  of  the previous year  relevant to  the particular  assessment year. [487 F-G; 488 A]      Kesoram   Industries   and   Cotton   Mills   Ltd.   v. Commissioner of  Wealth Tax  (Central), Calcutta,  (1966) 59 I.T.R. 767; H.H. Setu Parvati Bayi v. Commissioner of Wealth Tax, Kerala,  (1968) 69  I.T.R.  864;  and  Commissioner  of Wealth Tax,  Madras v.  K.S.N. Bhatt, Civil Appeals Nos. 384

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to 387  of 1978,  Judgment delivered  on  October  21,  1983 referred to.      When, in  the course  of a  wealth tax  assessment, the assessee makes  a claim  to deduction  on account  of income tax, wealth tax and gift tax liabilities 486 subsisting as debts owed by him on the valuation date, it is the final  quantification of  the particular  tax  liability which must  be taken  into account.  Where  the  wealth  tax assessment so  made is  carried in appeal, there is no doubt that the  appellate authority  will take  into  account  the ultimate quantification  of the  tax liability  even  though such ultimate  quantification has  been  reached  after  the relevant valuation  date and  during  the  pendency  of  the wealth tax appeal. [488 F-G]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1524-47 of 1973.      From the  Judgment and  Order dated  13.12.1972 of  the Gujarat High  Court in  Wealth Tax  References Nos. 6 to 11, 13, 15,  17, 18,  22,24 and  25 of  1971, 34,  39, and 40 of 1970, 20 and 42 of 1971, 22, 35, 41,42,43 & 38 of 1970.      S.C. Manchanda,  B.B. Ahuja  and Miss A. Subhashini for the Appellant.      F.S. Nariman,  Mrs. A.K.  Verma and  K.J. John  for the Respondents.      The Judgment of the Court was delivered by      PATHAK, J:  These  appeals  are  directed  against  the judgment of  the Gujarat High Court disposing of a number of wealth tax  references and  answering the following question against the Revenue in each reference:-           "Whether  in  computing  the  net  wealth  of  the      assessee, the amount deductible in respect of liability      of tax  for any  year for  which the  assessment is the      completed after  the valuation date is the liability as      ascertainable on  the  valuation  date  or  the  actual      amount of tax subsequently assessed ?" The facts  are substantially  similar for  different appeals and therefore  it will  be sufficient to set forth the facts in one  of them  alone. In Civil Appeal No. 1524 of 1973 the facts are these.      In the computation of his net wealth for the assessment year 1962-63,  the corresponding  valuation date being March 31, 1962,  the assessee  claimed a  deduction in  respect of debts  which   included   amounts   representing   estimated liabilities on  account of income tax and wealth tax for the assessment year 1962-63. The Wealth Tax Officer rejected the claim on  the ground  that as those liabilities were claimed on the basis of an estimate they could not be regarded as 487 debts owed  on the  valuation dates.  In appeal  before  the Appellate Assistant  Commissioner of Wealth Tax the assessee claimed the  deduction of  a larger sum on account of income tax, wealth  tax and  gift tax  liabilities.  The  Appellate Assistant Commissioner  scrutinised the  data placed  before him and  allowed part of the deductions claimed. The Revenue now appealed  to the  Appellate Tribunal, and contended that the deductions on account of income tax, wealth tax and gift tax liabilities  for the assessment year 1962-63 should have been allowed on the basis of the respective returns filed by the assessee and not on the basis of the final assessment as the assessment  orders were  made after  the valuation date.

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The Appellate Tribunal rejected the contention and dismissed the appeal.  At the  instance of  the Revenue, the Appellate Tribunal referred the case to the Gujarat High Court for its opinion on  the question  of law  set forth earlier. Similar references were  made in  other cases,  and all of them were disposed of  by a  common judgment  of the  High Court dated December 13,  1972. The  High Court,  relying on its earlier judgment  in   Commissioner  of   Wealth  Tax   v.  Kantilal Manilal(1) held  that the  deduction admissible in computing the net  wealth of  the assessee  must be  calculated on the basis of  the tax as finally determined on assessment though the  assessment   may  have  been  made  subsequent  to  the valuation date,  and not  on the  basis of  tax computed  in accordance with the returns filed by the assessee.      In these  appeals, it  is contended  on behalf  of  the Revenue that  the High  Court has  erred, and that on a true construction of  s. 2 (m) of the Wealth Tax Act defining the expression "net  wealth" the  tax liability disclosed by the assessee in  his returns should be taken as representing the debt owed  by the assessee on the valuation date. Now, it is settled  law   that  an   income   tax   liability   becomes crystallized  on   the  last   day  of   the  previous  year corresponding to  the  particular  assessment  year,  and  a wealth tax  liability becomes  crystallized on the valuation date corresponding  to the  particular assessment  year.  In each case  the liabilities  are perfected  debts on the last day of  previous year or the valuation date, as the case may be.  See   Kesoram  Industries  and  Cotton  Mills  Ltd.  v. Commissioner of  Wealth Tax  (Central), Calcutta(2) and H.H. Setu Parvati  Bayi v. Commissioner of Wealth Tax, Kerala.(3) Likewise, we think a gift 488 tax  liability   becomes  crystallized,   and  therefore   a perfected debt,  on  the  last  day  of  the  previous  year relevant   to   the   particular   assessement   year.   See Commissioner of  Wealth Tax,  Madras v. K.S.N. Bhatt (1) The object and purpose of the assessment procedure prescribed by the relevant  tax statute,  be it  the Income  Tax Act,  the Wealth Tax  Act or  the Gift  Tax Act,  is to  quantify  the precise  amount   of  the  tax  liability.  The  process  is initiated ordinarily  by the  assessee filing  a tax return, and thereupon  the asssessment machinery swings into motion. The tax return is scrutinised by the assessing authority and in accordance  with the  procedure detailed  in the relevant statute the  assessing authority  proceeds to  determine the true figure,  in its  opinion, of  the  asseessee’s  taxable income or  taxable wealth  or total  value  of  the  taxable gifts, depending  on whether  it is  a case  of income  tax, wealth tax  or gift  tax. The  assessment order  made by the assessing authority specifies the assessed income, wealth or value of  the gifts,  and  on  that  the  corresponding  tax liability is  computed followed  by a  notice of demand. The assessment order may be subjected to consideration in appeal before the  Appellate Assistant  Commissioner and thereafter the case  may be  carried in  second appeal to the Appellate Tribunal, in  reference to  the High Court and ultimately in appeal before  this Court.  At every stage, the endeavour of the  authority,  tribunal  or  court  is  to  adjudicate  on questions which  will lead  in the  final result  to a  true determination of the tax liability. There may be cases where the assessment  finally made  may be  reopened in accordance with the  procedure and  subject to the conditions stated in the relevant  statute. There  may  also  be  cases  where  a rectification of  apparent errors  is effected  pursuant  to jurisdiction granted  by the  relevant statute.  Both  these

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proceedings   are    similarly   intended   for   the   true quantification of  the tax liability. When, in the course of a wealth  tax assessment,  the assessee  makes  a  claim  to deduction on  account of income tax, wealth tax and gift tax liabilities subsisting as debts owed by him on the valuation date, it  is the  final quantification of the particular tax liability which must be taken into account. Where the wealth tax assessment  so made  is carried  in appeal,  we have  no doubt that  the appellate  authority will  take into account the ultimate  quantification  of  the  tax  liability,  even though such  ultimate quantification  has been reached after the relevant  valuation date  and during the pendency of the wealth tax appeal. 489      Upon the  aforesaid considerations,  we are  of opinion that the  High Court  has acted  rightly in  holding that in computing the  net wealth  of  the  assessee  the  deduction admissible must  be calculated  on the  basis of  the tax as finally quantified  on assessment even though the assessment may have been made subsequent to the valuation date. Once an assessement order  is passed,  the  data  disclosed  by  the assessee in  his return  is no  longer determinative  of the assessee’s tax liability becomes in law it stands superseded by the assessment order.      The appeals are dimissed with costs. H.S.K.                                    Appeals dismissed. 490