http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: COMMISSIONER OF WEALTH TAX, GUJARAT

       Vs.

RESPONDENT: VIMLABEEN VADILAL MEHTA

DATE OF JUDGMENT21/10/1983

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

CITATION:  1984 AIR  302            1984 SCR  (1) 480  1983 SCC  (4) 692        1983 SCALE  (2)823

ACT:      Wealth Tax  Act-Computation of  assessee’s net  wealth- Whether income  tax  or  wealth  tax  liability  created  in consequence  of   rectification  orders   passed  after  the relevant valuation  date can  be the  subject of  a claim to deduction ?

HEADNOTE:      During the  course of  the hearing of an appeal against an assessment  order made  under the  Wealth Tax Act for the assessment  year   1964-65,  the   respondent  who  was  the assessee, claimed  deduction of an amount in the computation of net  wealth which  inter alia included the income tax and wealth tax  liabilities created  in consequence  of  certain rectification orders made under s. 154 of the Income Tax Act and s.  35 of  the Wealth  Tax Act.  The rectification order related to  assessment of  income  tax/wealth  tax  for  the previous years and had been made after the completion of the assessment proceedings  under the  Wealth Tax  Act  for  the assessment year  1964-65. The  deduction claimed was allowed by the Appellate Assistant Commissioner and his decision was upheld by the Appellate Tribunal and the High Court.      Dismissing the appeal, ^      HELD:  The  rectification  of  an  assessment  must  be treated on  the same basis as an original assessment for the purpose of  a claim  to deduction  in the computation of the assessee’s net  wealth. The  rectification merely quantifies the true  tax liability  which had  already been crystalized and become  a debt  on the  last day of the previous year in the case of income tax liability, and, on the valuation date in the case of a wealth tax liability. [484 C-D]      Commissioner of  Wealth Tax,  Gujarat v.  Shri  Vadilal Lallubhai (C.A.  Nos.  1524  to  1527  of  1973  decided  on 21.10.1983) referred to.      When an  appeal is  filed against  an assessment  order before the  Appellate Assistant Commissioner, the assessment case is thrown open and the appellate proceeding constitutes a continuation of the assessment proceeding. Even if the tax liabilities, of which a deduction is claimed, are created by rectification orders  or by assessment orders made after the date of  the wealth  tax assessment  order under appeal, the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

law requires  the claim to deduction being considered on the same basis as if it had been made in the original wealth tax assessment proceeding. [483 F-H] 481      In the  instant case, it is true that the rectification orders related  to tax liabilities which were not claimed by the assessee  in  the  course  of  the  original  assessment proceeding  before   the  Wealth  Tax  officer  but  as  the Appellate Assistant  Commissioner permitted  the claim to be made during  the hearing  of the  appeal, there is no reason why the  assessee should  be  denied  consideration  of  his claim. [483 H; 484 A]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal  No.  1423 (NT) of 1973.      From the  Judgment and  Order dated  the 13th December, 1972 of  the Gujarat  High Court  at Ahmedabad in Wealth Tax Reference No. 21 of 1971.      S.C. Manchanda,  B.B. Ahuja  and Miss A. Subhashini for the appellant.      The Judgment of the Court was delivered by      PATHAK, J: This appeal is directed against the judgment of  the  Gujarat  High  Court  disposing  of  a  wealth  tax reference and  an swearing against the Revenue the following two questions:           "Whether on  the facts and in the circumstances of      the case the assessee is entitled to the deduction of-      (i)   income tax  liabilities for  the assessment years           1962-63, 1963-64  and 1964-65;  wealth tax for the           assessment year  1964-65  and  gift  tax  for  the           assessment years  1962-63 to 1964-65 as determined           payable on  the basis  of  the  assessment  orders           passed after the valuation date, and      (ii) income  tax liability  for  the  assessment  years           1958-59 and  1960-61 and  wealth tax liability for           the  year   1961-62  created   as  a   result   of           rectification  orders   passed  of   the  relevant           valuation date in determining the value of the net           wealth ?" In assessment  proceedings under  the Wealth Tax Act for the assessment year  1964-65, the  respondent assessee claimed a deduction of  Rs. 2,42,535/-  in the  computation of her net wealth, on  the  ground  that  the  amount  represented  the assessee’s tax liabilities for different 482 years. The  Wealth Tax Officer rejected the claim. An appeal by the  assessee was  allowed  by  the  Appellate  Assistant Commissioner,  who   held  the   assessee  entitled  to  the deduction claimed  but remanded  the case  to the Wealth Tax Officer for  verifying  the  arithmetical  accuracy  of  the claimed deductions.  The Wealth  Tax Officer appealed to the Appellate Tribunal.  He contended  that the assessee’s claim to  the   deduction  of   income  tax  liabilities  for  the assessment years  1962-63, 1963-64  and 1964-65,  the wealth tax liability  for the  assessment year 1964-65 and the gift tax liabilities  for the  assessment years  1962-63, 1963-64 and 1964-65  determined on the basis of assessment completed after the  valuation date  were not admissible deductions in computing the  net  wealth,  and  that  in  any  event,  the deductions should  have been  allowed on  the basis  of  the returns filed and not on the basis of the assessment orders. The Appellate  Tribunal rejected  the contention  in view of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

the judgment  of this Court in Commissioner of Income Tax v. Kesoram Industries  Pvt. Ltd.  and H.H. Setu Parvati Bayi v. Commissioner of  Wealth Tax,  Kerala. The Wealth Tax Officer also contended  that the  income tax liability for the years 1958-59 and  1960-61 and  the wealth  tax liability  for the year 1961-62  created as  a result  of rectification  orders made  after   the  valuation   date  were   not   admissible deductions.  This   contention  was  also  rejected  by  the Appellate Tribunal.  Finally, the Wealth Tax Officer pointed out that  the tax liabilities were not deductible in view of the provisions  of s. 2 (m) (iii) of the Wealth Tax Act. The Appellate Tribunal observed that this aspect of the case had not been  considered by the Appellate Assistant Commissioner and,  accordingly,   the  Appellate  Tribunal  directed  the Appellate Assistant  Commissioner to consider the case again and determine  which of  the liabilities were covered by the provisions of  s. 2  (m) (iii). On a reference being made to the Gujarat High Court at the instance of the Revenue on the questions of law set forth earlier, the High Court held that both  questions   were  concluded   by   its   judgment   in Commissioner of  Wealth Tax, Gujarat II v. Kantilal Manilal, and answered the questions in the affirmative.      As  regards   the  first   question,  we  have  already expressed our  view on  the point  in our  judgment  in  The Commissioner of  Wealth  Tax,  Gujarat,  Ahmedabad  v.  Shri Vadilal Lallubhai etc. in Civil Appeals 483 Nos. 1524  to 1547 of 1973. We need add nothing more on that point, and answer the question in the affirmative.      The second question raises the point whether the income tax  liability   and  wealth   tax  liability   created   in consequence  of   rectification  orders   passed  after  the relevant valuation  date can  be the  subject of  a claim to deduction in the computation of an assessee’s net wealth. In appears from  the record before us that while the Wealth Tax Officer  completed   the  assessment   proceeding  for   the assessment  year  1964-65  by  the  assessment  order  dated November 23,  1964, the  rectification order under s. 154 of the Income  Tax Act for the assessment year 1958-59 was made on May  13, 1966  and the rectification order under the same provision for  the  assessment  year  1960-61  was  made  on January 1,  1965, and the rectification order under s. 35 of the Wealth  Tax Act for the assessment year 1961-62 was made on June  10, 1965.  In short,  the rectification orders were made after  the assessment  proceeding had been completed by the Wealth  Tax Officer.  It would  seem that  the claim  to deduction on  account of  the income tax liabilities and the wealth tax  liability was  made in  the course of the appeal before  the   Appellate  Assistant  Commissioner.  From  the record, it appears also that the income tax liabilities, the wealth tax liability and the gift tax liabilities claimed as a deduction  were quantified by assessment orders made after the  Wealth   Tax  Officer   had  completed  the  assessment proceeding. Those  assessment orders were apparently brought to the notice of the Appellate Assistant Commissioner by the assessee during  the hearing  of Appeal  filed the assessee. Shri S.C.  Manchanda, learned counsel for the Revenue, urges that the  judgment of Gujarat High Court in Kantilal Manilal (supra) does not conclude the question arising on this claim because the  High  Court  was  concerned  with  a  claim  to deduction on  account of income tax, wealth tax and gift tax liabilities which  had arisen  before the Wealth Tax Officer had completed  the assessment before him. Be that as it may, it is  well-settled that  when an appeal is filed against an assessment   order    before   the    Appellate    Assistant

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

Commissioner, the  assessment case  is thrown  open and  the appellate  proceeding  constitutes  a  continuation  of  the assessment proceeding. Even if the tax liabilities, of which a deduction  was  claimed,  were  created  by  rectification orders or  by assessment  orders made  after the date of the wealth tax  assessment order  under appeal  the law requires the claim to deduction being considered on the same basis as if it  had been  made in  the original wealth tax assessment proceeding. It is true that the rectification orders and the gift tax assessment related to tax 484 liabilities which  were not  claimed by  the assessee in the course of  the original  assessment  proceeding  before  the Wealth  Tax   Officer,  but   as  the   Appellate  Assistant Commissioner permitted  the claim  to  be  made  during  the hearing of  the appeal,  we see  no reason  why the asseesee should be  denied consideration of his claim. And as regards the quantification  of the  other income  tax and wealth tax liabilities  effected  after  the  Wealth  Tax  Officer  had completed the original wealth tax assessment proceeding, the quantification of the liabilities related to claim which had already been  raised before  the Wealth  Tax Officer  in the course of  the original  assessment proceeding.  As we  have observed  in   The  Commissioner  of  Wealth  Tax,  Gujarat, Ahmedabad v. Shri Vadilal Lallubhai etc.(1) in Civil Appeals Nos.  1524   to  1547  of  1973,  the  rectification  of  an assessment must  be treated on the same basis as an original assessment for  the purpose  of a  claim to deduction in the computation of  the assessee’s net wealth. The rectification merely quantifies  the true  tax liability which had already been crystalized  and become  a debt  on the last day of the previous year in the case of an income tax liability, on the valuation date  in the case of a wealth tax liability and on the last  day of the previous year in the case of a gift tax liability.      In the  result, we  hold that  both the  questions  set forth earlier must be answered in favour of the assessee and against the  Revenue. The  appeal is therefore dismissed. As the assessee is absent, there is no order as to costs. H.L.C.                                      Appeal dismissed 485