http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 11  

PETITIONER: COMMISSIONER OF WEALTH TAX, KANPUR

       Vs.

RESPONDENT: M/S. J.K. COTTON MANUFACTURERS LTD.

DATE OF JUDGMENT28/02/1984

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. MUKHARJI, SABYASACHI (J)

CITATION:  1984 AIR  946            1984 SCR  (3)  37  1984 SCC  (3) 393        1984 SCALE  (1)445

ACT:      Wealth Tax  Act, 1967  Sections 2(m),  4(3), 5  and  6- Wealth   tax-Deductions-settlement   allowing   payment   in instalments-Instalments unpaid  and showed  in balance sheet as "debt"  owed by  assessees-Whether  allowable  deduction- Whether ‘debt owed and outstanding’.      Words &  Phrases: "all the debts owed by the assessee"- Meaning of-S. 2 (m) Wealth Tax Act, 1957.

HEADNOTE:      As a result of proceedings taken and settlement arrived at in  1952 under  the  Taxation  on  Income  (Investigation Commission)  Act,  1947  certain  sums  were  determined  as payable  by   the  respondents-assessee-companies   on   its secreted profits,  and schemes  for the  payment of the said liability by instalments were laid down.      The assessee-companies  claimed that the balance of the demand that  had remained  unpaid was  a debt owed by it and should be  allowed as  a deduction  while computing its net- wealth for the concerned year of assessment.(1957-58)      The Wealth-tax  Officer computed the net-wealth of each company by adopting the figures of assets and liabilities as shown  in   their  balance-sheets  as  on  their  respective valuation dates  after making such adjustments as considered necessary but  in both the cases he disallowed the aforesaid claim for  deduction on  the ground  that the  liability was outstanding for more than 12 months on the valuation dates.      The  Appellate  Assistant  Commissioner  confirmed  the disallowance. He  took the  view that  the  tax  liabilities assessed by  the Income-tax  Investigation Commission had no relation to  the assets  or the declared wealth of assessee- companies, which were the basis of the wealth-tax assessment and since  the  assets  on  which  the  said  liability  was assessed, namely,  the secret  profits, were not included in the declared assets the disallowance was justified.      In further  appeals by  the assessee-companies  to  the Tribunal, the  Tribunal confirmed  the disallowance  on  the ground that  sections 2(m)  (i), 2 (m) (ii), 5 (1) and 5 (2) indicated a  scheme of  the Act  which suggested  that debts which qualified  for deduction  in computation  of the  net- wealth were  only those  which were  incurred in relation to the assets  declared by  the assessee,  that is  to say,  in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 11  

computing the  net-wealth the  principle to  be adopted  was that when  any assets  were included the corresponding debts should be  allowed, but  that when such assets were excluded or were  liable to  be  excluded  from  the  net-wealth  the corresponding debts should also be excluded. 38      In the References to the High Court, at the instance of the  assessee-companies   the  Tribunal’s   conclusion   was overruled and  the High  Court opined  that  the  deductions claimed were  allowable in  computing the  net wealth of the assessee-companies.      In the  appeals to  this Court,  by the  Revenue on the question whether  the balance of the payments payable by the companies as  a result  of the  findings and  orders of  the Income-Tax Investigation  Commission in the settlements made under the  Taxation on Income (Investigation Commission) Act 1947 are deductible as debts owed by them in determining the net wealth of the companies.      Dismissing the appeals, ^      HELD: [By the Court]      Section 2  (m) (iii)  requires that  the tax  liability must be  one which  is       "payable  in consequence of any order passed"  under any  law relating to taxation on income or profits  etc. such  liability so  payable under  an order must remain "outstanding for a period of more than 12 months on the  valuation date".  The  expression  ‘outstanding’  in section 2  (m) (iii) (a) and(b) will have to be construed in the background  of the  phrase "amount  of  tax  payable  in consequence of  an order,"  and in that context it must mean remaining unpaid  after the  obligation to  pay is incurred. [48D, 48G]      In the  instant case,  it  was  the  admitted  position before the  Tribunal that  under the  scheme of  instalments sanctioned in  the settlements  the  two  sums,  in  respect thereof deductions  were claimed,  had not  become  due  for payment before  the valuation dates. The deductions claimed, therefore,  do   not  fall   within  the  exclusionary  part contained in section 2 (m) (iii) of the Act. [48H-49A]      Per Tulzapurkar, J.      The scheme emerging from the key provisions of the Act, Sections 2  (m), 3  and 4  clearly show  that barring  those debts which  fall within  the exclusionary part of section 2 (m) all other debts owed by the assessee have to be deducted from the  aggregate value  of the assets belonging to him on the valuation  date. In  order to  get disqualified  for the purposes  of   deduction  a   debt  must   fall  within  the exclusionary part  and there  is nothing in the exclusionary part which  suggests that  the debt must either by relatable to any asset at all or if it is relatable to any asset, such asset must  be included  in the  books of  accounts  or  the balance sheet  of the assessee before a deduction in respect thereof is allowed. [45C-D]      In the  instant cases,  the secret  profits  admittedly earned by  the assessee-companies  related to  an assessment year prior to September, 1948 (as proceedings under Taxation on Income  (Investigation Commission)  Act.  1947  could  be taken only  in respect  of  the  assessment  year  prior  to 1.9.1948) and  the tax  liability  in  respect  thereof  was determined in  1952, but  the valuation  dates are 30.6.1956 and 31.12.1956. [47D]      Annamma Paul Perincherry v. Commissioner of Wealth-Tax, Kerala 88  I.T.R. 204 and Commissioner of Wealth-Tax, Kanpur v. J.K. Jute Mills Co.Ltd., 120 I.T.R. 150, approved 39

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 11  

[Per Sabyasachi Mukharji J.]      There is  no evidence  to show  whether the profits had remained with  the assessee-companies  either in the form of assets in  the Balance  sheet  or  otherwise.  The  relevant valuation dates  were much later. Had there been any finding that these  profits, in  some form,  either as assets in the Balance Sheet  or otherwise were with the assessee. It could have perhaps  been examined  whether so long as the assessee does not  bring those  profits in  the  computation  of  the wealth, the  assessee would be disentitled to the deductions of liabilities  in respect  of the  same. These  should have been examined  by the Wealth-tax Officer with the aid of the principles of  section 106  and section-114  of the Evidence Act. Had that been done it could have, perhaps been examined whether by  the principle  of purposive  interpretation,  in order the give effect to the intention of the legislature in enacting  the    Wealth  Tax  and  evolving  the  scheme  of settlement  under   Taxation     on  Income   (Investigation Commission Act,  1947, whether  the assessee was entitled to the deduction of these two tax liabilities. [50 A-D]      Commissioner  of   Wealth-Tax,  West   Bengal  III   v. Banarashi Prashad  Kedia, 77  I.T.R. 159 and Commissioner of Wealth-Tax, U.P. and others v. Padampat Singhania, 84 I.T.R. 799, approved.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeals Nos. 1179- 1180 (NT) of 1973.      Appeals by  Special leave  from the  judgment and Order dated the  29th April,  1970 of  the Allahabad High Court in W.T.R. Nos. 327 & 330 of 1964.      T. A.  Ramachandran, Mrs.  Janki Ramachandran,  Miss A. Subhashini and Mrs. Sarla Chandra for the Appellant.      S.T. Desai,  B.P. Maheshwari  and B.P.  Singh  for  the Respondents.      The following Judgments were delivered      TULZAPURKAR  J,  The  only  question  raised  in  these appeals is whether the two sums of Rs. 5,49,041 (in the case of M/s  J.K. Cotton  Ltd.) and Rs. 21,61,788 (in the case of J.K. Jute  Ltd.) being the balance of the demands payable as a result  of the  findings  and  orders  of  the  Income-tax Investigation Commission  in the  settlements made under the Taxation on  Income (Investigation  Commission) Act  (30  of 1947) are  deductible as  debts owed  by them in determining the net-wealth of these companies ?      The question arises in these circumstances: 40      M/s. J.K.  Cotton Manufactures Ltd., the assessee, is a limited  company   engaged  in  the  manufacture  of  cotton textiles, etc. and the assessment involved is the wealth-tax assessment for  the year 1957-58 based on the valuation date 30.9.1956. It  appears that as a result of proceedings taken and a  settlement arrived  at in  1952 under the Taxation on Income (Investigation  Commission) Act  1947, a  sum of  Rs. 15,99,041 was  determined as payable by the assessee company on its  secreted profits and a scheme for the payment of the said liability  by instalments was laid down. Out of this, a sum of Rs. 10,50,000 had been paid before the valuation date (30.9.1956) and  Rs. 5,49,041  remained unpaid on that date. The assessee  company claimed that the balance of the demand that had remained unpaid was a debt owed by it and should be allowed as  a deduction  while computing  its net wealth for the concerned year of assessment (1957-58).

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 11  

    In the  case of  M/s. J.  K. Jute  Mills Co.  Ltd.  the assessment involved under the Wealth-tax Act is also for the assessment  year   1957-58  but   the  valuation   date   is 31.12.1956. In  the case of this company also as a result of proceeding taken  and a  settlement arrived at in 1952 under the Taxation on Income (Investigation Commission) Act 1947 a sum of  Rs. 42,93,392 was determined as payable by it on its secreted profits  and a  scheme for  the payment of the said liability by  instalments was  laid down. Out of this, a sum of Rs.  21,31,604 had  been paid  before the  valuation date (31.12.1956) and Rs. 21,61,788 remained unpaid on that date. The assessee  company claimed that the balance of the demand that had remained unpaid was a debt owed by it and should be allowed as  a deduction  while computing  its net-wealth for the concerned year of assessment [1957-58].      The Wealth-Tax  officer computed the net-wealth of each company by adopting the figures of assets and liabilities as shown  in   their  balance-sheets  as  on  their  respective valuation  dates   after  making   such  adjustments  as  he considered necessary  but in  both, the  cases he disallowed the aforesaid  claim for  deduction on  the ground  that the liability was  outstanding for  more than  12 months  on the valuation  dates.   The  Appellate   Assistant  Commissioner confirmed the  disallowance of the amounts but for different a reason. He took the view that the tax liabilities assessed by the  Income-tax Investigation  Commission had no relation to the  assets  or  the  declared  wealth  of  the  assessee companies, which were the basis of the wealth tax assessment and since the assets on which the said liability was 41 assessed, namely,  the secret  profits were  not included in the declared  assets  the  disallowance  was  justified.  In further appeals  preferred by  the assessee-companies to the Tribunal, the  reasons given  by the  Wealth-Tax Officer  as well as  the Appellate  Assistant Commissioner were assailed but without expressing any view on the validity or otherwise of the  reason given by the Wealth-tax Officer, the Tribunal confirmed the  disallowance by  substantially agreeing  with the view  expressed by the Appellate Assistant Commissioner. The Tribunal  pointed out that in s.2 (m, which defines ’net wealth’, sub-s.  (i) excludes debts located outside India in the case  of certain  classes of  assessees, in  whose  case assets located  out side  India are  excluded; that  s.2 (m) (ii) bars  the deduction  of debts secured on or incurred in relation to exempted assets mentioned in s. 5 (1) and 5 (2); that s.4  (3) permits  the deduction  of debts  relating  to assets, which  do not stand in the name of the assessee, but which are  nevertheless to  be included in the net wealth of the assessee  by virtue  of the  provision in s. 4 (1); that s.6 (1)  repeats the provision in s. 2 (m) (i) excluding the debts located  outside India  where corresponding assets are excluded; and  according to  the Tribunal  these  provisions indicated a  scheme of  the Act  which suggested  that debts which qualified  for deduction  in computation  of the  net- wealth were  only those  which were  incurred in relation to the assets  declared by  the assessee,  that is  to say,  in computing the  net-wealth the  principle to  be adopted  was that when  any assets  were included the corresponding debts should be allowed but that when such assets were excluded or were  liable   to  be   excluded  from  the  net-wealth  the corresponding debts  should also  be excluded.  The Tribunal further observed that since in the case of the two companies it was  not disputed  on their  behalf that  the tax demands made by  the Investigation  Commission were  in  respect  of secret profits  which were  not disclosed  in their books of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 11  

accounts and  since it  was also  conceded that  the  assets shown in  the balance  sheets did  not  include  any  assets acquired out  of such  secret profits  the  balance  of  tax demand (Rs.  5,49,041 in  one case  and Rs. 21,61,788 in the other case) was not deductible.      In the References that were made at the instance of the assessee-companies, the  High Court took a contrary view. It over-ruled the  Tribunal’s conclusion  that  the  provisions relied upon  by it  indicated  any  scheme  leading  to  the principle that  only such debts as were incurred in relation to the  asset declared  or disclosed  in the books qualified for deduction  because the concerned provisions merely dealt with typical  situations or special categories of assets and no 42 general pattern  or scheme  as suggested  could be  inferred therefrom.  The   High  Court   therefore  opined  that  the deductions claimed  were  allowable  in  computing  the  net wealth of the assessee-companies. The revenue has come up in appeals to this Court.      In support  of these  appeals Counsel  for the  revenue raised two  contentions before  us. In  the first  place the counsel canvassed for the acceptance by us of the Tribunal’s view that  the scheme of the Wealth Tax Act shows that where a liability  is incurred  in relation  to  any  asset,  that liability is not deductible if the asset is, for any reason, not included in the net-wealth and in this behalf provisions contained in  sections 2 (m) (i) and (ii), 4 (3), 5 and 6 of the Act  were relied  upon. By  way of  elaboration  it  was further urged  that since  under the  settlements made under the Taxation  on Income (Investigation Commission) Act, 1947 certain tax  liabilities were  determined as  payable by the assessee-companies, the  assessees must  be  taken  to  have admitted having  made secret  profits and  as such  only the assessees could  know about  the use  or destination thereof and it  was for  them to  show that  became  of  the  secret profits and  in the  absence of any explanation from them in that behalf  the secret  profits must be presumed to be with them as  on the  valuation  dates  and  when  such  was  the position if such secret profits or other assets acquired out of them  were not  brought into or were not reflected in the Balance Sheets the tax liabilities in relation thereto could not be  allowed to be deducted. Counsel pointed out that the presumption  which  he  is  seeking  to  raise  against  the assessees as  above was  only a  different facet of the same rule which  obtains in  Income-tax cases  that once a sum is found credited in the assessee’s books then it is for him to prove the  nature and  source thereof failing which the cash credit is  regarded as his income from undisclosed source (a rule previously  enunciated by  judicial decisions which now finds a statutory recognition in s.68 of the Income-Tax Act, 1961). Secondly, counsel contended that since the deductions claimed were  in  respect  of  tax  liabilities  which  were outstanding for  a period  of more  than 12  months  on  the valuation dates  the deductions  could not  be allowed under s.2 (m)  (iii) of the Act. On the other hand counsel for the assessee-companies supported  the view  taken  by  the  High Court on  the first  contention and as regards the second it was urged  that since  the same  did not  find favour either with the  A.A.C. or with the Tribunal and was not even urged before the  High Court  the Revenue  must be  taken to  have given it up as being without any substance. In any event the tax liabilities  herein do  not fall within the exclusionary provision contained in sec. 2 (m) (iii). 43

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 11  

    In order  to examine  the first  contention it  will be necessary to  est out the concerned provisions including the charging provision contained in sec. 3 of the Act. Section 3 provides that  there shall  be charged  for every assessment year commencing  from 1.4.1957  a tax, called 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 I.  "Net- wealth" is defined in s.2 (m) which runs thus:      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-           (i)  debts which  under section  6 are  not to  be                taken into account;           (ii) debts which are secured on or which have been                incurred  in  relation  to  any  property  in                respect of which wealth-tax is not chargeable                under this Act;            (iii) the  amount of the tax, penalty or interest                payable in  consequence of  any order  passed                under or  in pursuance of this Act or any law                relating to taxation of income or profits, or                the Estate  Duty Act,  1953 (34 of 1953), the                Expenditure Tax  Act, 1957  (29 of  1957), or                the Gift-tax Act, 1958 (18 of 1958),-                (a)  which is  outstanding on  the  valuation                     date and  is claimed  by the assessee in                     appeal, revision  or other proceeding as                     not being payable by him; or                (b)  which,  although   not  claimed  by  the                     assessee as not being payable by him, is                     nevertheless outstanding for a period of                     more than twelve months on the valuation                     date;" Section 4  (1) provides  for inclusion  of certain assets in computing the  net-wealth of  an individual-assets  which on the valuation  date are  held not  by that individual but by the spouse  or by  a minor  child of such individual to whom they have been transferred by such 44 individual  directly   or  indirectly,  otherwise  than  for adequate consideration, etc; in other words such assets held by the  spouse or  the minor  are deemed to be the assets of such individual;  and in  respect of such deemed assets sub- sec. (3) provides:      "(3) Where the value of any assets is to be included in           the net  wealth of  an assessee in accordance with           clause (a) of subsection (1) or sub-section (1A)      (a)  they shall  be deducted  from such value any debts           owing on  the valuation  date  by  the  transferee           mentioned in  that clause  in so far as such debts           are referable to such assets. and      (b)  the  provisions   of  section  5  shall  apply  in           relation to  such assets  as if  such assets  were           assets belonging to the assessee." Section 5  exempts certain  assets held  by an assessee from being included  in his  net-wealth and provides that Wealth- tax shall  not be  payable by him in respect of those assets and then  follows a  list of a large number of such exempted

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 11  

assets. Section  6 deals  with exclusion of assets and debts outside India  and provides that in computing the net-wealth of an  individual who  is not  a citizen  of India  or of an individual or a Hindu Undivided Family not resident of India or resident  but not  ordinarily resident  in India, or of a company not  resident in India during the year ending on the valuation date,  the  value  of  assets  and  debts  located outside India  and the value of assets in India of the types specified in cl. (ii) shall not be taken into account.      The question is whether the aforesaid provisions of the Act on  which reliance  has been  placed by  counsel for the revenue indicate  a scheme  of the  Act  suggestive  of  the principle that  only such  debts as are incurred in relation to the assets declared or disclosed in the books qualify for deduction in  computing the  net-wealth of  an assessee ? In other words,  do these provisions show that in computing the net-wealth the  rule to  be adopted  is that when any assets are  included   while  aggregating   the  total  assets  the corresponding debts  should be  allowed but when such assets are excluded  or are liable to be excluded the corresponding debts should also be excluded ? 45      On a  careful analysis  of the  aforesaid provisions it seems to  us clear  that the key provisions are the charging section and the definition of the net-wealth given in sec. 2 (m). Under sec. 3 wealth-tax is chargeable on the net-wealth held by  every assessee  on the  valuation  date  and  ’net- wealth’ under  sec. 2  (m) means the excess of the aggregate value of  all  his  assets  wherever  located  (computed  in accordance with the Act) over the aggregate value of all the debts owed by him on the valuation date other than the debts which fall  within the  exclusionary part of sec. 2 (m). The scheme emerging  from the  key provisions clearly shows that barring those  debts which fall within the exclusionary part of sec.  2 (m)  all other debts owed by the assessee have to be deducted from the aggregate value of the assets belonging to him  on the  valuation date.  In other words, in order to get disqualified  for the  purposes of deduction a debt must fall within  the exclusionary  part and  there is nothing in the exclusionary  part which  suggests that  the  debt  must either be  relatable to  any  asset  at  all  or  if  it  is relatable to  any asset  such asset  must be included in the books of  accounts or  the  balance-sheet  of  the  assessee before a  deduction in  respect thereof  is allowed. If such were the  intention of the Legislature the exclusionary part of sec.  2 (m)  would have made a specific provision in that behalf by  adding an  appropriate sub-clause therein. In the absence of  such a provision being found in the exclusionary part of  sec. 2  (m) it  would be  difficult to  accept  the contention of  counsel for  the revenue  which in  substance requires a  restricted meaning being given to the expression ’all  debts’   occurring  therein  in  the  context  of  its deducibility under  the Act  and the  acceptance of  such  a contention would  lead to  anomalous results  which could be demonstrated. For  instance, where  an assessee has taken an over-draft from  the bank for the purpose of carrying on his day to  day business  and the over-draft is not utilised for acquisition of  any tangible  asset for the business then on the argument of counsel for the Revenue such overdraft would become disallowable  because the  liability is not referable to any  asset reflected in his books but obviously under the scheme of  sec. 3  read with  the definition  of  net-wealth under sec. 2 (m) such a liability will have to be allowed as a debt  owed by  the assessee  in computing  his wealth-tax. Similarly, if  a limited  company after  earning  a  certain

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 11  

amount of  profits in a year were to distribute the whole of it to  its share-holders  by way  of dividends,  it would be absurd to  suggest  that  the  income-tax  payable  on  such profits would  not be  allowable  as  a  debt  owed  by  the assessee in the computation of its net-wealth simply because such profits  are no longer available for being reflected in its books while aggregating its total assets. In 46 the absence  of an appropriate provision in the exclusionary part of  sec. 2 (m) therefore, it is difficult to accept the counsel’s contention  that a restricted meaning as suggested should be  given to  the expression ’all debts’ occurring in sec. 2 (m).      Turning to the other provisions, namely, sec. 2 (m) (i) and (ii), sec. 4 (3) and secs. 5 and 6 of the Act, we are in agreement with  the High  Court’s view that these provisions deal  with  typical  situations  or  special  categories  of assets. Section  4, for  instance, deals with certain assets which are  deemed assets  of an individual for computing his net-wealth-assets held  by his or her spouse or minor child, etc. under a transfer made by him to them otherwise than for adequate consideration  and when such assets, though held by the transferee,  are to  be included as if belonging to that individual it is but natural and fair that debts owed by the transferee on  the valuation date in relation to such assets should be  deducted while  computing the value of such asset in the  hands of  the individual  and this is precisely what sec. 4  (3) provides;  it is  clearly a typical case dealing with deemed assets. Section 5 has to be read with sec. 2 (m) (ii) and  so read the provision is that debts in relation to exempted assets  i.e. assets  which are  not  chargeable  to wealth-tax at  all should  not be  allowed to  be  deducted; similarly sec.  6 has  to be read with sec. 2 (m) (i) and so read the  effect is  that both  the assets and debts located outside India of a non-citizen or of an assessee who is non- resident or  is a  resident but not ordinarily a resident in India during the year ending on the valuation date shall not be taken  into account  in computing  the net-wealth  of the assessee. From  these particular  or special  provisions  it will be  illogical to deduce any general principle that only such debts  as  are  incurred  in  relation  to  the  assets declared or  reflect in  the books  qualify for deduction in computing the  net-wealth of  an assessee,  especially as in the definition  of ’net-wealth’ given in sec. 2 (m) there is no warrant for it.      As regards the elaboration of the contention based on a presumption sought  to be  raised by counsel for the revenue against the  assessee-companies  from  the  analogy  of  the presumption arising in income-tax cases under sec. 68 of the Income-tax Act,  1961, the  contention is fallacious for two reasons. It  is true  that by  reason of the settlement made under the Taxation on Income (Investigation Commission) Act, 1947 the  assessee companies  must be taken to have admitted that they had made secret profits which were kept out of the books of  accounts and  it is  also true that no explanation was forthcoming  from the  assessee  companies  as  to  what became of such 47 secret profits but the question is whether from such absence of explanation  any presumption  can  be  raised  that  such secret profits  were still retained by them on the valuation date in  the circumstances  of the case ? In the first place the analogy of the rule applicable in income-tax cases would be inapplicable  in wealth-tax  cases  inasmuch  as  in  the former case  the unexplained cash credit item is regarded as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 11  

income  of  the  assessee  from  undisclosed  source  having accrued to  him during  the accounting  year  while  in  the latter case  only the  valuation date  is relevant  on which date the  assets  (secret  profits)  must  be  held  by  the assessee and  it will not do that such asset was held by him some time during the concerned year. Secondly, after a lapse of sufficiently  long period  no presumption  can be  raised that a  secret profit  earned some time during the concerned year has  continued to  be  held  by  the  assessee  on  the valuation date.  In the  instant  case  the  secret  profits admittedly earned  by  the  assessee  companies  related  to assessment years  prior to  September, 1948  (as proceedings under Taxation on Income (Investigation Commission) Act 1947 could be  taken only in respect of assessment years prior to 1.9. 1948)  and the  tax liability  in respect  thereof  was determined in  1952 but  we are concerned with the valuation dates  30.6.   1956  and   31.12.1956  and,  therefore,  the presumption as  suggested by  the counsel  cannot  be  drawn against the  assessee companies  after a  lapse  of  8  long years.  In  Annamma  Paul  Perincherry  v.  Commissioner  of Wealth-Tax, Kerala(1) and Commissioner of Wealth-Tax. Kanpur v. J.K.  Jute Mills  Co. Ltd(2).,  the Kerala  High Court as well as  the Allahabad  High Court have taken a similar view that no  such presumption  can be  raised after  a lapse  of sufficiently long period and we approve of the said view. In any case,  as stated  above, the deducibility of the two tax liabilities in  question does  not depend  upon whether  the assets,  in   respect  whereof   such  liability   has  been determined, are  available  or  not  while  aggregating  the assets of  the assessee  companies. The  contention  of  the counsel for revenue, therefore, must fail.      Coming to the second contention the question is whether the deductions  claimed fall within the exclusionary part of sec. 2(m)  (iii) of the Act, that is whether the two sums of tax liabilities  were outstanding for more than 12 months on the respective  valuation dates  ? According  to counsel the expression  "outstanding"   means  remaining   unpaid  after becoming due  and since  the liability to pay income-tax for any assessment  year crystalises  on the  last  day  of  the previous 48 year and  becomes payable  for  that  assessment  year  even before it  gets  quantified,  the  two  tax  liabilities  in question which  pertained to assessment years prior to 1948, must be regarded as having become due by the last day of the concerned previous  years and  since these  were not cleared soon thereafter  these were  outstanding since at least 1948 and thus  became disallowable.  In the  alternative  counsel urged that  if payability is made to depend upon the date of an order  passed quantifying  the same then at least in 1952 these became  payable when  the order  of the  Investigation Commission was  passed and  more than  12 months  had passed since then. Counsel urged that granting of instalments under the settlement  merely amounted  to showing some concessions to the  assessee-companies and did not affect the payability in 1952  of the  arrears of  tax. In  our view,  there is no force in  any of  these submissions  made  by  counsel.  The aspect  that   the  liability  to  pay  income-tax  for  any assessment year  crystalises on the last day of the previous year and,  therefore, becomes  payable on  the expiry of the last day irrespective of quantification of the dues would be irrelevant having  regard to  the express language of sec. 2 (m) (iii). Sub-cl.(iii) requires that the tax liability must be one which is "payable in consequence of any order passed" under any  law relating  to taxation  on income  or profits,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 11  

etc. such  liability so  payable under  an order passed must remain "outstanding  for a  period of more than 12 months on the valuation date." The alternative submission that the tax liabilities in the instant case must be taken to have become payable in  1952 under  the Investigation Commission’s order and must  be regarded  as having  remained outstanding since 1952 is  equally of  no avail for the payability of the dues must depend  upon the  terms of  the Commission’s  order and admittedly a  scheme for  payment of the dues by instalments was provided  in the  order and each instalment would become payable on  the date  on which it is directed to be paid. In our view,  the expression  ’outstanding’ in sec. 2 (m) (iii) (a) and  (b) will  have to be construed in the background of the phrase "amount of tax...... payable in consequence of an order" and  in that  context it  must mean  remaining unpaid after the  obligation to  pay is  incurred. We  are informed that similar  construction has been placed on the expression ’outstanding’ occurring  in sec.  2 (m)  (iii) of the Act by the Calcutta  High Court in Commissioner of Wealth-tax, West Bengal III  v. Banarshi Prasad Kedia(1) and by the Allahabad High Court  in Commissioner  of Wealth-Tax, U.P., and Others v. Padampat  Singhania(2) and  we affirm  the same.  In  the instant case it was an 49 admitted position  before the Tribunal that under the scheme of instalments  sanctioned in  the settlements the two sums, in respect  where of deductions were claimed, had not become due for payment before the valuation dates. It is therefore, clear that  the deductions  claimed do  not fall  within the exclusionary part contained in sec. 2 (m) (iii) of the Act.      In the  result the  High Court’s  view is confirmed and the appeals  are dismissed.  There will  be no  order as  to costs      SABYASACHI MUKHARJI,  J. On  the second  aspect, namely whether the deductions of two sums of Rs. 5, 49, 041 and Rs. 21,61, 788  being the outstanding liabilities as a result of the determination  under settlement arrived at in 1952 under the Taxation on Income (Investigation Commission) Act, 1947, I respectfully  agree with the views expressed by my learned brother.  I  adhere  to  the  opinion  I  expressed  on  the expression ’outstanding’  in Commission  of Wealth-Tax, West Bengal  III   v.  Banarashi  Prasad  Kedia(1)  which  is  in consonance with  the views  expressed by  the Allahabad High Court in  Commissioner of  Wealth-Tax, U.P.  and  Others  V. Padampat Singhania(2).  I am, therefore, of the opinion that these deductions  do not  fall within  the exclusionary part contained in  Section 2  (m) (iii)  of the  Wealth Tax  Act, 1957.      On the  first contention urged on behalf of the revenue I would, however, if I may, express my views. I respectfully agree  with  my  learned  brother  that  from  the  relevant provisions of the Wealth Tax Act to which my learned brother has referred,  in the  facts and  circumstances available in this case,  the deductibility  of the two tax liabilities in question does  not depend upon whether the assets in respect whereof such  liability has been determined are available or not while  aggregating the assets of the assessee companies. In the  facts of  this case,  it appears that in the case of M/s J.K.  Cotton Manufacturers  Ltd., proceedings were taken under the Taxation on income (Investigation Commission) Act, 1947 and  a settlement  was arrived in 1952 and a sum of Rs. 15,99,041 was  determined as  payable by the assessee on its secreted profits  and a scheme of payments of such liability by instalments was agreed upon. Similarly in the case of M/s J.K. Jute  Mills Co.  Ltd., a  settlement was  arrived at in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 11  

1952 under  the aforesaid Act and a sum of Rs. 42,93,392 was determined as  payable by  it on  its secreted profits and a scheme of  liquidation of such liability was agreed upon. It is true  that as  a result  of the  admission  made  by  the assessee, the assessee made profits, which 50 year and  when we  have no  material though  the income  tax liabilities for  the same had been settled in 1952. There is no evidence  to show whether these profits had remained with the assessee  either in  the form  of assets  in the Balance Sheet or  otherwise. The  relevant valuation dates were much later, 30.  9. 1956 and 31.12. 1956 respectively in the case of the  two companies. Had there been any finding that these profits, in  some form either as assets in the Balance Sheet or otherwise,  were with the assessee, it could have perhaps been examined whether so long as the assessee does not bring those profits in the computation of the wealth, the assessee would be  disentitled to  the deductions  of liabilities  in respect of  the same. These should have been examined by the Wealth-tax Officer with the aid of the principles of Section 106 and  Section 114 of the Evidence Act. But these were not done. It  is unfortunate. Had that been done, it could have, perhaps, been examined whether by the principle of purposive interpretation in  order to  give effect to the intention of legislature in  enacting the Wealth Tax Act and evolving the scheme of settlement under Taxation on Income (Investigation Commission) Act,  1947 whether  the assessee was entitled to the deduction of these two tax liabilities. On the materials on record,  I respectfully agree with the conclusion arrived at by  my learned  brother on  the first contention urged on behalf of the revenue.. N.V.K.                                               Appeals dismissed. 51