Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income-tax and wealth-tax liabilities for all the earlier years and up to the asst. yr. 197576 will be deductible in computing the net wealth for the asst. yr. 1975-76 and that such liability should be deductible as a debt irrespective of the fact that the demand was created after the valuation date ?

High Court Of Madhya Pradesh

Commissioner Of Wealth Tax vs. Shravan Kumar Patel

Section WT 2(m)(iii)

Asst. Year 1975-76

N.D. Ojha, C.J. & K.K. Adhikari, J.

Misc. Civil Case No. 443 of 1983

2nd September, 1987

Counsel Appeared

B. K. Rawat, for the Revenue : None Appeared, for the Assessee

BY THE COURT :

The Tribunal, Jabalpur Bench, Jabalpur, has referred the following question to this Court for its opinion under s. 27(1) of the WT Act, 1957:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income-tax and wealth-tax liabilities for all the earlier years and up to the asst. yr. 197576 will be deductible in computing the net wealth for the asst. yr. 1975-76 and that such liability should be deductible as a debt irrespective of the fact that the demand was created after the valuation date ?”

Before answering the aforesaid question, it may be pointed out that it has not been disputed by learned counsel for the Revenue that in the instant case the demand in respect of the income-tax and wealth-tax liabilities referred to in the aforesaid question was created after the valuation date. A similar question came up for consideration before the Supreme Court in the case of CWT vs. Kantilal Manilal (1985) 45 CTR (SC) 220 : (1985) 152 ITR 447 (SC), wherein it was held that s. 2 (m)(iii)(a) of the WT Act, 1957, comes into play only after a demand for payment of tax has been made. The clause speaks of tax outstanding in consequence of an order passed under the relevant taxing statute. Tax becomes payable in consequence of such an order when a notice of demand is served on the assessee. Where the notice of demand is served on the assessee subsequent to the relevant valuation date, it cannot be said that on the valuation date the amount is outstanding and in such a case a material requirement of s. 2(m)(iii)(a) is not satisfied and, therefore, that provision cannot be invoked by the Department to deny deduction of such an amount of tax as a “debt” in the computation of the net wealth of the assessee.

The decision of the Supreme Court in the case of Kantilal Manilal (supra) obviously clinches the issue. In view of that decision, our answer to the question referred to us is that, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income-tax and wealth-tax liabilities for all the earlier years and up to the asst. yr. 1975-76 will be deductible in computing the net wealth for the asst. yr. 1975-76 and that such liability should be deductible as a debt irrespective of the fact that the demand was created after the valuation date. In other words, the aforesaid question is answered in the affirmative, in favour of the assessee and against the Department. There shall, however, be no order as to costs.

[Citation : 171 ITR 298]

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