High Court Of Madras
Smt. P. Balammal vs. Controller Of Estate Duty
Sections ED 44
V.S. Sirpurkar & N.V. Balasubramanian, JJ.
Tax Case No. 574 of 1989
12th August, 2002
P.P.S. Janarthana Raja, for the Applicant : T.C.A. Ramanujam, for the Respondent
N.V. BALASUBRAMANIAN, J. :
This is a reference under the ED Act, 1953. One K. Periaswamy died on 28th Aug., 1975. At the time of his death, he was a partner in a firm styled M/s Amarjothi Fabrics. Subsequent to the date of death of K. Periaswamy, the other partners of the firm disclosed under the Voluntary Disclosure of Income and Wealth Act, 1976 the stock valued at Rs. 2,97,000 and also paid tax on the said amount. The stocks so declared represented the concealed income of the firm and the proportionate tax liability of K. Periaswamy was deducted from his share of the income disclosed under the Voluntary Disclosure Scheme and necessary entries were also made in the account books of the firm. The accountable person in the estate duty proceedings of K. Periaswamy claimed that the proportionate amount of tax paid by the firm under the Voluntary Disclosure Scheme in relation to K. Periaswamyâs share should also be taken into account in determining the principal value of the estate of the deceased. The Asstt. Controller rejected the claim of the accountable person on the ground that the tax liability arose after the death of the deceased K. Periaswamy and there was no subsisting liability or charge at the time of his death and hence, the claim for deduction of the tax paid could not be allowed. On appeal, the Appellate CED confirmed the order of the Asstt. Controller. On further appeal by the accountable person, the Tribunal held that there was no subsisting liability or charge at the time of the death of K. Periaswamy with reference to the liability to tax paid under the Voluntary Disclosure Scheme and the claim for deduction of the liability was inadmissible.
The accountable person, aggrieved by the order of the Tribunal, sought for a reference and the Tribunal has stated a case and referred the following question of law : “Whether, on the facts and in the circumstances of the case the Tribunal was right in law that the tax paid under the Voluntary Disclosure Scheme, 1975 was not deductible in computing the principal value of the estate passing on death?” Mr. P.P.S. Janarthana Raja, learned counsel for the applicant submitted that the liability towards tax was a pre-subsisting liability of the firm on the date of death of K. Periaswamy and what the firm has done was to declare the undisclosed income which was in the form of stocks and since the stocks were taken into account, the tax liability in proportion to the stock should also be taken into account. Mr. T.C.A. Ramanujam, learned senior standing counsel for the Revenue, on the other hand, submitted that K. Periaswamy died before the disclosure under the Voluntary Disclosure Scheme was declared and he was not even aware of the disclosure made by the firm and the liability under the Voluntary Disclosure Scheme came long after the death of K. Periaswamy and the liability was created by the accountable person, who inherited the property without any charge and therefore, the liability is not deductible. Mr. T.C.A. Ramanujam relied on the decisions of the Supreme Court in the cases of Nawab Mir Barkat Ali Khan Bahadur vs. CED (1996) 222 ITR 612 (SC), P. Leelavathamma vs. CED (1991) 93 CTR (SC) 256 : (1991) 188 ITR 803 (SC), the decision of the Punjab and Haryana High Court in Kashmiri Lal Talwar vs. CED (1997) 143 CTR (P&H) 135 : (1997) 223 ITR 747 (P&H) and also the decision of this Court in Smt. K.N. Sita vs. CED (1999) 153 CTR (Mad) 494 : (1999) 239 ITR 108 (Mad), wherein this Court held that provision for marriage expenses of unmarried daughters is not deductible under the ED Act.
We have carefully considered the submissions of the learned counsel for the parties. The chargeable event in the ED Act is the death of a person and the charge is on the properties passing on the death of the person. Part VI of the ED Act deals with the deductions in determining the principal value of the estate and s. 44 of the said Act deals with the deduction of ‘debts and encumbrancesâ. There is no dispute that if the debt was a subsisting debt on the date of death of the deceased, it is deductible. The decisions relied upon by the learned senior standing counsel for Revenue, reported in P. Leelavathammaâs case (supra) and Nawab Mir Barkat Ali Khan Bahadurâs case (supra) dealt with the deductibility of estate duty paid in determining the principal value of the estate either under s. 36 or 44 of the Act. The Supreme Court held that the amount of estate duty paid is not liable to be taken into account in determining the principal value of the estate neither under s. 36 of the Act, nor deductible under s. 44 of the Act as the estate duty liability under the ED Act arose subsequent to the death and therefore, not liable to be taken into account. A similar view was taken by the Punjab and Haryana High Court in Kashmiri Lal Talwarâs case (supra). Learned counsel for the Revenue also relied on the decision of this Court in Smt. K.N. Sitaâs case (supra) where this Court considered the deductibility of the provision for maintenance expenses for the wife and unmarried daughters and for marriage expenses of unmarried daughters. This Court held that in the absence of any evidence to show that the estate of the deceased was burdened with any debt or incumbrance by reason of the failure of the deceased to act up to his statutory obligation, the amount set up for as a provision was not deductible.
The decision in the case of Smt. K.N. Sita (supra) is distinguishable as it was held that in the absence of a charge on the estate, the amount set apart for a provision is not deductible. There is no dispute that after the date of the death of the assessee, the other partners of the firm made a declaration under Voluntary Disclosure Scheme and the said Act itself came into force on 8th Oct., 1975. The Voluntary Disclosure Act enables a person to disclose the undisclosed income by making a declaration in respect of the income chargeable to tax which had escaped assessment by reason of the omission or failure on the part of the declarant to make a return under the provisions of the Indian IT Act, 1922 or the IT Act, 1961 or to disclose fully and truly all material facts necessary for his assessment or otherwise. We are of the view that though the declaration was made subsequent to the date of the death of the deceased, the declaration made is in respect of the income which was earned during the earlier previous years to which the declaration related and which was liable to be assessed. The Voluntary Disclosure Act only enables the assessee to come out with the true facts as regards the income earned by the declarant during the prior previous years in which the income was accrued so that the tax liabilities for those years are settled without the fear of levy of penalty or launching of prosecution. The partners of the firm in which the deceased was a partner declared the income which were in the form of stocks and the proportionate value of stocks was taken into account for the purpose of levy of estate duty. We are of the opinion that once the declaration was accepted, it is meant that the Department has accepted the position that the income was earned during the previous years during the period in which that income was earned, but was omitted to be returned. Consequently, the liability to tax on the concealed income would arise at the end of the previous years in question in which the income accrued as the declaration itself was made in recognition of the pre-existing liability. We are of the opinion that no new liability is created under the Voluntary Disclosure Act but the income which accrued and the statutory liability that arose under the IT Act, was declared under the provisions of the Voluntary Disclosure Act.
In CWT vs. K.S.N. Bhatt (1983) 37 CTR (SC) 273 : (1984) 145 ITR 1 (SC), CWT vs. Vadilal Lallubhai (1983) 37 CTR (SC) 277 : (1984) 145 ITR 7 (SC) and CWT vs. Smt. Vimlaben Vadilal Mehta (1983) 37 CTR (SC) 280 : (1984) 145 ITR 11 (SC), the Supreme Court has taken a view that the income-tax liability crystallises on the last day of the previous year relevant to the assessment year and it was a liability in praesenti on the last date of the previous year though payable subsequently. The Supreme Court has also held that in computing the net wealth of the assessee, the deduction admissible must be calculated on the basis of the tax which was finally quantified on the assessee even though the assessment might be made subsequent to the valuation date. The Allahabad High Court in CWT vs. B.K. Sharma 1976 CTR (All) 297 : (1977) 110 ITR 902 (All) dealt with the case of deduction of liability which arose on Voluntary Disclosure of Income Scheme under s. 68 of the IT Act, in determining the net wealth of the assessee and whether the tax paid under the Voluntary Disclosure Scheme is a debt which should be deducted in calculating the net wealth. The Allahabad High Court held the liability to pay income-tax would arise on the last date of the previous year during which the income was earned and the fact that the assessee did not disclose the income at the appropriate time and evaded tax did not mean that he was not liable to pay tax. The Court also held that s. 68 of the Finance Act, 1965, under which the declaration was made prescribed theprocedure for assessment of the concealed income but the liability was held to be deductible as a debt. The decision of the Allahabad High Court was approved by the Supreme Court in Ahmed Ibrahim Sahigra Dhoraji vs. CWT (1981) 21 CTR (SC) 356 : (1981) 129 ITR 314 (SC) wherein it was held that the liability to tax on concealed income disclosed under the Voluntary Disclosure Scheme is the same as income-tax and it constitutes a debt on the valuation date under the WT Act and deductible in computation of the net wealth of the assessee. The following observation of the Supreme Court is relevant for the purpose of this case : “The declaration contemplated under s. 68 of the Finance Act, 1965, is a declaration in respect of income of earlier years which had been concealed and on which tax was payable during the relevant assessment years in the ordinary course. If the assessee had brought to the notice of the Department in the usual course the existence of the incomes which were later on declared under s. 68, they would have been taxed during the relevant assessment years. Hence, merely because they are disclosed in a declaration filed under s. 68 they cannot cease to be incomes not already charged for income-tax. It is true that the Finance Act in question merely levied a fixed rate of income-tax in respect of all the incomes disclosed without allowing deductions, exemptions and set-offs under the relevant IT law. Yet its function was no more than that of a Finance Act passed annually even though it made certain alterations with regard to filing of declaration and computation of taxable income. That the declaration was dependent upon the volition of the declarant and that the liability to tax on the amount mentioned therein was contingent upon the willingness of the declarant to disclose the amount make no difference. Any such voluntary disclosure by an assessee, even in the absence of s. 68, would have exposed him to an assessment or reassessment, as the case may be, being made in respect of the sum disclosed as part of the income of the relevant assessment year and with the additional liability to payment of interest and levy of penalty and perhaps with the right to claim deductions, if any, admissible in the circumstances of the case and the benefit of other procedural rights. The voluntary character of the declaration cannot, therefore, alter the character of the tax.”
The Supreme Court in CWT vs. Sheo Kumar Gupta (1993) 201 ITR 324 (SC) has held that the amount of tax paid by a partner in the firm towards the share of the tax payable on the income voluntarily disclosed by the firm under the Voluntary Disclosure Scheme would be deductible as “debt owed” in computing the net wealth of the partner on the relevant valuation date. The Calcutta High Court in CWT vs. Rama Shankar Bajoria (1992) 194 ITR 132 (Cal) applied the principles laid down in Ahmed Ibrahim Sahigra Dhoraji’s case (supra) and held that there are no distinguishable principles in s. 68 of the Finance Act, 1965 and the Voluntary Disclosure of Income and Wealth Ordinance Act, 1975 in spite of certain dissimilarities, but the objects of both the schemes are to encourage disclosure of concealed income and there is no distinction in principle regarding the deductibility of the tax paid on the income disclosed voluntarily which relates back to the previous years in which the income was earned. A similar view was taken by the Kerala High Court under the Voluntary Disclosure of Income and Wealth Act, 1975 in CWT vs. K. Ravindranathan Nair (1989) 78 CTR (Ker) 34 : (1989) 177 ITR 1 (Ker). We are of the view that the disclosure made under the Voluntary Disclosure Act relates back to previous years in which the income was earned and the liability arose at the end of the previous year in which the income was earned and consequently it will be a debt incurred prior to the death of partner. In other words, it was a pre-existing liability and not a new liability which arose subsequent to the date of death of K. Periaswamy. We are also of the view that the object of declaration under the Voluntary Disclosure Act is to disclose the already existing liability and to enjoy the estate free from liability and without fear of penalty or prosecution proceedings. We hold that the liability to income-tax on the concealed income arose on the last date of the previous year in which the income was earned and since it was a pre-existing liability, that liability is liable to be deducted as a debt in the computation of the principal value of the estate of the deceased.
In the view we have taken, it is not necessary to consider the question that the Asstt. CED should have taken into account the liability when he took the value of stocks as principal value of income earned though we are not able to appreciate the stand of the Revenue, ‘Heads I win; tails you loseâ. Accordingly we answer the question referred to us in the negative, in favour of the accountable person and against the Revenue. In the circumstances, there will be no order as to costs.
[Citation : 258 ITR 740]