R.M. Sahai J. - (1.) These appeals are directed against order of the Orissa High Court which decided the Wealth Tax Reference under S. 27(1) of the Wealth-tax Act, 1957 in favour of the department. The assessment years in dispute are 1962-63, 1963-64, 1964-65 and 1965-66. The question of law referred to the High Court was:"Whether on the facts and in the circumstances of the case, the claim of the assessee for deduction of the tax liability amounting to Rs. 6,69,766/ - in computing the net wealth in four wealth-tax assessments is admissible under the provisions of the Wealth-tax Act."
(2.) According to the statement of case the appellant, erstwhile Raja of Jeypore, owner of extensive forests, prior to abolition of estate in 1953, was assessed to income-tax, on forest income, for assessment years 1942-43 to 1946-47 to an aggregate of Rupees 6,69,766/-. Validity of the levy, was decided ultimately, by the High Court in reference under S. 66 of the Income-tax Act 1922 (in brief 'the Act') in Vikram Deo Varma, Maharaja of Jeypore v. Commr. of Income-tax, Bihar and Orissa, (1956) 29 ITR 76, and it was held that the income being from agriculture was not exigible to tax. On further appeal to this Court, at the instance of the department, the order of the High Court was set aside on 14th October 1958 and the assessee was held liable to pay tax on the forest income, in conformity with the order, passed by this Court, the tribunal passed the order under S. 66(5) read with S. 66A(4) of the Act after 30th June 1964. In pursuance of this order the Income-tax Officer issued fresh notice of demand on 4th October 1964 and the amount was paid on 25th March 1965. In wealth-tax assessments for the years 1962-63 to 1965-66 the assessee disputed his liability in view of the judgment given by this Court in 1958 and claimed that it being a debt within meaning of sub-sec. (m) of S. 2 of the Wealth-tax Act the amount was liable to be deducted while computing his net wealth. The Wealth-tax Officer did not allow the claim as the tax payable remained outstanding for more than twelve months on the valuation date. The Appellate Assistant Commissioner allowed the appeals as the liability was created by the judgment of this Court which was discharged in 1965, therefore, the assessee was held entitled to claim its deduction for determination of the net wealth in the assessment years in dispute. On further appeal, at the instance of the department, the order of the appellate authority was set aside by the tribunal and it was held, "The decision of the Supreme Court was only to declare the correct state of law, applicable to the income disputed by the assessee in appeal and not to create, for the first time, a liability to tax on such income. The demands in respect of the amounts in question were admittedly created as a result of assessment of such income and the assessee has been claiming in appeal and further in reference proceedings that the same was not payable by him. The demands were also admittedly outstanding for more than 12 months if the period is computed from the date of original demand notices pertaining to assessments made." The finding was affirmed by the High Court and it was held that the amount was not deductible while computing the net wealth of the assessee.
(3.) That an income-tax liability is a debt within meaning of S. 2(m) of the Act is settled by series of decisions of this Court beginning from Kesoram Industries and Cotton Mills Ltd. v. Commr. of Wealth-tax (Central), Calcutta, (1966) 59 ITR 767 . In Commr. of Wealth-tax, Gujarat v. Kantilal Manilal, (1985) 152 ITR 447 (SC) this Court approved the decisions of Privy Council in Doorga Prasad v. Secretary of State, (1945) 13 ITR 285, that an income-tax liability becomes a debt when payment of the tax is demanded by a notice issued u/S. 29 of the Act. The question, therefore, that requires consideration is if the High Court was right in its conclusion that even though the amount was debt it could not be deducted while determining the net wealth as either the payability of tax was in dispute on the valuation date or the demand had remained unpaid for more than 12 months on the valuation date. To examine the correctness of it S. 2(m) of the Wealth-tax Act is extracted below: "'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 S. 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; and (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." ;